<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1998
REGISTRATION NO. 333-44469
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EXODUS COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 77-0403076
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
2650 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 346-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
K.B. CHANDRASEKHAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2650 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 346-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
LAIRD H. SIMONS III, ESQ. LARRY W. SONSINI, ESQ.
FRED M. GREGURAS, ESQ. DAVID C. DRUMMOND, ESQ.
EILEEN DUFFY ROBINETT, ESQ. ROBERT D. SANCHEZ, ESQ.
ROBERT A. FREEDMAN, ESQ. WILSON SONSINI GOODRICH & ROSATI
JAY S. KOMAS, ESQ. PROFESSIONAL CORPORATION
FENWICK & WEST LLP 650 PAGE MILL ROAD
TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94306 (650) 493-9300
(650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_] ________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share...... 4,600,000 $11.00 $50,600,000 $14,927(3)
=============================================================================================
</TABLE>
(1) Includes 600,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the amount of the registration fee.
(3) Includes the incremental registration fee for an increase of $4,600,000 to
the Proposed Maximum Aggregate Offering Price. The Company paid a
registration fee in the amount of $13,570.00 with its filing on
January 16, 1998 and is transmitting the remaining $1,357.00 with this
Amendment.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 24, 1998
4,000,000 SHARES
EXODUS COMMUNICATIONS, INC.
COMMON STOCK
(PAR VALUE, $0.001 PER SHARE)
[LOGO OF EXODUS]
-----------
All of the 4,000,000 shares of Common Stock offered hereby are being sold by
Exodus Communications, Inc. Prior to the offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $9.00 and $11.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "EXDS" subject to official notice of issuance.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT (2) COMPANY (3)
----------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total (4)............................ $ $ $
</TABLE>
- -----
(1) In connection with the offering, the Underwriters have reserved up to
300,000 shares of Common Stock for sale at the initial public offering
price to directors, officers, employees and friends of the Company.
(2) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting estimated expenses of $1,400,000 payable by the Company.
(4) The Company and the Selling Stockholders have granted the Underwriters an
option for 30 days to purchase up to an additional 550,000 shares and
50,000 shares, respectively, at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. The
Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders". If such
option is exercised in full, the total initial public offering price,
underwriting discount, proceeds to Company and proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York on
or about , 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
-----------
The date of this Prospectus is , 1998.
<PAGE>
[Description of inside front cover: In the background, representative customer
names appear. The following text is superimposed over the background of
customer names: "Exodus Communications, Inc. is a leading provider of Internet
system and network management solutions for enterprises with mission-critical
Internet operations. The Company's tailored solutions are designed to be
seamlessly integrated with existing systems architectures and enable customers
to outsource the monitoring, administration and optimatization of their
overall Internet operations." The Exodus logo appears at the bottom of the
page, above the following legend:
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ]
<PAGE>
[Description of gatefold: At the top appears the Exodus logo and "Internet
System and Network Management Solutions for Enterprises with Mission-Critical
Internet Operations" superimposed over "Exodus." Beneath that are the following
diagrams and textual explanations:
1. A rendering of the interior of an Internet Data Center, including
CyberRacks, CyberCabinets, Virtual Data Centers and CyberVaults and
related equipment and Company personnel. The following text appears
next to the picture:
"An Inside Look at an Exodus Internet Data Center"
"Internet Data Centers are designed for high-availability,
mission-critical operations."
"* 24x7 staffed Network Control Centers
* Multi-level physical site security
* Multiple physical fiber paths into each facility
* Raised-floor, HVAC computing environment
* Uninterruptible power supplies and back-up generators
* FM200 gas-based fire suppression systems"
2. A map of the United States which identifies (i) the Company's
Seattle, San Francisco, Los Angeles, New York and Washington metropolitan area
Internet Data Centers, (ii) the Company's DS-3 backbone ring, (iii) various
private and public peering interconnections and (iv) the public Internet
exchange points. In addition, a map of England is included to show the Company's
expected Internet Data Center to be located there, with a notation "coming in
1998." The maps are accompanied by a legend that identifies the symbols used for
Internet Data Centers, public Internet exchange points, private or public
peering with major carriers, the Exodus DS-3 SONET Ring and Exodus OC-3 ATM
links.
3. A diagram of how the various aspects of the Company's services fit
together, including:
a. Remote users, business users and home users (represented by
computers with captions) connecting to an Internet "cloud," with
the following captions:
"* Intelligent routing technologies direct user requests to
the closest Internet Data Center."
"* End users connect via their local ISPs."
b. Servers at a west coast and east coast Internet Data Center
connected to an Internet "cloud" through Internet exchange
points, with routers at the west coast and east coast Internet
Data Centers connected through the Company's backbone ring
across the United States. The following captions are associated
with this diagram:
"* Internet traffic flows are continuously monitored and
dynamically rerouted to optimize end-user response times."
"* The Company's policy of undersubscribing its network
capacity allows for customer spikes in demand."
"* Content is mirrored across multiple Internet Data Centers
via the Company's private fiber backbone, to maximize
application availability."
<PAGE>
c. Representations of computer screens, which contain a report
that can be generated through the Company's collaborative
management services. One screen is shown at a customer location.
The screens are connected to the Company's west coast and east
coast Internet Data Centers. The following caption is associated
with these depictions:
"* Collaborative management services enable customers and the
Company to manage customers' Internet operations jointly,
proactively and continuously."
d. Additional representations of computer screens containing
data available through the Company's collaborative management
and Internet technology services. The following captions are
associated with these representations.
"Internet system and network management -- Sophisticated
Internet system and network management solutions enable the
Company to identify and begin to resolve problems --
frequently before the customer is even aware that a problem
exists."
"Internet Technology Services -- Internet technology
services, which include security and content distribution,
integrate best of breed technologies with the Company's
expertise to provide customers with scalable, secure and
high performing Internet applications.]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including the information under "Risk Factors."
Except where otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all outstanding shares of redeemable convertible
preferred stock of the Company (the "Preferred Stock") into shares of Common
Stock upon the closing of this offering, (ii) assumes the Underwriters' over-
allotment option will not be exercised and (iii) reflects a one-for-three
reverse split of the Company's Common Stock and the Company's reincorporation
into Delaware, which are expected to occur in February 1998, and associated
changes in the Company's charter documents. See "Description of Capital Stock"
and "Underwriting."
THE COMPANY
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative systems management and Internet technology services, which
together provide the high performance, scalability and expertise that
enterprises need to optimize their Internet operations. The Company delivers
its services from geographically distributed, state-of-the-art Internet Data
Centers that are connected through a redundant high performance dedicated
backbone ring. The Company's tailored solutions are designed to be seamlessly
integrated with existing enterprise systems architectures and enable customers
to outsource the monitoring, administration and optimization of their
equipment, applications and overall Internet operations. As of December 31,
1997, the Company had over 200 Internet Data Center customers and managed over
2,000 customer servers. The Company's customers range from pioneering Internet-
based businesses to Fortune 500 enterprises and include companies such as
Computer Associates International, Inc., GeoCities, Hewlett-Packard Company,
Hotmail Corporation, Inktomi Corporation, National Semiconductor Corporation,
PC World Communications, Inc., Software.net (a Cybersource company) and
USAToday Information Network.
Use of the Internet, including intranets and extranets, has grown rapidly in
recent years. As this use continues to grow, enterprises are increasing the
breadth and depth of their Internet product and service offerings. These
Internet operations are mission-critical for virtually all Internet-based
businesses and are becoming increasingly mission-critical for many mainstream
enterprises. In order to ensure the quality, reliability, availability and
redundancy of these mission-critical Internet operations, corporate IT
departments must make substantial investments in geographically distributed
state-of-the-art facilities and networks that are monitored and managed 24x7 by
experts in Internet technology, can be upgraded to reflect changing
technologies and can be scaled as the needs of enterprises evolve. However,
such a continuing significant investment of resources is often an inefficient
use of enterprises' overall resources. As a result, corporate IT departments
are increasingly seeking collaborative outsourcing arrangements that can
increase performance, provide continuous operation of their Internet solutions
and reduce Internet operating expenses. Exodus believes a significant
opportunity exists for a highly-focused company to provide a combination of
server hosting, Internet connectivity, collaborative systems management and
Internet technology services that will enable reliable, high performance of
enterprises' mission-critical Internet operations.
The Company's Internet system and network management solutions are based on a
core set of server hosting and Internet connectivity services, which are
enhanced by a growing number of collaborative systems management and Internet
technology services. The Company's Internet Data
3
<PAGE>
Centers provide a secure platform for server hosting with uninterruptible power
supply and back-up generators, fire suppression, raised floors, HVAC, separate
cooling zones, seismically braced racks, 24x7 operations and high levels of
physical security. The Company's national backbone ring of multiple high-speed,
clear-channel DS-3 lines and private and public network peering
interconnections provide the foundation for the Company's high performance,
scalable Internet connectivity services. The Company's collaborative systems
management services, including performance monitoring and site management
reports, enable customers and the Company to manage customers' Internet
operations jointly, proactively and continuously. Finally, the Company's
Internet technology services, including security and content distribution,
integrate best-of-breed technologies of leading vendors with the Company's
expertise to provide customers with scalable, secure and high performing
Internet applications. The Company's portfolio of layered services optimizes
the development, deployment and proactive management of enterprises' mission-
critical Internet operations.
The Company began offering server hosting services in late 1995, opened its
first dedicated Internet Data Center in August 1996 and introduced its
collaborative systems management and Internet technology services in 1997. The
Company currently operates six Internet Data Centers, consisting of
approximately 110,000 gross square feet, located in five metropolitan areas:
Los Angeles, New York, San Francisco, Seattle and Washington, D.C. The Company
intends to expand domestically and internationally, including the expected
addition of an additional Internet Data Center in the San Francisco
metropolitan area and a new site in the London metropolitan area in the first
half of 1998.
The Company's objective is to become the leading provider of Internet system
and network management solutions for enterprises with mission-critical Internet
operations. The key elements of this strategy include (i) extending the
Company's market leadership, (ii) focusing on the development of new
collaborative systems management services, (iii) expanding domestically and
internationally by adding Internet Data Centers, (iv) leveraging the Company's
significant expertise to address new market opportunities such as e-commerce
and extranets and (v) establishing strategic relationships with leading
technology developers and distribution alliances with content developers,
system integrators, system vendors, consulting companies and ISPs.
The Company is the successor to a Maryland corporation that was formed in
August 1992 and reincorporated in California in May 1995. The Company expects
to reincorporate in Delaware in February 1998. Unless the context otherwise
requires, the term "Company" or "Exodus" refers to Exodus Communications, Inc.
and its California and Maryland predecessors. The Company's principal executive
offices are located at 2650 San Tomas Expressway, Santa Clara, California
95051. The Company's telephone number is (408) 346-2200.
Exodus Communications, Exodus, CyberCabinet, CyberRack, HeadsUp Site Monitor,
Multipath Site, Multipath Net, SystemHealth Monitoring and Virtual Data Center
are trade names and trademarks of the Company. This Prospectus also includes
trade names and trademarks of other companies, including Unicenter(R) and
Unicenter(R) TNG(TM), which are trademarks of Computer Associates
International, Inc., and National Semiconductor(R), which is a trademark of
National Semiconductor Corporation.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company..... 4,000,000 shares
Common Stock to be outstanding after
this offering.......................... 17,439,624 shares(1)
Use of proceeds......................... For repayment of indebtedness and
working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.. "EXDS"
</TABLE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The summary financial information for
each of the years in the three-year period ended December 31, 1997, and as of
December 31, 1997, is derived from financial statements of the Company that
have been audited by KPMG Peat Marwick LLP, independent auditors. Historical
results are not necessarily indicative of the results to be expected in the
future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................... $ 1,408 $ 3,130 $ 12,408
Operating loss.................................... (1,273) (4,094) (24,792)
Net loss.......................................... (1,311) (4,133) (25,298)
Cumulative dividends and accretion on redeemable
convertible preferred stock...................... -- -- (1,413)
Net loss attributable to common stockholders...... (1,311) (4,133) (26,711)
Basic and diluted net loss per share (2).......... (1.00) (2.16) (13.85)
Pro forma basic and diluted net loss per share
(2).............................................. (2.56)
Shares used in computing basic and diluted net
loss per share(2)................................ 1,315 1,914 1,928
Shares used in computing pro forma basic and
diluted net loss per share(2).................... 9,878
STATEMENT OF CASH FLOWS DATA:
Net cash used for operating activities............ $ (453) $(2,998) $(15,296)
OTHER DATA (UNAUDITED):
EBITDA (3)........................................ $(1,208) $(3,633) $(20,274)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $10,270 $10,270 $43,070
Working capital (deficiency)........... (3,707) (3,707) 32,093
Total assets........................... 40,973 40,973 73,773
Debt and capital lease obligations,
less current portion.................. 15,135 15,135 15,135
Redeemable convertible preferred stock
and warrants.......................... 39,247 -- --
Total stockholders' (deficit) equity... (30,600) 8,647 44,447
</TABLE>
- --------
(1) Based on shares outstanding as of December 31, 1997. Does not include (i)
1,709,286 shares of Common Stock issuable upon the exercise of stock
options outstanding under the Company's stock option plans as of December
31, 1997 with a weighted average per share exercise price of $0.76 or
333,334 shares of Common Stock issuable upon the exercise of stock options
granted outside of the Company's stock option plans in January 1998 with a
weighted average per share exercise price of $13.50, (ii) 649,929 shares of
Common Stock available for future grant as of December 31, 1997 under the
Company's 1997 Equity Incentive Plan (the "1997 Plan") and an additional
2,300,000 shares of Common Stock available for future grant or issuance
immediately after the offering under the Company's 1998 Equity Incentive
Plan (the "1998 Plan"), 1998 Directors Stock Option Plan (the "Directors
Plan") and 1998 Employee Stock Purchase Plan (the "Purchase Plan"), (iii)
950,163 shares of Common Stock issuable upon the exercise of warrants
outstanding as of December 31, 1997 with a weighted average per share
exercise price of $4.29 (of which warrants to purchase 615,454 shares are
expected to be exercised on or before the closing of the offering) or 6,667
shares of Common Stock issuable upon the exercise of a warrant granted in
January 1998 at a per share exercise price of $8.55 or (iv) 39,181 shares
issued by the Company in February 1998 at a per share purchase price of
$8.55. See "Capitalization," "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 5 and 8 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data. The
pro forma data is unaudited.
(3) Represents earnings (loss) before net interest expense, income taxes,
depreciation, amortization (including amortization of deferred stock
compensation) and other noncash charges ("EBITDA"). Although EBITDA should
not be used as an alternative to operating loss or net cash used for
operating activities, each as measured under generally accepted accounting
principles, and, although EBITDA may not be comparable to other similarly
titled information from other companies, the Company's management believes
that EBITDA is an additional meaningful measure of performance and
liquidity.
(4) Pro forma to reflect the conversion of all outstanding shares of Preferred
Stock into shares of Common Stock upon the closing of this offering. This
data is unaudited.
(5) As adjusted to reflect the application of the net proceeds from the sale of
the 4,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share and after deducting the estimated
underwriting discount and offering expenses.
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
While the Company began operations in 1992, it did not offer server hosting
services until 1995 and did not open its first dedicated Internet Data Center
until August 1996, at which time it refocused its business strategy on
providing Internet system and network management solutions for enterprises'
mission-critical Internet operations. As a result, the Company's business
model is still in an emerging state. Since it began to offer server hosting
services in 1995, the Company has experienced operating losses and negative
cash flows from operations in each quarterly and annual period. As of
December 31, 1997, the Company had an accumulated deficit of approximately
$32.0 million. The revenue and income potential of the Company's business and
market is unproven, and the Company's limited operating history makes an
evaluation of the Company and its prospects difficult. Currently, the Company
anticipates making significant investments in new Internet Data Centers and
product development and sales and marketing programs and personnel and
therefore believes that it will continue to experience net losses on a
quarterly and annual basis for the foreseeable future. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in the new and rapidly evolving market for Internet
system and network management solutions. To address these risks, among other
things, the Company must market its brand name effectively, provide scalable,
reliable and cost-effective services, continue to grow its infrastructure to
accommodate new Internet Data Centers and increased bandwidth use of its
network, expand its channels of distribution, retain and motivate qualified
personnel and continue to respond to competitive developments. Failure of the
Company's services to achieve market acceptance would have a material adverse
effect on the Company's business, results of operations and financial
condition. Although the Company has experienced significant growth in revenues
in recent periods, the Company does not believe that this growth rate
necessarily is indicative of future operating results, and there can be no
assurance that the Company will ever achieve profitability on a quarterly or
an annual basis or will sustain profitability if achieved. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced significant fluctuations in its results of
operations on a quarterly and an annual basis. The Company expects to continue
to experience significant fluctuations in its future quarterly and annual
results of operations due to a variety of factors, many of which are outside
the Company's control, including: demand for and market acceptance of the
Company's services and enhancements; introductions of services or enhancements
by the Company and its competitors; capacity utilization of its Internet Data
Centers; reliable continuity of service and network availability; the ability
to increase bandwidth as necessary; the timing of customer installations;
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;
6
<PAGE>
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 results of operations are particularly
sensitive to fluctuations in revenues. Also, if the Company's agreement with
Computer Associates International, Inc. ("Computer Associates") were to
terminate and the Company continued to require Computer Associates' software,
the license fees paid by the Company could increase fixed costs significantly.
Furthermore, if the Company were to become unable to continue leveraging third
party products in the Company's services offerings, the Company's product
development costs could increase significantly. Although the Company has not
encountered significant difficulties in collecting upon accounts receivable in
the past, many of the Company's customers are in an emerging stage, and there
can be no assurance that the Company will be able to collect receivables on a
timely basis. For these and other reasons, in some future quarters, the
Company's results of operations may fall below the expectations of securities
analysts or investors, which could have a material adverse effect on the
market price of the Company's Common Stock. See "--Risks Associated with
Planned Business Expansion" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH PLANNED BUSINESS EXPANSION
A key element of the Company's business strategy is the expansion of the
Company's network through the opening of additional Internet Data Centers in
geographically diverse locations. The Company opened five Internet Data
Centers during 1997 and currently has six sites located in five metropolitan
areas: San Francisco, New York, Los Angeles, Seattle and Washington, D.C. The
Company intends to expand domestically and internationally, including the
expected addition of an additional Internet Data Center in the San Francisco
metropolitan area and a new site in the London metropolitan area in the first
half of 1998. The Company's continued expansion and development of its network
will depend on, among other things, the Company's ability to assess markets,
identify Internet Data Center sites, install facilities and establish local
peering interconnections with ISPs, all in a timely manner, at reasonable
costs and on terms and conditions acceptable to the Company. The Company's
ability to manage this expansion effectively will require it to continue to
implement and improve its operational and financial systems and to expand,
train and manage its employee base. The Company's inability to establish
additional Internet Data Centers or manage effectively its expansion would
have a material adverse effect upon the Company's business, results of
operations and financial condition.
The establishment of each additional Internet Data Center will require the
Company to expend substantial resources for leases of real estate, significant
improvements of such facilities, purchase of equipment, implementation of
multiple telecommunications connections and hiring of network, administrative,
customer support and sales and marketing personnel. Capital expenditures,
including those for new Internet Data Centers, will be funded primarily
through existing and future equipment loans and lease lines. Moreover, the
Company expects to make significant investments in sales and marketing and the
development of new services as part of its expansion strategy. During the next
12 months, the Company expects to meet its working capital requirements,
including such requirements associated with the Company's planned expansion,
with existing cash and cash equivalents and short-term investments, the net
proceeds from this offering, cash from sales of services and proceeds from
existing and future working capital lines of credit and possibly other
borrowings. However, there can be no assurance that the Company will be
successful in generating sufficient cash from sales of services or in raising
capital in sufficient amounts on terms acceptable to it. The failure to
generate sufficient cash flows from sales of services or to raise sufficient
funds may require the Company to
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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 "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Company typically requires at least six months to select the appropriate
location for an Internet Data Center, construct the necessary facilities,
install equipment and telecommunications infrastructure, and hire the
operations and sales personnel needed to conduct business at that site.
Expenditures related to an Internet Data Center commence well before the
Internet Data Center opens, and it takes an extended period to approach break-
even capacity utilization at each site. As a result, the Company expects that
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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is, and after the offering will continue to be, substantially
leveraged. On December 31, 1997, the Company's total bank borrowings, debt and
capital lease obligations were approximately $23.1 million and its borrowing
availability under existing equipment loans and working capital lines of
credit was approximately $15.8 million, subject to the borrowing conditions
contained therein. The Company also expects to obtain additional equipment
loans and lease lines and working capital lines of credit, and possibly other
borrowings, during the next 12 months. The degree to which the Company is
leveraged could have important consequences to the Company's future
operations, including but not limited to: (i) increasing the Company's
vulnerability to general adverse economic and industry conditions; (ii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements; (iii) requiring the dedication of a substantial
portion of the Company's cash flow from operations to the payment of principal
of, and interest on, its indebtedness, thereby reducing the availability of
such cash flow to fund working capital, capital expenditures or other general
corporate requirements; (iv) limiting the Company's flexibility in planning
for, or reacting to, changes in its business and the industry in which it
competes; and (v) placing the Company at a competitive disadvantage vis-a-vis
less leveraged or better capitalized competitors. Certain of the Company's
indebtedness is secured by the Company's assets. A default under such
indebtedness could result in the foreclosure on such collateral, which would
have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's ability to fund planned capital expenditures and service its
existing and future indebtedness will depend upon its future performance,
which, in turn, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. If the
Company is unable to generate sufficient cash flow from operations, or
additional equipment loans or equipment and working capital lines of credit,
in the future to service its debt, it may be required to sell assets, reduce
capital expenditures, refinance all or a portion of its existing indebtedness
or obtain other sources of financing. There can be no assurance that any such
refinancing would be available
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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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 3 and 6 of Notes to Financial Statements.
COMPETITION
The market served by the Company is highly competitive. There are few
substantial barriers to entry, and the Company expects that it will face
additional competition from existing competitors and new market entrants in
the future. The principal competitive factors in this market include Internet
system engineering expertise, customer service, network capability,
reliability, quality of service and scalability, broad geographic presence,
brand name, technical expertise and functionality, the variety of services
offered, the ability to maintain and expand distribution channels, customer
support, price, the timing of introductions of new services, network security,
financial resources and conformity with industry standards. There can be no
assurance that the Company will have the resources or expertise to compete
successfully in the future.
The Company's current and potential competitors in the market include: (i)
providers of server hosting services; (ii) national and regional Internet
service providers ("ISPs"); (iii) global, regional and local
telecommunications companies and Regional Bell Operating Companies ("RBOCs");
and (iv) large IT outsourcing firms. The Company's competitors may operate in
one or more of these areas and include companies such as certain subsidiaries
of GTE Corporation and WorldCom, Inc. ("WorldCom"), International Business
Machines Corporation ("IBM") and certain business units of GlobalCenter, Inc.
("GlobalCenter"), which recently announced its proposed acquisition by
Frontier Corporation.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than can the
Company. In addition, these competitors have entered and will likely continue
to enter into joint ventures or consortiums to provide additional services
competitive with those provided by the Company.
Certain of the Company's competitors may be able to provide customers with
additional benefits in connection with their Internet system and network
management solutions, including reduced communications costs, which could
reduce the overall costs of their services relative to the Company's. There
can be no assurance that the Company will be able to offset the effects of any
such price reductions. In addition, the Company believes that the businesses
in which the Company competes are likely to encounter consolidation in the
near future, which could result in increased price and other competition that
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Competition."
DEPENDENCE ON NEW MARKET; UNCERTAINTY OF ACCEPTANCE OF SERVICES
The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and likely will be
characterized by an increasing number of market entrants. There is significant
uncertainty regarding whether this market ultimately will prove to be viable
or, if it becomes viable, that it will grow. The Company's future growth, if
any, will be dependent on the
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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. There can be no assurance that the market for the Company's
services will develop, that the Company's services will be adopted or that
businesses, organizations or consumers will use the Internet for commerce and
communication. If this market fails to develop, or develops more slowly than
expected, or if the Company's services do not achieve market acceptance, the
Company's business, results of operations and financial condition would be
materially and adversely affected. In addition, in order to be successful in
this emerging market, the Company must be able to differentiate itself from
its competition through its service offerings, such as its recently introduced
collaborative 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,
including certain collaborative systems management and Internet technology
services scheduled to be available in the first half of 1998, or if these or
other new products or services do not achieve market acceptance in a timely
manner or at all, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RISK OF SYSTEM FAILURE
The Company's operations are dependent upon its ability to protect its
network infrastructure and customers' equipment against damage from human
error, fire, earthquakes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Despite
precautions taken by, and planned to be taken by the Company, the occurrence
of a natural disaster or other unanticipated problems at one or more of the
Company's Internet Data Centers could result in interruptions in the services
provided by the Company or significant damage to customer equipment. In
addition, failure of any of the Company's telecommunications providers, such
as WorldCom, to provide the data communications capacity required by the
Company, as a result of human error, a natural disaster or other operational
disruption, could result in interruptions in the Company's services. Any
damage to or failure of the systems of the Company or its service providers
could result in reductions in, or terminations of, services supplied to the
Company's customers, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company's reputation could be materially adversely affected.
The Company's customer contracts currently provide a limited service level
warranty related to the continuous availability of service on a 24 hours per
day, seven days per week ("24x7") basis, except for certain scheduled
maintenance periods. This warranty is generally limited to a credit consisting
of free service for a specified limited period of time for disruptions in
Internet transmission services. To date, only a limited number of customers
has utilized this warranty to receive credits for free service. Should the
Company incur significant obligations in connection with system downtime,
there can be no assurance that the Company's liability insurance would be
adequate to cover such expenses. The Company's customer contracts provide for
liability of the Company for personal injury or equipment damage in only
limited circumstances. Although these customer contracts typically provide for
no recovery with respect to incidental, punitive, indirect and consequential
damages resulting from damages to equipment or disruption of service, there
can be no assurance that, in the event of such damages, the Company would not
be found liable, and, in such event, that such damages would not exceed the
Company's liability insurance. See "Business--Customers" and "--Network
Design."
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UNPROVEN NETWORK SCALABILITY
The Company must continue to expand and adapt its network infrastructure as
the number of users and the amount of information they wish to transport
increase and to meet changing customer requirements. The expansion and
adaptation of the Company's telecommunications infrastructure will require
substantial financial, operational and management resources as the Company
negotiates telecommunications capacity with its existing and other network
infrastructure suppliers. If the Company is required to expand significantly
and rapidly its network due to increased usage, additional stress will be
placed upon the Company's network hardware and traffic management systems. Due
to the limited deployment of the Company's services to date, the ability of
the Company's network to connect and manage a substantially larger number of
customers at high transmission speeds is as yet unknown, and the Company faces
risks related to the network's ability to be scaled up to its expected
customer levels while maintaining superior performance. As customers' usage of
bandwidth increases, the Company will need to make additional investments in
its infrastructure to maintain adequate downstream data transmission speeds,
the availability of which may be limited or the cost of which may be
significant. There can be no assurance that additional network capacity will
be available from third-party suppliers as it is needed by the Company. As a
result, there can be no assurance that the Company's network will be able to
achieve or maintain a sufficiently high capacity of data transmission,
especially if the usage of the Company's customers increases. The Company's
failure to achieve or maintain high capacity data transmission could
significantly reduce consumer demand for its services and have a material
adverse effect on its business, results of operations and financial condition.
In addition, as the Company upgrades its telecommunications infrastructure to
increase bandwidth available to its customers, it is likely to encounter a
certain level of equipment or software incompatibility which may cause delays
in implementation. There can be no assurance that the Company will be able to
expand or adapt its telecommunications infrastructure to meet additional
demand or its customers' changing requirements, including its planned upgrade
to an OC-3c backbone within the first half of 1998, on a timely basis and at a
commercially reasonable cost, or at all. See "Business--Network Design."
DEPENDENCE UPON NETWORK INFRASTRUCTURE
The Company's success will depend upon the capacity, scalability,
reliability and security of its network infrastructure, including the capacity
leased from its telecommunications network suppliers. In particular, the
Company is dependent on WorldCom and certain other telecommunications
providers for its backbone capacity and is therefore dependent on such
companies to maintain the operational integrity of its backbone. In addition,
the Company relies on a number of public peering interconnections and private
peering interconnections to deliver its services. If the carriers that operate
the Internet exchange points ("IXPs") were to discontinue their support of the
peering points and no alternative providers emerged, or such alternative
providers increased the cost of utilizing the IXPs, the distribution of
content through the IXPs, including content distributed by the Company, would
be significantly constrained. Furthermore, as traffic through the IXPs
increases, if commensurate increases in bandwidth are not added, the Company's
ability to distribute content rapidly and reliably through these networks will
be adversely affected. Many of the operators of the private peering
interconnections are competitors of the Company. Currently, the Company does
not pay a fee for many of these interconnections. In these cases, the Company
and the operators of the private peering interconnections have mutually agreed
not to charge each other a fee for the exchange of traffic by the other party
over their respective networks. If these organizations were to begin to charge
the Company for utilizing these interconnections, or, in the cases where the
Company currently pays a fee, to increase the pricing associated with
utilizing these interconnections, the Company may be required to identify
alternative methods through which it can distribute its customers' content. If
the Company were unable to access on a cost-effective basis alternative
networks to distribute its customers' content or pass through any additional
costs of utilizing these networks to its customers, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "Business--Network Design."
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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 continued growth in the use of the Internet. Critical issues concerning the
commercial use of the Internet, including security, reliability, cost, ease of
access, quality of service and necessary increases in bandwidth availability,
remain unresolved and are likely to affect the development of the market for
the Company's services. The adoption of the Internet for information retrieval
and exchange, commerce and communications, particularly by those enterprises
that have historically relied upon alternative means of commerce and
communications, generally will require the acceptance of a new medium of
conducting business and exchanging information. Demand and market acceptance
of the Internet are subject to a high level of uncertainty and are dependent
on a number of factors, including the growth in consumer access to and
acceptance of new interactive technologies, the development of technologies
that facilitate interactive communication between organizations and targeted
audiences and increases in user bandwidth. If the Internet as a commercial or
business medium fails to develop or develops more slowly than expected, the
Company's business, results of operations and financial condition could be
materially adversely affected. The recent growth in the use of the Internet
has caused frequent periods of performance degradation, requiring the upgrade
of routers and switches, telecommunications links and other components forming
the infrastructure of the Internet by ISPs and other organizations with links
to the Internet. Any perceived degradation in the performance of the Internet
as a whole could undermine the benefits of the Company's services. Potentially
increased performance provided by the services of the Company and others is
ultimately limited by and reliant upon the speed and reliability of the
networks operated by third parties. Consequently, the emergence and growth of
the market for the Company's services is dependent on improvements being made
to the entire Internet infrastructure to alleviate overloading and congestion.
See "Business--Network Design."
RAPID TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS
The Company's future success will depend, in part, on its ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of its current and prospective customers and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The market for the Company's
services is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition
and frequent new service introductions. There can be no assurance that future
advances in technology will be beneficial to, or compatible with, the
Company's business or that the Company will be able to incorporate such
advances on a cost-effective and timely basis into its business. Moreover,
technological advances may have the effect of encouraging certain of the
Company's current or future customers to rely on in-house personnel and
equipment to furnish the services currently provided by the Company. In
addition, keeping pace with technological advances in the Company's industry
may require substantial expenditures and lead time. For instance, certain
networking hardware may not be immediately compatible with leading edge
telecommunications infrastructure services, such as WorldCom's OC-3c service,
which is not yet widely available and therefore may require the Company to
make significant investments to achieve compatibility.
The Company believes that its ability to compete successfully is also
dependent upon the continued compatibility and interoperability of its
services with products, services and architectures offered by various vendors.
Although the Company often works with various vendors in testing newly
developed products, there can be no assurance that such products will be
compatible with the Company's infrastructure or that such products will
adequately address changing customer needs. Although the Company currently
intends to support emerging standards, there can be no assurance that industry
standards will be established or, that if they become established, the Company
will be able to conform to these new standards in a timely fashion and
maintain a competitive position in the
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market. The failure of the Company to conform to the prevailing standard, or
the failure of a common standard to emerge, could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that products, services or
technologies developed by others will not render the Company's services
uncompetitive or obsolete. See "Business--Product Development."
SYSTEM SECURITY RISKS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Certain
of the Company's services rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information. Despite
the Company's design and implementation of a variety of network security
measures, there can be no assurance that unauthorized access, computer
viruses, accidental or intentional actions and other disruptions will not
occur. The Company's Internet Data Centers have in the past experienced and
may in the future experience delays or interruptions in service as a result of
the accidental or intentional actions of Internet users, current and former
employees or others. Furthermore, such inappropriate use of the network by
third parties could also potentially jeopardize the security of confidential
information, such as credit card and bank account numbers, stored in the
computer systems of the Company and its customers, which could result in
liability to the Company and the loss of existing customers or the deterrence
of potential customers. Although the Company intends to continue to implement
industry-standard security measures, such measures have been circumvented in
the past, and there can be no assurance that any such measures implemented by
the Company will not be circumvented in the future. The costs required to
eliminate computer viruses and alleviate other security problems could be
prohibitively expensive and the efforts to address such problems could result
in interruptions, delays or cessation of service to the Company's customers,
which could have a material adverse effect on the Company's business, results
of operations and financial condition. Concerns over the security of Internet
transactions and the privacy of users may also inhibit the growth of the
Internet, especially as a means of conducting commercial transactions. See
"Business--Network Design."
DEPENDENCE ON THIRD-PARTY SUPPLIERS
The Company is dependent on other companies to supply certain key components
of its telecommunications infrastructure and system and network management
solutions, including telecommunications services and networking equipment
that, in the quantities and quality demanded by the Company, are available
only from sole or limited sources. See "--Dependence Upon Network
Infrastructure." The routers, switches and modems used in the Company's
telecommunications infrastructure are currently supplied primarily by Cisco
Systems Inc. ("Cisco"). The Company purchases these components pursuant to
purchase orders placed from time to time, does not carry significant
inventories of these components and has no guaranteed supply arrangements with
these vendors. Any failure to obtain required products or services on a timely
basis and at an acceptable cost would have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, any failure of the Company's sole or limited source suppliers to
provide products or components that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
components used by the Company in its communications infrastructure could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company expects to be dependent for a
time on third parties to deliver its services from and manage the operations
of its international Internet Data Centers. See "--Risks Associated with
International Operations" and "Business--Network Design."
The Company has also licensed certain software from Computer Associates that
allows the Company to monitor its customers' Internet operations and assist in
resolving performance issues that arise from time to time. Under the agreement
with Computer Associates, to the extent that Computer
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Associates offers software that includes functionality that the Company wants
to provide in its service offerings, the Company must generally utilize the
software offered by Computer Associates, as long as such software meets the
Company's requirements. 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. See "Business--Relationship with Computer Associates."
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth with respect
to the building of its Internet Data Centers and expansion of its customer
base. In addition, from December 31, 1996 to December 31, 1997, the number of
Company employees increased from 55 to 220. This growth has placed, and if it
continues, will place, a significant strain on the Company's financial,
management, operational and other resources. In addition, the Company may be
required to manage multiple relationships with a growing number of third
parties as it seeks to complement its service offerings. There can be no
assurance that the Company's management, personnel, systems, procedures and
controls will be adequate to support the Company's existing and future
operations. The Company's ability to manage its growth effectively will
require it to continue to expand its operating and financial procedures and
controls, to replace or upgrade its operational, financial and management
information systems and to attract, train, motivate, manage and retain key
employees. The Company has recently hired many key employees and officers, and
as a result, the Company's entire management team has worked together for only
a brief time. The Company also has plans to hire additional executive
management personnel, including possibly a president, in the near future. If
the Company's executives are unable to manage growth effectively, the
Company's business, results of operations and financial condition could be
materially adversely affected. See "Management."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct federal, state or local
government regulation, other than regulations applicable to businesses
generally. There is currently only a small body of laws and regulations
directly applicable to access to or commerce on the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted at the federal, state and local
levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Although sections of the Communications Decency Act
of 1996 (the "CDA") that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the
Internet, were held to be unconstitutional by the U.S. Supreme Court, there
can be no assurance that similar laws will not be proposed and adopted. The
nature of such similar legislation and the manner in which it may be
interpreted and enforced cannot be fully determined and, therefore,
legislation similar to the CDA could subject the Company and/or its customers
to potential liability, which in turn could have an adverse effect on the
Company's business, results of operations and financial condition. The
adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for the services of the
Company or increase the cost of doing business or in some other manner have a
material adverse effect on the Company's business, results of operations or
financial condition. In addition, applicability to the Internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent
of the Internet and related technologies and, as a result, do not contemplate
or address the unique issues of the Internet and
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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. The Company is qualified to do business in only a limited
number of states, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify and could result in
the inability of the Company to enforce contracts in such jurisdictions. Any
such new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to the Company's
business, could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Government
Regulation."
RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S NETWORK
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
access providers are currently pending. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon the Company and
other Internet network providers of potential liability for information
carried on or disseminated through their systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources, or to discontinue certain service or
product offerings. The increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could impact the growth of
Internet use. While the Company carries professional liability insurance, it
may not be adequate to compensate or may not cover the Company in the event
the Company becomes liable for information carried on or disseminated through
its networks. Any costs not covered by insurance incurred as a result of such
liability or asserted liability could have a material adverse effect on the
Company's business, results of operations and financial condition. Certain
businesses, organizations and individuals have in the past sent unsolicited
commercial e-mails from servers hosted at the Company's facilities to massive
numbers of people, typically to advertise products or services. This practice,
known as "spamming," can lead to complaints against service providers that
enable such activities, particularly where recipients view the materials
received as offensive. In addition, certain ISPs and other online services
companies could deny network access to companies that allow undesired content
or spamming to be transmitted through their networks. The Company has in the
past received, and may in the future receive, letters from recipients of
information transmitted by the Company's customers objecting to such
transmission. Although the Company prohibits its customers by contract from
spamming, there can be no assurance that its customers will not engage in this
practice, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Government Regulation."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A component of the Company's long-term strategy is to expand into
international markets, and the Company currently plans to open an Internet
Data Center in the London metropolitan area in the first half of 1998. If
revenue generated by any current or future international Internet Data Center
is not
15
<PAGE>
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. As a result, the Company will be dependent for a time on third
parties to deliver its services from and manage the operations of such
international Internet Data Centers. In addition to the uncertainty as to the
Company's ability to expand into international markets, there are certain
risks inherent in conducting business internationally, such as unexpected
changes in regulatory requirements, export restrictions, tariffs and other
trade barriers, challenges in staffing and managing foreign operations,
differing technology standards, employment laws and practices in foreign
countries, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates, imposition of
currency exchange controls, seasonal reductions in business activity and
potentially adverse tax consequences, any of which could adversely affect the
Company's international operations. Furthermore, certain foreign governments,
such as Germany, have enforced laws and regulations related to content
distributed over the Internet that are more strict than those currently in
place in the United States. There can be no assurance that one or more of
these factors will not have a material adverse effect on the Company's current
or future international operations and, consequently, on the Company's
business, results of operations and financial condition. In addition, there
can be no assurance that the Company will be able to obtain the necessary
telecommunications infrastructure in a cost-effective manner or compete
effectively in international markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in significant part upon the continued
services of its key technical, sales and senior management personnel,
including the Company's President, Chief Executive Officer and Chairman of the
Board of Directors, K.B. Chandrasekhar. Although certain of the Company's
executive officers participate in the Company's Executive Employment Policy,
none of the Company's officers is a party to an employment agreement with the
Company. Any officer or employee of the Company can terminate his or her
relationship with the Company at any time. The Company's future success will
also depend on its ability to attract, train, retain and motivate highly
qualified technical, marketing, sales and management personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract and retain key personnel. The loss of the services of
one or more of the Company's key employees or the Company's failure to attract
additional qualified personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
does not carry key-man life insurance for any of its employees. See
"Business--Employees" and "Management."
RISKS ASSOCIATED WITH LEGAL PROCEEDINGS
On July 30, 1997, Michael Blackman ("Blackman"), a consultant to the Company
from October 1996 through January 1997, filed a complaint against the Company
in the Superior Court for the State of California in and for the County of
Santa Clara alleging damages 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. See "Business--Legal
Proceedings."
16
<PAGE>
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in its products and services. The Company has no
patented technology that would preclude or inhibit competitors from entering
the Company's market. The Company has entered into confidentiality and
invention assignment agreements with its employees and contractors, and
nondisclosure agreements with its suppliers, distributors and appropriate
customers in order to limit access to and disclosure of its proprietary
information. There can be no assurance that these contractual arrangements or
the other steps taken by the Company to protect its intellectual property will
prove sufficient to prevent misappropriation of the Company's technology or to
deter independent third-party development of similar technologies. The laws of
certain foreign countries may not protect the Company's products, services or
intellectual property rights to the same extent as do the laws of the United
States. The Company also relies on certain technologies that it licenses from
third parties, such as Computer Associates. See "--Dependence on Third-Party
Suppliers." There can be no assurance that these third-party technology
licenses will continue to be available to the Company on commercially
reasonable terms. The loss of such technology could require the Company to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could materially adversely affect the Company's business,
results of operations and financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that participants
in its markets will be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows.
Any such claim, whether meritorious or not, could be time- consuming, result
in costly litigation, cause product installation delays or require the Company
to enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at
all. As a result, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition. See
"Business--Intellectual Property Rights."
YEAR 2000 RISKS
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has established procedures for evaluating
and managing the risks and costs associated with this problem and 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's results of operations,
announcements of technological innovations or new Internet Data Centers, new
products or services introduced by the Company or its competitors, changes in
financial estimates by securities analysts, conditions and trends in the
Internet, general market conditions and other factors. Further, the stock
markets, and in particular the Nasdaq National Market, have experienced
extreme price and volume fluctuations that have particularly affected the
market prices of equity securities of
17
<PAGE>
many technology companies and that often have been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs
and reflect price to earnings ratios substantially above historical levels.
There can be no assurance that these trading prices and price to earnings
ratios will be sustained. These broad market factors may adversely affect the
market price of the Company's Common Stock. These market fluctuations, as well
as general economic, political and market conditions such as recessions,
interest rates or international currency fluctuations, may adversely affect
the market price of the Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion
of management's attention and resources, which would have a material adverse
effect on the Company's business, results of operations and financial
condition.
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers,
directors and existing greater than 5% stockholders (and their affiliates)
will, in the aggregate, own approximately 59.9% of the Company's outstanding
Common Stock (57.8% if the Underwriters' over-allotment option is exercised in
full). As a result, such persons, acting together, will have the ability to
control all matters submitted to stockholders of the Company for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control
the management and affairs of the Company. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company, impede a merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Company's Common Stock. See "Management" and "Principal and Selling
Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market after this offering could adversely affect the market price of the
Common Stock. Such sales also might make it more difficult for the Company to
sell equity or equity-related securities in the future at a time and price
that the Company deems appropriate. In addition to the 4,000,000 shares of
Common Stock offered hereby (assuming no exercise of the Underwriters' over-
allotment option), as of the date of this Prospectus, there will be 13,439,624
shares of Common Stock outstanding, all of which are restricted shares
("Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). As of such date, no Restricted Shares will be eligible for
sale in the public market. Following the expiration of 180-day lock-up
agreements with the representatives of the Underwriters, 12,086,491 Restricted
Shares will be available for sale in the public market and the remaining
Restricted Shares will be eligible for sale from time to time thereafter upon
expiration of applicable holding periods under Rule 144 under the Securities
Act. In addition, as of December 31, 1997, there were outstanding 1,709,286
options and 950,163 warrants to purchase Common Stock (of which warrants for
615,454 shares are expected to be exercised on or before the closing of this
offering) and all of such options and warrants will be subject to lock-up
agreements. Goldman, Sachs & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-
up agreements. In addition, the holders of 13,234,880 Restricted Shares and
warrants to purchase 950,163 shares of Common Stock of the Company are
entitled to certain rights with respect to registration of such shares for
sale in the public market. If such holders sell in the public market, such
sales could have a material adverse effect on the market price of the
Company's Common Stock.
Immediately after this offering, the Company intends to register
approximately 4,659,215 shares of Common Stock reserved for issuance under its
stock option and purchase plans. See "Shares Eligible for Future Sale."
18
<PAGE>
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per
share, after deducting the estimated underwriting discount and offering
expenses, are estimated to be approximately $35.8 million. The primary
purposes of this offering are to obtain additional capital, repay certain
existing and expected indebtedness, create a public market for the Common
Stock and facilitate future access to public markets. The Company expects to
use the net proceeds primarily for working capital and other general corporate
purposes, including scheduled payments of principal and interest on
outstanding indebtedness. A portion of the net proceeds also may be used to
repay currently outstanding or future indebtedness, to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. Accordingly, the Company's management will retain
broad discretion as to the allocation of most of the proceeds of this
offering. The failure of management to apply such funds effectively could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue shares of
Preferred Stock. The Company is also subject to certain provisions of Delaware
law which could have the effect of delaying, deterring or preventing a change
in control of the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder unless certain
conditions are met. In addition, the Company's certificate of incorporation
and bylaws contain certain provisions that, together with the ownership
position of the Company's executive officers and directors and their
affiliates, could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management which could adversely
affect the market price of the Company's Common Stock. See "Description of
Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering or that investors will be able to
sell the Common Stock should they desire to do so. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $7.45 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options or warrants to purchase the Company's Common Stock are
exercised, there may be further dilution. See "Dilution."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby are estimated to be $35.8 million at an assumed
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discount and offering expenses ($40.9 million if the
over-allotment option is exercised in full). The primary purposes of this
offering are to obtain additional capital, repay certain existing and expected
indebtedness, create a public market for the Common Stock and facilitate
future access to public markets. Shortly after this offering, the Company
expects to begin to use approximately $5.0 million of the net proceeds to
repay existing ($3.0 million at December 31, 1997) and expected future
indebtedness under the Company's working capital line of credit agreement with
Silicon Valley Bank. Such indebtedness bears interest at the bank's prime rate
plus 1%, is collateralized by accounts receivable and matures in December
1998. In addition, beginning in January 1999, the Company expects to begin to
use a portion of the proceeds to repay aggregate indebtedness of up to $8.0
million that it intends to incur pursuant to its working capital line of
credit agreement with Transamerica Business Credit Corporation and MMC/GATX
Partnership No. 1. This indebtedness will bear interest at 12.95% and, if this
offering is completed, will mature in January 2000. The Company expects to use
the remaining net proceeds primarily for working capital and other general
corporate purposes to fund the Company's operations, including payment of
salaries and benefits for the Company's personnel, costs associated with the
operation of the Company's network, payments under leases and scheduled
monthly payments of principal and interest on outstanding and any future
indebtedness. See "Risk Factors--Broad Management Discretion in Allocation of
Proceeds." A portion of the proceeds also may be used to repay other
indebtedness, to acquire or invest in complementary businesses or products or
to obtain the right to use complementary technologies. See Note 3 of Notes to
Financial Statements. In the ordinary course of business, the Company
evaluates potential acquisitions of such businesses, products or technologies.
However, the Company has no present understandings, commitments or agreements
with respect to any acquisition of businesses, products or technologies.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term, interest-bearing, investment-grade
securities. In addition to the use of the net proceeds from the offering, the
Company also expects during the next 12 months to meet its capital and working
capital requirements through 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. See "Risk Factors--Risks Associated with Planned
Business Expansion."
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain any future earnings for
use in its business and does not anticipate paying any cash dividends for the
foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the conversion of all outstanding shares of Preferred Stock into shares of
Common Stock upon the closing of this offering and (iii) the pro forma
capitalization as adjusted to reflect the receipt of the net proceeds from the
sale of the 4,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank borrowings and current portion of debt and
capital lease obligations(1).................. $ 7,920 $ 7,920 $ 4,920
======== ======== ========
Debt and capital lease obligations, less
current portion(1)............................ $ 15,135 $ 15,135 $ 15,135
-------- -------- --------
Redeemable convertible preferred stock and
warrants, $0.001 par value: actual--74,960,124
shares authorized, 34,117,371 shares issued
and outstanding, aggregate liquidation
preference of $39,640,000; pro forma and as
adjusted--no shares authorized, issued or
outstanding................................... 39,247 -- --
-------- -------- --------
Stockholders' (deficit) equity(2):
Preferred stock, $0.001 par value: actual--no
shares authorized, issued or outstanding; pro
forma and as adjusted--5,000,000 shares
authorized, no shares issued or outstanding . -- -- --
Common stock, $0.001 par value: actual--
53,281,579 shares authorized, 2,067,253
shares issued and outstanding; pro forma--
50,000,000 shares authorized, 13,439,624
shares issued and outstanding; as adjusted--
50,000,000 shares authorized, 17,439,624
shares issued and outstanding................ 2 13 17
Additional paid-in capital.................... 3,921 43,157 78,953
Notes receivable from stockholders............ (140) (140) (140)
Deferred stock compensation................... (2,393) (2,393) (2,393)
Accumulated deficit........................... (31,990) (31,990) (31,990)
-------- -------- --------
Total stockholders' (deficit) equity.......... (30,600) 8,647 44,447
-------- -------- --------
Total capitalization......................... $ 23,782 $ 23,782 $ 59,582
======== ======== ========
</TABLE>
- --------
(1) See Notes 3, 6 and 8 of Notes to Financial Statements.
(2) Does not include (i) 1,709,286 shares of Common Stock issuable upon the
exercise of stock options outstanding under the Company's stock option
plans as of December 31, 1997 with a weighted average per share exercise
price of $0.76 or 333,334 shares of Common Stock issuable upon the
exercise of stock options granted outside of the Company's stock option
plans in January 1998 with a weighted average per share exercise price of
$13.50, (ii) 649,929 shares of Common Stock available for future grant as
of December 31, 1997 under the 1997 Plan, and an additional 2,300,000
shares of Common Stock available for future grant or issuance immediately
after the offering under the 1998 Plan, the Directors Plan and the
Purchase Plan, (iii) 950,163 shares of Common Stock issuable upon the
exercise of warrants outstanding as of December 31, 1997 with a weighted
average per share exercise price of $4.29 (of which warrants to purchase
615,454 shares are expected to be exercised on or before the closing of
the offering) or 6,667 shares of Common Stock issuable upon the exercise
of a warrant granted in January 1998 at a per share exercise price of
$8.55 or (iv) 39,181 shares issued by the Company in February 1998 at a
per share purchase price of $8.55. See "Management--Director
Compensation," "Management--Employee Benefit Plans," "Description of
Capital Stock" and Notes 5 and 8 of Notes to Financial Statements.
21
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
was $8.6 million, or $0.64 per share of Common Stock, assuming the conversion
of all outstanding shares of Preferred Stock into shares of Common Stock. "Pro
forma net tangible book value per share" is determined by dividing the number
of outstanding shares of Common Stock into the net tangible book value of the
Company (total tangible assets less total liabilities). After giving effect to
the application of the estimated net proceeds from the sale by the Company of
the 4,000,000 shares of Common Stock offered hereby (based upon an assumed
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discount and offering expenses), the pro forma net
tangible book value of the Company as of December 31, 1997 would have been
approximately $44.4 million, or $2.55 per share. This represents an immediate
increase in pro forma net tangible book value of $1.91 per share to existing
stockholders and an immediate dilution of $7.45 per share to new investors
purchasing shares at the initial public offering price. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $10.00
Pro forma net tangible book value per share as of December 31,
1997............................................................. $0.64
Increase per share attributable to new investors(1)............... 1.91
-----
Pro forma net tangible book value per share after offering(1)..... 2.55
------
Dilution per share to new investors(1)............................ $ 7.45
======
</TABLE>
- --------
(1) Does not include options outstanding as of December 31, 1997 to purchase a
total of 1,709,286 shares of Common Stock with a weighted average per
share exercise price of $0.76 and warrants outstanding as of such date to
purchase a total of 950,163 shares of Common Stock at a weighted average
per share exercise price of $4.29. If these options and warrants were to
be exercised in full for cash, pro forma net tangible book value per share
after the offering would be $2.48, the increase per share attributable to
new investors would be $1.84, and the dilution per share to new investors
would be $7.52. See "Capitalization," "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 5 and 8 of Notes to Financial Statements.
The following table summarizes as of December 31, 1997, on the pro forma
basis described above, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholders and by the investors purchasing shares
of Common Stock in this offering, based upon an assumed initial public
offering price of $10.00 per share (before deducting the estimated
underwriting discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 13,439,624 77.1% $37,992,000 48.7% $ 2.83
New investors(1)............... 4,000,000 22.9 40,000,000 51.3 10.00
---------- ----- ----------- -----
Total........................ 17,439,624 100.0% $77,992,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) If the Underwriters' over-allotment is exercised in full, the number of
shares held by existing stockholders will be reduced by 50,000 shares to
13,389,624, or 74.4% of the total shares of Common Stock to be outstanding
after this offering, and the number of shares held by new investors will
be increased to 4,600,000, or 25.6% of the total shares of Common Stock to
be outstanding after this offering.
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The statement of operations data for each of the
years in the three-year period ended December 31, 1997, and the balance sheet
data as of December 31, 1996 and 1997, are derived from financial statements
of the Company that have been audited by KPMG Peat Marwick LLP, independent
auditors, and are included elsewhere in this Prospectus. The balance sheet
data as of December 31, 1994 and 1995 are derived from financial statements of
the Company that have been audited by KPMG Peat Marwick LLP and that are not
included herein. The statement of operations data for the years ended December
31, 1993 and 1994 and the three months ended December 31, 1996 and March 31,
June 30, September 30 and December 31, 1997, and the balance sheet data as of
December 31, 1993, are derived from unaudited financial statements that are
not included herein. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future and results of interim periods are
not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
-------------------------- ------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1997 1996 1997 1997 1997 1997
------- ------- -------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Service revenues....... $ 1,068 $ 2,454 $ 11,588 $ 954 $ 1,551 $ 2,205 $ 3,260 $ 4,572
Equipment revenues..... 340 676 820 156 118 188 183 331
------- ------- -------- ------- ------- ------- ------- --------
Total revenues....... 1,408 3,130 12,408 1,110 1,669 2,393 3,443 4,903
------- ------- -------- ------- ------- ------- ------- --------
Cost and expenses:
Cost of service
revenues.............. 846 2,538 16,228 999 1,819 2,859 4,503 7,047
Cost of equipment
revenues.............. 282 452 640 107 80 140 141 279
Marketing and sales.... 1,056 2,734 12,702 1,244 1,630 2,746 3,291 5,035
General and
administrative........ 427 1,056 5,983 483 916 1,163 1,447 2,457
Product development.... 70 444 1,647 323 203 385 512 547
------- ------- -------- ------- ------- ------- ------- --------
Total cost and
expenses............ 2,681 7,224 37,200 3,156 4,648 7,293 9,894 15,365
------- ------- -------- ------- ------- ------- ------- --------
Operating loss....... (1,273) (4,094) (24,792) (2,046) (2,979) (4,900) (6,451) (10,462)
Net interest (income)
expense............... 38 39 506 (4) 56 81 105 264
------- ------- -------- ------- ------- ------- ------- --------
Net loss............. (1,311) (4,133) (25,298) (2,042) (3,035) (4,981) (6,556) (10,726)
Cumulative dividends
and accretion on
redeemable convertible
preferred stock....... -- -- (1,413) -- -- -- (823) (590)
------- ------- -------- ------- ------- ------- ------- --------
Net loss attributable
to common
stockholders.......... $(1,311) $(4,133) $(26,711) $(2,042) $(3,035) $(4,981) $(7,379) $(11,316)
======= ======= ======== ======= ======= ======= ======= ========
Basic and diluted net
loss per share(1)..... $ (1.00) $ (2.16) $ (13.85)
======= ======= ========
Pro forma basic and
diluted net loss per
share(1).............. $ (2.56)
========
Shares used in
computing basic and
diluted net loss per
share(1).............. 1,315 1,914 1,928
======= ======= ========
Shares used in
computing pro forma
basic and diluted net
loss per share(1)..... 9,878
========
STATEMENT OF CASH FLOWS
DATA:
Net cash used for
operating activities.. $ (453) $(2,998) $(15,296) $(1,537) $(1,554) $(3,519) $(4,147) $ (6,076)
OTHER DATA (UNAUDITED):
EBITDA(2).............. $(1,208) $(3,633) $(20,274) $(1,817) $(2,629) $(4,288) $(5,566) $ (7,791)
</TABLE>
- -------
(1 ) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The pro forma data is unaudited.
(2) Represents earnings (loss) before net interest expense, income taxes,
depreciation, amortization (including amortization of deferred stock
compensation) and other noncash charges ("EBITDA"). Although EBITDA should
not be used as an alternative to operating loss or net cash used for
operating activities, each as measured under generally accepted accounting
principles, and, although EBITDA may not be comparable to other similarly
titled information from other companies, the Company's management believes
that EBITDA is an additional meaningful measure of performance and
liquidity.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,(1)
---------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................................ $ 266 $ 977
Operating income.............................................. 19 143
Net income.................................................... 19 144
Basic and diluted net income per share........................ $ 0.02 $ 0.14
Shares used in computing basic and diluted net income per
share........................................................ 1,000 1,000
</TABLE>
- --------
(1) 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.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995 1996 1997
---- ---- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 2 $ 1 $ 163 $ 3,715 $10,270
Working capital (deficiency)............. (5) 93 (1,170) 1,892 (3,707)
Total assets............................. 32 320 840 8,289 40,973
Debt and capital lease obligations, less
current portion......................... -- -- 141 1,449 15,135
Redeemable convertible preferred stock... -- -- -- 9,609 39,247
Total stockholders' equity (deficit)..... 25 169 (1,140) (5,234) (30,600)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those set forth under "Risk
Factors."
OVERVIEW
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative systems management and Internet technology services, which
together provide the high performance, scalability and expertise that
enterprises need to optimize Internet operations. The Company delivers its
services from geographically distributed, state-of-the-art Internet Data
Centers that are connected through a redundant high performance Internet
backbone ring.
The Company is the successor to a Maryland Corporation that was formed in
August 1992 to provide computer consulting services. The Company began to
offer Internet connectivity services to enterprises in October 1994 and server
hosting services in late 1995. In August 1996, the Company opened its first
dedicated Internet Data Center and refocused its business strategy on
providing Internet system and network management solutions for enterprises
with mission-critical Internet operations. Since refocusing its business
strategy, the Company has derived most of its revenues (and substantially all
of its growth in revenues) from customers for which it provides these
services. Each of the Company's Internet Data Center customers initially
purchases a subset of the Company's service offerings to address specific
departmental or enterprise Internet computing needs, and some of these
customers purchase additional services as the scale and complexity of their
Internet operations increase. The Company sells its services under contracts
that typically have terms of one year. Customers pay monthly fees for the
services utilized, as well as one-time fees for installation and for any
equipment that they choose to purchase from the Company.
The Company opened its first Internet Data Center in the San Francisco
metropolitan area in August 1996. Since that time, the Company has opened five
additional Internet Data Centers in the metropolitan areas of New York (March
1997), San Francisco (second site--August 1997), Seattle (September 1997), Los
Angeles (October 1997) and Washington, D.C. (December 1997). See "Business--
Facilities." These state-of-the-art facilities serve as a base for the array
of solutions offered by the Company, including server hosting, Internet
connectivity, collaborative systems management and Internet technology
services. The building of these Internet Data Centers has required the Company
to obtain substantial additional equity and debt financing. See "Risk
Factors--Substantial Leverage and Debt Service" and "--Liquidity and Capital
Resources" below.
The Company intends to expand domestically and internationally, including
the expected addition of an additional Internet Data Center in the San
Francisco metropolitan area and a new site in the London metropolitan area in
the first half of 1998. Prior to building an Internet Data Center in a new a
geographic region, the Company employs various means to evaluate the market
opportunity in a given location, including the use of focus groups and market
research on Internet usage statistics, the pre-selling of services into the
proposed market and analysis of specific financial criteria. The Company
typically requires at least six months to select the appropriate location for
an Internet Data Center, construct the necessary facilities, install equipment
and telecommunications infrastructure, and hire the operations and sales
personnel needed to conduct business at that site. Expenditures related to an
Internet Data Center commence well before the Internet Data Center opens, and
it takes an extended
25
<PAGE>
period to approach break-even capacity utilization at each site. As a result,
the Company expects that 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. The Company also
contemplates that such expansion will lead to substantial needs for further
financing. See "--Liquidity and Capital Resources" and "Risk Factors--Risks
Associated with Planned Business Expansion."
To address issues associated with network traffic spikes or line outages,
the Company has a policy of undersubscribing its network by provisioning
significant excess capacity. As a result, when the sustained utilized capacity
of a LAN, WAN or public or private peering link approaches 50%, the Company
begins to plan for the expansion of its available capacity. Thus, as the
number of, and usage of the network by, the Company's customers grows, this
policy will require the Company to incur increased network costs in order to
expand its network capacity. This policy may result in higher network costs
for the Company than for its competitors who do not maintain a similar policy.
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 December 31, 1997, the Company had an
accumulated deficit of approximately $32.0 million. The revenue and income
potential of the Company's business and market is unproven, and the Company's
limited operating history makes an evaluation of the Company and its prospects
difficult. Currently, the Company anticipates making significant investments
in new Internet Data Centers and product development and sales and marketing
programs and personnel and therefore believes that it will continue to
experience net losses on a quarterly and annual basis for the foreseeable
future. The Company and its prospects must be considered in light of the
risks, expenses and difficulties encountered by companies in the new and
rapidly evolving market for Internet system and network management solutions.
To address these risks, among other things, the Company must market its brand
name effectively, provide scalable, reliable and cost-effective services,
continue to grow its infrastructure to accommodate new Internet Data Centers
and increased bandwidth use of its network, expand its channels of
distribution, retain and motivate qualified personnel and continue to respond
to competitive developments. Failure of the Company's services to achieve
market acceptance would have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will ever achieve profitability on a quarterly or
an annual basis or will sustain profitability if achieved. See "Risk Factors--
Limited Operating History; History of Losses."
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the three months ended December 31,
1996 and March 31, June 30, September 30 and December 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, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial information for the quarters
presented. This information should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
operating results in any quarter are not necessarily indicative of the results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues....... 85.9% 92.9% 92.1% 94.7% 93.2%
Equipment revenues..... 14.1 7.1 7.9 5.3 6.8
------ ------ ------ ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost and expenses:
Cost of service
revenues.............. 90.0 109.0 119.5 130.8 143.7
Cost of equipment
revenues.............. 9.6 4.8 5.8 4.1 5.7
Marketing and sales.... 112.1 97.7 114.8 95.6 102.7
General and
administrative........ 43.5 54.9 48.6 42.0 50.1
Product development.... 29.1 12.1 16.0 14.8 11.2
------ ------ ------ ------ ------
Total cost and
expenses............. 284.3 278.5 304.7 287.3 313.4
------ ------ ------ ------ ------
Operating loss........ (184.3) (178.5) (204.7) (187.3) (213.4)
Net interest (income)
expense................ (0.3) 3.4 3.4 3.1 5.4
------ ------ ------ ------ ------
Net loss.............. (184.0)% (181.9)% (208.1)% (190.4)% (218.8)%
====== ====== ====== ====== ======
</TABLE>
REVENUES
Service revenues consist of monthly fees for server hosting, Internet
connectivity, collaborative systems management and Internet technology
services and one-time fees for installation. Service revenues (other than
installation fees) are generally billed and recognized ratably over the term
of the contract, generally one year. Installation fees are typically
recognized at the time that installation occurs. Equipment revenues consist of
sales to customers of third-party equipment. Revenues from equipment sales are
recognized at the time the equipment is shipped to the customer or placed into
service at an Internet Data Center.
The Company's revenues increased sequentially each quarter from $1.1 million
to $1.7 million to $2.4 million to $3.4 million and to $4.9 million in the
quarters ended December 31, 1996 and March 31, June 30, September 30 and
December 31, 1997, respectively. The Company's service revenues also increased
sequentially each quarter from $954,000 to $1.6 million to $2.2 million to
$3.3 million and to $4.6 million in the quarters ended December 31, 1996 and
March 31, June 30, September 30 and December 31, 1997, respectively. This
growth in service revenues resulted primarily from increases in the number of
customers, increases in revenues from existing customers and the opening of
new Internet Data Centers. The Company's service revenues increased as a
percentage of total revenues in 1997 as the Company increased its average
service revenues per customer. The Company anticipates that service revenues
as a percentage of total revenues, although varying from quarter to quarter,
will generally continue to increase in 1998. The Company sells third-party
27
<PAGE>
equipment to its customers as an accommodation to facilitate their purchase of
services; thus, the Company's equipment revenues have varied from quarter to
quarter depending on particular customer needs. The Company's customers do not
generally have a right to return equipment purchased from the Company,
although the Company may elect from time to time to accept such a return.
COST OF REVENUES
The Company's cost of service revenues is comprised primarily of the
Company's costs for its nationwide backbone network and local telco loops,
salaries and benefits for the Company's customer service and operations
personnel (including its network engineers, backbone engineers, network
management and systems personnel and installers), and depreciation, rent,
repairs and utilities related to the Company's Internet Data Centers. Cost of
equipment revenues represents the cost to the Company of third-party equipment
sold to customers.
The Company's cost of service revenues increased sequentially each quarter
from $999,000 to $1.8 million to $2.9 million to $4.5 million and to $7.0
million in the quarters ended December 31, 1996 and March 31, June 30,
September 30 and December 31, 1997, respectively. Cost of service revenues as
a percentage of service revenues increased sequentially each quarter from 105%
to 117% to 130% to 138% and to 154% in the quarters ended December 31, 1996
and March 31, June 30, September 30 and December 31, 1997, respectively. These
increases in cost of service revenues in absolute dollars and as a percentage
of service revenues were primarily the result of opening additional Internet
Data Centers with the wages, depreciation and other costs associated
therewith, and of the increased costs for the Company's network. The Company
expects that its cost of service revenues as a percentage of service revenues
may remain above 100% through at least 1998. The cost of equipment revenues
varied from quarter to quarter, due primarily to fluctuations in equipment
revenues. Cost of equipment revenues as a percentage of equipment revenues
varied from 68% to 84% based on the particular mix of equipment purchased by
customers in a given quarter.
MARKETING AND SALES
The Company's marketing and sales expenses are comprised primarily of
salaries and benefits for the Company's marketing and sales personnel,
printing and advertising costs, consultants' fees and travel expenses.
Marketing and sales expenses have increased as a result of increased marketing
and sales personnel, increased advertising, increased marketing program
expenses and other marketing efforts. Marketing and sales expenses as a
percentage of total revenues fluctuated from quarter to quarter primarily due
to increases in headcount, the timing of sales compensation and the timing of
advertising and other promotional activities. The Company expects that
marketing and sales expenses will continue to increase in absolute dollars
during 1998 but will begin to decline as a percentage of total revenues as
recurring revenues from the existing customers, which tend to have lower
marketing and sales expenses associated with them, become a more significant
percentage of total revenues.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses are comprised primarily of
salaries and benefits for the Company's administrative and management
information systems personnel and fees paid for professional services and
recruiting. General and administrative expenses have increased primarily as a
result of additional personnel, recruiting fees and consulting costs. General
and administrative expenses as a percentage of total revenues increased during
the quarters ended March 31 and June 30, 1997 due to increased professional
services and recruiting fees and increased during the quarter ended December
31, 1997 primarily as a result of $656,000 of amortization of deferred
compensation expense and $278,000 of professional services and recruiting
fees. The Company expects that general and administrative expenses will
continue to increase in absolute dollars but will begin to decline as a
percentage of total revenues as existing overhead is spread over more
substantial operations.
28
<PAGE>
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. With the exception of the
quarter ended March 31, 1997, product development expenses have increased as a
result of continuing efforts to integrate and enhance best-of-breed third-
party technologies to support the Company's service offerings. The decline in
product development expenses in the quarter ended March 31, 1997 reflected a
temporary decline in the use of consultants for product development. Product
development expenses as a percentage of total revenues decreased during 1997
due to a high number of consultants used in product development during the
quarter ended December 31, 1996 and, with respect to the quarter ended
December 31, 1997, a transfer of personnel from product development activities
to backbone engineering activities that are charged to cost of service
revenues. The Company expects that product development expenses will continue
to increase in absolute dollars as the Company makes additional investments in
developing its collaborative systems management services but will decline as a
percentage of total revenues.
DEFERRED COMPENSATION EXPENSE
In the quarters ended September 30 and December 31, 1997, the Company
recorded aggregate deferred stock compensation of $3.5 million in connection
with the grant of certain stock options subsequent to March 1997, which amount
is generally being amortized over the 50 month vesting period of such options.
This amortization is being recorded in a manner consistent with Financial
Accounting Standards Board ("FASB") Interpretation No. 28. Of the total
deferred stock compensation, approximately $85,000 was amortized in the
quarter ended September 30, 1997 and approximately $1.0 million was amortized
in the quarter ended December 31, 1997. The Company expects amortization of
approximately $1.3 million during 1998, $700,000 during 1999, $300,000 during
2000 and $100,000 during 2001 related to these options. These amortization
amounts are allocated among the expense categories discussed above. See Note 5
of Notes to Financial Statements.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUES
The Company's revenues increased 122% from $1.4 million in 1995 to $3.1
million in 1996 and increased an additional 296% to $12.4 million in 1997.
Service revenues increased 130% from $1.1 million in 1995 to $2.5 million in
1996. The growth in the Company's service revenues from 1995 to 1996 resulted
primarily from an increase in the number of customers to which the Company
provided Internet connectivity and to a lesser extent from an increase in
service revenues per Internet connectivity customer. Service revenues
increased 372% from $2.5 million in 1996 to $11.6 million in 1997. This growth
in service revenues was primarily the result of opening the Company's first
two Internet Data Centers in August 1996 and March 1997, increases in the
number of new customers, substantially all of which were Internet Data Center
customers, and increases in revenues per customer. The Company sells third-
party equipment to its customers as an accommodation to facilitate their
purchase of services. The Company's equipment revenues increased 99% from
$340,000 in 1995 to $676,000 in 1996 and increased an additional 21% to
$820,000 in 1997.
29
<PAGE>
COST OF REVENUES
Cost of service revenues increased from $846,000 in 1995 to $2.5 million in
1996 and to $16.2 million in 1997. The Company's cost of service revenues as a
percentage of service revenues increased from 79% in 1995 to 103% in 1996 and
to 140% in 1997. The increases in cost of service revenues in absolute dollars
and as a percentage of service revenues were due to increased costs associated
with the build-out and operation of the Company's increasing number of
Internet Data Centers, including increased costs for its network backbone and
local telco loops, depreciation, salaries and benefits for its customer
service and operations personnel and rent. Cost of equipment revenues
increased from $282,000 in 1995 to $452,000 in 1996 and to $640,000 in 1997.
Cost of equipment revenues varies primarily as a result of equipment revenues
and, to a lesser extent, the mix of equipment purchased by customers.
MARKETING AND SALES
The Company's marketing and sales expenses increased from $1.1 million in
1995 to $2.7 million in 1996 and to $12.7 million in 1997. These increases
were primarily the result of hiring additional marketing and sales personnel
and expanding marketing programs.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses increased from $427,000 in
1995 to $1.1 million in 1996 and to $6.0 million in 1997. These increases were
primarily the result of increased hiring of administrative personnel, fees
paid for recruiting, costs for consultants, cost for professional services
providers and amortization of deferred compensation.
PRODUCT DEVELOPMENT
The Company's product development expenses increased from $70,000 in 1995 to
$444,000 in 1996 and to $1.6 million in 1997. The Company's product
development expenses grew between the comparison periods primarily because of
the addition of product development personnel to support the Company's
expanded service offerings.
NET INTEREST EXPENSE
The Company's net interest expense increased from $38,000 in 1995 to $39,000
in 1996 and to $506,000 in 1997. The increases in net interest expense between
the comparison periods were primarily the result of substantially increased
borrowings as the Company entered into equipment loans and lease agreements to
finance the construction of its Internet Data Centers. The Company expects
that net interest expense will continue to grow as the Company enters into
additional equipment leases and loans and obtains additional borrowings for
working capital.
DEFERRED COMPENSATION EXPENSE
During 1997, the Company recorded deferred stock compensation of
approximately $3.5 million in connection with the grant of certain stock
options subsequent to March 1997, which amount is generally 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. Of the total
deferred stock compensation, approximately $1.1 million was amortized in 1997.
This amount is allocated among the expense categories discussed above. See
Note 5 of Notes to Financial Statements.
30
<PAGE>
FACTORS AFFECTING RESULTS OF OPERATIONS
The Company expects to experience significant fluctuations in its future
quarterly and annual results of operations due to a variety of factors, many
of which are outside the Company's control including: demand for and market
acceptance of the Company's services and enhancements; introductions of
services or enhancements by the Company and its competitors; capacity
utilization of its Internet Data Centers; reliable continuity of service and
network availability; the ability to increase bandwidth as necessary; the
timing of customer installations; 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
results of operations are particularly sensitive to fluctuations in revenues.
Also, if the Company's agreement with Computer Associates were to terminate
and the Company continued to require Computer Associates' software, the
license fees paid by the Company could increase fixed costs significantly.
Furthermore, if the Company were to become unable to continue leveraging third
party products in the Company's services offerings, the Company's product
development costs could increase significantly. Although the Company has not
encountered significant difficulties in collecting upon accounts receivable in
the past, many of the Company's customers are in an emerging stage, and there
can be no assurance that the Company will be able to collect receivables on a
timely basis. For these and other reasons, in some future quarters, the
Company's results of operations may fall below the expectations of securities
analysts or investors, which could have a material adverse effect on the
market price of the Company's Common Stock.
The market for Internet system and network management solutions has only
recently begun to develop, is evolving rapidly and likely will be
characterized by an increasing number of market entrants. There is significant
uncertainty regarding whether this market ultimately will prove to be viable
or, if it becomes viable, that it will grow. In order to be successful in this
emerging market, the Company must be able to differentiate itself from its
competition through its service offerings, such as its recently introduced
collaborative 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,
including certain collaborative systems management and Internet technology
services scheduled to be available in the first half of 1998, or if these or
other new products or services do not achieve market acceptance in a timely
manner or at all, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Risk Factors--
Dependence on New Market; Uncertainty of Acceptance of Services."
A component of the Company's long-term strategy is to expand into
international markets, and the Company currently plans to open an Internet
Data Center in the London metropolitan area in the first half of 1998. There
can be no assurance that the Company will be able to market, sell and deliver
successfully its services outside the United States. The Company generally
intends to outsource the initial operation of its international Internet Data
Centers. As a result, the Company will be dependent for a time on third
parties to deliver its services from and manage the operations of such
international Internet Data Centers. In addition to the uncertainty as to the
Company's ability to expand into
31
<PAGE>
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. In
addition, there can be no assurance that the Company will be able to obtain
the necessary telecommunications infrastructure in a cost-effective manner or
compete effectively in international markets. See "Risk Factors--Risks
Associated with International Operations."
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has established procedures for evaluating
and managing the risks and costs associated with this problem and 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of Preferred Stock and through various types of equipment loans
and lease lines and working capital lines of credit. At December 31, 1997, the
principal source of liquidity for the Company was $10.3 million of cash and
cash equivalents. As of that date, the Company also had $5.8 million in
equipment lines of credit and lease facilities available with interest rates
ranging from 14.5% to 16.4%, and working capital lines of credit with interest
rates ranging from 9.5% to 12.95% under which it could borrow up to an
additional aggregate of $10.0 million. Given the expected use of cash during
the first quarter of 1998, the Company expects that it will need to begin to
use a portion of the $8.0 million available under its working capital line of
credit agreement with Transamerica Business Credit Corporation and MMC/GATX
Partnership No. 1 at the end of the first quarter of 1998 in order to continue
to fund its operations. As of December 31, 1997, the Company's total bank
borrowings, debt and capital lease obligations were $23.8 million (including
imputed interest), which require payments in 1998, 1999, 2000 and 2001 of $8.3
million, $6.0 million, $6.3 million and $3.2 million. See Notes 3, 6 and 8 of
Notes to Financial Statements.
Since the Company began to offer server hosting services in 1995, the
Company has had significant negative cash flows from operating activities. Net
cash used for operating activities in 1995, 1996 and 1997 was $453,000, $3.0
million and $15.3 million, respectively. Net cash used for operating
activities in each of these periods was primarily the result of net losses,
offset in part by increases in accounts payable, accrued expenses and
depreciation and amortization.
Net cash used for investing activities in 1995, 1996 and 1997 was $77,000,
$3.6 million and $22.9 million, respectively. Net cash used for investing
activities in these periods was almost entirely the result of capital
expenditures for the construction of Internet Data Centers, leasehold
improvements, furniture and fixtures, and computers and other equipment.
Cash provided by financing activities in 1995, 1996 and 1997 was $692,000,
$10.2 million and $44.8 million, respectively. Of this cash, $9.4 million in
1996 and $23.5 million in 1997 resulted from the issuance of Preferred Stock,
net of issuance costs and related warrants, and $490,000, $719,000 and $17.0
million in 1995, 1996 and 1997 resulted from debt, bank borrowings and sale-
leaseback financings offset by payments thereon and required restricted
deposits.
32
<PAGE>
The Company's capital expenditures for 1997 were approximately $25.2 million
and during 1998 are expected to be at least $17.8 million. Such expenditures
are primarily for property and equipment, in particular equipment needed for
existing and future Internet Data Centers, including the additional Internet
Data Center in the San Francisco metropolitan area and the new site in the
London metropolitan area scheduled to be opened in the first half of 1998, 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. As discussed above, the Company currently has
available under existing equipment lines of credit and lease facilities an
aggregate of $5.8 million. Accordingly, the Company will need to obtain
additional financing during 1998 to fund the remaining $12.0 million of
expected capital expenditures for the year. As of December 31, 1997, the
Company also had commitments under capital leases and under noncancellable
operating leases of $4.4 million and $26.7 million, respectively, through
2007. See Note 6 of Notes to Financial Statements. The Company expects to meet
its working capital and capital expenditure requirements over the next 12
months, including such requirements associated with the Company's planned
expansion, with existing cash and cash equivalents and short-term investments,
the net proceeds from this offering, cash from sales of services and proceeds
from existing and future equipment loans and lease lines and working capital
lines of credit and possibly other borrowings. Currently, the Company is
negotiating to enter into additional credit facilities and believes it will
obtain such facilities on terms that are comparable to its existing
facilities. Thereafter, the Company may also need to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that the Company will be successful in
generating sufficient cash flows from operations or in raising capital in
sufficient amounts on terms acceptable to it. The failure of the Company to
raise capital when needed could have a material adverse effect on the
Company's business, results of operations and financial condition. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of its then-current stockholders would be reduced.
Furthermore, such equity securities might have rights, preferences or
privileges senior to those of the Company's Common Stock. See "Risk Factors--
Risks Associated with Planned Business Expansion."
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in financial statements. It does not, however,
require a specific format, but requires the Company to display an amount
representing total comprehensive income for the period in its financial
statements. The Company is in the process of determining its preferred format.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company has determined that it does not
have any separately reportable business segments.
33
<PAGE>
BUSINESS
THE COMPANY
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. The
Company's solutions include server hosting, Internet connectivity,
collaborative systems management and Internet technology services, which
together provide the high performance, scalability and expertise that
enterprises need to optimize their Internet operations. The Company delivers
its services from geographically distributed, state-of-the-art Internet Data
Centers that are connected through a redundant high performance dedicated
backbone ring. The Company's tailored solutions are designed to be seamlessly
integrated with existing enterprise systems architectures and enable customers
to outsource the monitoring, administration and optimization of their
equipment, applications and overall Internet operations. As of December 31,
1997, the Company had over 200 Internet Data Center customers and managed over
2,000 customer servers. The Company's customers range from pioneering
Internet-based businesses to Fortune 500 enterprises and include companies
such as Computer Associates International, Inc., GeoCities, Hewlett-Packard
Company, Hotmail Corporation, Inktomi Corporation, National Semiconductor
Corporation, PC World Communications, Inc., Software.net (a Cybersource
company) and USAToday Information Network.
The Company's Internet system and network management solutions are based on
a core set of server hosting and Internet connectivity services, which are
enhanced by a growing number of collaborative systems management and Internet
technology services. The Company's server hosting and Internet connectivity
services, through its Internet Data Centers, national backbone ring of
multiple high speed clear channel DS-3 lines and public and private network
peering interconnections, provide the foundation for high performance,
availability, scalability and reliability of customers' Internet operations.
The Company's collaborative systems management services, including performance
monitoring and site management reports, enable customers and the Company to
manage customers' Internet operations jointly, proactively and continuously.
Finally, the Company's Internet technology services, which include security
and content distribution, integrate best-of-breed technologies of leading
vendors with the Company's expertise to provide customers with scalable,
secure and high performing Internet applications. The Company's portfolio of
layered services optimizes the development, deployment and proactive
management of enterprises' mission-critical Internet operations.
The Company began offering server hosting services in late 1995, opened its
first dedicated Internet Data Center in August 1996 and introduced its
collaborative systems management and Internet technology services in 1997. The
Company currently operates six Internet Data Centers, consisting of
approximately 110,000 gross square feet, located in five metropolitan areas:
Los Angeles, New York, San Francisco, Seattle and Washington, D.C. The Company
intends to expand domestically and internationally, including the expected
addition of an additional Internet Data Center in the San Francisco
metropolitan area and a new site in the London metropolitan area in the first
half of 1998.
INDUSTRY BACKGROUND
Use of the Internet, including intranets and extranets, has grown rapidly in
recent years, driven by a number of factors, including the large and growing
installed base of advanced personal computers, improvements in network
architectures, increasing numbers of network-enabled applications, the
emergence of compelling content and commerce-enabling technologies and easier,
faster and cheaper access. International Data Corporation estimates that by
the end of 1997 the number of World Wide Web users worldwide would be
approximately 50 million and will continue to grow to approximately 129
million by the end of 2000. As a result of this growing use, the Internet has
become an important new global communications and commerce medium and
represents an enormous opportunity for
34
<PAGE>
enterprises to interact in new and different ways with a large number of
customers, employees, suppliers and partners.
Enterprises are responding to this opportunity by rapidly increasing their
investments in Internet sites and services. In the last several years, many
enterprises that focus solely on delivering services over the Internet have
emerged, and, more recently, mainstream businesses have begun to implement
Internet sites and commerce applications. This projected increase in
commercial Internet use should drive rapid growth in revenues from Internet
commerce which, according to International Data Corporation, are expected to
increase from approximately $10 billion in 1997 to approximately $120 billion
in 2000.
As use of the Internet grows, enterprises are increasing the breadth and
depth of their Internet product and service offerings. Pioneering Internet-
based businesses have developed Internet products and services in areas such
as finance, banking, entertainment, education and advertising. In addition,
mainstream businesses have begun to use the Internet for an expanding variety
of applications, ranging from corporate publicity and advertising, to sales,
distribution, customer service, employee training and communication with
business partners. These Internet operations are mission-critical for
virtually all Internet-based businesses and are becoming increasingly mission-
critical for many mainstream enterprises. Loss of the availability of mission-
critical Internet sites often results in losses in revenue and impairment of
customer goodwill. As a result, to ensure the reliability of their mission-
critical Internet operations, enterprises are requiring that these operations
have 24x7 performance, scalability and expert management.
The proliferation of Internet services offered and the growth in mission-
critical Internet applications are driving an increase in the complexity of
commercial Internet sites. In order to ensure the quality, reliability,
availability and redundancy of these Internet operations, corporate IT
departments must make substantial investments in developing Internet expertise
and infrastructure. They need geographically distributed state-of-the-art
facilities and networks that are monitored and managed 24x7 by experts in
Internet technology, can be upgraded to reflect changing technologies and can
be scaled as the needs of enterprises evolve. However, such a continuing
significant investment of resources is often an inefficient use of
enterprises' overall resources. As a result, corporate IT departments are
increasingly seeking collaborative outsourcing arrangements that can increase
performance, provide continuous operation of their Internet solutions and
reduce Internet operating expenses. Forrester Research, Inc. ("Forrester")
estimates that Internet hosting revenues will increase from approximately $200
million in 1997 to almost $8 billion by the year 2000. Furthermore, Forrester
estimates that the broader market for distributed infrastructure services,
which includes Internet hosting as well as wide area network ("WAN")
management, network design and end-user support will grow from approximately
$36 billion in 1997 to approximately $89 billion in 2000.
A variety of companies, such as regional ISPs, national ISPs and large IT
outsourcing firms, offer products and services that attempt to address
enterprises' Internet outsourcing needs. However, the solutions offered by
these companies fail to address certain elements required to ensure that
customers' mission-critical Internet operations are reliable, scalable and
high performing. For example, regional ISPs lack the geographically-
distributed data centers necessary to deliver content using replication or
caching technologies, which are becoming increasingly important as Internet
usage and bandwidth demands increase. National ISPs focus on providing
Internet access and generally have not developed sophisticated and reliable
server management capabilities. In addition, the Company believes that they
often oversubscribe their networks, resulting in poor performance and an
inability to handle effectively customers' sharp increases in bandwidth
demand. The Company believes that neither the regional nor the national ISPs
have developed the systems and application management, monitoring and customer
service capabilities required to support mission-critical Internet operations.
Finally, large IT outsourcing firms tend to focus on large enterprises that
want to outsource their entire IT infrastructure, not just their Internet
operations. These vendors often lack the network infrastructure
35
<PAGE>
and Internet expertise required to provide mission-critical Internet system
and network management services. As a result, Exodus believes a significant
opportunity exists for a highly-focused company to provide a combination of
server hosting, Internet connectivity, collaborative systems management and
Internet technology services that will enable reliable, high performance of
enterprises' mission-critical Internet operations.
THE EXODUS SOLUTION
Exodus is a leading provider of Internet system and network management
solutions for enterprises with mission-critical Internet operations. Its
server hosting, Internet connectivity, collaborative systems management and
Internet technology services are designed to provide enterprises with the high
performance, scalability and expertise necessary to optimize their Internet
operations. The Company's tailored solutions are designed to be seamlessly
integrated with existing enterprise systems architectures and enable customers
to outsource the monitoring, administration and optimization of their
equipment, applications and overall Internet operations. The Company believes
that its solutions enable customers to deploy and expand Internet operations
rapidly and cost-effectively, especially when compared to in-house solutions.
The Exodus solution provides the following key advantages to its customers:
HIGH PERFORMANCE. The Company supports enterprises' business objectives by
ensuring that their Internet sites perform effectively. The Company's
solutions provide the availability and reliability that customers need to be
able to depend on the Internet for mission-critical operations. The Company's
solutions are designed to maximize performance through features such as
geographically distributed Internet Data Centers, redundant and high speed
network design, content distribution technologies, security and 24x7
monitoring, diagnosis and problem resolution.
SCALABILITY. The Company's solutions are designed to be flexible and
scalable, ensuring customers a consistently high level of performance as their
Internet operations expand. The Company can quickly scale the amount of
hosting space, power, bandwidth or managed services that a customer receives,
all in a way transparent to the end-user. The Company believes that the
scalability of its solutions is a significant advantage over in-house
solutions.
INTERNET SYSTEM AND NETWORK MANAGEMENT EXPERTISE. By leveraging the
knowledge gained from supporting many leading-edge Internet operations, the
Company has developed a specialized Internet system and network management
expertise that is difficult for any single customer to replicate in-house.
Customers gain access to the Company's experience in network, system,
application and security management.
COLLABORATIVE AND PROACTIVE MANAGEMENT. The Company believes that
enterprises value Internet service relationships that are collaborative and
proactive. Therefore, the Company has developed a collaborative systems
management approach that provides customers with detailed monitoring,
reporting and management tools that can be accessed through the Internet to
control customers' Internet hardware, network, software and application
environments. This approach focuses on identifying and resolving potential
problems before they impact an Internet site's availability or performance.
Through the Company's system and network management framework, customers are
able to manage both mission-critical Internet operations housed at the
Company's Internet Data Centers and in-house IT applications. The Company
believes that this provides an important advantage to enterprises that seek to
outsource a portion of their Internet operations and to link the management of
the outsourced operations with in-house operations.
COST-EFFECTIVE SOLUTION. The Company's customers benefit from leveraging the
significant capital, operating and labor investments that the Company has made
to support distributed, mission-critical Internet operations. Most enterprises
today do not have the infrastructure that mission-critical
36
<PAGE>
Internet operations require, including data centers located adjacent to major
Internet connection points, 24x7 operations and specialized Internet
technology expertise. The Company believes that its solutions to optimize
enterprises' Internet operations are significantly more cost-effective than
most in-house solutions.
THE EXODUS STRATEGY
The Company's objective is to become the leading provider of Internet system
and network management solutions for enterprises with mission-critical
Internet operations. To achieve this objective, the Company's strategy
includes the following key elements:
EXTEND MARKET LEADERSHIP. The Company has played a leading role in creating
and defining the market for Internet system and network management solutions
and plans to establish itself as the brand name and leader in this market. The
Company believes that its highly-focused approach to serving this market
provides it with an advantage over competitors that also serve the entry-level
hosting market or the stand-alone Internet access market. The Company plans to
extend its leadership in the market for Internet system and network management
solutions both by aggressively continuing to expand its base of more than 180
Internet Data Center customers and by capitalizing on the growth of its
customers' needs for these solutions.
FOCUS ON COLLABORATIVE SYSTEMS MANAGEMENT AND INTERNET TECHNOLOGY
SERVICES. The Company believes that developing new services to manage
enterprises' mission-critical Internet operations jointly, proactively and
continuously will offer a compelling value proposition to its customers. The
Company has invested and is continuing to invest in services that will ensure
high availability and performance of customers' Internet-based applications,
including systems administration, disaster recovery, security and systems and
network management. As part of this strategy, the Company has developed and
intends to continue to develop relationships with providers of leading
Internet technologies in order to enhance its service offerings and meet its
customers' evolving needs.
CONTINUE DOMESTIC EXPANSION AND ESTABLISH GLOBAL PRESENCE. The Company is
continuing to build Internet Data Centers and expand direct sales coverage in
the United States and is also pursuing international opportunities. The
Company believes that having a number of widely distributed and networked
Internet Data Centers improves network performance and enhances overall site
redundancy. In addition, the Company's experience indicates that locating an
Internet Data Center within a geographic region can significantly enhance its
ability to attract new customers in that region. The Company intends to expand
domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area and a
new site in the London metropolitan area in the first half of 1998.
LEVERAGE EXPERTISE TO ADDRESS NEW MARKET OPPORTUNITIES. The Company intends
to leverage its significant achievements with pioneering Internet-based
businesses to address broader customer markets, such as e-commerce and
extranets. For example, mainstream corporations are increasingly establishing
extranets with suppliers and customers. However, many of these enterprises
lack the infrastructure and Internet expertise required to operate effectively
mission-critical Internet applications and are looking for collaborative
systems management assistance. The Company believes that its Internet system
and network management solutions can support the business needs of these
mainstream corporations by enabling them to deploy mission-critical extranet
operations successfully.
ESTABLISH STRATEGIC RELATIONSHIPS FOR TECHNOLOGY AND DISTRIBUTION. The
Company is establishing strategic relationships for technology and
distribution. The Company believes that establishing relationships with
technology developers enables it to leverage these enterprises' research and
development expertise cost-effectively. These relationships allow the Company
to gain
37
<PAGE>
more rapid access to new technologies and to provide value-added integrated
solutions for its customers. For example, the Company has worked closely with
Computer Associates to develop certain of the Company's collaborative systems
management services using Computer Associates' Unicenter(R) TNG(TM)
technology. The Company's product development personnel will continue to
develop vendor relationships and technology-based relationships, such as those
with Cisco, Raptor Systems, Inc., VeriFone, Inc. and CheckPoint Software
Technologies Limited, to enhance the Company's solutions. In addition, the
Company currently has distribution relationships with a number of companies
including Computer Associates, GE Capital Services, Poppe Tyson, Inc. and
SAVVIS Communications, Inc. and believes it can expand its customer base by
establishing additional distribution relationships with content developers,
system integrators, system vendors, consulting companies and ISPs.
SERVICES
The Company's services are designed to provide enterprises with the high
performance, scalability and expertise they need to optimize their mission-
critical Internet operations. The Company creates tailored solutions for its
customers based on their unique business and technical requirements, modifying
the services as customers' needs evolve. The services are delivered from
geographically distributed, state-of-the-art Internet Data Centers and include
server hosting, Internet connectivity, collaborative systems management and
Internet technology services. The server hosting and Internet connectivity
services provide the foundation for high performance, availability,
scalability and reliability of customers' Internet operations. The
collaborative systems management services enable customers and the Company to
manage customers' Internet operations jointly, proactively and continuously.
The Internet technology services integrate and enhance best-of-breed
technologies of leading vendors to support the Company's expertise to build
scalable, secure and high performing Internet applications. These services can
be layered to allow customers to outsource an increasing portion of the
management of their Internet operations. Customers pay monthly fees for the
services utilized, as well as one-time fees for installation and for any
equipment purchased from the Company.
SERVER HOSTING
The Company provides a broad range of server hosting services tailored to
meet the unique demands of sophisticated, multi-vendor mission-critical
Internet operations. The Company supports all leading Internet hardware and
software systems vendor platforms, including those from Compaq Computer
Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM,
Microsoft Corporation, Silicon Graphics, Inc., Sun Microsystems, Inc. and The
Santa Cruz Operation, Inc. This multi-vendor flexibility enables the customer
to retain complete control over the technical solution and enables its
Internet operations to be integrated into its existing IT technical
architecture. Because mission-critical Internet operations are typically very
dynamic and often require immediate hardware and software upgrades to maintain
targeted service levels, customers have unlimited 24x7 access to the Internet
Data Centers. Additional space and electrical power can be added as needed,
ensuring that the customer has access to additional server hosting services.
Customers can select from shared rack facilities, highly secure cabinets or
enclosed cage facilities based upon their business and technical requirements.
Most server hosting facilities include dedicated electrical power circuits to
ensure that each customer's electrical power requirements are met. Each
Internet Data Center is constructed based upon the requirements of high-
availability mission-critical computing with uninterruptible power supply and
back-up generators, fire suppression, raised floors, HVAC, separate cooling
zones, seismically braced racks, 24x7 operations and high levels of physical
security.
38
<PAGE>
The following chart summarizes the key features of the Company's current
server hosting services:
<TABLE>
<CAPTION>
SERVICE SIZE FEATURES
- -------------------------------------------------------------------------------
<S> <C> <C>
CyberRack 19" x 23" quarter, half or . Entry-level service providing
full rack economical solution for customers
that do not need dedicated
environments
. Secured environment that is shared
by multiple customers
- -------------------------------------------------------------------------------
CyberCabinet 19" x 23" full rack . Dedicated, locked cabinet
. Provides a single rack with the
security of a dedicated
environment
. Dedicated power circuits
- -------------------------------------------------------------------------------
Virtual Data 7' x 4' or 7' x 8' cage or . Dedicated, locked cage
Center customized to order . Provides flexibility in designing
and configuring Internet servers,
including space for multiple racks
and other customer computing
products
. Provides ventilation for heat
generating equipment
. Dedicated power circuits
- -------------------------------------------------------------------------------
ExodusVault 8' x 8' or 8' x 12' vault . Dedicated, enclosed security area
or customized to order . Provides additional security for
sensitive Internet transactions by
financial institutions and on-line
merchants
. Includes biometric identification
for entry and exit, motion and
temperature detectors, tiles
bolted to the floor, cameras, high
impact glass and secured data and
electrical lines
. Separate, dedicated power circuits
</TABLE>
INTERNET CONNECTIVITY
The Company's Internet connectivity services are designed to deliver the
scalability, high availability and performance required by high-volume,
mission-critical Internet operations. Since enterprises' mission-critical
Internet operations often experience network traffic spikes due to promotions
or events, the Company has a policy of undersubscribing its network by
provisioning significant excess capacity. In addition, customers can purchase
spare capacity and pay only for the bandwidth that is used.
To meet customers' requirements of near 100% availability, the Company's
network is designed to minimize the likelihood of any single point of failure.
Each Internet Data Center has multiple physical fiber paths into the
facility. The Company maintains multiple network links from multiple vendors
into each Internet connection point and regularly checks that its fiber
backbone is traversing physically-separated paths. Customers also enhance
their Internet site's availability by physically duplicating their site within
multiple Internet Data Centers and then synchronizing applications and content
via the Company's private fiber backbone network. This network architecture
optimizes the availability of a customer's site, even in the event of a link
failure.
39
<PAGE>
The Company's Internet connectivity services are also designed to
consistently deliver low-latency and peak network performance. The Company's
backbone engineering personnel continuously monitor traffic patterns and
congestion points throughout the Internet and dynamically reroute traffic
flows to optimize end-user response times. The Company also provides peak
network performance by maintaining what it believes is one of the largest
number of direct public and private network peering interconnections in the
industry. The Company's network includes private peering interconnections with
eight national ISPs and public peering interconnections with over 120 ISPs,
including many of the largest providers.
For customers seeking a direct communications link to the site of another
customer that is located at the same Internet Data Center, the Company offers
highly secure, fast and efficient cross-connections.
COLLABORATIVE SYSTEMS MANAGEMENT
The Company's collaborative systems management services support mission-
critical Internet operations by providing the customer with detailed
monitoring, reporting and management tools to control their hardware, network,
software and application environments. Through the Company's system and
network management framework, customers are able to manage both mission-
critical Internet operations housed at the Company's Internet Data Centers and
in-house IT applications. The Company believes that this provides an important
advantage to enterprises that seek to outsource a portion of their Internet
operations and to link the management of the outsourced operations with in-
house operations. The Company's proactive service methodology focuses on
identifying and resolving potential problems before they ever impact an
Internet site's availability or performance. The Company's sophisticated
Internet system and network management solutions enable the Company to
identify and to begin to resolve hardware, software, network and application
problems, frequently before the customer is even aware that a problem exists.
The Company offers the services summarized in the following chart:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SystemHealth Basic . 24x7 proactive monitoring of . Maximizes availability of
Monitoring Service Internet server processes customers' mission-critical
. 24x7 rebooting of servers Internet operations by
. Monthly and daily reports proactively identifying
available via the Web potential problems
. Allows customers to leverage
Exodus' systems expertise
- ----------------------------------------------------------------------------------------
SystemHealth Pro . SystemHealth Basic Monitoring . Includes advantages of
Monitoring Service service plus an Exodus system SystemHealth Basic Monitoring
administrator leads problem Service plus offloads problem
resolution if problem arises resolution to Exodus
. Automated process restarts
- ----------------------------------------------------------------------------------------
DatabaseHealth . 24x7 proactive monitoring of . Maximizes availability of
Basic Monitoring SQL server processes customers' database resources
Service . Automated customer notification by proactively identifying
of database problems potential problems
. Monthly and daily reports
available via the Web
- ----------------------------------------------------------------------------------------
DatabaseHealth Pro . DatabaseHealth Basic Monitoring . Includes advantages of
Monitoring Service service plus an Exodus system DatabaseHealth Basic
administrator leads problem Monitoring Service plus
resolution if problem arises offloads problem resolution to
. Automated process restarts Exodus
. Problem resolution
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Site Management . Bandwidth usage reports . Assists in capacity planning
Reports . Graphic and tabular statistics and management of network
. Information delivered to resources
customers via the Internet on
an hourly, daily and semi-
monthly basis
- ----------------------------------------------------------------------------------------
Internet Disaster . Tape management services to . Maximizes the availability of
Recovery restore sites after a system customers' applications
failure . Provides additional redundancy
. Distributed load balancing in the event of Website
services to seamlessly re-route failure
user traffic to an alternate
site in the event of a failure
- ----------------------------------------------------------------------------------------
Internet Systems . Assigned project manager . Assures a smooth transition to
Integration responsible for developing a an Exodus Internet Data Center
migration plan, managing the . Provides for ongoing support
site's installation and
providing ongoing account
support
. Company acts as value-added
reseller of Cisco products,
primarily routers, hubs and
switching equipment, in
connection with server hosting
services
</TABLE>
In addition, the following chart summarizes the key features of an
additional collaborative systems management service being developed by the
Company and expected to be available in the first half of 1998:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
HeadsUp Site . Will provide an integrated . Will allow customers to view
Monitor platform for delivering key the status of their entire
customer information Internet operations located at
. Will perform real-time Exodus through the Internet
monitoring of URLs, bandwidth, via a single integrated
server performance and Internet console
Data Center activities . Will proactively alert
customers with updates on any
internal or external network
event that might impact their
site
</TABLE>
41
<PAGE>
INTERNET TECHNOLOGY
The Company's Internet technology services are developed by integrating
best-of-breed technologies of leading vendors with its own Internet expertise.
Customers may select any or all of the Company's available Internet technology
services, depending on their needs. The following chart summarizes the key
features of the Internet technology services currently offered by the Company:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Exodus NetSecure . Full-range of perimeter . Enhances site security and
firewall security, encryption, integrity
automated intrusion monitoring,
site security auditing and
consulting services
. Potential intruders identified
and blocked from customer's
site
. Site's security probed and
tested 24x7 and audit reports
generated on potential security
risks
. Proactive agendas developed
before site integrity is
compromised
- ----------------------------------------------------------------------------------------
Exodus Multipath . Site requests intelligently . Increases availability and
Site balanced across multiple performance for multi-server
servers located within a single mission-critical Internet
Internet Data Center based on sites
server utilization,
availability and response times
- ----------------------------------------------------------------------------------------
Exodus Multipath . Intelligent routing services . Maximizes availability and
Net that geographically distribute performance for Internet sites
end-user requests located across multiple
. Traffic routed based upon Internet Data Centers
server performance and . Optimizes end-user response
availability, Internet traffic time
patterns and the geographic . Provides sophisticated
locations of the requesters Internet site redundancy
- ----------------------------------------------------------------------------------------
Exodus NetHost . Turnkey infrastructure services . Cost-effective solution for
for delivering high-performance one-time events such as
cybercast events software releases and concerts
. Includes high-bandwidth
connectivity, high performance
UNIX and NT servers and
specialized systems
administration and management
before and during the event
</TABLE>
The Company is developing certain additional Internet technology services in
the areas of e-commerce, collaborative computing, ad-servers and broadcasting
that it expects to be available in the first half of 1998.
42
<PAGE>
CUSTOMERS
The Company has established a diversified base of customers in a wide range
of industries, including finance, entertainment, high technology, education,
healthcare and publishing. As of December 31, 1997, the Company had over 200
Internet Data Center customers. The following is a representative list of the
Company's Internet Data Center customers, each of which are expected to
generate annualized revenues for the Company in excess of $34,000 based upon
the monthly recurring charges for such customers in January 1998.
<TABLE>
<S> <C> <C>
AdKnowledge GeoCities The Santa Cruz Operation, Inc.
(formerly FocaLink) GolfWeb, Inc. Sierra On-Line, Inc.
Applied Materials, Inc. Hearst New Media Software.net (a
Blizzard Entertainment Hewlett-Packard Company Cybersource Company)
BMG Entertainment Hotmail Corporation Synopsys, Inc.
Computer Associates Inktomi Corporation Tripod, Inc.
International, Inc. Internet Profiles United Media
CondeNet Inc. Corporation ("I/Pro") USAToday
DoubleClick Inc. Juno Online Services, L.P. Visto Corporation
DHL Airways, Inc. Mpath Interactive, Inc. (formerly RoamPage, Inc.)
E-Loan National Semiconductor Web Communications
Eidos Interactive, Inc. Corporation WhoWhere? Inc.
PC World Communications, Inc.
Poppe Tyson, Inc.
</TABLE>
The Company's contracts with its customers generally cover the provision of
services by the Company for a one year period and may contain, among other
things, certain service level warranties. Service agreements entered into with
customers prior to August 1997 typically included service level warranties
which provided that, if the Company failed to provide Internet Data Center
services to a customer for more than 24 consecutive hours, such customer's
account would be credited for the charges the customer paid for services it did
not receive during such period. Since August 1997, the Company's service
agreements have typically included service level warranties which provide that,
if the Company fails to provide Internet Data Center services to a customer for
more than two consecutive hours, such customer's account would be credited for
one day of service and, if for more than eight consecutive hours, one week of
service, with each customer limited to one credit per month. Certain customers
have received more favorable terms. To date, only a limited number of customers
has utilized this warranty to receive a credit for a period of free service.
See "Risk Factors--Risk of System Failure."
The following examples illustrate how the Company's customers use its server
hosting, Internet connectivity, collaborative systems management and Internet
technology services.
GEOCITIES
In 1997, GeoCities, a leading provider of free home pages on the Internet,
selected the Company to colocate its Internet servers and administer its
rapidly growing Internet computing requirements. GeoCities is one of the most
frequently visited sites on the Internet measuring over 100 million hits a day
on a peak day, and GeoCities relied heavily upon the Company's advanced
professional services capabilities to plan and manage the successful migration
of the GeoCities site into Exodus' Internet Data Center facilities. This
migration posed unique challenges, including minimizing downtime for GeoCities'
more than one million "homesteaders" (users), physically migrating more than 45
Internet servers and shifting in real-time the network routing of more than 160
Mbps of sustained Internet traffic. The Company currently provides GeoCities
and its users reliable connectivity, scalable bandwidth and 24x7 monitoring,
systems administration and disaster recovery services.
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<PAGE>
HOTMAIL CORPORATION
In 1996, Hotmail Corporation ("Hotmail"), a leading provider of globally-
accessible, free Web-based electronic mail, engaged the Company to host its
Internet servers to gain access to greater bandwidth to support Hotmail's
growing customer base. Hotmail's primary challenge was to find a company that
could support the significant growth that it was anticipating for its
services. Hotmail selected the Company, based upon the scalability and high
performance of the Company's Internet Data Center and network solutions, as
well as on the Company's reputation for high quality customer service. Within
a year of colocating its Internet site at the Company's Internet Data Center,
Hotmail's subscriber base has grown from 400,000 to over 10 million, the
number of servers required to operate its site has expanded from 16 to 200,
and Hotmail's sustained network traffic has grown from 10 Mbps to 140 Mbps.
The Company currently manages Hotmail's Web site daily and provides it with
the flexibility for expansion, additional technical support and bandwidth
capacity that can be increased to keep pace with Hotmail's growing subscriber
base.
NATIONAL SEMICONDUCTOR CORPORATION
In 1997, National Semiconductor Corporation ("National"), a global
semiconductor manufacturer, selected the Company for its application
management expertise. National depends on a Java-based e-commerce application
on its Internet site to sell components. This application reduces the time it
takes for customers to determine which components they need, and National
views it as a competitive advantage. Exodus provides the systems
administration, hardware maintenance and tape back-up necessary to manage this
application and to keep it available. National's Internet site serves a broad
array of additional functions, and use of it has grown significantly in the
last 18 months to a few hundred thousand hits per day.
HEARST NEW MEDIA & TECHNOLOGY
In 1997, Hearst New Media & Technology ("Hearst"), a unit of the Hearst
Corporation, decided to co-locate Internet hosting for its Web sites,
including "homearts.com," a leading site for women on the Web, to the
Company's Internet Data Center located in the New York metropolitan area.
Hearst chose the Company for its 24-hour per day monitoring services and its
array of systems management services. Hearst's objective was to improve
network performance, monitoring and systems management capabilities, allowing
the Hearst team to focus on further refinement and expansion of the site. The
Company now monitors Hearst's systems through its Unicenter(R) TNG(TM)-based
services and sends Hearst frequent Web-based reports that track the status of
over 40 domains.
SALES, DISTRIBUTION AND MARKETING
The Company's sales, distribution and marketing objective is to achieve
broad market penetration by targeting enterprises that depend upon the
Internet for mission-critical operations. As of December 31, 1997, the Company
had 86 employees engaged in sales, distribution and marketing.
The Company sells its services to enterprises directly through its sales
force and indirectly through its channel partners. The Company is actively
seeking to increase its sales and distribution capabilities and coverage in
the United States and to expand internationally as new Internet Data Centers
are installed outside of the United States. Currently, most of the Company's
sales are derived through the efforts of its sales force. The Company's sales
force is organized into three separate groups, consisting of field sales,
strategic accounts and telesales, each of which is further divided into four
geographical regions within the United States. Sales engineers and client
integration engineers support the Company's sales force, providing pre- and
post-sales support to ensure that customer services are implemented properly
and efficiently.
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The Company's sales force is also developing an indirect sales channel for
the Company's products by targeting content developers, system integrators,
system vendors, consulting companies and ISPs. The Company currently has
distribution relationships with a number of companies, including Computer
Associates, GE Capital Services Corporation, SAVVIS Communications, Inc. and
Poppe Tyson, Inc. and intends to expand its distribution relationships in the
future. The Company's channel partners typically receive referral fees for
bringing customers to the Company.
The Company's marketing organization is responsible for product management,
public relations and marketing communications. Product management includes
defining the product roadmap and bringing to market the portfolio of services
and programs that will enable the Company to meet its business objectives.
These activities include product strategy and definition, pricing, competitive
analysis, product launches, channel program management and product lifecycle
project management. The Company stimulates product demand through a broad
range of marketing communications and public relations activities. Primary
marketing communications vehicles include collateral, advertising, trade
shows, direct response programs, event sponsorship and management of the
Company's Web site. Public relations focuses on cultivating industry analyst
and media relationships with the goal of securing broad media coverage and
public recognition of the Company's leadership position in the market for
Internet system and network management solutions.
CUSTOMER SERVICE
The Company offers superior customer service by understanding the technical
requirements and business objectives of its customers and fulfilling their
needs proactively on an individual basis. By working closely with its
customers, the Company is able to optimize the performance of its customers'
Internet operations, avoid downtime, resolve quickly any problems that may
arise and make appropriate adjustments in services as customer needs change
over time. As the Company works with its customers over time, it solicits
their feedback to ensure that it is offering the appropriate types and quality
of service. The Company uses advanced software tools to aid in its customer
monitoring and service efforts. Many customer service employees have been
specifically trained and, as appropriate, certified by the vendors of the
Company's software tools, including Sun Microsystems, Inc., Microsoft
Corporation, Oracle Corporation and Computer Associates.
Customer service begins before a sale, when the Company provides technical
support for complex orders. During the installation phase, the Company assigns
a transition team and a project manager, who also retains responsibility for
the account after installation, to assist the new customer with the
installation process. In addition, the Company provides system integration
services between the customer's Web site and legacy systems. After
installation, the primary customer support area is each Internet Data Center's
Network Control Center, which is operated 24x7 by engineers who answer
customer calls, monitor site and network operations and activate teams to
solve problems that arise. To solve complex problems, the Company draws on the
collective expertise at all of its Internet Data Centers, creating a
nationwide engineering pool. The Company's customer service personnel are also
available to assist customers whose operations require specialized procedures.
Finally, the Company employs network engineers who collaborate with a
customer to design and maintain the LAN environment within the Internet Data
Center and integrate the customer's home LAN and WAN with its Internet site.
The network engineers are trained on NT and Solaris and other UNIX platforms
as well as Cisco routers and switches, and they serve as the second level of
support for customer issues that cannot be resolved by the Network Control
Center. The Company also employs a group of backbone engineers who are
responsible for designing the network that connects the Company's Internet
Data Centers. This group constantly monitors the network design and
effectiveness to optimize performance for customers, rerouting and redesigning
traffic as conditions require.
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As of December 31, 1997, the Company had 93 employees dedicated to customer
service and network and backbone engineering.
NETWORK DESIGN
The Company's high performance server network is designed to provide the
highest possible availability in order to enable its customers to achieve
reliable Internet operations. It is comprised of the Company's six Internet
Data Centers interconnected by a high-performance network backbone ring and
connected to the Internet through public peering interconnections and private
peering interconnections. Within each Internet Data Center, a virtual LAN
environment provides redundant, high-speed internal connectivity.
The Company's Internet Data Centers are located near most of the major
Internet exchange points ("IXPs") and are connected to their local IXPs by
multiple DS-3 or OC-3c links, provisioned by Teleport Communications Group
Inc., MFS Communications Company, Inc., Brooks Fiber Properties, Inc. and
Regional Bell Operating Companies. These links to the local exchange points,
combined with private exchanges with ISPs, connect the customers' traffic to
the Internet. In order to provide for high redundancy, performance and
capacity, and to perform real-time content replication or caching across its
Internet Data Centers, the Company has multiple clear channel DS-3 links
interconnecting the Internet Data Centers. The Company has engineered its
backbone with a geographically diverse fiber path to provide high
availability, even in the event of a link failure. The Company is planning to
upgrade to an OC-3c backbone in order to accommodate expected traffic growth.
For customers with servers located at multiple Internet Data Centers, the
Company is developing dynamic response time and load balancing technologies
for optimal routing.
Within each Internet Data Center, the Company deploys a virtual LAN
environment to increase reliability and performance and provides customers
with redundant connectivity to the Exodus backbone and the Internet. DS-3 and
OC-3c lines are strategically placed on different routers to avoid any single
points of failure. The Company uses a combination of public and private
peering interconnections to achieve fast and reliable delivery of content. It
has private peering interconnections with eight national ISPs, public peering
interconnections with over 120 ISPs, including many of the largest providers,
and a presence at each of the major U.S. IXPs. The Company will continue to
work with ISPs to establish direct private peering interconnections at each of
its Internet Data Centers to provide low latency content delivery. This broad
combination of private and public peering interconnections provides customers
with the reliability and redundancy that they need to ensure their content
reaches its intended destination. The Company has a general policy of keeping
significant unutilized network capacity for every LAN, WAN and public and
private peering link to allow for spikes in demand or line outages. As a
result, when the sustained utilized capacity of the link approaches 50%, the
Company begins to plan for the expansion of its available capacity.
If the carriers that operate the IXPs were to discontinue their support of
the peering points and no alternative providers emerged, or such alternative
providers increased the cost of utilizing the IXPs, the distribution of
content through the IXPs, including content distributed by the Company, would
be significantly constrained. Furthermore, as traffic through the IXPs
increases, if commensurate increases in bandwidth are not added, the Company's
ability to distribute content rapidly and reliably through these networks will
be adversely affected. Many of the operators of the private peering
interconnections are competitors of the Company. Currently, the Company does
not pay a fee for many of these interconnections, and if these organizations
were to begin to charge the Company for utilizing these interconnections, or,
in the cases where the Company currently pays a fee, to increase the pricing
associated with utilizing these interconnections, the Company may be required
to identify alternative methods through which it can distribute its customers'
content. See "Risk Factors--Dependence Upon Network Infrastructure."
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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. In particular, the Company is dependent on
WorldCom and certain other telecommunications providers for its backbone
capacity and is therefore dependent on such companies to maintain the
operational integrity of its backbone. The routers, switches and modems used
in the Company's telecommunications infrastructure are currently supplied
primarily by 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. See "Risk Factors--Dependence Upon Network
Infrastructure" and "--Dependence on Third-Party Suppliers."
The Company must continue to expand and adapt its network infrastructure as
the number of users and the amount of information they wish to transport
increase and to meet changing customer requirements. The expansion and
adaptation of the Company's telecommunications infrastructure will require
substantial financial, operational and management resources as the Company
negotiates telecommunications capacity with its existing and other network
infrastructure suppliers. Due to the limited deployment of the Company's
services to date, the ability of the Company's network to connect and manage a
substantially larger number of customers at high transmission speeds is as yet
unknown, and the Company faces risks related to the network's ability to be
scaled up to its expected customer levels while maintaining superior
performance. In addition, as the Company upgrades its telecommunications
infrastructure to increase bandwidth available to its customers, it is likely
to encounter a certain level of equipment or software incompatibility which
may cause delays in implementation. See "Risk Factors--Unproven Network
Scalability."
The Company's operations are dependent upon its ability to protect its
network infrastructure and customers' equipment against damage from human
error, fire, earthquakes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Despite
precautions taken by, and planned to be taken by the Company, the occurrence
of a natural disaster or other unanticipated problems at one or more of the
Company's Internet Data Centers could result in interruptions in the services
provided by the Company or significant damage to customer equipment. In
addition, failure of any of the Company's telecommunications providers, such
as WorldCom, to provide the data communications capacity required by the
Company, as a result of human error, a natural disaster or other operational
disruption, could result in interruptions in the Company's services. See "Risk
Factors--Risk of System Failure."
The increased use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has only
recently begun to develop, and the Company's success will depend in large part
on continued growth in the use of the Internet. Critical issues concerning the
commercial use of the Internet, including security, reliability, cost, ease of
access, quality of service and necessary increases in bandwidth availability,
remain unresolved and are likely to affect the development of the market for
the Company's services. The recent growth in the use of the Internet has
caused frequent periods of performance degradation, requiring the upgrade of
routers 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.
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Potentially increased performance provided by the services of the Company and
others is ultimately limited by and reliant upon the speed and reliability of
the networks operated by third parties. Consequently, the emergence and growth
of the market for the Company's services is dependent on improvements being
made to the entire Internet infrastructure to alleviate overloading and
congestion. See "Risk Factors--Dependence on the Internet and Internet
Infrastructure Development."
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Certain
of the Company's services rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information. Despite
the Company's design and implementation of a variety of network security
measures, there can be no assurance that unauthorized access, computer
viruses, accidental or intentional actions and other disruptions will not
occur. See "Risk Factors--System Security Risks."
PRODUCT DEVELOPMENT
The Company's product development group is primarily responsible for
evaluating and integrating best-of-breed technologies with the Company's
service offerings to support its customers' mission-critical Internet
operations. The Company believes that establishing relationships with
technology enterprises enables it to leverage these enterprises' research and
development expertise. These relationships allow the Company to gain quicker
access to new technologies and to provide value-added integrated solutions for
its customers. For example, the Company has worked very closely with Computer
Associates, including having dedicated Computer Associates engineers located
at the Company, to develop certain of the Company's collaborative systems
management services using Computer Associates' Unicenter(R) TNG(TM)
technology. See "--Relationship with Computer Associates." The Company's
product development personnel will continue to develop strategic
relationships, such as the one with Computer Associates, and vendor and
technology-based relationships, such as those it has with Raptor Systems,
Inc., VeriFone, Inc. and Checkpoint Software Technologies Limited, to enhance
the Company's services through the integration of leading technologies. To the
extent that the Company is unable to obtain the technology necessary to meet
its customers' needs from a third party, the Company may need to develop the
technology itself. As of December 31, 1997, the Company employed 10 persons in
product development.
The Company's future success will depend, in part, on its ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of its current and prospective customers and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The market for the Company's
services is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition
and frequent new service introductions. There can be no assurance that future
advances in technology will be beneficial to, or compatible with, the
Company's business or that the Company will be able to incorporate such
advances on a cost-effective and timely basis into its business. Moreover,
technological advances may have the effect of encouraging certain of the
Company's current or future customers to rely on in-house personnel and
equipment to furnish the services currently provided by the Company. In
addition, keeping pace with technological advances in the Company's industry
may require substantial expenditures and lead time.
The Company incurred $70,000, $444,000 and $1.6 million in product
development expenses during the years ended December 31, 1995, 1996 and 1997,
respectively.
RELATIONSHIP WITH COMPUTER ASSOCIATES
The Company has a strategic relationship with Computer Associates
encompassing sales, marketing, operations and engineering. Under the terms of
the Company's agreement with Computer
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Associates, the Company is deploying the Unicenter(R) TNG(TM) systems, network
and application management software products to manage the Company's customer
service operations and to monitor its customers' Internet solutions. The
Unicenter technology is the Company's primary enterprise management tool and
is the technology on which many of the Company's value-added services are and
will be based. To facilitate the Company's deployment of Unicenter TNG,
Computer Associates has located dedicated software engineers at the Company.
By becoming one of the leading Unicenter TNG implementations, the Company has
also become a primary reference account for Computer Associates' extensive
sales force, which has also created opportunities for the Company to market
its services actively into large enterprises.
Under the agreement with Computer Associates, to the extent that Computer
Associates offers software that includes functionality that the Company wants
to provide in its service offerings, the Company must generally utilize the
software offered by Computer Associates, as long as such software meets the
Company's requirements. 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. In connection with this agreement, the Company agreed to host
Computer Associates' hosting servers at prices below the Company's standard
rates.
COMPETITION
The market served by the Company is highly competitive. There are few
substantial barriers to entry, and the Company expects that it will face
additional competition from existing competitors and new market entrants in
the future. The principal competitive factors in this market include Internet
system engineering expertise, customer service, network capability,
reliability, quality of service and scalability, broad geographic presence,
brand name, technical expertise and functionality, the variety of services
offered, the ability to maintain and expand distribution channels, customer
support, price, the timing of introductions of new services, network security,
financial resources and conformity with industry standards. There can be no
assurance that the Company will have the resources or expertise to compete
successfully in the future.
The Company's current and potential competitors in the market include: (i)
providers of server hosting services; (ii) national and regional ISPs; (iii)
global, regional and local telecommunications companies and RBOCs; and (iv)
large IT outsourcing firms. The Company's competitors may operate in one or
more of these areas and include companies such as certain subsidiaries of GTE
Corporation and WorldCom, IBM and certain business units of GlobalCenter,
which recently announced its proposed acquisition by Frontier Corporation.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than can the
Company. In addition, these competitors have entered and will likely continue
to enter into joint ventures or consortiums to provide additional services
competitive with those provided by the Company.
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Certain of the Company's competitors may be able to provide customers with
additional benefits in connection with the Internet system and network
management solutions, including reduced communications costs, which could
reduce the overall costs of their services relative to the Company's. There
can be no assurance that the Company will be able to offset the effects of any
such price reductions. In addition, the Company believes that the businesses
in which the Company competes are likely to encounter consolidation in the
near future, which could result in increased price and other competition that
could have a material adverse effect on the Company's business, results of
operations and financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in its products and services. The Company has no
patented technology that would preclude or inhibit competitors from entering
the Company's market. The Company has entered into confidentiality and
invention assignment agreements with its employees, and nondisclosure
agreements with its suppliers, distributors and appropriate customers in order
to limit access to and disclosure of its proprietary information. There can be
no assurance that these contractual arrangements or the other steps taken by
the Company to protect its intellectual property will prove sufficient to
prevent misappropriation of the Company's technology or to deter independent
third-party development of similar technologies. The laws of certain foreign
countries may not protect the Company's products, services or intellectual
property rights to the same extent as do the laws of the United States. The
Company also relies on certain technologies that it licenses from third
parties, such as Computer Associates. See "Risk Factors--Dependence on Third-
Party Suppliers." There can be no assurance that these third-party technology
licenses will continue to be available to the Company on commercially
reasonable terms. The loss of such technology could require the Company to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could materially adversely affect the Company's business,
results of operations and financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that participants
in its markets will be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows.
Any such claim, whether meritorious or not, could be time consuming, result in
costly litigation, cause product installation delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to the Company or at
all. As a result, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition.
GOVERNMENT REGULATION
The Company is not currently subject to direct federal, state or local
government regulation, other than regulations applicable to businesses
generally. There is currently only a small body of laws and regulations
directly applicable to access to or commerce on the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted at the federal, state and local
levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. The adoption of any such laws or regulations might
decrease the growth of the Internet, which in turn could decrease the demand
for the services of the Company or increase the cost of doing business or in
some other manner have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, applicability to
the Internet of existing laws governing issues such as property ownership,
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copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies. In addition, as the Company's services are available over the
Internet in multiple states and foreign countries, and as the Company
facilitates sales by its customers to end users located in such states and
foreign countries, such jurisdictions may claim that the Company is required
to qualify to do business as a foreign corporation in each such state or
foreign country. The Company is qualified to do business in only a limited
number of states, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify and could result in
the inability of the Company to enforce contracts in such jurisdictions. See
"Risk Factors--Governmental Regulation."
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
access providers are currently pending. Certain businesses, organizations and
individuals have in the past sent unsolicited commercial e-mails from servers
hosted at the Company's facilities to massive numbers of people, typically to
advertise products or services. This practice, known as "spamming," can lead
to complaints against service providers that enable such activities,
particularly where recipients view the materials received as offensive. In
addition, certain ISPs and other online services companies could deny network
access to companies that allow undesired content or spamming to be transmitted
through their networks. The Company has in the past received, and may in the
future receive, letters from recipients of information transmitted by the
Company's customers objecting to such transmission. Although the Company
prohibits its customers by contract from spamming, there can be no assurance
that its customers will not engage in this practice, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Risks Associated With Information
Disseminated Through the Company's Network."
EMPLOYEES
As of December 31, 1997, the Company had 220 employees, including 86 people
in sales, distribution and marketing, 10 people in product development, 93
people in customer service and network and backbone engineering and 31 people
in finance and administration. The Company believes that its future success
will depend in part on its continued ability to attract, hire and retain
qualified personnel. The competition for such personnel is intense, and there
can be no assurance that the Company will be able to identify, attract and
retain such personnel in the future. None of the Company's employees is
represented by a labor union, and management believes that its employee
relations are good. See "Risk Factors--Dependence on Key Personnel" and "--
Management of Growth."
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FACILITIES
The Company's executive offices are located in Santa Clara, California and
consist of approximately 36,000 square feet that are leased pursuant to an
agreement that expires in 2002. The Company leases the facilities for its
current Internet Data Centers in the following metropolitan areas and specific
cities, which cover an aggregate of approximately 110,000 gross square feet
and expire in the years indicated below:
<TABLE>
<CAPTION>
LEASE
METROPOLITAN AREA CITY AND STATE EXPIRATION
----------------- -------------- ----------
<S> <C> <C>
San Francisco Santa Clara, CA 2001
Santa Clara, CA 2002
New York Jersey City, NJ 2007
Seattle Seattle, WA 2007
Los Angeles Irvine, CA 2007
Washington, D.C. Herndon, VA 2004
</TABLE>
Most of the Company's leases provide for a renewal option upon the
expiration of the initial term. The Company currently maintains sales offices
in unutilized space in its Internet Data Centers. The Company intends to
expand domestically and internationally, including the expected addition of an
additional Internet Data Center in the San Francisco metropolitan area and a
new site in the London metropolitan area in the first half of 1998. The
Company has recently entered into a lease for the space needed for the
additional site in the San Francisco metropolitan area which covers 55,000
square feet and expires in 2009. The Company believes that it will be able to
lease the additional space required for the London facility on commercially
reasonable terms.
LEGAL PROCEEDINGS
On July 30, 1997, Michael Blackman ("Blackman"), a consultant to the Company
from October 1996 through January 1997, filed a complaint against the Company
in the Superior Court for the State of California in and for the County of
Santa Clara alleging damages 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
K.B. Chandrasekhar...... 37 President, Chief Executive Officer and
Chairman of the Board of Directors
Richard S. Stoltz....... 53 Chief Operating Officer and Chief Financial Officer
Mark Bonham............. 38 Vice President, Marketing
B.V. Jagadeesh.......... 40 Vice President, Engineering
Sam S. Mohamad.......... 38 Vice President, Worldwide Sales
Louis J. Muggeo......... 46 Vice President, Customer Support and Services
Robert V. Sanford III... 49 Vice President, Operations
Frederick W.W. 36
Bolander(1)............ Director
John R. Dougery(2)...... 57 Director
Mark Dubovoy(3)......... 51 Director
Max D. Hopper........... 63 Director
Peter A. Howley(1)...... 57 Director
Daniel C. Lynch......... 56 Director
Thadeus J. 35
Mocarski(1)(3)......... Director
Kanwal S. Rekhi(2)...... 51 Director
</TABLE>
- --------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
(3)Member of the Finance Committee.
Each director will hold office until the next Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors (the "Board").
K.B. CHANDRASEKHAR has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its incorporation in
California in February 1995. From 1992 to May 1995, he served as President and
a director of Fouress, Inc., a network software design and development firm
and the Company's predecessor, which he co-founded. Mr. Chandrasekhar holds a
B.S. degree in physics from Madras University and a B.Tech. degree in
electronics and communications from the Madras Institute of Technology.
RICHARD S. STOLTZ has served as Chief Operating Officer and Chief Financial
Officer of the Company since October 1995 and was a director of the Company
from January 1996 to October 1996. From February 1994 to September 1995, he
was an independent consultant specializing in financial and management
information system issues. From 1992 to January 1994, Mr. Stoltz served as
Vice President of Finance, Treasurer and Chief Financial Officer of Radius
Inc., a computer hardware company. Mr. Stoltz holds a B.S.B.A. degree in
marketing and an M.B.A. from The American University.
MARK BONHAM has served as Vice President, Marketing of the Company since
January 1997. From June 1995 to January 1997, he served as Group Marketing
Manager of Sun Microsystems, Inc.
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From March 1994 to June 1995, Mr. Bonham served as Service Marketing Manager
of 3Com, and from 1987 to March 1994, he served in various positions at
Hewlett-Packard Company, most recently as Marketing Program Manager. Mr.
Bonham holds a B.A. degree in political science from Haverford College and an
M.M. degree from the Kellogg Graduate School of Management, Northwestern
University.
B.V. JAGADEESH has served as Vice President, Engineering of the Company
since its incorporation in California in February 1995 and was a director of
the Company from February 1995 to February 1996. From February 1994 to May
1995, he served as Vice President, Engineering and a director of Fouress,
Inc., the Company's predecessor, which he co-founded, and, from January 1992
to January 1994, he served as a Senior Software Engineer for Novell, Inc. Mr.
Jagadeesh holds a B.S. degree in electrical engineering from Bangalore
University and an M.S. degree in computer science engineering from Bombay
University.
SAM S. MOHAMAD has served as Vice President, Worldwide Sales of the Company
since February 1997. From March 1996 to January 1997, he served as Vice
President of Sales and Marketing of Genuity, Inc., a provider of data center
products and services. From 1987 to February 1996, Mr. Mohamad held various
positions at Oracle Corporation, most recently as Vice President of Direct
Sales and Marketing.
LOUIS J. MUGGEO has served as Vice President, Customer Support and Services
of the Company since February 1998. From May 1993 to February 1998, he served
in various positions at Sybase, Inc., a client/server relational database
management software company, most recently as Vice President/General Manager
for Western Area Field Services. From 1990 to May 1993, Mr. Muggeo served in
various positions at ViewStar Corporation (now Mosaix, Inc.), a document
management and workflow software company, most recently as Director, Education
Services.
ROBERT V. SANFORD III has served as Vice President, Operations of the
Company since April 1997. From February 1994 to April 1997, he was an
independent consultant specializing in management information system issues,
and from October 1992 to February 1994, he served as Director of IS at Radius
Inc. Mr. Sanford holds a B.A. degree in business administration from
California State University, San Bernardino.
FREDERICK W. W. BOLANDER has served as a director of the Company since
October 1996. He has been associated with Apex Investment Partners, a venture
capital firm, in various capacities since October 1994 and has been a general
partner of the firm since April 1996. From May 1993 to September 1993, Mr.
Bolander was a consultant to the African Communications Group, a venture
capital and project management firm, and from September 1985 to
September 1992, Mr. Bolander held the position of manager for AT&T
Corporation. Mr. Bolander is also a director of Concord Communications, Inc.
Mr. Bolander holds B.S. and M.S. degrees in electrical engineering from the
University of Michigan and an M.B.A. from Harvard University.
JOHN R. DOUGERY has served as a director of the Company since February 1996.
He has been a general partner of Dougery & Wilder, a venture capital firm
since its formation in 1981. Mr. Dougery is also a director of Printronix,
Inc. Mr. Dougery holds an A.B. degree in mathematics from the University of
California, Berkeley and an M.B.A. from Stanford University.
MARK DUBOVOY has served as a director of the Company since October 1996. He
was a founder and has served as a general partner of Information Technology
Ventures since September 1994. Prior to that time, he was a general partner of
Grace/Horn Ventures from 1991 to August 1994. Mr. Dubovoy holds a B.S. degree
in physics from the National University of Mexico and an M.A. degree and Ph.D.
in physics from the University of California, Berkeley.
54
<PAGE>
MAX D. HOPPER has served as a director of the Company since January 1998.
Mr. Hopper has been the Chief Executive Officer of Max D. Hopper Associates,
Inc., an IS management consulting firm, since January 1995. From 1985 to
January 1995, he served in various positions at American Airlines, a
subsidiary of AMR Corporation, most recently as Senior Vice President,
Information Systems and Chairman of the SABRE Group. Mr. Hopper is also a
director of Gartner Group, Inc., Scopus Technology, Inc., USData Corporation,
VTEL Corporation, Worldtalk Corporation, Metrocall, Inc. and Payless Cashways,
Inc. From April 1996 to August 1997, he served as a director of BBN
Corporation. From March 1995 to February 1998, he served as a director of
Centura Software Corporation. From August 1994 to February 1998, he served as
a director of Computer Language Research, Inc. He holds a B.S. degree in
mathematics and an M.B.A. from the University of Houston.
PETER A. HOWLEY has served as a director of the Company since September
1996. Mr. Howley has been a private consultant since May 1994. From 1985 until
April 1994, he served as Chairman of the Board, Chief Executive Officer and
President of Centex Telemanagement, Inc., a telecommunications management
company, which was acquired. Mr. Howley is also a director of FaxSAV, Inc. and
WorldPort Communications, Inc. Mr. Howley holds a B.I.E. degree and an M.B.A.
from New York University.
DANIEL C. LYNCH has served as director of the Company since January 1998.
Mr. Lynch has been the owner of Lynch Enterprises, a venture capital firm,
since August 1993. From April 1994 to August 1996, he was a director of UUNet
Technologies, Inc., an Internet service provider. From 1991 to August 1993, he
was the Chairman of the Board of Interop, a conference and trade show company,
which he founded and which is now a division of ZD Comdex Forums. Mr. Lynch
has also been Chairman of the Board of Directors of Cybercash, Inc. since
August 1994 when he founded the Company. He holds a B.S. degree in mathematics
from Loyola Marymount University and an M.A. degree in mathematics from the
University of California, Los Angeles.
THADEUS J. MOCARSKI has served as a director of the Company since June 1997.
Mr. Mocarski has been an officer of various entities affiliated with Fleet
Equity Partners since January 1994. Prior to joining Fleet Equity Partners,
Mr. Mocarski was an attorney with the law firm of Edwards & Angell from 1989
to January 1994. Mr. Mocarski is also a director of Dobson Communications
Corporation. Mr. Mocarski holds a B.A. in economics and government from Colby
College and a J.D. degree from the Washington College of Law.
KANWAL S. REKHI has served as a director of the Company since December 1995.
He has been retired since January 1995. He served as Executive Vice President
and a director at Novell Inc., a network software company, from 1989 to
December 1994. Mr. Rekhi is also a director of Cybermedia Inc., a consumer
software company. Mr. Rekhi holds a B.Tech. degree in electrical engineering
from the Indian Institute of Technology, Bombay and an M.S. degree in
electrical engineering from Michigan Technology Institute.
BOARD COMMITTEES
The Audit Committee of the Board consists of Mr. Dougery and Mr. Rekhi. The
Audit Committee reviews the Company's financial statements and accounting
practices, makes recommendations to the Board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by the Company's independent auditors. The Compensation
Committee of the Board consists of Mr. Bolander, Mr. Howley and Mr. Mocarski.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees
and administers the Company's employee benefit plans. The Finance Committee of
the Board consists of Mr. Dubovoy and Mr. Mocarski. The Finance Committee
reviews, evaluates and makes recommendations regarding future financing
requirements of the Company.
55
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board was at any
time since the formation of the Company an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on the Board or the Compensation Committee of the
Board.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors but are reimbursed for their reasonable expenses in attending
meetings of the Board. In December 1995 and October 1996, Mr. Rekhi and Mr.
Howley were granted warrants to acquire 16,666 shares of Common Stock and
19,841 shares of Series B1 Preferred Stock (convertible into shares of Common
Stock at the closing of this offering), respectively, at an exercise price of
$2.40 and $2.52 per share, respectively, in connection with their service on
the Board. In addition, in October 1996, Mr. Howley was granted an option to
purchase 25,000 shares of Common Stock at an exercise price of $0.30 per
share, in connection with his service on the Board. In November 1997, Mr.
Rekhi exercised the Common Stock warrant in full. In October 1997, Mr. Howley
exercised the warrant for Series B1 Preferred Stock in full and exercised the
option for 13,000 of the shares of Common Stock subject thereto.
In January 1998, the Board adopted, and in February 1998 the stockholders
approved, the 1998 Directors Stock Option Plan (the "Directors Plan") and
reserved a total of 200,000 shares of the Company's Common Stock for issuance
thereunder. Members of the Board who are not employees of the Company, or any
parent or subsidiary of the Company, are eligible to participate in the
Directors Plan. Each eligible director who is or becomes a member of the Board
on or after the public offering ("Effective Date") will automatically be
granted an option for 20,000 shares (an "Initial Grant") on the earlier of the
Effective Date or the date such director first becomes a director; provided
that a director that was a member of the Board of Exodus Communications, Inc.,
a California corporation, is not eligible to receive an Initial Grant. Thus
Messrs. Lynch and Hopper are the only current directors who will receive an
Initial Grant. At each annual meeting of stockholders thereafter, each
eligible director will automatically be granted an additional option to
purchase 5,000 shares (an "Annual Grant") if such director has served
continuously as a member of the Board since the date of such director's
Initial Grant (or since the Effective Date if such director did not receive an
Initial Grant). Initial Grants will vest as to 33 1/3% of the total shares on
each annual anniversary of the date of grant, provided the optionee continues
as a member of the Board or as a consultant to the Company. Annual Grants will
vest as to 25% of the total shares on each annual anniversary of the date of
grant, provided the optionee continues as a member of the Board or as a
consultant to the Company. Options will cease vesting once the individual
ceases to provide services as a director or consultant. Following the
individual's cessation of services to the Company, he or she will have seven
months in which to exercise the options granted under the Directors Plan,
twelve months if the cessation of services resulted from the individual's
death or disability. The exercise price of all options granted under the
Directors Plan will be the fair market value of the Common Stock on the date
of grant.
In February 1998, the Company sold shares of Series D Preferred Stock
convertible into 33,333 and 5,848 shares of Common Stock at a purchase price
per share of $8.55 to Messrs. Lynch and Hopper, respectively.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1997 by (i) the Company's chief executive officer and (ii)
the four other most highly compensated executive officers other than the chief
executive officer who were serving as executive officers as of December 31,
1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($) COMPENSATION($) UNDERLYING OPTIONS(#)
- ---------------------------- --------- -------- --------------- ---------------------
<S> <C> <C> <C> <C>
K.B. Chandrasekhar ..... $160,000 $75,000 $5,373(1) 250,002
President and Chief
Executive Officer
Sam S. Mohamad.......... 273,626(2) 70,000 -- 166,668
Vice President,
Worldwide Sales
Richard S. Stoltz....... 147,500 40,000 -- 58,334
Chief Operating Officer
and Chief Financial
Officer
B.V. Jagadeesh.......... 135,000 40,000 -- 58,334
Vice President,
Engineering
Robert V. Sanford III... 101,250 35,000 -- 91,667
Vice President,
Operations
</TABLE>
- --------
(1) Represents a car allowance.
(2) Includes sales commissions of $130,542.
57
<PAGE>
The following table sets forth further information regarding option grants
to each of the Named Executive Officers during 1997. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective terms. These gains are based on assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term using an assumed initial
public offering price of $10.00 per share as the base value.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) IN 1997 PER SHARE($) DATE 5% 10%
---- ------------- ------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
K.B. Chandrasekhar...... 41,667 2.6% $0.30 6/26/07 $ 666,212 $1,068,235
83,334 5.2 0.75 10/15/07 1,294,922 2,098,968
83,334 5.2 0.75 10/15/07 1,294,922 2,098,968
41,667 2.6 0.75 10/15/07 647,462 1,049,484
Sam S. Mohamad.......... 66,667 4.1 0.30 2/17/07 1,065,935 1,709,170
8,334 0.5 0.30 6/26/07 133,252 213,663
25,000 1.6 0.75 10/15/07 388,474 629,686
66,667 4.1 0.75 10/15/07 1,035,935 1,679,170
Richard S. Stoltz....... 14,584 0.9 0.30 6/26/07 233,183 373,896
43,750 2.7 0.75 10/15/07 679,828 1,101,949
B.V. Jagadeesh.......... 14,584 0.9 0.30 6/26/07 233,183 373,896
43,750 2.7 0.75 10/15/07 679,828 1,101,949
Robert V. Sanford III... 75,000 4.7 0.30 2/17/07 1,199,171 1,922,801
4,167 0.3 0.30 6/26/07 66,626 106,831
12,500 0.8 0.75 10/15/07 194,237 314,843
</TABLE>
- --------
(1) These options generally are incentive stock options that were granted at
fair market value and vest over a 50-month period so long as the
individual is employed by the Company. With regard to Mr. Chandrasekhar,
both options for 83,334 shares vest in full on the fifth anniversary of
the date of grant, one of which will accelerate to start vesting at 2% per
month upon the closing of this offering and the other of which will
accelerate to start vesting at 2% per month upon the hiring of certain
additional executive management personnel. The potential realizable value
is based on the term of the option at the time of grant, which is ten
years for each of the options set forth in this table. All amounts have
been calculated using an assumed initial public offering price of $10.00
per share as the base value and assumed annual rates of stock price
appreciation of 5% and 10%
(2) The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
In January 1998, Mr. Chandrasekhar was granted two options, each for 166,667
shares of Common Stock, at per share exercise prices of $9.00 and $18.00,
respectively, that vest in full upon the third and fifth anniversaries of the
date of grant, respectively. Both options will accelerate and become fully
vested if the Company is acquired or sells all or substantially all of its
assets or if Mr. Chandrasekhar is terminated other than for cause. The options
expire ten years from the date of grant.
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<PAGE>
The following table sets forth the number of shares acquired upon the
exercise of stock options during 1997 and the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named
Executive Officers at December 31, 1997. Also reported are values of
unexercised "in-the-money" options, which represent the positive spread
between the respective exercise prices of outstanding stock options and the
assumed initial public offering price of $10.00 per share.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT YEAR-END AT YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
K.B. Chandrasekhar...... -- -- 18,334 231,668 $173,715 $2,157,554
Sam S. Mohamad.......... -- -- 18,668 148,000 178,980 1,396,450
Richard S. Stoltz....... 10,500 $1,181 2,334 45,500 21,852 425,993
B.V. Jagadeesh.......... -- -- 12,834 45,500 120,158 425,993
Robert V. Sanford III... -- -- 31,333 60,334 303,480 580,065
</TABLE>
EXECUTIVE EMPLOYMENT POLICY. In December 1997, the Board adopted a form of
Executive Employment Policy (the "Policy") to be entered into between the
Company and each of its executive officers and certain other officers of the
Company (together, the "Executives"). Pursuant to the Policy, in the event of
a "Termination" (as defined in the Policy) resulting from a "Change of
Control" (as defined in the Policy) of the Company, each Executive's base
salary and medical benefits would continue as follows: Chief Executive
Officer--18 months; Chief Operating Officer and Chief Financial Officer--12
months; Vice President, Worldwide Sales--12 months; certain other Vice
Presidents--six months; and other Executives--three months. In addition, in
the event of a Change in Control, each Executive's options would become
exercisable with respect to 50% of such Executive's remaining unvested shares
subject to such options. In the event of an "Involuntary Termination" (as
defined in the Policy), base salary and medical benefits would generally
continue for shorter time periods than those set forth above and the
Executive's options would continue to vest during such period. An Executive
that "Voluntarily Terminates" (as defined in the Policy) or is terminated for
"Cause" (as defined in the Policy) would generally not receive any
compensation, additional stock option vesting or other benefits after the date
of termination. Pursuant to the Policy, during the term of any payments made
to an Executive after termination, such Executive would not be permitted to
manage, operate, control, participate in the management, operation or control
of or be employed by any other person or entity that is engaged in providing
services that are directly competitive with the services offered by the
Company.
EMPLOYEE BENEFIT PLANS
1997 EQUITY INCENTIVE PLAN. In January 1997, the Board adopted the 1997
Plan. In October 1997, the Board increased the number of shares of Common
Stock reserved for issuance under the 1997 Plan to a total of 2,200,000. The
stockholders approved the 1997 Plan and the share increase in October 1997.
The 1997 Plan became effective in January 1997 and serves as the successor to
the 1995 Stock Option Plan (the "1995 Plan"). Options granted under the 1995
Plan before its termination in January 1997 continue to remain outstanding in
accordance with their terms, but no further options may be granted under the
1995 Plan. The 1997 Plan provides for the grant of stock options and the
issuance of restricted stock by the Company to its employees, officers,
directors and consultants. The 1997 Plan permits the grant of options that are
either incentive stock options ("ISOs") (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) or nonqualified stock
options ("NQSOs"), on terms (including the exercise price, which may not be
less
59
<PAGE>
than 85% of the fair market value of the Company's Common Stock, and the
vesting schedule) determined by the Board, subject to certain statutory and
other limitations in the 1997 Plan. In addition to, or in tandem with, stock
options under the 1997 Plan, the Board may grant participants restricted stock
awards to purchase the Company's Common Stock for not less than 85% of its
fair market value at the time of grant. The other terms of such restricted
stock awards may be determined by the Board.
On the effective date of the initial public offering, the 1997 Plan will
terminate. Options granted under the 1997 Plan before its termination will
continue to remain outstanding in accordance with their terms, but no further
options will be granted under the 1997 Plan after its termination.
1998 EQUITY INCENTIVE PLAN. In January 1998, the Board adopted, and in
February 1998 the stockholders approved, the 1998 Equity Incentive Plan (the
"1998 Plan") to provide for the grant of stock options, restricted stock and
stock bonuses to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any parent or subsidiary of the
Company. On the effective date of this offering, the 1998 Plan will become
effective as the successor to the 1997 Plan. Although the 1997 Plan will
terminate on the effective date of this offering, options granted thereunder
prior to the effective date of this offering will remain outstanding according
to their terms. The total number of shares reserved and available for grant
and issuance pursuant to the 1998 Plan is 1,500,000 plus shares that pour over
from the 1997 Plan. The shares that pour over from the 1997 Plan are shares
that (i) remain available for grant under the 1997 Plan on the effective date
of the 1998 Plan, (ii) are subject to issuance upon exercise of an option
granted under the 1997 Plan that cease to be subject to such option for any
reason other than exercise of such option and (iii) are issued under awards
granted under the 1997 Plan, but are repurchased by the Company at the price
at which the shares were originally issued. Shares that are subject to (x)
issuance upon exercise of an option granted under the 1998 Plan that cease to
be subject to such option for any reason other than exercise, (y) awards
granted under the 1998 Plan that are forfeited or are repurchased by the
Company at the original issue price and (z) awards that otherwise terminate
without shares being issued will again be available for grant and issuance in
connection with future awards under the 1998 Plan.
The 1998 Plan will terminate in January 2008, unless earlier terminated by
the Board. No person will be eligible to receive more than 750,000 shares in
any calendar year pursuant to equity awards under the 1998 Plan, other than a
new employee who will be eligible to receive no more than 1,250,000 shares in
the calendar year in which such employee commences employment. The 1998 Plan
will be administered by the Compensation Committee of the Board. The
Compensation Committee has the authority to construe and interpret the 1998
Plan and any agreement made thereunder, grant equity awards and make all other
determinations necessary or advisable for the administration of the 1998 Plan.
The 1998 Plan permits the grant of ISOs and NQSOs. ISOs may be granted only to
employees of the Company or of any parent or subsidiary of the Company. NQSOs,
stock bonuses and restricted stock may be granted to all individuals eligible
to receive grants under the 1998 Plan. The exercise price of ISOs must be at
least equal to the fair market value of the Company's Common Stock on the date
of grant. The exercise price of NQSOs must be at least equal to 85% of the
fair market value of the Company's Common Stock on the date of grant. The
purchase price of restricted stock will be determined by the Compensation
Committee. The maximum term of an option is ten years. Options typically vest
over a four-year period. Vesting will stop if the optionee ceases to provide
services to the Company or any parent or subsidiary of the Company, but
options will generally remain exercisable for a period of three months
following the termination of services. If the optionee's termination is for
cause, his or her options will generally terminate immediately. If the
optionee's termination is due to death or disability, the optionee or his or
her estate will generally have twelve months in which to exercise. In the
event of certain changes in control transactions, outstanding equity awards
may be assumed or substituted by the successor corporation, if the successor
corporation does not assume or substitute the awards, the awards will
terminate prior to the effectiveness of the transaction.
60
<PAGE>
1998 EMPLOYEE STOCK PURCHASE PLAN. In January 1998, the Board adopted and
subsequently amended, and in February 1998 the stockholders approved, the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan") and reserved a total
of 600,000 shares of the Company's Common Stock for issuance thereunder. The
Purchase Plan will become effective on the first business day on which price
quotations for the Company's Common Stock are available on the Nasdaq National
Market. The Purchase Plan permits eligible employees to acquire shares of the
Company's Common Stock through payroll deductions. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code. Except for the initial offering, each offering under the Purchase
Plan will be for a period of 24 months (the "Offering Period") commencing on
May 1 and November 1 of each year and ending on October 31 and April 30 of the
second year thereafter. The first Offering Period will begin on the date on
which price quotations for the Company's Common Stock are first available on
the Nasdaq National Market and will end on April 30, 2000, unless otherwise
determined by the Board. Except for the first Offering Period, each Offering
Period will consist of four purchase periods, each six months in length
("Purchase Period"). The Board has the power to change the duration of
Offering Periods or Purchase Periods without stockholder approval, provided
that the change is announced at least 15 days prior to the scheduled beginning
of the first Offering Period or Purchase Period to be affected. Eligible
employees may select a rate of payroll deduction between 2% and 10% of their
base compensation, subject to certain limits set forth in the Purchase Plan.
The purchase price for the Company's Common Stock purchased under the Purchase
Plan is 85% of the lesser of the fair market value of the Company's Common
Stock on the first day of the applicable Offering Period or on the last day of
the respective Purchase Period.
401(K) PLAN. The Company sponsors the Exodus Communications, Inc. 401(k)
Plan (the "401(k) Plan"). Employees who complete three months of service with
the Company are eligible to participate ("Participants"). Participants may
contribute up to 20% of their current compensation, up to a statutorily
prescribed annual limit, to the 401(k) Plan. Each Participant is fully vested
in his or her salary reduction contributions. Participant contributions are
held in trust as required by law. Individual Participants may direct the
trustee to invest their accounts in authorized investment alternatives. The
Company may make discretionary matching contributions to the 401(k) Plan,
although it has not done so to date, in an amount equal to a percentage the
Company from time to time may deem advisable of the Participant's salary
reduction contributions. Salary reduction contributions in excess of 6% of the
Participant's compensation are disregarded for purposes of the match. The
Company may also make fully vested qualified non-elective contributions on
behalf of employees who are not "highly compensated." In addition, the Company
may make discretionary contributions, although it has not done so to date.
Discretionary and matching contributions are subject to a vesting schedule.
The 401(k) Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code so that contributions to the 401(k) Plan, and income earned on
such contributions, are not taxable to Participants until withdrawn or
distributed from the 401(k) Plan.
61
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect interest other than (i)
compensation arrangements, which are described where required under
"Management" and (ii) the transactions described below.
For clarity of presentation, share numbers and per share prices for the
transactions described below assume a one-for-three reverse stock split for
the Common and Preferred Stock as each share of Preferred Stock, although not
actually split, will convert into Common Stock on a one-for-three basis upon
the closing of this offering.
Fouress, Inc., a Maryland corporation and the predecessor of the Company
("Fouress"), was incorporated in 1992. In February 1995, the Company was
incorporated in California as a wholly-owned subsidiary of Fouress, and
Fouress purchased 33 shares of the Company Common Stock for $100 in connection
therewith. In May 1995, Fouress merged with and into the Company in order to
reincorporate into California and canceled its 33 shares of Common Stock. In
connection with the reincorporation, K.B. Chandrasekhar, the current President
and Chief Executive Officer of the Company, and B.V. Jagadeesh, the current
Vice President, Engineering of the Company, the sole shareholders of Fouress,
exchanged their shares of Fouress common stock (which had been purchased for
an aggregate of $4,000) for 650,000 and 350,000 shares, respectively, of the
Company's Common Stock. In June 1995, Mr. Chandrasekhar and Mr. Jagadeesh
purchased 216,666 and 116,666 shares, respectively, of the Company's Common
Stock for a purchase price of $52,000 and $28,000, respectively, pursuant to
promissory notes, which remain outstanding.
In October 1995, Richard S. Stoltz, the current Chief Operating Officer and
Chief Financial Officer of the Company, and his wife purchased 250,000 shares
of the Company's Common Stock for a purchase price of $60,000 pursuant to two
promissory notes, of which $56,000 remains outstanding. Also in October 1995,
Fred R. Sibayan, Jr., a former Vice President, Sales of the Company, purchased
150,000 shares of the Company's Common Stock for a purchase price of $36,000
pursuant to a promissory note. 43,334 of such shares were repurchased by the
Company in connection with Mr. Sibayan's resignation in January 1997 and
$3,600 remains outstanding under the note.
In December 1995, Kanwal S. Rekhi, a director of the Company, loaned the
Company $200,000 in exchange for a promissory note. In February 1996, as part
of the financing described in the next paragraph, Mr. Rekhi converted the
promissory note into 161,459 shares of Series A Preferred Stock.
In February and March 1996, the Company sold shares of Series A Preferred
Stock convertible into 2,599,481 shares of Common Stock to a group of entities
and individuals for an aggregate purchase price of $3,219,994, which amount
was paid in cash and through the conversion of debt. These transactions
included sales to (i) Productivity Fund II, L.P. and Productivity Fund III,
L.P. (the "Productivity Funds"), partnerships associated with First Analysis
Corporation ("First Analysis"), a greater than 5% stockholder of the Company,
of shares convertible into 565,107 shares of Common Stock, (ii) J.F. Shea &
Co., Inc., a greater than 5% stockholder of the Company, of shares convertible
into 484,378 shares of Common Stock, (iii) John R. Dougery, a director of the
Company, and his wife and trusts for which Mr. Dougery or his wife is a
trustee (the "Dougery Trusts"), of shares convertible into 201,823 shares of
Common Stock, and (iv) the Rekhi Family Trust dated 12/15/89 (the "Rekhi
Family Trust"), for which Kanwal S. Rekhi is a trustee, of shares convertible
into 161,459 shares of Common Stock.
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<PAGE>
In March 1996, the Rekhi Family Trust and two other trusts, for which Kanwal
S. Rekhi is a trustee, purchased an aggregate of 94,333 shares of the
Company's Common Stock for an aggregate purchase price of $22,640.
In April 1996, John R. Dougery purchased 40,000 shares of the Company's
Common Stock for a purchase price of $9,600.
In October 1996, the Company sold shares of Series B Preferred Stock
convertible into 2,579,355 shares of Common Stock to a group of entities and
individuals for an aggregate purchase price of $6,500,000, which amount was
paid in cash. This included sales to (i) Apex Investment Fund III, L.P., which
is affiliated with both Frederick W.W. Bolander, a director of the Company,
and First Analysis, of shares convertible into 694,444 shares of Common Stock,
(ii) Information Technology Ventures, L.P. and ITV Affiliates Fund, L.P. (the
"ITV Partnerships"), which are both associated with Mark Dubovoy, a director
of the Company, and which comprise a greater than 5% stockholder group of the
Company, of shares convertible into 694,444 shares of Common Stock, (iii) the
Productivity Funds of shares convertible into 277,777 shares of Common Stock,
(iv) J.F. Shea & Co., Inc., of shares convertible into 158,730 shares of
Common Stock, (v) John R. Dougery and his wife and the Dougery Trusts of
shares convertible into 39,680 shares of Common Stock and (vi) Peter A.
Howley, a director of the Company, of shares convertible into 39,682 shares of
Common Stock.
In March 1997, the Company obtained bridge loans of $2,473,866 pursuant to
convertible promissory notes due in September 1997 (the "First Bridge Notes")
from a group of entities and individuals, including (i) $517,895 from Apex
Investment Fund III, L.P. and Apex Strategic Partners, L.L.C. (the "Apex
Funds"), which are both associated with Frederick W.W. Bolander and First
Analysis, (ii) $496,000 from J.F. Shea & Co., Inc., as Nominee 1996-II, (iii)
$324,000 from the Productivity Funds, (iv) $268,000 from the ITV Partnerships,
(v) $96,000 from John R. Dougery and his wife and the Dougery Trusts, (vi)
$62,001 from the Rekhi Family Trust and (vii) $49,986 from Peter A. Howley.
The First Bridge Notes were unsecured and provided for automatic conversion
into Preferred Stock upon the closing of the next Preferred Stock financing to
occur prior to the September 1997 maturity date. In connection with obtaining
these bridge loans, the Company also sold to the holders of the First Bridge
Notes, for an aggregate purchase price of $1,039, five-year warrants, which
must be exercised before the closing of this offering, to purchase shares of
Series B Preferred Stock convertible into 41,240 shares of Common Stock at an
exercise price of $2.52 per share, including warrants for shares convertible
into 8,632, 8,267, 5,401, 4,466, 1,603, 1,034, and 833 shares of Common Stock
to the Apex Funds, J.F. Shea & Co., Inc., as Nominee 1996-II, the Productivity
Funds, the ITV Partnerships, John R. Dougery and his wife and the Dougery
Trusts, the Rekhi Family Trust and Peter A. Howley, respectively.
In June 1997, the Company obtained bridge loans of $1,500,000 pursuant to
convertible promissory notes due in September 1997 (the "Second Bridge Notes")
from a group of entities and individuals, including (i) $252,450 from the Apex
Investment Fund III, L.P., (ii) $243,000 from the Productivity Funds, (iii)
$207,463 from J.F. Shea & Co., Inc., as Nominee 1996-II, (iv) $201,000 from
the ITV Partnerships, (v) $163,690 from the Rekhi Family Trust, (vi) $96,000
from John R. Dougery and his wife and the Dougery Trusts, and (vii) $12,000
from Peter A. Howley. The Second Bridge Notes were unsecured and provided for
automatic conversion into Preferred Stock upon the closing of the next
Preferred Stock financing to occur prior to the September 1997 maturity date.
In connection with obtaining this bridge loan, the Company also sold to the
holders of the Second Bridge Notes, for an aggregate purchase price of $630,
five-year warrants, which must be exercised before the closing of this
offering, to purchase shares of Series B Preferred Stock convertible into
25,008 shares of Common Stock at an exercise price of $2.52 per share,
including warrants for shares convertible into 4,208, 4,050, 3,458, 3,348,
2,727, 1,603, and 200 shares of Common Stock, to Apex Investment Fund III,
L.P., the Productivity Funds, J.F. Shea & Co., Inc., as Nominee 1996-II, the
ITV Partnerships, the
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Rekhi Family Trust, John R. Dougery and his wife and the Dougery Trusts and
Peter A. Howley, respectively.
In June 1997, the Company sold shares of Series C Preferred Stock
convertible into 5,263,270 shares of Common Stock and five-year warrants to
purchase shares of Series C Preferred Stock at an exercise price of $4.0869
per share, and convertible into 526,349 shares of Common Stock, at an
aggregate purchase price of $21,510,574 (including $37 for the warrants),
including $4,010,970 in principal and interest owed to the holders of the
First Bridge Notes and the Second Bridge Notes. This included issuances to (i)
Fleet Resources, Inc., Fleet Equity Partners VI, L.P., Chisholm Partners III,
L.P. and Kennedy Plaza Partners, all of which are funds (the "Fleet Funds")
associated with Thadeus J. Mocarski, a director of the Company, and which
together comprise a greater than 5% stockholder group of the Company, of
shares convertible into 1,835,120 shares of Common Stock and warrants to
purchase shares convertible into 183,515 shares of Common Stock, (ii) Oak
Investment Partners VII and Oak VII Affiliate Fund (the "Oak Partnerships"), a
greater than 5% stockholder group of the Company, of shares convertible into
1,468,100 shares of Common Stock and warrants to purchase shares convertible
into 146,811 shares of Common Stock, (iii) JK&B Capital L.P. and JK&B Capital
II, L.P. (the "JK&B Partnerships"), a greater than 5% stockholder group of the
Company, of shares convertible into 611,705 shares and warrants to purchase
shares convertible into 61,172 shares of Common Stock, (iv) the Apex Funds of
shares convertible into 190,334 shares of Common Stock and warrants to
purchase shares convertible into 19,035 shares of Common Stock, (v) J.F. Shea
& Co., Inc., as Nominee 1996-II, of shares convertible into 173,884 shares of
Common Stock and warrants to purchase shares convertible into 17,389 shares of
Common Stock, (vi) the Productivity Funds of shares convertible into 139,945
shares of Common Stock and warrants to purchase shares convertible into 13,995
shares of Common Stock, (vii) the ITV Partnerships of shares convertible into
115,756 shares of Common Stock and warrants to purchase shares convertible
into 11,574 shares of Common Stock, (viii) the Rekhi Family Trust of shares
convertible into 55,521 shares of Common Stock and warrants to purchase shares
convertible into 5,552 shares of Common Stock, (ix) John R. Dougery and his
wife and the Dougery Trusts of shares convertible into 47,367 shares of Common
Stock and warrants to purchase shares convertible into 4,739 shares of Common
Stock and (x) Peter A. Howley of shares convertible into 15,337 shares of
Common Stock and warrants to purchase shares convertible into 1,534 shares of
Common Stock.
In October 1997, Peter A. Howley exercised warrants for an aggregate of
2,567 shares of Preferred Stock convertible into Common Stock at an aggregate
purchase price of $8,872.
In November 1997, the Rekhi Family Trust exercised warrants for an aggregate
of 25,979 shares of Common Stock and Preferred Stock convertible into Common
Stock at an aggregate purchase price of $72,171.
In December 1997, the Company sold shares of Series D Preferred Stock
convertible into 877,180 shares of Common Stock at an aggregate purchase price
of $7,500,000 which amount was paid in cash. This included sales to (i) the
Fleet Funds of shares convertible into 175,437 shares of Common Stock, (ii)
the Oak Partnerships of shares convertible into 114,764 shares of Common
Stock, (iii) the Apex Funds of shares convertible into 85,272 shares of Common
Stock, (iv) J.F. Shea & Co., Inc. of shares convertible into 78,710 shares of
Common Stock, (v) the Productivity Funds of shares convertible into 71,512
shares of Common Stock, (vi) the ITV Partnerships of shares convertible into
58,955 shares of Common Stock, (vii) the JK&B Partnerships of shares
convertible into 47,818 shares of Common Stock, (viii) the Rekhi Family Trust
and two other trusts, for which Mr. Rekhi is a trustee, of shares convertible
into 36,221 shares of Common Stock, (ix) Dougery Ventures LLC, of which John
R. Dougery is President, and one of the Dougery Trusts of shares convertible
into 31,331 shares of Common Stock and (x) Peter A. Howley of shares
convertible into 7,203 shares of Common Stock.
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<PAGE>
In December 1997, the ITV Partnerships exercised warrants for an aggregate
of 19,388 shares of Preferred Stock convertible into Common Stock at an
aggregate purchase price of $67,009.
In February 1998, the Company sold shares of Series D Preferred Stock
convertible into 33,333 and 5,848 shares of Common Stock at a purchase price
per share of $8.55 to two directors of the Company, Daniel C. Lynch and Max D.
Hopper, respectively.
In February 1998, the Company expects to reincorporate into Delaware. In
connection with the reincorporation, the Company will issue shares of Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock and options and
warrants in exchange for shares, options and warrants, respectively, in the
predecessor California entity. Each of the individuals and entities listed
above will receive the number of shares of such class or series identified in
the preceding paragraphs.
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PRINCIPAL AND SELLING STOCKHOLDERS
Except as otherwise noted, the following table sets forth certain
information known to the Company with respect to beneficial ownership of the
Company's Common Stock as of December 31, 1997 by (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (ii) each director of the Company, (iii) each of the Named
Executive Officers and (iv) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------ --------------------- --------------- -----------------
<S> <C> <C> <C>
Thadeus J. Mocarski
Fleet Funds(3) ........ 2,194,072 16.1% 12.4%
First Analysis Corpora-
tion(4)................ 2,079,712 15.4 11.9
Oak Partnerships(5)..... 1,729,675 12.7 9.8
Frederick W.W. Bolander
Apex Funds(6) ......... 1,001,925 7.4 5.7
J.F. Shea & Co.,
Inc.(7)................ 924,816 6.8 5.3
Mark Dubovoy
ITV Partnerships(8) ... 888,543 6.6 5.1
K.B. Chandrasekhar(9)... 848,331 6.3 4.8
JK&B Partnerships(10)... 720,695 5.3 4.1
B.V. Jagadeesh(11)...... 482,999 3.6 2.8
John R. Dougery(12)..... 368,142 2.7 2.1
Kanwal S. Rekhi(13)..... 357,765 2.7 2.0
Richard S. Stoltz(14)... 249,667 1.9 1.4
Peter A. Howley(15)..... 117,503 * *
Robert V. Sanford
III(16)................ 43,666 * *
Daniel C. Lynch(17)..... 33,333 * *
Sam S. Mohamad(18)...... 26,002 * *
Max D. Hopper (19)...... 5,848 * *
All current executive
officers and directors
as a group (15 per-
sons)(20).............. 6,639,630 48.0 37.2
</TABLE>
- --------
*Represents less than 1% of the Company's outstanding Common Stock.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of December 31, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
600,000 shares is not exercised. If the Underwriters' over-allotment
option is exercised in full, the Company would sell 550,000 shares and Mr.
Chandrasekhar and Mr. Jagadeesh would each sell 25,000 shares and would
beneficially own 4.6% and 2.5%, respectively, of the outstanding Common
Stock of the Company after the offering.
(3) Represents 1,105,214 shares and immediately exercisable warrants to
purchase 100,878 shares held by Fleet Venture Resources, Inc.; 473,662
shares and immediately exercisable warrants to purchase 43,234 shares held
by Fleet Equity Partners VI, L.P.; 402,110 shares and immediately
exercisable warrants to purchase 36,703 shares held by Chisholm Partners
III, L.P.; and 29,571 shares and immediately exercisable warrants to
purchase 2,700 shares held by Kennedy Plaza Partners. Mr. Mocarski, a
director of the Company, is a Senior Vice President of each of (i) Fleet
Venture Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general
partner of Fleet Equity Partners VI, L.P. and (iii) Silverado III, Corp.,
the general partner of Silverado III, L.P., the general partner of
Chisholm Partners III, L.P. Mr. Mocarski is also a general partner of
Kennedy Plaza Partners. The address of Mr. Mocarski and the Fleet Funds is
c/o Fleet Equity Partners, Mail Stop: RI MO F12C, 50 Kennedy Plaza,
Providence, Rhode Island 02903.
(4) Represents 753,483 shares and immediately exercisable warrants to
purchase 16,788 shares held by Productivity Fund III, L.P.; 300,858
shares and immediately exercisable warrants to purchase 6,658 shares
66
<PAGE>
held by Productivity Fund II, L.P.; and the shares and warrants held by the
Apex Funds described in footnote (6). First Analysis Corporation ("First
Analysis") is a general partner of the general partner of each of Apex
Investment Fund III, L.P., Productivity Fund II, L.P. and Productivity Fund
III, L.P. In addition, First Analysis is a managing member of Apex
Management III, L.L.C., the manager of Apex Strategic Partners, L.L.C.
First Analysis disclaims beneficial ownership of all shares directly owned
by the funds except to the extent of its proportionate pecuniary interests
therein. The address of First Analysis is 233 Wacker Drive, Suite 9500,
Chicago, Illinois 60606.
(5) Represents 1,544,087 shares and immediately exercisable warrants to
purchase 143,214 shares held by Oak Investment Partners VII; and 38,777
shares and immediately exercisable warrants to purchase 3,597 shares held
by Oak VII Affiliate Fund. Certain individuals are managing members of
the general partners of each of Oak Investment Partner VII and Oak VII
Affiliate Fund. The address of the Oak Partnerships is 525 University
Avenue, Suite 1300, Palo Alto, California 94301.
(6) Represents 928,830 shares and immediately exercisable warrants to
purchase 25,657 shares held by Apex Investment Fund III, L.P.; and 41,220
shares and immediately exercisable warrants to purchase 6,218 shares held
by Apex Strategic Partners, L.L.C. Mr. Bolander, a director of the
Company, is a general partner of the general partner of Apex Investment
Fund III, L.P. and a managing member of Apex Management III, L.L.C., the
manager of Apex Strategic Partners, L.L.C. The address of Mr. Bolander
and the Apex Funds is 233 Wacker Drive, Suite 9500, Chicago, Illinois
60606.
(7) Represents 721,818 shares held by J.F. Shea & Co., Inc.; and 173,884
shares and immediately exercisable warrants to purchase 29,114 shares
held by J.F. Shea & Co., Inc., as Nominee 1996-11. The address of these
entities is 655 Brea Canyon Road, Walnut, California 91788-0489.
(8) Represents 865,954 shares held by Information Technology Ventures, L.P.;
and 22,589 shares held by ITV Affiliates Fund, L.P. Mr. Dubovoy, a
director of the Company, is a principal member of ITV Management, LLC,
the general partner of Information Technology Ventures, L.P. and ITV
Affiliates Fund, L.P. The address of Mr. Dubovoy and the ITV Partnerships
is 3000 Sand Hill Road, Building 1, Suite 280, Menlo Park, California
94025.
(9) Includes 79,998 shares held by Mr. Chandrasekhar and his wife as trustees
for three trusts for their minor children and 23,334 shares subject to
options exercisable within 60 days of December 31, 1997, Mr.
Chandrasekhar is the President, Chief Executive Officer and Chairman of
the Board of Directors of the Company. The address of Mr. Chandrasekhar
is 2650 San Tomas Expressway, Santa Clara, California 95051.
(10) Represents 441,881 shares and immediately exercisable warrants to
purchase 40,985 shares held by JK&B Capital, L.P.; and 217,642 shares and
immediately exercisable warrants to purchase 20,187 shares held by JK&B
Capital II, L.P. JK&B Management L.L.C. is the general partner of JK&B
Capital, L.P. and JK&B Capital II, L.P. The address of the JK&B
Partnerships is 205 North Michigan Avenue, Suite 808, Chicago, Illinois
60601.
(11) Includes 33,332 shares held by Mr. Jagadeesh and his wife as trustees for
two trusts for their minor children and 16,334 shares subject to options
exercisable within 60 days of December 31, 1997. Mr. Jagadeesh is Vice
President, Engineering of the Company.
(12) Represents 214,514 shares and immediately exercisable warrants to
purchase 5,293 shares held by Mr. Dougery and his wife; 109,794 shares
and immediately exercisable warrants to purchase 1,989 shares held by Mr.
Dougery as trustee of three trusts for his children; 25,490 shares and
immediately exercisable warrants to purchase 663 shares held by Mr.
Dougery's wife as trustee for a separate trust; and 10,399 shares held by
Dougery Ventures LLC, of which Mr. Dougery is President. Mr. Dougery is a
director of the Company.
(13) Represents 292,543 shares held by Mr. Rekhi and his wife as trustees for
the Rekhi Family Trust; 11,662 shares held by Mr. Rekhi as custodian for
minor children; and 53,560 shares held by Mr. Rekhi, his wife and one
other individual as trustees for two other trusts. Mr. Rekhi is a
director of the Company.
(14) Represents 243,833 shares held by Mr. Stoltz and his wife and 5,834
shares subject to options exercisable within 60 days of December 31,
1997. Mr. Stoltz is Chief Operating Officer and Chief Financial Officer
of the Company.
(15) Includes 4,000 shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Howley is a director of the Company.
(16) Includes 35,333 shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Sanford is Vice President, Operations of the
Company.
(17) Represents shares purchased by Mr. Lynch in February 1998. Mr. Lynch
became a director of the Company in February 1998.
(18) Represents shares subject to options exercisable within 60 days of
December 31, 1997. Mr. Mohamad is Vice President, Worldwide Sales of the
Company.
(19) Represents shares purchased by Mr. Hopper in February 1998. Mr. Hopper
became a director of the Company in January 1998.
(20) Includes 21,834 shares subject to options exercisable within 60 days of
December 31, 1997 held by an executive officer not named in this table
and the shares, warrants and options referenced in footnotes (3), (6),
(8), (9) and (11)-(19).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of the Company will consist of 50,000,000 shares of Common Stock, $0.001
par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value
per share. As of December 31, 1997, and assuming the conversion of all
outstanding Preferred Stock into Common Stock immediately prior to the closing
of this offering, there were outstanding 13,439,624 shares of Common Stock
held of record by 117 stockholders, warrants to purchase 950,163 shares of
Common Stock and options to purchase 1,709,286 shares of Common Stock.
COMMON STOCK
Subject to preferences that may apply to shares of Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon a liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock and any participating Preferred
Stock outstanding at that time after payment of liquidation preferences, if
any, on any outstanding Preferred Stock and payment of other claims of
creditors. Each outstanding share of Common Stock is, and all shares of Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 5 of Notes to Financial Statements for a description of the
Convertible Preferred. The Board is authorized, subject to limitations
prescribed by Delaware law, to provide for the issuance of additional shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and rights of the shares of each wholly unissued
series and designate any qualifications, limitations or restrictions thereon
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. The issuance of Preferred Stock
with voting or conversion rights could adversely affect the voting power or
other rights of the holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no current plan to issue any shares of Preferred Stock.
WARRANTS
As of December 31, 1997, the Company had outstanding warrants to purchase
950,163 shares of Common Stock at a weighted average per share exercise price
of $4.29 (of which warrants to purchase at least 615,454 shares of Common
Stock are expected to be exercised on or before the closing of the offering).
The warrants that remain outstanding after the offering will expire between
December 2000 and September 2004. In January 1998, the Company issued an
additional warrant to purchase 6,667 shares of Common Stock at a per share
exercise price of $8.55 that expires in December 2007.
68
<PAGE>
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
Section 203 ("Section 203") of the Delaware General Corporation Law is
applicable to corporate takeovers of Delaware corporations. Subject to certain
exceptions set forth therein, Section 203 provides that a corporation shall
not engage in any business combination with any "interested stockholder" for a
three-year period following the date that such stockholder becomes an
interested stockholder unless (a) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (c) on or subsequent to such date, the
business combination is approved by the board of directors of the corporation
and by the affirmative votes of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder. Except as specified in
Section 203, an interested stockholder is generally defined to include any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, or is
an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation any time within three years
immediately prior to the relevant date, and the affiliates and associates of
such person. Under certain circumstances, Section 203 makes it more difficult
for an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by
adopting an amendment to the corporation's certificate of incorporation or
bylaws, elect not to be governed by this section, effective 12 months after
adoption. The Company's certificate of incorporation and the bylaws do not
exclude the Company from the restrictions imposed under Section 203. It is
anticipated that the provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board
since the stockholder approval requirement would be avoided if a majority of
the directors then in office approve either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control of the Company, which could depress
the market price of the Common Stock and which could deprive the stockholders
of opportunities to realize a premium on shares of the Common Stock held by
them.
CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management. The Company's
Certificate of Incorporation provides that stockholders may not take action by
written consent but may only act at a stockholders' meeting, and that special
meetings of the stockholders of the Company may only be called by the Chairman
of the Board or a majority of the Board.
REGISTRATION RIGHTS
Beginning six months after the date of this offering (assuming no exercise
of the Underwriters' over-allotment option), the holders of 13,234,880 shares
of Common Stock and the holders of warrants to purchase 950,163 shares of
Common Stock (collectively, the "Registrable Securities") will have certain
rights with respect to the registration of those shares under the Securities
Act. If requested by at least 30% of the Registrable Securities (or at least
25% of the Registrable Securities issued upon conversion of the Series C
Preferred Stock of the Company) the Company must file a registration statement
to register such securities so long as the aggregate offering price, net of
any underwriting discounts and commissions, is at least $7.5 million. In
addition, if the Company proposes to register
69
<PAGE>
any of its shares of Common Stock under the Securities Act other than in
connection with a Company employee benefit plan or certain corporate
acquisitions, mergers or reorganizations, the holders of the Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, subject to certain rights of the managing underwriter to
limit the number of shares in any such offering.
Further, holders of Registrable Securities holding at least 20% of the
Registrable Securities (or at least 15% of the Registrable Securities issued
upon conversion of the Series C Preferred Stock of the Company) may require
the Company to register all or any portion of their Registrable Securities on
Form S-3 when such form becomes available to the Company, subject to certain
conditions and limitations. The Company may be required to effect up to two
such registrations per year.
All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) will be borne by the Company, except
that the holders of the Registrable Securities will bear the expenses of any
Form S-3 registrations after the first such registration. The registration
rights expire seven years after the closing of this offering. In addition, no
holder of Registrable Securities will be entitled to registration rights if
and so long as such holder can sell all of its Registrable Securities in
compliance with Rule 144 of the Securities Act during any 90-day period.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Boston
EquiServe Limited Partnership.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after this offering. Future
sales of substantial amounts of Common Stock (including shares issued upon
exercise of outstanding options and warrants) in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair the Company's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering due to certain contractual
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon completion of this offering, the Company will have outstanding
17,439,624 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options or warrants that
do not expire upon the closing. Of these shares, the 4,000,000 shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. The remaining 13,439,624 shares held by
existing stockholders (the "Restricted Shares") are subject to lock-up
agreements providing that, with certain limited exceptions, the stockholder
will not offer, sell, contract to sell, grant an option to purchase, make a
short sale or otherwise dispose of or engage in any hedging or other
transaction that is designed or reasonably expected to lead to a disposition
of any shares of Common Stock or any option or warrant to purchase shares of
Common Stock or any securities exchangeable for or convertible into shares of
Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Goldman, Sachs & Co. As a result of these
lock-up agreements, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, none of these shares will
be salable until 181 days after the date of this Prospectus. Beginning 181
days after the date of this Prospectus, 12,086,491 Restricted Shares will
70
<PAGE>
be eligible for sale in the public market, although all but 3,526,872 shares
will be subject to certain volume limitations. Thereafter, 1,014,367
Restricted Shares will become eligible for sale between the end of the lock-up
period and December 31, 1998 and the remaining 338,766 Restricted Shares will
become eligible for sale starting in 1999. In addition, as of December 31,
1997, there were outstanding 1,709,286 options and 950,163 warrants to
purchase Common Stock (of which warrants for 615,454 shares are expected to be
exercised on or before the closing of this offering). All of such options and
warrants will be subject to lock-up agreements. Goldman, Sachs & Co. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 174,396 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all shares issued pursuant to
Rule 701 are subject to lock-up agreements and will only become eligible for
sale at the earlier of the expiration of the 180-day lock-up agreements or no
sooner than 90 days after the offering upon obtaining the prior written
consent of Goldman, Sachs & Co.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1995 Plan and the 1997 Plan and reserved for
issuance under the 1998 Plan, the Directors Plan and the Purchase Plan. Based
on the number of shares subject to outstanding options at December 31, 1997
and currently reserved for issuance under all such plans, such registration
statement would cover approximately 4,659,215 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. Also
beginning six months after the date of this offering, holders of 13,234,880
Restricted Shares and warrants to purchase 950,163 shares of Common Stock of
the Company will be entitled to certain rights with respect to registration of
such shares for sale in the public market. See "Description of Capital Stock--
Registration Rights."
71
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included in the Registration Statement in reliance on the report of
KPMG Peat Marwick LLP, independent auditors, appearing elsewhere herein, and
upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement and the
exhibits thereto may be inspected without charge at the offices of the
Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission. The Commission maintains
a Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission. Information concerning the
Company is also available for inspection at the offices of the Nasdaq National
Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and to make available
to its stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
72
<PAGE>
EXODUS COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors....................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' (Deficit) Equity................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
FORM OF REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
When the reincorporation of the Company in Delaware, as described in Note 8
of the Notes to Financial Statements, has been consummated, we will be in a
position to render the following report.
KPMG Peat Marwick LLP
The Board of Directors and Stockholders Exodus Communications, Inc.:
We have audited the accompanying balance sheets of Exodus Communications,
Inc. as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' (deficit) equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exodus Communications,
Inc. as of December 31, 1996 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
San Jose, California
February 13, 1998,
except as to Note 8
which is as of February
18, 1998
F-2
<PAGE>
EXODUS COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
DECEMBER 31, --------------------
1996 ACTUAL PRO FORMA
------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 3,715 $10,270 $10,270
Accounts receivable......................... 521 1,837 1,837
Prepaid expenses and other current assets... 121 1,377 1,377
------- ------- -------
Total current assets........................ 4,357 13,484 13,484
Property and equipment, net.................. 3,410 25,170 25,170
Restricted cash equivalents.................. 378 1,753 1,753
Other assets................................. 144 566 566
------- ------- -------
$ 8,289 $40,973 $40,973
======= ======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Bank borrowings............................. $ -- $ 3,000 $ 3,000
Current portion of debt..................... 296 3,777 3,777
Current portion of capital lease
obligations................................ 224 1,143 1,143
Accounts payable............................ 1,163 6,252 6,252
Accrued expenses............................ 581 2,808 2,808
Deferred revenue............................ 201 211 211
------- ------- -------
Total current liabilities................... 2,465 17,191 17,191
Debt, less current portion................... 1,000 12,693 12,693
Capital lease obligations, less current
portion..................................... 449 2,442 2,442
------- ------- -------
Total liabilities........................... 3,914 32,326 32,326
------- ------- -------
Redeemable convertible preferred stock and
warrants, $0.001 par value: actual--
32,596,966 and 74,960,124 shares authorized
as of December 31, 1996 and 1997,
respectively; 15,536,578 and 34,117,371
shares issued and outstanding as of December
31, 1996 and 1997, respectively; aggregate
liquidation preference of $9,720 and $39,640
as of December 31, 1996 and 1997,
respectively; pro forma--no shares
authorized, issued and outstanding.......... 9,609 39,247 --
------- ------- -------
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value: actual--
no shares authorized, issued or
outstanding; pro forma--5,000,000 shares
authorized; no shares issued or
outstanding................................ -- -- --
Common stock, $0.001 par value: actual--
41,200,000 and 53,281,579 shares authorized
as of December 31, 1996 and 1997,
respectively; 1,945,966 and 2,067,253
shares issued and outstanding as of
December 31, 1996 and 1997, respectively;
pro forma--50,000,000 shares authorized;
13,439,624 shares issued and outstanding... 2 2 13
Additional paid-in capital.................. 229 3,921 43,157
Notes receivable from stockholders.......... (186) (140) (140)
Deferred stock compensation................. -- (2,393) (2,393)
Accumulated deficit......................... (5,279) (31,990) (31,990)
------- ------- -------
Total stockholders' (deficit) equity........ (5,234) (30,600) 8,647
------- ------- -------
$ 8,289 $40,973 $40,973
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Service revenues................................. $ 1,068 $ 2,454 $ 11,588
Equipment revenues............................... 340 676 820
------- ------- --------
Total revenues................................. 1,408 3,130 12,408
------- ------- --------
Cost and expenses:
Cost of service revenues......................... 846 2,538 16,228
Cost of equipment revenues....................... 282 452 640
Marketing and sales.............................. 1,056 2,734 12,702
General and administrative....................... 427 1,056 5,983
Product development.............................. 70 444 1,647
------- ------- --------
Total cost and expenses........................ 2,681 7,224 37,200
------- ------- --------
Operating loss................................. (1,273) (4,094) (24,792)
Net interest expense............................... 38 39 506
------- ------- --------
Net loss....................................... (1,311) (4,133) (25,298)
Cumulative dividends and accretion on redeemable
convertible preferred stock....................... -- -- (1,413)
------- ------- --------
Net loss attributable to common stockholders....... $(1,311) $(4,133) $(26,711)
======= ======= ========
Basic and diluted net loss per share............... $ (1.00) $ (2.16) $ (13.85)
======= ======= ========
Pro forma basic and diluted net loss per share..... $ (2.56)
========
Shares used in computing basic and diluted net loss
per share......................................... 1,315 1,914 1,928
======= ======= ========
Shares used in computing pro forma basic and
diluted net loss per share........................ 9,878
========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS STOCKHOLDERS'
-------------- PAID-IN FROM DEFERRED STOCK (ACCUMULATED (DEFICIT)
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT) EQUITY
------ ------ ---------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AS OF DECEMBER
31, 1994............... 1,000 $ 1 $ 3 $ -- $ -- $ 165 $ 169
Sale of common stock to
officers............... 734 1 175 (176) -- -- --
Issuance of common stock
in connection with
stock purchase plan.... 96 -- 23 (21) -- -- 2
Repurchase of common
stock.................. (9) -- (2) -- -- -- (2)
Repayment of notes
receivable from
stockholders........... -- -- -- 2 -- -- 2
Net loss................ -- -- -- -- -- (1,311) (1,311)
----- ---- ------ ----- ------- -------- --------
BALANCES AS OF DECEMBER
31, 1995............... 1,821 2 199 (195) -- (1,146) (1,140)
Issuance of common
stock.................. 134 -- 32 -- -- -- 32
Issuance of common stock
in connection with
stock purchase plan.... 11 -- 3 (3) -- -- --
Issuance of common stock
in connection with
exercise of stock
options................ 5 -- 1 -- -- -- 1
Repurchase of common
stock.................. (25) -- (6) 6 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- 6 -- -- 6
Net loss................ -- -- -- -- -- (4,133) (4,133)
----- ---- ------ ----- ------- -------- --------
BALANCES AS OF DECEMBER
31, 1996............... 1,946 2 229 (186) -- (5,279) (5,234)
Issuance of common stock
in connection with
exercise of stock
options and warrants... 172 -- 222 -- -- -- 222
Repurchase of common
stock.................. (51) -- (12) 12 -- -- --
Repayment of notes
receivable from
stockholders........... -- -- -- 34 -- -- 34
Deferred stock
compensation related to
stock option grants.... -- -- 3,482 -- (3,482) -- --
Amortization of deferred
stock compensation..... -- -- -- -- 1,089 -- 1,089
Accrual of cumulative
dividends on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- -- (750) (750)
Accretion on Series C
and D redeemable
convertible preferred
stock.................. -- -- -- -- -- (663) (663)
Net loss................ -- -- -- -- -- (25,298) (25,298)
----- ---- ------ ----- ------- -------- --------
BALANCES AS OF
DECEMBER 31, 1997...... 2,067 $ 2 $3,921 $(140) $(2,393) $(31,990) $(30,600)
===== ==== ====== ===== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EXODUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,311) $(4,133) $(25,298)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization..................... 65 461 3,429
Amortization of deferred stock compensation....... -- -- 1,089
Changes in operating assets and liabilities:
Accounts receivable.............................. (13) (265) (1,316)
Prepaid expenses and other current assets........ (50) (71) (526)
Accounts payable................................. 420 671 5,089
Accrued expenses................................. 201 373 2,227
Deferred revenue................................. 235 (34) 10
------- ------- --------
Net cash used for operating activities.......... (453) (2,998) (15,296)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment............... (69) (3,499) (22,489)
Other assets...................................... (8) (118) (422)
------- ------- --------
Net cash used for investing activities.......... (77) (3,617) (22,911)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible
preferred stock and warrants..................... -- 9,409 23,520
Proceeds from issuance of common stock............ -- 32 222
Proceeds from issuance of bridge financing
convertible notes................................ -- -- 3,975
Repayment of notes receivable from stockholders... 2 7 34
Bank borrowings, net.............................. 100 (100) 3,000
Proceeds from sale-leaseback transactions......... -- 552 932
Payments on capital leases obligations............ (47) (154) (720)
Proceeds from debt................................ 497 1,296 16,480
Repayment of debt................................. (60) (497) (1,306)
Restricted cash................................... -- (378) (1,375)
Proceeds from note payable to stockholder......... 200 -- --
------- ------- --------
Net cash provided by financing activities....... 692 10,167 44,762
------- ------- --------
Net increase in cash and cash equivalents.......... 162 3,552 6,555
Cash and cash equivalents at beginning of year..... 1 163 3,715
------- ------- --------
Cash and cash equivalents at end of year........... $ 163 $ 3,715 $ 10,270
======= ======= ========
Supplemental disclosures of cash flow information:
Noncash investing and financing activities:
Assets recorded under capital leases.............. $ 283 $ 27 $ 2,700
======= ======= ========
Conversion of note payable to stockholder to
preferred stock.................................. $ -- $ 200 $ --
======= ======= ========
Cumulative dividends and accretion on Series C
and D redeemable convertible preferred stock..... $ -- $ -- $ 1,413
======= ======= ========
Deferred compensation on grants of stock options.. $ -- $ -- $ 3,482
======= ======= ========
Warrants issued for financing commitments......... $ -- $ -- $ 730
======= ======= ========
Conversion of bridge financing convertible notes
to redeemable convertible preferred stock........ $ -- $ -- $ 3,975
======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Unless the context otherwise requires, the term "Company" or "Exodus" refers
to Exodus Communications, Inc. and its Maryland predecessor. Exodus is a
leading provider of Internet system and network management solutions for
enterprises with mission-critical Internet operations.
INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET
In January 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC")
that would permit the Company and certain stockholders of the Company to sell
shares of the Company's common stock in connection with a proposed initial
public offering ("IPO"). If the offering is consummated under the terms
presently anticipated, all the then outstanding shares of the Company's
redeemable convertible preferred stock will automatically convert into shares
of common stock on a one-for-three basis upon the closing of the proposed IPO.
The conversion of the redeemable convertible preferred stock has been
reflected in the accompanying unaudited pro forma balance sheet as if it had
occurred on December 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Service revenues consist of monthly fees for server hosting, Internet
connectivity, collaborative systems management and Internet technology
services and one-time fees for installation. Service revenues (other than
installation fees) are generally billed and recognized ratably over the term
of the contract, generally one year. Installation fees are typically
recognized at the time that installation occurs. Equipment revenues consist of
payments from customers for third-party equipment sold by the Company.
Revenues from equipment sales are recognized at the time the equipment is
shipped to the customer or placed into service at the Internet Data Center.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, bank borrowings and debt
approximates fair market value. Financial instruments that potentially expose
the Company to a concentration of credit risk principally consist of cash and
cash equivalents and accounts receivable.
The Company's customer base is primarily composed of businesses throughout
the United States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. To date, such
losses have not been significant. The balance of the allowance for bad debts
was $22,000, $15,000 and $187,000 as of December 31, 1995, 1996 and 1997,
respectively. In 1995, revenues from a single customer comprised 24% of total
revenues.
F-7
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over their respective estimated useful lives, which are generally three
to five years. Equipment recorded under capital leases and leasehold
improvements are amortized using the straight-line method over the shorter of
the respective lease term or estimated useful life of the asset.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs incurred to develop
certain of the Company's collaborative systems management services that are
included in the Company's co-location services in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed. Costs are
capitalized after technological feasibility is achieved; generally upon the
development of a working model. To date, software development costs
capitalizable under SFAS No. 86 have not been material.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be recovered.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method to account for all of its
employee stock-based compensation plans.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company evaluates its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets or intangibles may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
NET LOSS PER SHARE
On October 1, 1997, the Company adopted SFAS No. 128, Earnings Per Share. In
accordance with SFAS No. 128, basic earnings per share is computed using the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period,
using either the as if converted method for convertible preferred stock or the
treasury stock method for options and warrants. Pursuant to SEC Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock
issued for nominal consideration, prior to the anticipated effective date
F-8
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the IPO, are included in the calculation of basic and diluted net loss per
share, as if they were outstanding for all periods presented. To date, the
Company has not had any issuances or grants for nominal consideration.
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 1997 or at the date of
issuance, if later. This data is unaudited.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. It does not, however, require a specific format, but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company is in the process of
determining its preferred format. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company has determined that it does not
have any separately reportable business segments.
F-9
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) FINANCIAL STATEMENT COMPONENTS
Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ -------
<S> <C> <C>
Data centers and related equipment........................... $2,278 $16,316
Furniture, fixtures, computer equipment and other............ 690 12,815
Construction in progress..................................... 974 --
------ -------
3,942 29,131
Less accumulated depreciation and amortization............... 532 3,961
------ -------
$3,410 $25,170
====== =======
</TABLE>
Computer equipment and certain data center infrastructure are recorded under
capital leases that aggregated $860,000 and $4,492,000 as of December 31, 1996
and 1997, respectively. Accumulated amortization on the assets recorded under
capital leases aggregated $221,000 and $722,000 as of December 31, 1996 and
1997, respectively.
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
-------------
<S> <C> <C>
Accrued payroll and related expenses.......................... $ 239 $ 1,183
Other......................................................... 342 1,625
----- -------
$ 581 $ 2,808
===== =======
</TABLE>
Net Interest Expense
Net interest expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Interest expense................................... $ 38 $ 107 $ 699
Interest income.................................... -- (68) (193)
------- ------- --------
$ 38 $ 39 $ 506
======= ======= ========
</TABLE>
(3) BANK BORROWINGS AND DEBT
During 1997, the Company had a $1,000,000 bank line of credit bearing
interest at the bank's prime rate plus 1% and collateralized by accounts
receivable. In December 1997, the line of credit was amended to increase the
available line to $5,000,000. The Company then drew down $3,000,000 on this
line. The line of credit expires in December 1998.
F-10
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has an agreement for an $8,000,000 line of credit facility,
bearing interest at 12.95% and expiring in January 1999. No amount is
outstanding as of December 31, 1997 (see Note 5).
A summary of debt follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ -------
<S> <C> <C>
$850,000 equipment term loan with a financial institution;
prime rate plus 2.5% (11.0% as of December 31, 1997);
principal and interest due monthly for 42 months........... $ 267 $ 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 (see Note 5)................... 1,029 1,393
$3,000,000 equipment line of credit facility--April 1997;
effective interest rate of approximately 12.9%; principal
and interest due monthly through July 2001; collateralized
by equipment (see Note 5).................................. -- 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 (see Note 5)..................................... -- 6,312
$3,000,000 equipment line of credit facility--August 1997;
effective interest rate of approximately 16.2%; principal
and interest due monthly through May 2001; collateralized
by equipment (see Note 5).................................. -- 2,787
$5,000,000 equipment line of credit facility; effective
interest rate of 16.4%; principal and interest due monthly
through July 2001; collateralized by equipment (see Note
5)......................................................... -- 3,044
------ -------
1,296 16,470
Less current portion...................................... 296 3,777
------ -------
Debt, less current portion................................ $1,000 $12,693
====== =======
</TABLE>
Aggregate maturities for 1998, 1999, 2000 and 2001 are $3,777,000,
$4,478,000, $4,979,000 and $3,236,000, respectively.
(4) NOTE PAYABLE TO STOCKHOLDER
As of December 31, 1995, the Company had a $200,000 note payable to a
stockholder bearing interest at the prime rate plus 2.5%. During 1996, this
note was converted into 484,378 shares of Series A preferred stock.
F-11
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
The Company is authorized to issue 53,281,579 shares of common stock,
7,798,483 shares each of Series A and A1, 8,600,000 shares each of Series B
and B1, 17,850,000 shares each of Series C and C1 and 3,231,579 shares each of
Series D and D1 redeemable convertible preferred stock.
Redeemable Convertible Preferred Stock
In February and March 1996, the Company issued 7,798,483 shares of Series A
redeemable convertible preferred stock at $0.413 per share. In October 1996,
the Company issued 7,738,095 shares of Series B redeemable convertible
preferred stock at $0.84 per share. In March and June 1997, the Company
received a total of approximately $3,975,000 in cash in exchange for bridge
financing convertible promissory notes. In June 1997, the Company issued
15,789,868 shares of Series C redeemable convertible preferred stock for
$1.362 per share in exchange for approximately $17,500,000 in cash and the
conversion of the bridge financing notes. In December 1997, the Company issued
2,631,579 shares of Series D redeemable convertible preferred stock at $2.85
per share for aggregate cash proceeds of $7,500,000.
The rights, preferences, privileges and restrictions of the redeemable
convertible preferred stock are as follows:
. Shares of Series A, A1, B, B1, C, C1, D and D1 preferred stock are
convertible at the option of the holder into an equal number of shares of
common stock subject to certain price-based antidilution adjustments for
the Series A, B, C and D redeemable convertible preferred stock. Such
price-based antidilution adjustments will be made on a weighted average
formula basis upon certain issuances of Common Stock by the Company made
below the respective conversion price of the Series A, B, C or D
preferred stock, as applicable.
. Conversion is automatic upon either (i) the closing of a public offering
of the Company's common stock at an offering price of not less than $8.55
per share and aggregate proceeds of at least $30,000,000 (a "Qualified
IPO") or (ii) the election of the majority of the stockholders of Series
A, A1, B and B1 and two-thirds of the stockholders of Series C, C1, D and
D1 redeemable convertible preferred stock, with the A and A1, B and B1, C
and C1 and D and D1 voting as four separate classes.
. The holders of Series A, A1, B and B1 redeemable convertible preferred
stock are entitled to noncumulative dividends at annual rates of $0.04,
$0.04, $0.084 and $0.084 per share, respectively, when and if declared by
the Board of Directors. The holders of Series C, C1, D and D1 redeemable
convertible preferred stock are entitled to cumulative dividends at the
annual rate of $0.095, $0.095, $0.20 and $0.20 per share, respectively.
In the event of a Qualified IPO or conversion, all accrued but unpaid
dividends with respect to the Series C, C1, D and D1 preferred stock will
be forfeited.
. Shares of Series A, A1, B, B1, C, C1, D and D1 redeemable convertible
preferred stock have liquidation preferences of $0.413, $0.413, $0.84,
$0.84, $1.362, $1.362, $2.85 and $2.85 per share, respectively, plus all
declared but unpaid dividends.
. After payment has been made to the holders of redeemable convertible
preferred stock of the full preferential amounts, holders of common stock
will receive all remaining assets pro rata based on the number of shares
of common stock held.
. At any time after June 25, 2002, upon notification by not less than a
majority of the holders of Series A, A1, B and B1 redeemable convertible
preferred stock, the Company must redeem up to 50% of the outstanding
shares of Series A, A1, B and B1 redeemable convertible preferred
F-12
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
stock by paying in cash a sum per share equal to the original issue price
(as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all declared but unpaid dividends. The holders of
Series A, A1, B and B1 redeemable convertible preferred stock can request
redemption of any remaining shares at any time after June 25, 2003. At the
option of the holders of the Series C, C1, D and D1 redeemable convertible
preferred stock, up to one-half of the Series C, C1, D and D1 redeemable
convertible preferred stock must be redeemed after June 25, 2002 and any
remaining shares after June 25, 2003 at a redemption price equal to the
greater of $1.362 and $2.85 per share, respectively, plus cumulative
dividends, or their fair market values. As of December 31, 1997, the
Company had accreted $663,000 towards the fair market values of the Series
C and D redeemable convertible preferred stock.
. Each share of Series A, A1, B, B1, C, C1, D and D1 redeemable convertible
preferred stock has voting rights on an "as if converted" basis.
. In the event the Company proposes to issue additional shares of any
series of preferred stock, the current holders of such shares will have
the right of first refusal to participate on a pro rata basis. In the
event of a dilutive subsequent financing, the holders of Series A, B, C
and D redeemable convertible preferred stock are provided with
antidilution protection if they purchase their pro rata share of such
dilutive financing. If they do not purchase their pro rata share, their
Series A, B, C and D redeemable convertible preferred stock will convert
to Series A1, B1, C1 and D1 redeemable convertible preferred stock,
respectively, which will have no such antidilution protection.
Redeemable convertible preferred stock and warrants issued and outstanding
as of December 31, 1997 was as follows:
Redeemable convertible preferred stock:
<TABLE>
<CAPTION>
SHARES ISSUED AND 13CARRYING
SERIES DESIGNATED OUTSTANDING VALUE
------ ---------- ----------- -----------
<S> <C> <C> <C>
A........................................ 7,798,483 7,798,483 $ 3,168,000
A1....................................... 7,798,483 -- --
B........................................ 8,600,000 7,775,930 6,473,000
B1....................................... 8,600,000 65,524 55,000
C........................................ 17,850,000 15,845,855 20,333,000
C1....................................... 17,850,000 -- --
D........................................ 3,231,579 2,631,579 7,246,000
D1....................................... 3,231,579 -- --
---------- ---------- -----------
74,960,124 34,117,371 $37,275,000
========== ========== ===========
Warrants:
<CAPTION>
ISSUED AND CARRYING
SERIES OUTSTANDING VALUE
------ ----------- -----------
<S> <C> <C> <C>
B................................................... 160,862 $ --
B1.................................................. 466,072 --
C................................................... 1,523,024 1,242,000
C1.................................................. 271,598 --
D1.................................................. 372,826 730,000
---------- -----------
Total............................................... 2,794,382 $ 1,972,000
========== ===========
</TABLE>
F-13
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STOCK PURCHASE PLANS
During 1995, the Company adopted a Stock Purchase Plan under which 366,667
shares of common stock are authorized. Awards totaling 96,334 and 11,034
shares of common stock were granted to individuals in 1995 and 1996,
respectively, at an exercise price of $0.24 per share, the estimated fair
market value of the shares on the date of the award. No awards were granted
during the year ended December 31, 1997. Generally, the shares are subject to
a 50-month vesting period. As of December 31, 1997, 14,434 shares remained
unvested. Unvested shares are subject to repurchase, at the Company's option,
at the original purchase price upon a participant's termination. Of the shares
granted, 41,734 had been repurchased by the Company as of December 31, 1997.
In January 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 600,000 shares of the Company's
common stock for issuance thereunder. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the common stock on the
first day of the offering period or on the last day of the purchase period.
STOCK OPTIONS
In January 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"), which serves as the successor to the Company's 1995 Stock Option
Plan (the "1995 Plan"). Options granted under the 1995 Plan before its
termination continue to remain outstanding in accordance with their terms, but
no further options may be granted under the 1995 Plan. Options granted under
the 1995 Plan were granted with exercise prices not less than fair market
value at the date of grant as determined by the Board of Directors, generally
vested 12% after six months from the date of grant and 2% per month
thereafter, and generally are exercisable for a term of ten years after the
date of grant. Under the 1997 Plan, the Company has reserved 2,200,000 shares
of the Company's common stock for issuance to employees and consultants which
may be granted as either incentive or nonqualified stock options. Options
granted under the 1997 Plan generally vest 12% after six months from the date
of grant and 2% per month thereafter and are generally exercisable for a term
of ten years after the date of grant.
In January 1998, the Company adopted the 1998 Equity Incentive Plan (the
"1998 Plan"). On the effective date of the Company's IPO, the 1998 Plan will
become effective as the successor to the 1997 Plan. The Company has reserved
1,500,000 shares of common stock for issuance under the 1998 Plan in addition
to the shares that remain from the 1997 Plan. The 1998 Plan permits the grant
of either incentive or nonqualified stock options. Options granted under the
1998 Plan will have a maximum term of ten years and generally will vest over
four years. The 1998 Plan will terminate in January 2008.
In January 1998, the Company adopted the 1998 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 200,000 shares of the Company's
common stock for issuance thereunder. Each nonemployee director who is or
becomes a member of the Board of Directors on or after the effective date of
the Company's IPO, with certain limited exceptions, will initially be granted
an option for 20,000 shares of the Company's common stock and, thereafter, an
option to purchase an additional 5,000 shares of the Company's common stock
annually. Initial options granted under the Directors Plan will vest as to 33
1/3% of the shares on each annual anniversary of the date of grant. Annual
grants will vest 25% on each annual anniversary of the date of grant. The
exercise price of the options granted under the Directors Plan will be at the
fair market value of the Company's common stock on the date of grant.
F-14
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company uses the intrinsic value method in accounting for its plans.
Accordingly, no compensation cost has been recognized for any of its stock
options because the exercise price of each option equaled or exceeded the fair
value of the underlying common stock as of the grant date for each stock
option, except for options granted subsequent to March 1997. With respect to
the options granted subsequent to March 1997, the Company has recorded
deferred stock compensation of $3,482,000 for the difference at the grant date
between the exercise price and the fair value of the common stock underlying
the options. This amount is being amortized consistent with the method
described in FASB Interpretation No. 28 over the vesting period of the
individual options, generally 50 months. Had compensation cost been determined
in accordance with SFAS No. 123, the Company's 1995, 1996 and 1997 net loss
would not have been significantly affected.
The fair value of each option is estimated on the date of grant using the
minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Dividends................................... None None None
Expected life............................... 3.20 years 2.55 years 2.59 years
Risk free interest rates.................... 5.71% 6.28% 5.91%
</TABLE>
A summary of the status of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1995 1996 1997
------------------ ------------------ --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $ -- 125,083 $0.24 292,033 $ 0.25
Granted............... 131,467 0.24 224,734 0.26 1,611,800 0.82
Forfeited............. (6,384) 0.24 (52,850) 0.24 (105,860) 0.64
Exercised............. -- -- (4,934) 0.25 (88,687) 0.32
------- ------- ---------
Outstanding at end of
period................. 125,083 0.24 292,033 0.25 1,709,286 0.76
======= ======= =========
Options exercisable at
end of year............ 35,667 0.24 80,667 0.25 223,950 0.45
======= ======= =========
Weighted-average fair
value of options
granted during the year
at market.............. 131,407 0.05 224,734 0.04 333,267 0.04
Weighted-average fair
value of options
granted during the year
at less than market.... -- -- 1,278,533 2.30
</TABLE>
F-15
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
--------------------------------- -----------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER OF REMAINING AVERAGE NUMBER AVERAGE
OPTIONS CONTRACTUAL EXERCISE OF EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE
------------------------ ----------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.24 to 0.30......... 1,003,228 9.14 years $0.29 186,423 $0.28
$0.75................. 569,725 9.79 0.75 30,860 0.75
$3.75 to 5.25......... 136,333 9.86 4.32 6,667 3.75
--------- -------
1,709,286 9.42 0.77 223,950 0.45
========= =======
</TABLE>
WARRANTS
In 1995, in connection with various financing arrangements and the
appointment of a director, the Company issued warrants to purchase an
aggregate of 85,173 shares of the Company's common stock at prices ranging
from $2.40 to $4.50 per share. These warrants expire at various dates through
December 1997.
In 1996, in connection with various financing arrangements, the Company
issued warrants to purchase an aggregate of 17,157 shares of the Company's
common stock at prices ranging from $2.40 to $2.67 per share. These warrants
expire at various dates in 2001. Also in 1996, in connection with various
lease agreements and other matters, the Company issued warrants to purchase
329,167 shares of the Company's Series B1 redeemable convertible preferred
stock at $0.84 per share. These warrants expire at various dates from June
2003 through August 2004.
In March and June 1997, in connection with the bridge financing convertible
promissory notes discussed above, the Company issued warrants to purchase
198,697 shares of the Company's Series B redeemable convertible preferred
stock at $0.84 per share. The warrants expire in 2002 or upon the closing of
an IPO. In April 1997, in connection with the $3,000,000 equipment line of
credit (see Note 3), the Company issued warrants to purchase 196,429 shares of
the Company's Series B1 redeemable convertible preferred stock at $0.84 per
share. These warrants expire in April 2007. In June 1997, in connection with
the issuance of the Company's Series C redeemable convertible preferred stock,
the Company issued warrants to purchase 1,579,011 shares of the Company's
Series C redeemable convertible preferred stock at $1.362 per share. These
warrants expire the earlier of June 2002 or immediately prior to the closing
of a Qualified IPO. In August and September 1997, in connection with the
$3,000,000 and the $6,500,000 equipment lines of credit (see Note 3), the
Company issued warrants to purchase a total of 271,598 shares of the Company's
Series C1 redeemable convertible preferred stock at $1.362 per share. These
warrants expire through September 2004.
In December 1997, in connection with the $8,000,000 line of credit facility
and the $5,000,000 equipment line of credit (see Note 3), the Company issued
warrants to purchase 247,826 and 125,000 shares, respectively, of the
Company's Series D1 redeemable convertible preferred stock at $2.85 per share,
expiring in December 2007 and June 2003, respectively.
F-16
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The fair value of all warrant issuances, calculated using the Black-Scholes
option pricing module, using the following assumptions: dividends--none;
expected life--contractual term; risk free interest rates--5.7% to 6.7%;
volatility--60%, was not material except as follows:
. The 1,579,011 warrants issued in connection with the sale of the Series
C redeemable convertible preferred stock for which the fair value was
determined to be $1,200,000. This amount was recorded as a reduction in
the carrying value of the Series C redeemable convertible preferred
stock and recorded as the carrying value of the Series C warrants as
reflected in the accompanying December 31, 1997 balance sheet, to be
accreted to the redemption price through June 2003.
. The 247,826 and 125,000 warrants issued in connection with the
$8,000,000 line of credit facility and $5,000,000 equipment line of
credit, respectively, for which the values were determined to be
$530,000 and $200,000, respectively. These amounts will be amortized on
a straight-line basis through the commitment periods of the credit
facilities.
(6) COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into a number of operating leases for its
facilities. The leases expire from 1998 through 2007. The Company has
collateralized letters of credit with certificates of deposit aggregating
$1,753,000 for these leases. The Company also leases certain data center
infrastructure and equipment under capital leases (see Note 5). Certain of
these capital leases were entered into as sales-leaseback transactions. No
gain or loss was recorded in any such transaction due to the short holding
period from the time the assets was purchased until the time of the sale-
leaseback. Future minimum lease payments as of December 31, 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1998..................................................... $1,543 $3,160
1999..................................................... 1,476 3,282
2000..................................................... 1,357 3,366
2001..................................................... -- 3,316
2002..................................................... -- 2,702
Thereafter............................................... -- 10,910
------ -------
Total minimum lease payments............................. 4,376 $26,736
=======
Less amount representing imputed interest................ 791
------
Present value of minimum lease payments.................. 3,585
Less current portion..................................... 1,143
------
Capital lease obligations, less current portion.......... $2,442
======
</TABLE>
In December 1997, the Company entered into an agreement for a 42-month
$4,000,000 equipment lease facility for equipment delivered no later than
March 31, 1998. No related equipment had been delivered as of December 31,
1997.
The Company's rent expense was $85,000, $248,000, and $1,764,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
F-17
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Telecommunications Agreement
In September 1997, the Company entered into an agreement to obtain
telecommunications services for a period of 60 months with a minimum
commitment of $230,000 per month.
Royalty Agreement
In April 1997, the Company entered into an agreement with a software company
under which the Company licensed certain software for a royalty based on 1% of
the Company's gross revenues. Royalty expenses related to this agreement were
not significant for the year ended December 31, 1997.
Contingencies
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses
and that the ultimate outcome of these actions will not have a material effect
on the Company's financial position and results of operations.
(7) INCOME TAXES
As of December 31, 1997, the Company had federal and California net
operating loss carryforwards of approximately $29,600,000 and $14,800,000,
respectively, which can be used to offset the Company's future tax
liabilities. The federal and California net operating loss carryforwards will
begin expiring in 2011 and 2001, respectively.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company that constitutes an "ownership change" as defined by
Section 382 of the Internal Revenue Code. As stated in Note 5, the Company has
had numerous equity transactions. These transactions most likely have
subjected its net operating loss to the aforementioned restrictions. The
Company plans to compute exact limitations upon realization of taxable
earnings and associated utilization of the net operating loss carryforwards.
The Company has deferred tax assets as of December 31, 1996 and 1997 of
approximately $2,000,000 and $11,700,000, respectively, which have been fully
offset by valuation allowances. The deferred tax assets principally resulted
from the net operating loss carryforwards. The Company has provided a
valuation allowance due to the uncertainty of generating future profits that
would allow for the realization of such deferred tax assets. Accordingly, no
tax benefit was recorded in the accompanying statements of operations.
(8) SUBSEQUENT EVENTS
Reincorporation and Reverse Stock Split
In January 1998, the Board of Directors approved the Company's
reincorporation in the state of Delaware. Following the closing of the
Company's IPO, the Certificate of Incorporation of the Delaware successor
corporation will authorize 50,000,000 shares of common stock, $0.001 par value
per share, and 5,000,000 shares of preferred stock, $0.001 par value per
share. The Board of Directors also approved a one-for-three reverse stock
split of the Company's common stock. The accompanying financial statements
have been retroactively restated to give effect to the reincorporation and
reverse stock split but the numbers of shares of redeemable convertible
preferred stock have not been adjusted as the reverse stock split adjusts the
conversion ratio but not the number of outstanding preferred shares.
F-18
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Leases
In February 1998, the Company entered into an additional facility operating
lease with a 120-month term. Future minimum lease payments commence at
approximately $20,000 per month and increases to approximately $60,000 per
month upon completion of construction of the related facility.
In February 1998, the Company increased its collateralized letters of credit
to $2,178,000.
Stock Options
In February 1998, the Company granted stock options to purchase 333,334
shares of Common Stock to an officer of the Company, of which half have an
exercise price of $9.00 per share and vest 100% after three years and half
have an exercise price of $18.00 per share and vest 100% after five years. The
stock options accelerate and become fully vested if the company is acquired or
sells all or substantially all of its assets.
Debt
In February 1998, the Company borrowed an additional $822,000 under the
$5,000,000 equipment line of credit facility.
F-19
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Goldman, Sachs & Co.,
BT Alex. Brown Incorporated and NationsBanc Montgomery Securities LLC are
acting as representatives, has severally agreed to purchase from the Company,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. ...........................................
BT Alex. Brown Incorporated.....................................
NationsBanc Montgomery Securities LLC ..........................
---------
Total....................................................... 4,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession of not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholders have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of 600,000 additional shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 4,000,000 shares of Common Stock offered hereby.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the
date of this Prospectus, it will not offer, sell, contract to sell or
otherwise dispose of any securities of the Company (other than pursuant to
employee stock option or stock purchase plans existing, or on the conversion
or exchange of convertible or exchangeable securities outstanding, on the date
of this Prospectus) which are substantially similar to the Common Stock or
which are convertible into or exchangeable for securities which are
substantially similar to the Common Stock without the prior written consent of
the representatives, except for the shares of Common Stock offered in
connection with the offering.
In addition, the Company's officers and directors and all holders of shares
of capital stock and warrants of the Company have agreed that they will not
offer, sell or otherwise dispose of any shares of Common Stock owned of record
or beneficially as of the date of the Prospectus, including securities
convertible into or exercisable or exchangeable for shares of Common Stock as
of said date, as well as any shares of Common Stock later acquired by reason
of the conversion, exercise or exchange of
U-1
<PAGE>
such securities, or enter into any swap or other transaction with respect to
the shares that would transfer the economic consequences of ownership of the
Common Stock to another person, for a period of 180 days following the date of
this Prospectus, except that such persons may dispose of shares of Common
Stock as bona fide gifts if the recipient of any such gift agrees in writing
with the Underwriters to be bound by the terms of this 180-day transfer
restriction.
At the request of the Company, the Underwriters have reserved up to 300,000
shares of Common Stock for sale, at the initial public offering price, to
directors, officers, employees and friends of the Company through a directed
share program. The number of shares of Common Stock available for sale to the
general public in the public offering will be reduced to the extent such
persons purchase such reserved shares.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
First Analysis Corporation is the beneficial owner of securities convertible
into 2,079,712 shares of Common Stock, which will be 11.9% of the Common Stock
outstanding after the offering. See "Principal and Selling Stockholders."
First Analysis Securities Corporation is a subsidiary of First Analysis
Corporation. Under Rule 2720 of the National Association of Securities
Dealers, Inc. (the "NASD"), the Company may be deemed an affiliate of First
Analysis Securities Corporation. This offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter"' meeting certain
standards. In accordance with this requirement, Goldman, Sachs & Co. will
serve in such role and will recommend a price in compliance with the
requirements of Rule 2720. Goldman, Sachs & Co. will receive compensation in
the amount of $10,000 for serving in such role. In connection with the
offering, Goldman, Sachs & Co. in its role as qualified independent
underwriter has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the
representatives of the Underwriters and the representatives of the Selling
Stockholders. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related business.
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the offering for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise.
U-2
<PAGE>
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "EXDS" subject to official notice of issuance. The
Company and, to the extent the over-allotment option is exercised, the Selling
Stockholders have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-3
<PAGE>
[LOGO OF EXODUS]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 34
Management................................................................ 53
Certain Transactions...................................................... 62
Principal and Selling Stockholders........................................ 66
Description of Capital Stock.............................................. 68
Shares Eligible for Future Sale........................................... 70
Legal Matters............................................................. 72
Experts................................................................... 72
Additional Information.................................................... 72
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
EXODUS COMMUNICATIONS, INC.
COMMON STOCK
(PAR VALUE, $0.001 PER SHARE)
----------------
[LOGO OF EXODUS]
----------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Company in connection with the sale of the shares of Common Stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 14,927
NASD filing fee.................................................. 5,560
Nasdaq National Market filing fee................................ 90,000
Accounting fees and expenses..................................... 450,000
Legal fees and expenses.......................................... 550,000
Road show expenses............................................... 50,000
Printing and engraving expenses.................................. 180,000
Blue sky fees and expenses....................................... 5,000
Transfer agent and registrar fees and expenses................... 5,000
Custodian fees................................................... 5,000
Miscellaneous.................................................... 44,513
----------
Total.......................................................... $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law; (ii) the Registrant may, in its
discretion, indemnify other officers, employees and agents as set forth in the
Delaware General Corporation Law; (iii) upon receipt of an undertaking to
repay such advances if indemnification is determined to be unavailable, the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the proceeding or, in
certain circumstances, by independent legal counsel in a written opinion that
the facts known to the decision-making party demonstrate clearly and
convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in, or not opposed to, the best interests of the
corporation); (iv) the rights conferred in the Bylaws are not exclusive and
the Registrant is authorized to enter into indemnification agreements with its
directors, officers and employees and agents; (v) the Registrant may not
retroactively amend the Bylaw provisions relating to indemnity; and (vi) to
the fullest extent permitted by the Delaware General Corporation Law, a
director or executive officer will be deemed to have acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Registrant and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his or her conduct
was unlawful if his or her action is based on the records or books of account
of the corporation or on information supplied to him or her by officers of the
corporation in the course of
II-1
<PAGE>
their duties or on the advice of legal counsel for the corporation or on
information or records given or reports made to the corporation by independent
certified public accountants or appraisers or other experts.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers. The indemnification agreements
provide that directors and executive officers will be indemnified and held
harmless to the fullest possible extent permitted by law including against all
expenses (including attorneys' fees), judgments, fines and settlement amounts
paid or reasonably incurred by them in any action, suit or proceeding,
including any derivative action by or in the right of the Registrant, on
account of their services as directors, officers, employees or agents of the
Registrant or as directors, officers, employees or agents of any other company
or enterprise when they are serving in such capacities at the request of the
Registrant. The Registrant will not be obligated pursuant to the agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims (i) initiated or brought voluntarily by the indemnified
party and not by way of defense, except with respect to a proceeding to
establish or enforce a right to indemnify under the indemnification agreements
or any other agreement or insurance policy or under the Registrant's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
indemnification, or authorized by the Board of Directors or as otherwise
required under Delaware statute or law, regardless of whether the indemnified
party is ultimately determined to be entitled to such indemnification, (ii)
for expenses and the payment of profits arising from the purchase and sale by
the indemnified party of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934 or any similar successor statute or (iii) if a
final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful.
The indemnification agreement also provides for contribution in certain
situations in which the Registrant and a director or executive officer are
jointly liable but indemnification is unavailable, such contribution to be
based on the relative benefits received and the relative fault of the
Registrant and the director or executive officer. No contribution is allowed
to a person found guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act of 1933) from any person who was not
found guilty of such fraudulent misrepresentation.
The indemnification agreement requires a director or executive officer to
reimburse the Registrant for all expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, the indemnification agreement or otherwise, to
be indemnified for such expenses. The form of indemnification agreement
provides that it is not exclusive of any rights a director or executive
officer may have under the Certificate of Incorporation, Bylaws, other
agreements, any majority-in-interest vote of the stockholders or vote of
disinterested directors, Delaware law or otherwise.
The indemnification provision in the Bylaws, and the form of indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's executive officers and directors for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act").
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, expects to purchase director and officer liability insurance.
In addition, Mr. Mocarski is indemnified in certain circumstances by Fleet
Financial Group, Inc.
See also the undertakings set out in response to Item 17.
II-2
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement ..................................... 1.01
Form of Registrant's Amended and Restated Certificate of
Incorporation to be filed immediately following the
offering................................................... 3.04
Registrant's Bylaws......................................... 3.06
Form of Indemnification Agreement........................... 10.08
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1995.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Fouress, Inc. (1) February 16, Common Stock 33 $ 100 Cash
1995
K.B. Chandrasekhar May 15, 1995 Common Stock 1,000,000 -- -- (2)
and B.V.
Jagadeesh,
officers/founders
of Registrant
K.B. Chandrasekhar June 20, 1995 Common Stock 333,332 80,000 Notes (3)
and B.V. Jagadeesh
Semi-Custom Logic, August 15, Warrant to purchase N/A -- -- (5)
Inc. 1995 66,666 shares of
Common Stock (4)
Richard S. Stoltz, October 3, Common Stock 400,000 96,000 Notes (3)
an officer of 1995
Registrant, and
Fred R. Sibayan,
Jr.
Prasad Kaipa December 1, Warrant to purchase N/A -- -- (7)
1995 333 shares of
Common Stock (6)
First Portland December 20, Warrant to purchase N/A -- -- (5)
Leasing 1995 1,506 shares of
Corporation Common Stock
Kanwal Rekhi, a December 21, Warrant to purchase N/A -- -- (9)
director of 1995 16,666 shares of
Registrant Common Stock (8)
Suhas Patil February 1, Warrant to purchase N/A -- -- (7)
1996 16,667 shares of
Common Stock
First Portland February 14, Warrant to purchase N/A -- -- (5)
Leasing 1996 490 shares of
Corporation Common Stock
22 investors February 29 Series A Preferred 2,599,481 3,219,994 Cash and con-
and March 15, Stock version of out-
1996 standing notes (3) (10)
3 trusts for which March 30, 1996 Common Stock 94,333 22,640 Cash (3)
Kanwal S. Rekhi is
a trustee
John R. Dougery, a April 29, 1996 Common Stock 40,000 9,600 Cash (3)
director of
Registrant
3 individuals August 30, Warrants to N/A -- -- (5)
1996 purchase 20,834
shares of
Series B1 Preferred
Stock
24 investors October 2, Series B Preferred 2,579,355 6,500,000 Cash (3)
1996 Stock
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Howley, a October 2, Warrant to purchase N/A -- -- (9)
director of 1996 19,841 shares
Registrant of Series B1
Preferred Stock
(11)
Venture Lending and October 2, Warrant to purchase N/A -- -- (5)
Leasing 1996 57,143 shares of
Corporation Series B1 Preferred
Stock
3 individuals November 6, Warrants to N/A -- -- (5)
1996 purchase 11,906
shares of Series B1
Preferred Stock
27 investors March 31, 1997 Convertible N/A 2,473,866 -- (3) (12)
Promissory Notes
27 investors March 31, 1997 Warrants to N/A 1,039 Cash (3) (16)
purchase 41,240
shares of Series B
Preferred Stock
(13)(14)(15)
MMC/GATX April 11, 1997 Warrants to N/A -- -- (5)
Partnership No. 1 purchase 65,477
and Silicon shares of Series B1
Valley Bank Preferred Stock
25 investors June 4 and Convertible N/A 1,500,000 -- (3) (17)
June 19, 1997 Promissory Notes
25 investors June 4 and Warrants to N/A 630 -- (3) (21)
June 19, 1997 purchase 25,008
shares of Series B
Preferred Stock
(18)(19)(20)
43 investors June 25, 1997 Series C Preferred 5,263,270 21,510,537 Cash and con-
Stock version of notes (3) (12) (17)
43 investors June 25, 1997 Warrants to N/A 37 Cash (3)
purchase 526,349
shares of Series C
Preferred Stock
(22)(23)(24)
David A. Sabey July 21, 1997 Series B1 Preferred 2,000 5,040 Cash (5)
Stock
Venture Lending and August 31, Warrant to purchase N/A -- -- (5)
Leasing 1997 58,724 shares of
Corporation Series C1 Preferred
Stock
Meier Mitchell & September 30, Warrants to 31,810 -- -- (5)
Company and 1997 purchase 31,810
Transamerica shares of Series C1
Business Credit Preferred Stock
Corporation
Peter A. Howley October 10, Series B1 Preferred 19,841 50,000 Cash (3)
1997 Stock (11)
Peter A. Howley October 10, Series B Preferred 1,033 2,603 Cash (3)
1997 Stock (14)(19)
Peter A. Howley October 10, Series C Preferred 1,534 6,269 Cash (3)
1997 Stock (23)
Rekhi Family Trust November 19, Common Stock (8) 16,666 40,000 Cash (3)
dated 12/15/89, 1997
for which Kanwal
S. Rekhi is
trustee
Rekhi Family Trust November 19, Series B Preferred 3,761 9,479 Cash (3)
dated 12/15/89 1997 Stock (13)(18)
Rekhi Family Trust November 19, Series C Preferred 5,552 22,692 Cash (3)
dated 12/15/89 1997 Stock (22)
40 investors December 17, Series D Preferred 877,180 7,500,000 Cash (3)
1997 Stock
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SHARES PRICE CONSIDERATION
- ------------------- -------------- ------------------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
ITV Partnerships December 23, Series B Preferred 7,814 19,699 Cash (3)
1997 Stock (15)(20)
ITV Partnerships December 23, Series C Preferred 11,574 47,310 Cash (3)
1997 Stock (24)
Prasad Kaipa December 30, Common Stock (6) 333 1,500 Cash
1997
3 individuals December 30, Common Stock (4) 66,666 160,000 Cash
1997
4 entities December 23 Warrants to N/A -- -- (5)
and 31, 1997 purchase 124,277
shares of Series D1
Preferred Stock
13 employee January 1, Common Stock 107,363(25) 25,768 Cash and Notes
participants in 1995--
1995 Employee December 31,
Stock Purchase 1997
Plan
12 employee January 1, Common Stock 93,614 29,298 Cash and Notes
optionees 1995--
December 31,
1997
Meier Mitchell & January 27, Warrant to puchase N/A -- -- (5)
Co. 1998 6,667 shares of
Series D1 Preferred
Stock
2 directors February 5, Series D Preferred 39,181 334,998 Cash (3)
1998 Stock
</TABLE>
In connection with the planned Delaware reincorporation of the Company, the
Company plans to issue shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock and options and warrants in exchange for shares,
options and warrants, respectively, in the predecessor California entity. Each
of the individual and entities listed above will receive the number of shares
of such class or series identified above.
- --------
(1) Purchased in connection with the incorporation of the Registrant as a
wholly-owned subsidiary of Fouress, Inc., the predecessor of the
Registrant ("Fouress"). These shares were canceled in May 1995 upon the
closing of the merger of Fouress with and into the Registrant.
(2) Represents shares of the Registrant exchanged for an aggregate of 5,000
shares originally purchased from Fouress for an aggregate purchase price
of $4,000 in connection with the merger of Fouress with and into the
Registrant.
(3) See "Certain Transactions."
(4) The warrant was exercised by the three principals of the leasing company
on December 30, 1997 at an exercise price of $2.40 per share.
(5) Issued as additional consideration for an equipment lease line of
credit.
(6) The warrant was exercised on December 30, 1997 at an exercise price of
$4.50 per share.
(7) The warrant was issued as additional consideration for a loan to the
Registrant.
(8) The warrant was exercised on November 19, 1997 at an exercise price of
$2.40 per share.
(9) The warrant was issued as consideration for serving as a member of the
Board of Directors.
(10) In December 1995, Kanwal S. Rekhi loaned Exodus California $200,000, all
of which was converted into Series A Preferred Stock on February 29,
1996.
(11) The warrant was exercised on October 10, 1997 at an exercise price of
$2.52 per share.
(12) The entities and individuals loaned an aggregate of $2,473,866, all of
which was converted into Series C Preferred Stock on June 25, 1997.
(13) One trust, for which Kanwal S. Rekhi is a trustee, exercised one such
warrant for 1,034 shares of Series B Preferred Stock on November 19, 1997
at an exercise price of $2.52 cents per share.
(14) Peter A. Howley exercised one such warrant for 833 shares of Series B
Preferred Stock on October 10, 1997 at an exercise price of $2.52 per
share.
(15) The ITV Partnerships exercised two such warrants for 4,466 shares of
Series B Preferred Stock on December 23, 1997 at an exercise price of
$2.52 per share.
(16) Issued in connection with the March 31, 1997 bridge financing of
$2,473,866.
II-5
<PAGE>
(17) The entities and individuals loaned an aggregate of $1,500,000, all of
which was converted into Series C Preferred Stock on June 25, 1997.
(18) One trust, for which Kanwal S. Rekhi is a trustee, exercised two such
warrants for 2,727 shares of Series B Preferred Stock on November 19,
1997 at an exercise price of $2.52 cents per share.
(19) Peter A. Howley exercised two such warrants for 200 shares of Series B
Preferred Stock on October 10, 1997 at an exercise price of $2.52 per
share.
(20) The ITV Partnerships exercised four such warrants for 3,348 shares of
Series B Preferred Stock on December 23, 1997 at an exercise price of
$2.52 per share.
(21) Issued in connection with the June 4 and June 19, 1997 bridge financing
of $1,500,000.
(22) One trust, for which Kanwal S. Rekhi is a trustee, exercised one such
warrant for 5,552 shares of Series C Preferred Stock on November 19, 1997
at an exercise price of $4.0869 per share.
(23) Peter A. Howley exercised one such warrant for 1,534 shares of Series C
Preferred Stock on October 10, 1997 at an exercise price of $4.0869 per
share.
(24) The ITV Partnerships exercised six such warrants for 11,574 shares of
Series C Preferred Stock on December 23, 1997 at an exercised price of
$4.0869 per share.
(25) Includes 41,732 shares subsequently repurchased from certain terminated
employees pursuant to the terms of the 1995 Employee Stock Purchase Plan.
- --------
The securities acquired by the Registrant's officers, directors, employees
and consultants were made in reliance on Rule 701 under the Securities Act.
All sales of Preferred Stock, warrants and notes were made in reliance on
Section 4(2) of the Securities Act and/or Regulation D promulgated or Rule 701
under the Securities Act. The securities were sold to a limited number of
people with no general solicitation or advertising.
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
+2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995.
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus Communications, Inc., a California Corporation.
+3.01 Amended and Restated Articles of Incorporation of Exodus
Communications, Inc., a California corporation.
+3.02 Registrant's Certificate of Incorporation, as currently in effect.
3.03 Registrant's Certificate of Designation.
3.04 Form of Registrant's Amended and Restated Certificate of Incorporation
to be filed immediately following the offering.
+3.05 Bylaws of Exodus Communications, Inc., a California Corporation.
3.06 Registrant's Bylaws.
4.01 Form of Specimen Certificate for Registrant's Common Stock.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
+10.01 Amended and Restated Investors Rights Agreement, dated as of June 25,
1997 between the Registrant and certain investors, as amended December
15, 1997.
+10.02 Registrant's 1995 Stock Option Plan and related forms of agreements.
+10.03 Registrant's 1995 Stock Purchase Plan and related forms of agreements.
+10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements.
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements.
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements.
10.07 Registrant's 1998 Employee Stock Purchase Plan.
+10.08 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers, as amended.
+10.09 Facility Lease between Washcop Associates Limited Partnership and the
Registrant dated April 18, 1996.
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal Associates
and Registrant dated December 30, 1996, as amended April 29, 1997 and
January 27, 1998.
+10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant dated
April 18, 1997.
+10.12 Facility Lease between Sabey Corporation and Registrant dated April
24, 1997.
+10.13 Facility Lease between The Manufacturers Life Insurance Company and
Registrant dated June 27, 1997.
+10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997.
+10.15 Application for Data Services between WorldCom, Inc. and the
Registrant dated September 18, 1997.
+10.16 Software License and Marketing Agreement between Computer Associates
International, Inc. and the Registrant dated April 1997.
+10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers.
+10.18 Equipment Lease Line of Credit between Transamerica Business Credit
Corporation and Registrant dated August 28, 1997.
+10.19 Loan and Security Agreement between Silicon Valley Bank and Registrant
dated June 14, 1996, as amended on March 25, 1997, June 13, 1997,
November 24, 1997 and December 8, 1997.
+10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated December
31, 1997.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
+10.21 Equipment Lease Line of Credit between Venture Lending & Leasing II,
Inc. and Registrant dated December 23, 1997.
10.22 Equipment Lease Line of Credit Commitment ("Commitment Letter")
between Finova Technology Finance, Inc. ("Finova") and Registrant
dated December 17, 1997; Master Lease Agreement ("Master Lease")
between Finova and Registrant dated December 19, 1997; and
Modification to Commitment Letter and Master Lease between Finova and
Registrant dated February 6, 1998.
10.23 Sublease Agreement dated January 12, 1998 between Amdahl Corporation
and Registrant.
10.24 Nonqualified Stock Option Agreements between Registrant and K.B.
Chandrasekhar dated January 27, 1998.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG Peat Marwick LLP, independent accountants.
24.01 Power of Attorney (see Page II-10 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Previously filed.
(b) Financial statement schedules are omitted because the information called
for is not required or is shown either in the Financial Statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA CLARA, STATE OF CALIFORNIA, ON
THE 23RD DAY OF FEBRUARY, 1998.
Exodus Communications, Inc.
By /s/ K.B. Chandrasekhar
-------------------------------
K.B. CHANDRASEKHAR PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
----- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
President, Chief February 23, 1998
/s/ K.B. Chandrasekhar Executive Officer
- ------------------------------------- and Chairman of the
K.B. CHANDRASEKHAR Board of Directors
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER:
Chief Financial February 23, 1998
/s/ Richard S. Stoltz Officer and Chief
- ------------------------------------- Operating Officer
RICHARD S. STOLTZ
ADDITIONAL DIRECTORS:
* Director February 23, 1998
- -------------------------------------
KANWAL S. REKHI
* Director February 23, 1998
- -------------------------------------
PETER A. HOWLEY
* Director February 23, 1998
- -------------------------------------
THADEUS MOCARSKI
* Director February 23, 1998
- -------------------------------------
JOHN R. DOUGERY
* Director February 23, 1998
- -------------------------------------
MARK DUBOVOY
* Director February 23, 1998
- -------------------------------------
FREDERICK W.W. BOLANDER
*By /s/ Richard S. Stoltz
----------------------------------
RICHARD S. STOLTZ
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints K.B. Chandrasekhar and Richard S.
Stoltz, and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
ADDITIONAL DIRECTORS:
/s/ Max D. Hopper Director February 24, 1998
- ------------------------------------
MAX D. HOPPER
/s/ Daniel C. Lynch Director February 23, 1998
- ------------------------------------
DANIEL C. LYNCH
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
+2.01 Agreement and Plan of Merger between Fouress, Inc. and Registrant
dated April 26, 1995.
2.02 Form of Agreement and Plan of Merger by and between Registrant and
Exodus Communications, Inc., a California Corporation.
+3.01 Amended and Restated Articles of Incorporation of Exodus
Communications, Inc., a California corporation.
+3.02 Registrant's Certificate of Incorporation, as currently in effect.
3.03 Registrant's Certificate of Designation.
3.04 Form of Registrant's Amended and Restated Certificate of
Incorporation to be filed immediately following the offering.
+3.05 Bylaws of Exodus Communications, Inc., a California Corporation.
3.06 Registrant's Bylaws.
4.01 Form of Specimen Certificate for Registrant's Common Stock.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
+10.01 Amended and Restated Investors Rights Agreement, dated as of June
25, 1997 between the Registrant and certain investors, as amended
December 15, 1997.
+10.02 Registrant's 1995 Stock Option Plan and related forms of
agreements.
+10.03 Registrant's 1995 Stock Purchase Plan and related forms of
agreements.
+10.04 Registrant's 1997 Equity Incentive Plan and related forms of
agreements.
10.05 Registrant's 1998 Equity Incentive Plan and related forms of
agreements.
10.06 Registrant's 1998 Directors Stock Option Plan and related forms of
agreements.
10.07 Registrant's 1998 Employee Stock Purchase Plan.
+10.08 Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers, as amended.
+10.09 Facility Lease between Washcop Associates Limited Partnership and
the Registrant dated April 18, 1996.
10.10 Facility Lease between Cal-Harbor II & III Urban Renewal
Associates and Registrant dated December 30, 1996, as amended
April 29, 1997 and January 27, 1998.
+10.11 Facility Lease between McCandless-San Tomas N. 2 and Registrant
dated April 18, 1997.
+10.12 Facility Lease between Sabey Corporation and Registrant dated
April 24, 1997.
+10.13 Facility Lease between The Manufacturers Life Insurance Company
and Registrant dated June 27, 1997.
+10.14 Facility Lease between JBG/Spring Park Limited Partnership and
Registrant dated June 30, 1997.
+10.15 Application for Data Services between WorldCom, Inc. and the
Registrant dated September 18, 1997.
+10.16 Software License and Marketing Agreement between Computer
Associates International, Inc. and the Registrant dated April
1997.
+10.17 Form of Executive Employment Policy to be entered into between the
Registrant and certain officers.
+10.18 Equipment Lease Line of Credit between Transamerica Business
Credit Corporation and Registrant dated August 28, 1997.
+10.19 Loan and Security Agreement between Silicon Valley Bank and
Registrant dated June 14, 1996, as amended on March 25, 1997, June
13, 1997, November 24, 1997 and December 8, 1997.
+10.20 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Transamerica Business Credit Corporation and Registrant dated
December 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE
----------- -------------
<C> <S>
+10.21 Equipment Lease Line of Credit between Venture Lending & Leasing
II, Inc. and Registrant dated December 23, 1997.
10.22 Equipment Lease Line of Credit Commitment ("Commitment Letter")
between Finova Technology Finance, Inc. ("Finova") and Registrant
dated December 17, 1997; Master Lease Agreement ("Master Lease")
between Finova and Registrant dated December 19, 1997; and
Modification to Commitment Letter and Master Lease between Finova
and Registrant dated February 6, 1998.
10.23 Sublease Agreement dated January 12, 1998 between Amdahl
Corporation and Registrant.
10.24 Nonqualified Stock Option Agreements between Registrant and K.B.
Chandrasekhar dated January 27, 1998.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG Peat Marwick LLP, independent accountants.
24.01 Power of Attorney (see Page II-10 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 1.01
EXODUS COMMUNICATIONS, INC.
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
----------------------
_____________, 1998
Goldman, Sachs & Co.,
BT Alex. Brown
NationsBanc Montgomery Securities L.L.C.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Exodus Communications, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ________ shares and, at the election of the Underwriters, up to ________
additional shares of Common Stock, par value $.001 per share ("Stock"), of the
Company and, at the election of the Underwriters, the stockholders of the
Company named in Schedule II hereto (the "Selling Stockholders") propose,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters up to __________________additional shares of Stock. The aggregate
of ___________ shares to be sold by the Company is herein called the "Firm
Shares" and the aggregate of _____________ additional shares to be sold by the
Company and the Selling Stockholders is herein called the "Optional Shares".
The Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
<PAGE>
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act, is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective or such part of the Rule 462(b) Registration Statement, if any, became
or hereafter becomes effective, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
-----------------
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(iv) The Company has not sustained since the date of the
latest audited financial statements included in the Prospectus any material loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration
-2-
<PAGE>
Statement and the Prospectus, there has not been any change in the capital stock
or long-term debt of the Company or any material adverse change, or any
development [that is reasonably likely to result in] material adverse change, in
or affecting the general affairs, management, financial position, stockholders'
equity or results of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus;
(v) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectus
or such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set
forth in the Prospectus as of the date set forth therein, and all of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus;
(viii) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the
Company and the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or assets
of the Company is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
-3-
<PAGE>
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws or the bylaws, rules and regulations of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) The Company is not in violation of its Certificate of
Incorporation or By-laws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties may be
bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting", insofar
as they purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(xii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company is a party or of
which any property of the Company is the subject which, if determined adversely
to the Company, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes; and
(xv) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company, are independent public accountants as
required by the Act and the rules and regulations of the Commission thereunder.
-4-
<PAGE>
(b) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling Stockholder
has full right, power and authority to enter into this Agreement, the Power-of-
Attorney and the Custody Agreement and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling Stockholder or
the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities or
claims; and, upon delivery of such Shares and payment therefor pursuant hereto,
good and valid title to such Shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
each Selling Stockholder will not offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than pursuant
to employee stock plans adopted prior to, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without the prior written consent of Goldman Sachs & Co.;
(v) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
-5-
<PAGE>
(vi) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by such Selling Stockholder
expressly for use therein, such Preliminary Prospectus and the Registration
Statement did, and the Prospectus and any further amendments or supplements to
the Registration Statement and the Prospectus, when they become effective or are
filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein contemplated,
such Selling Stockholder will deliver to you prior to or at the First Time of
Delivery (as hereinafter defined) a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you (the
"Custody Agreement"), duly executed and delivered by such Selling Stockholder to
__________________, as custodian (the "Custodian"), and such Selling Stockholder
has duly executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons indicated in
Schedule II hereto, and each of them, as such Selling Stockholder's attorneys-
in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this Agreement
and the Custody Agreement; and
(ix) The Shares represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement are subject to
the interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder shall
not be terminated by operation of law, whether by the death or incapacity of any
individual Selling Stockholder or, in the case of an estate or trust, by the
death or incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the dissolution of
such partnership or corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be terminated, or if
any such partnership or corporation should be dissolved, or if any other such
event should occur, before the delivery of the Shares hereunder, certificates
representing
-6-
<PAGE>
the Shares shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the Custody
Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not the
Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of
such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company at a purchase price per
share of $_______________, the number of Firm Shares (to be adjusted by you so
as to eliminate fractional shares) determined by multiplying the aggregate
number of Shares to be sold by the Company as set forth opposite its name in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company hereunder and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company and each of the Selling Stockholders agree, severally and not
jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and each of the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company and the Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters
the right to purchase at their election up to _______________ Optional Shares,
at the purchase price per share set forth in the paragraph above, for the sole
purpose of covering overallotments in the sale of the Firm Shares. Any such
election to purchase Optional Shares shall be made in proportion to the maximum
number of Optional Shares to be sold by the Company and each Selling Stockholder
as set forth in Schedule II hereto initially with respect to the Optional Shares
to be sold by the Company and then among the Selling Stockholders in proportion
to the maximum number of Optional Shares to be sold by each Selling Stockholder
as set forth in Schedule II hereto. Any such election to purchase Optional
Shares may be exercised only by written notice from you to the Company and the
Attorneys-in-Fact, given within a period of 30 calendar days after the date of
this Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the Attorneys-
in-Fact otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
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3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by certified or official bank check or checks, payable
to the order of the Company and each of the Selling Stockholders, as their
interests may appear, in funds. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on _______________, 1998 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at ________.p.m., New York City time, on the New York Business
Day next preceding such Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this Section 4,
"New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable,
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such earlier time as may be required by Rule 430A(a)(3) under the Act; to make
no further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to [10:00 a.m.], New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as
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defined in Rule 158(c) under the Act), an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section 11(a) of the
Act and the rules and regulations of the Commission thereunder (including, at
the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder,
any securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries, if any, certified by independent public accountants)
to make available to its stockholders and, as soon as practicable after the end
of each of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its subsidiaries,
if any, for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ"); and
(j) If the Company elects to rely upon rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
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6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be paid the following: (i) the fees, disbursements and expenses of
the Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) all fees and expenses in connection with listing the
Shares on the NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section; and
(b) each Selling Stockholder will pay or cause to be paid all costs and expenses
incident to the performance of such Selling Stockholder's obligations hereunder
which are not otherwise specifically provided for in this Section, including (i)
any fees and expenses of counsel for such Selling Stockholder, (ii) such Selling
Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, and (iii) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b) (iii) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and that, except as provided in this Section, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel, stock transfer taxes on resale of any of the Shares
by them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule
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424(b) within the applicable time period prescribed for such filing by the rules
and regulations under the Act and in accordance with Section 5(a) hereof; if the
Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement shall have become effective by 10:00 p.m., Washington D.C. time, on
the date of this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, shall have furnished to you such opinion or
opinions (a draft of each such opinion is attached as Annex II(a) hereto), dated
such Time of Delivery, with respect to the matters covered in paragraphs (i),
(ii), (vii), (xi) and (xiii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Fenwick & West LLP, counsel for the Company, shall have furnished
to you their written opinion (a draft of each such opinion is attached as Annex
II(b) hereto), dated such Time of Delivery, in form and substance satisfactory
to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are fully paid and non-
assessable; and the Shares conform to the description of the Stock contained in
the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so qualified in any
such jurisdiction (such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that such counsel shall
state that they believe that both you and they are justified in relying upon
such opinions and certificates);
(iv) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors' qualifying
shares)
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are owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and certificates);
(v) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries (in giving the
opinion in this clause, such counsel may state that no examination of record
titles for the purpose of such opinion has been made, and that they are relying
upon a general review of the titles of the Company and its subsidiaries, upon
opinions of local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such property
by the Company or its subsidiaries, upon opinions of counsel to the lessors of
such property and, in respect of matters of fact, upon certificates of officers
of the Company or its subsidiaries, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such opinions,
abstracts, reports, policies and certificates);
(vi) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the current
or future consolidated financial position stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
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provisions of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
or lease or agreement or other instrument to which it is a party or by which it
or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting", insofar
as they purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the rules and
regulations thereunder; although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in the
opinion in subsection (xi) of this Section 7(c), they have no reason to believe
that, as of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date, the
Prospectus or any
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further amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and they
do not know of any amendment to the Registration Statement required to be filed
or of any contracts or other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or described as
required;
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder in accordance with their terms;
(ii) This Agreement has been duly executed and delivered by
or on behalf of such Selling Stockholder; and the sale of the Shares to be sold
by such Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the Power-of-Attorney
and the Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or violation
of any terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which such Selling Stockholder is a party or
by which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result in
any violation of any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares to be
sold by such Selling Stockholder hereunder;
(iv) Immediately prior to such Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at such Time of
Delivery by such Selling Stockholder under this Agreement, free and clear of all
liens, encumbrances, equities or claims, and full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of
all liens, encumbrances, equities or claims, has been transferred to each of the
several Underwriters.
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In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) (i) The Company shall not have sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any change in
the capital stock or long-term debt of the Company or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities or preferred stock by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities or preferred stock;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this Clause (iv) in the judgment of the
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Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(i) The Shares at such Time of Delivery shall have been duly listed
for quotation on NASDAQ; and
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each ______________________, substantially
to the effect set forth in Subsection 1(b)(iv) hereof in form and substance
satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of officers
of the Company and of the Selling Stockholders, respectively, satisfactory to
you as to the accuracy of the representations and warranties of the Company and
the Selling Stockholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the Selling Stockholders of
all of their respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of this
Section.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
-----------------
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such
-17-
<PAGE>
Selling Stockholder may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company and each Selling Stockholder for any legal or other expenses reasonably
incurred by the Company or such Selling Stockholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion
-18-
<PAGE>
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, each of the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by pro rata allocation (even if
--------
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any
-19-
<PAGE>
Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in
-20-
<PAGE>
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary with a
copy to Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306;
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth
-21-
<PAGE>
in its Underwriters' Questionnaire or telex constituting such Questionnaire,
which address will be supplied to the Company or the Selling Stockholders by you
on request. Any such statements, requests, notices or agreements shall take
effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and each of the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
-22-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
EXODUS COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[NAMES OF SELLING STOCKHOLDERS]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
As Attorney-in-Fact acting on behalf of each
of the Selling Stockholders named in
Schedule II to this Agreement.
Accepted as of the date hereof [at .., ............:]
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES L.L.C.
BY: GOLDMAN, SACHS & CO.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
On behalf of each of the Underwriters
-23-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
- ----------------------------------- ------------------ ---------------
<S> <C> <C>
Goldman, Sachs & Co.
BT Alex Brown
NationsBanc Montgomery Securities L.L.C.
[NAMES OF OTHER UNDERWRITERS]
Total
</TABLE>
-24-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL SHARES TO
TOTAL NUMBER OF BE SOLD IF
FIRM SHARES TO BE MAXIMUM OPTION
SOLD EXERCISED
----------------- -------------------
<S> <C> <C>
The Company..............................
The Selling Stockholder(s):
[NAME OF SELLING STOCKHOLDER](A)
[NAME OF SELLING STOCKHOLDER](B)
Total
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL]
and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-25-
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been [SEPARATELY] furnished to the
representatives of the Underwriters (the "Representatives")[AND ARE
ATTACHED HERETO];
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which [HAVE BEEN SEPARATELY
FURNISHED TO THE REPRESENTATIVES][ARE ATTACHED HERETO] and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which
were included or incorporated by reference in the Company's Annual Reports
on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation
S-K;
-26-
<PAGE>
(vi) On the basis of limited procedures, not constituting an examination in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications should be made
to the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to
in Clause (B) were not determined on a basis substantially consistent
with the basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial statements
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma adjustments
have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the date of
such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options
and stock appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included in
the Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in consolidated net
current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause
(E) there were any decreases in
-27-
<PAGE>
consolidated net revenues or operating profit or the total or per share
amounts of consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which appear
in the Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found them
to be in agreement.
-28-
<PAGE>
EXHIBIT 2.02
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as
----------------
of February __, 1998 by and between Exodus Communications, Inc., a California
corporation ("Exodus California"), and Exodus Communications, Inc., a Delaware
-----------------
corporation ("Exodus Delaware"). Exodus California and Exodus Delaware are
---------------
hereinafter sometimes collectively referred to as the "Constituent
-----------
Corporations."
R E C I T A L S
----------------
A. Exodus California was incorporated on February 16, 1995. Its
current authorized capital stock consists of: (1) 53,281,579 shares of Common
Stock, no par value ("Exodus California Common Stock"), of which approximately
------------------------------
6,201,760 shares are issued and outstanding; and (2) 74,960,124 shares of
Preferred Stock, no par value ("Exodus California Preferred Stock"), of which
---------------------------------
34,117,371 shares are issued and outstanding (consisting as of December 31, 1997
of 7,798,483 shares of Series A Preferred Stock, 7,775,930 shares of Series B
Preferred Stock, 65,524 shares of Series B1 Preferred Stock, 15,845,855 shares
of Series C Preferred Stock, no shares of Series C1 Preferred Stock, 2,631,579
shares of Series D Preferred Stock and no shares of Series D1 Preferred Stock).
B. Exodus Delaware was incorporated on January 6, 1998. Its
authorized capital stock consists of: (1) 100,000,000 shares of Common Stock,
with a par value of $0.001 per share ("Exodus Delaware Common Stock"), 1,000 of
----------------------------
which are issued and outstanding; and (2) 80,000,000 shares of Preferred Stock,
$0.001 par value ("Exodus Delaware Preferred Stock"), none of which are issued
-------------------------------
and outstanding.
C. The respective Boards of Directors of Exodus California and
Exodus Delaware deem it advisable and to the advantage of each of the
Constituent Corporations that Exodus California merge with and into Exodus
Delaware upon the terms and subject to the conditions set forth in this Merger
Agreement for the purpose of effecting a change of the state of incorporation of
Exodus California from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that Exodus California
shall merge with and into Exodus Delaware on the following terms, conditions and
other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
-------------------------
below), Exodus California shall be merged with and into Exodus Delaware (the
"Merger"), and Exodus Delaware shall be the surviving corporation of the Merger
- -------
(the "Surviving Corporation"). The Merger shall become effective upon the close
---------------------
of business on the date when a duly executed copy of this Merger Agreement,
along with all required officers' certificates, is filed with the Secretary of
State of the State of California, or upon the close of business on the date when
a duly executed copy of this Merger Agreement, along with all required officers'
certificates, is filed with the Secretary of State of the State of Delaware (the
"Effective Time").
--------------
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
----------------
existence of Exodus California shall cease; the corporate identity, existence,
powers, rights and immunities of
<PAGE>
Exodus Delaware as the Surviving Corporation shall continue unimpaired by the
Merger; and Exodus Delaware shall succeed to and shall possess all the assets,
properties, rights, privileges, powers, franchises, immunities and purposes, and
be subject to all the debts, liabilities, obligations, restrictions and duties
of Exodus California, all without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate of
-------------------
Incorporation of Exodus Delaware in effect immediately prior to the Effective
Time shall become the Certificate of Incorporation of the Surviving Corporation
and the Bylaws of Exodus Delaware in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors and
----------------------
officers of Exodus Delaware shall be and become directors and officers (holding
the same titles and positions) of the Surviving Corporation and after the
Effective Time shall serve in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
5. CONVERSION OF SHARES OF EXODUS CALIFORNIA. Subject to the terms
-----------------------------------------
and conditions of this Agreement, at the Effective Time, (i) three shares of
Exodus California Common Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of Exodus Delaware Common Stock, (ii) one share of
Exodus California Series A Preferred Stock outstanding immediately prior thereto
shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of Exodus Delaware Series A
Preferred Stock; one share of Exodus California Series A1 Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
Exodus Delaware Series A1 Preferred Stock; one share of Exodus California Series
B Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of Exodus Delaware Series B Preferred Stock; one share of
Exodus California Series B1 Preferred Stock outstanding immediately prior
thereto shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of Exodus Delaware Series B1
Preferred Stock; one share of Exodus California Series C Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
Exodus Delaware Series C Preferred Stock; one share of Exodus California Series
C1 Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of Exodus Delaware Series C1 Preferred Stock; one share of
Exodus California Series D Preferred Stock outstanding immediately prior thereto
shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of Exodus Delaware Series D
Preferred Stock; and one share of Exodus California Series D1 Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
Exodus Delaware Series D1 Preferred Stock, provided that the conversion ratio of
such series of Preferred Stock shall be one (1) share of Common Stock for three
(3) shares of Preferred Stock.
6. CANCELLATION OF SHARES OF EXODUS DELAWARE. At the Effective
-----------------------------------------
Time, all of the previously issued and outstanding shares of Exodus Delaware
Common Stock that were issued and outstanding immediately prior to the Effective
Time shall be automatically retired and canceled.
2
<PAGE>
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
------------------
outstanding certificates that, prior to that date, represented shares of Exodus
California Common Stock shall be deemed for all purposes to evidence ownership
of and to represent the number of shares of Exodus Delaware Common Stock into
which such shares of Exodus California Common Stock are converted as provided
herein. At and after the Effective Time, all of the outstanding certificates
that, prior to that date, represented shares of a series of Exodus California
Preferred Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of the series of Exodus Delaware Preferred Stock
into which such shares of Exodus California Preferred Stock are converted as
provided herein. The registered owner on the books and records of Exodus
California of any such outstanding stock certificate for Exodus California
Common Stock or Exodus California Preferred Stock shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to Exodus
Delaware or its transfer agent, be entitled to exercise any voting and other
rights with respect to, and to receive any dividend and other distributions
upon, the shares of Exodus Delaware Common Stock or Exodus Delaware Preferred
Stock evidenced by such outstanding certificate as above provided.
8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time, all
----------------------------------
outstanding and unexercised options to purchase shares of Exodus California
Common Stock under the Exodus California 1995 Stock Option Plan and the Exodus
California 1997 Equity Incentive Plan shall become options to purchase one-third
(1/3rd) of the number of shares of Exodus Delaware Common Stock at three times
the exercise price per share and shall, to the extent permitted by law and
otherwise reasonably practicable, have the same term, exercisability, vesting
schedule, status as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), if applicable, and all
----
other material terms and conditions (including but not limited to the terms and
conditions applicable to such options by virtue of each of the Exodus California
1995 Stock Option Plan and the Exodus California 1997 Equity Incentive Plan).
Continuous employment with Exodus California will be credited to an optionee for
purposes of determining the vesting of the number of shares of Exodus Delaware
Common Stock under a converted Exodus California option at the Effective Time.
Additionally, at the Effective Time, Exodus Delaware shall assume the Exodus
California 1997 Equity Incentive Plan. At the Effective Time, any outstanding
and unexercised portions of all warrants to purchase or acquire Exodus
California Common Stock shall become warrants to purchase or acquire, on the
same terms and conditions, one-third (1/3rd) of the number of shares of Common
Stock for three times the exercise price per share, of Exodus Delaware, and any
outstanding and unexercised portions of all warrants to purchase or acquire any
series of Exodus California Preferred Stock shall become warrants to purchase or
acquire, on the same terms and conditions, the same number of shares of series
of Preferred Stock for the same exercise price per share, of Exodus Delaware,
provided that the conversion ratio of such series of Preferred Stock shall be
one (1) share of Common Stock for three (3) shares of Preferred Stock.
9. FRACTIONAL SHARES. No fractional shares of Exodus Delaware
-----------------
Common Stock or series of Preferred Stock will be issued in connection with the
Merger. In lieu thereof, Exodus Delaware shall pay each shareholder of Exodus
California who would otherwise be entitled to receive a fractional share of
Exodus Delaware Common Stock or series of Preferred Stock (assuming the
aggregation of all shares held by the same holder of more than one stock
certificate representing shares of Exodus California Common Stock, or series of
Preferred Stock, as the case may be) a cash amount equal to the applicable
fraction multiplied by the fair market value of a share of Exodus Delaware
Common Stock, as determined by the Board of Directors of Exodus Delaware in good
faith (the "Fair
----
3
<PAGE>
Market Value Per Share"). Upon exercise of each assumed option of Exodus
- ----------------------
California to purchase Exodus Delaware Common Stock, cash will be paid by Exodus
Delaware in lieu of any fractional share of Exodus Delaware Common Stock
issuable upon exercise of such option, and the amount of cash received for such
fractional share shall be the Fair Market Value Per Share upon exercise thereof
multiplied by the applicable fraction, less the unpaid exercise price per share
for such fraction. With respect to Preferred Stock, cash in lieu of fractional
shares shall be paid in connection with the conversion of each series of
Preferred Stock into Common Stock as set forth in Section 5, above.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
----------------------
of Exodus California under or with respect to every plan, trust, program and
benefit then in effect or administered by Exodus California for the benefit of
the directors, officers and employees of Exodus California or any of its
subsidiaries shall become the lawful obligations of Exodus Delaware and shall be
implemented and administered in the same manner and without interruption until
the same are amended or otherwise lawfully altered or terminated. Effective at
the Effective Time, Exodus Delaware hereby expressly adopts and assumes all
obligations of Exodus California under such employee benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when required by
------------------
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of Exodus California such deeds, assignments
and other instruments, and there shall be taken or caused to be taken by it all
such further action as shall be appropriate, advisable or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Exodus California,
and otherwise to carry out the purposes of this Merger Agreement. The officers
and directors of the Surviving Corporation are fully authorized in the name of
and on behalf of Exodus California, or otherwise, to take any and all such
actions and to execute and deliver any and all such deeds and other instruments
as may be necessary or appropriate to accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
---------
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of Exodus California and by the sole stockholder of Exodus
Delaware, prior to or at the Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Exodus California or Exodus Delaware, notwithstanding approval of this Merger
Agreement by the Boards of Directors and shareholders of Exodus California and
Exodus Delaware.
14. AMENDMENT. At any time before the Effective Time, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the shareholders of Exodus California and Exodus Delaware; provided, however,
-------- -------
that any amendment made subsequent to the adoption of this Agreement by the
shareholders of Exodus California or the sole stockholder of Exodus Delaware
shall not alter or change: (i) the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or upon conversion of any
shares of any class or series of Exodus California; (ii) any of the terms of the
Certificate of Incorporation of the Surviving Corporation to be effected by the
Merger; or (iii) any of the terms or conditions of this Merger Agreement, if any
such
4
<PAGE>
alteration or change would adversely affect the holders of any shares of any
class or series of Exodus California or Exodus Delaware.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
-----------------------
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to the principles of conflicts of law, except to
the extent that the laws of the State of Delaware would apply in matters
relating to the internal affairs of Exodus Delaware and the Merger.
17. COUNTERPARTS. In order to facilitate the filing and recording of
------------
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior agreements or understandings, whether oral or
written, with respect to such subject matter.
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of
each of the Constituent Corporations and attested by their respective officers
hereunto duly authorized.
EXODUS COMMUNICATIONS, INC., EXODUS COMMUNICATIONS, INC.,
a California corporation a Delaware corporation
By:_____________________________ By:_________________________________
K.B. Chandrasekhar K.B. Chandrasekhar
President and Chief Executive President and Chief Executive
Officer Officer
ATTEST: ATTEST:
- ------ ------
By:_____________________________ By:_________________________________
Adam W. Wegner Adam W. Wegner
Secretary Secretary
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE>
EXHIBIT 3.03
EXODUS COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION OF PREFERRED STOCK
Exodus Communications, Inc., a Delaware corporation (the "Company"), does
hereby certify that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the Delaware General Corporation Law, the Company's Board of Directors
has duly adopted the following resolution creating eight separate series of
Preferred Stock designated as Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred stock, Series B1 Preferred Stock, Series C Preferred
Stock, Series C1 Preferred Stock, Series D Preferred Stock and Series D1
Preferred Stock.
RESOLVED, that the Company hereby designates and creates eight separate
series of the authorized Preferred Stock, designated Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1
Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock,
Series D Preferred Stock and Series D1 Preferred Stock, respectively, as
follows:
A. Of the eighty million (80,000,000) shares of Preferred Stock, par value
$0.001, authorized to be issued by the Company, seven million, seven hundred
ninety-eight thousand, four hundred and eighty-three (7,798,483) shares are
hereby designated "Series A Preferred Stock"; seven million, seven hundred
ninety-eight thousand, four hundred and eighty-three (7,798,483) shares are
hereby designated "Series A1 Preferred Stock"; eight million, six hundred
thousand (8,600,000) shares are hereby designated "Series B Preferred Stock";
eight million, six hundred thousand (8,600,000) shares are hereby designated
"Series B1 Preferred Stock"; seventeen million, eight hundred and fifty thousand
(17,850,000) shares are hereby designated "Series C Preferred Stock"; seventeen
million, eight hundred fifty thousand (17,850,000) shares are hereby designated
"Series C1 Preferred Stock"; three million, two hundred thirty-one thousand five
hundred seventy-nine (3,231,579) shares are hereby designated "Series D
Preferred Stock" and three million, two hundred thirty-one thousand five hundred
seventy-nine (3,231,579) shares are hereby designated "Series D1 Preferred
Stock." Any shares of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock,
Series C1 Preferred Stock, Series D Preferred Stock or Series D1 Preferred Stock
that are acquired by the Company, whether by redemption, purchase, conversion or
otherwise, so that such shares are issued but not outstanding, may not be
reissued as shares of any such series or as shares of the class of Preferred
Stock. Upon the retirement of any such shares and the filing of a certificate
of retirement pursuant to Sections 103 and 243 of the Delaware General
Corporation Law with respect thereto, the shares of such series shall be
eliminated and the number of shares of Preferred Stock shall be reduced
accordingly. The rights, preferences, privileges and restrictions granted to
and imposed upon the respective classes and series of the Corporation's capital
stock are set forth below in Article B. Nothing in this Article A shall limit
the Board of Directors' ability to designate and establish the rights,
preferences, privileges and restrictions of the remaining authorized but
unissued Preferred Stock of the Corporation.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
-------------------------------------------------------
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
<PAGE>
1. Definitions. For purposes of this Article B, the following
-----------
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Company" shall mean this corporation.
1.3 "Common Stock" shall mean the Common Stock, $0.001 par value of
the Company.
1.4 "Preferred Stock" shall mean the Preferred Stock, $0.001 par
value, of the Company, including, without limitation, the Series A Preferred
Stock, the Series A1 Preferred Stock, the Series B Preferred Stock, the Series
B1 Preferred Stock, the Series C Preferred Stock, the Series C1 Preferred Stock,
the Series D Preferred Stock, the Series D1 Preferred Stock and any series of
Preferred Stock created by the Board pursuant to Article IV of the Company's
Certificate of Incorporation.
1.5 "Series A Preferred Stock" shall mean the Series A Preferred
Stock, $0.001 par value, of the Company.
1.6 "Series A1 Preferred Stock" shall mean the Series A1 Preferred
Stock, $0.001 par value, of the Company.
1.7 "Series B Preferred Stock" shall mean the Series B Preferred
Stock, 0.001 par value, of the Company.
1.8 "Series B1 Preferred Stock" shall mean the Series B1 Preferred
Stock, $0.001 par value, of the Company.
1.9 "Series C Preferred Stock" shall mean the Series C Preferred
Stock, $0.001 par value, of the Company.
1.10 "Series C1 Preferred Stock" shall mean the Series C1 Preferred
Stock, $0.001 par value, of the Company.
1.11 "Series D Preferred Stock" shall mean the Series D Preferred
Stock, $0.001 par value, of the Company.
1.12 "Series D1 Preferred Stock" shall mean the Series D1 Preferred
Stock, $0.001 par value, of the Company.
2. Dividend Provisions. The holders of shares of Preferred Stock shall
-------------------
be entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the corporation, each of such securities to be
hereinafter referred to as a "Common Stock Dividend") on the Common Stock of the
corporation, at the annual rate for each series of Preferred Stock set forth in
the following sentence. The annual dividend rate of the Series A and Series A1
Preferred Stock shall be $0.04 per share, the annual
2
<PAGE>
dividend rate of the Series B and Series B1 Preferred Stock shall be $0.084 per
share, the annual dividend rate of the Series C and Series C1 Preferred Stock
shall be $0.095 per share and the annual dividend rate of the Series D and
Series D1 Preferred Stock shall be $0.20 per share. Dividends on the Series A,
Series A1, Series B and Series B1 Preferred Stock shall be payable when and if
declared by the Board of Directors and shall not be cumulative. Dividends on the
Series C, Series C1, Series D and Series D1 Preferred Stock shall accrue, and be
compounded annually and be cumulative but shall be payable only (i) in the event
and at the time of a liquidation, dissolution or winding up of the corporation
or (ii) on declaration and payment of any dividends with respect to any
outstanding securities of the corporation (other than a Common Stock Dividend).
No dividends (other than a Common Stock Dividend) shall be paid with respect to
the Common Stock unless dividends in the total amount of the annual dividend
rate for each series of Preferred Stock shall have first been paid or declared
and set apart for payment to the holders of such Preferred Stock. Payments of
any dividends to the holders of shares of Preferred Stock shall be paid pro
rata, on an equal priority, pari passu basis, according to their respective
---- -----
dividend preferences as set forth herein.
3. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of shares of Preferred
Stock shall be entitled to receive, subsequent to payment by the corporation of
any amounts due to any holders of Preferred Stock who have previously requested
redemption pursuant to the terms of section 4 herein, and prior and in
preference to any distribution of any of the assets of the corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $0.4129 for each outstanding share of Series A
Preferred Stock and Series A1 Preferred Stock (the "Original Series A Issue
Price" and "Original Series A1 Issue Price," respectively), (ii) $0.84 for each
outstanding share of Series B Preferred Stock and Series B1 Preferred Stock (the
"Original Series B Issue Price" and "Original Series B1 Issue Price,"
respectively), (iii) $1.3623 for each outstanding share of Series C Preferred
Stock and Series C1 Preferred Stock (the "Original Series C Issue Price" and
"Original Series C1 Issue Price", respectively), (iv) $2.85 for each outstanding
share of Series D Preferred Stock and Series D1 Preferred Stock (the "Original
Series D Issue Price" and "Original Series D1 Issue Price" and (v) an amount
equal to all declared and/or accrued but unpaid dividends on such shares. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Preferred Stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amounts, then, the entire
assets and funds of the corporation legally available for distribution shall be
distributed among the holders of the Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective liquidation
---- -----
preferences as set forth herein.
(b) After the distributions described in subsection (a) above have
been paid, the remaining assets of the corporation available for distribution,
if any, to shareholders shall be distributed among the holders of the Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c)(i) For purposes of this Section 3, a liquidation, dissolution or
winding up of the corporation shall be deemed to be occasioned by, or to include
but not be limited to, (A) the acquisition of the corporation by another
entity, (B) the acquisition of greater than 50% of the then outstanding voting
securities of the corporation by persons or entities unrelated to and not
3
<PAGE>
affiliated with the holders thereof in a transaction or series of related
transactions where the corporation is a party; or (C) a sale of all or
substantially all of the assets of the corporation by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation or a
parent corporation of which the corporation is a wholly-owned subsidiary);
unless in each case the corporation's shareholders of record as constituted
- ------
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be the
fair market value thereof as determined in this Section 3(c)(ii)(C) ("Fair
Market Value"). Fair Market Value shall be initially determined by a majority of
those directors of the corporation who are not affiliated with any of the
holders of such Preferred Stock (the "Disinterested Directors"). If the holders
of a majority of the Preferred Stock (the "Contesting Holders") notify the
Disinterested Directors within five (5) days after receiving notification of the
Disinterested Directors' determination of the Fair Market Value of such
securities that they object to their determination of the Fair Market Value of
the securities received by the corporation, the Disinterested Directors and the
Contesting Holders shall attempt to agree on the Fair Market Value of such
securities. In the event that the Disinterested Directors and the Contesting
Holders fail to agree on the Fair Market Value of such securities within fifteen
(15) days after receipt by the Disinterested Directors of the objection notice
referred to above, the Disinterested Directors and the Contesting Holders shall
select an independent appraiser, who shall be a nationally recognized investment
banking firm, or another entity mutually acceptable to all parties, to conduct
an appraisal of the relevant securities, which appraisal shall determine the
Fair Market Value (without making any discount for lack of transferability or
minority interests) of such securities. If the Disinterested Directors and the
Contesting Holders are unable to agree on the selection of an independent
appraiser within fifteen (15) days after the commencement of such selection
process, then an independent appraiser meeting the specifications described
above shall be selected by the American Arbitration Association in the San
Francisco Bay Area, California. The independent appraiser shall then promptly
conduct an appraisal to determine the Fair Market Value of the relevant
securities. In such case, the Fair Market Value shall be that as is determined
by the appraiser. Such appraisal shall be paid for equally by the corporation
and the Contesting Holders.
4
<PAGE>
(iii) In the event the requirements of this subsection 3(c) are
not complied with, the corporation shall forthwith either:
(A) Cause such closing to be postponed until such time as the
requirements of this Section 3 have been complied with; or
(B) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 3 (c)(iv)
hereof.
(iv) The corporation shall give each holder of record of Preferred
Stock written notice of such impending transaction not later than twenty (20)
days prior to the shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction, whichever is earlier,
and shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 3,
and the corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the corporation has given the first notice provided for
herein or sooner than ten (10) days after the corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
4. Redemption.
----------
(a) At any time after June 25, 2002 (the "First Redemption Date"), but
within thirty (30) days after the receipt by the corporation of a written
request from the holders of the then outstanding shares of Series A, Series A1,
Series B and Series B1 Preferred Stock (the "Outstanding A/B Preferred"), that a
number equal to up to fifty percent (50%) of the number of shares of Outstanding
A/B Preferred be redeemed, and concurrently with surrender by such holders of
the certificates representing such shares, the corporation shall, to the extent
it may lawfully do so, redeem up to fifty percent (50%) of the Outstanding A/B
Preferred on the First Redemption Date by paying in cash therefor a sum per
share equal to (i) the Original Series A Issue Price per share of Series A
Preferred Stock, (ii) the Original Series A1 Issue Price per share of Series A1
Preferred Stock, (iii) the Original Series B Issue Price per share of Series B
Preferred Stock or (iv) the Original Series B1 Issue Price per share of Series
B1 Preferred Stock, (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on such
shares (the "Series A Redemption Price," "Series A1 Redemption Price," "Series B
Redemption Price," and "Series B1 Redemption Price," provided, however, that the
--------- -------
corporation shall not be required to redeem such shares unless and until the
number of shares to be redeemed pursuant to this subsection 4(a) equals or
exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any redemption
effected pursuant to this subsection 4(a) shall be made on a pro rata basis
among the holders of the Outstanding A/B Preferred in proportion to the number
of shares of the Outstanding A/B Preferred for which redemption has been
requested.
5
<PAGE>
(b) At any time after June 25, 2003 (the "Second Redemption Date"),
but within thirty (30) days after the receipt by the corporation of a written
request from the holders of the Outstanding A/B Preferred, that up to all of
such holders' shares be redeemed, and concurrently with surrender by such
holders of the certificates representing such shares, the corporation shall, to
the extent it may lawfully do so, redeem up to all shares held by such holders
on the Second Redemption Date by paying in cash therefor a sum per share equal
to (i) the Series A Redemption Price, (ii) the Series A1 Redemption Price, (iii)
the Series B Redemption Price or (iv) the Series B1 Redemption Price, provided,
---------
however, that the corporation shall not be required to redeem such shares unless
- -------
and until the number of shares to be redeemed pursuant to this subsection 4(b)
equals or exceeds twenty percent (20%) of the Outstanding A/B Preferred. Any
redemption effected pursuant to this subsection 4(b) shall be made on a pro rata
basis among the holders of the Outstanding A/B Preferred in proportion to the
number of shares of Outstanding A/B Preferred for which redemption has been
requested.
(c) At any time after the First Redemption Date but within thirty (30)
days after the receipt by the corporation of a written request from the holders
of the then outstanding shares of Series C, Series C1, Series D and Series D1
Preferred Stock (the "Outstanding C/D Preferred"), that a number equal to fifty
percent (50%) of the number of shares of the Outstanding C/D Preferred be
redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to fifty percent (50%) of the Outstanding C/D Preferred on the
First Redemption Date by paying in cash therefor a sum per share equal to(i) the
greater of (a) the Original Series C/D Issue Price (and all accrued but unpaid
dividends on such share) per share of Series C/D Preferred Stock and (b) the
Fair Market Value of the Series C/D Preferred Stock, or (ii) the greater of (a)
the Original Series C1/D1 Issue Price (and all accrued but unpaid dividends on
such share) per share of Series C1/D1 Preferred Stock and (b) the Fair Market
Value of the Series C1/D1 Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Series C Redemption Price," "Series C1 Redemption
Price," "Series D Redemption Price," and "Series D1 Redemption Price"),
provided, however, that the corporation shall not be required to redeem such
- --------- -------
shares unless and until the number of shares to be redeemed pursuant to this
subsection 4(c) equals or exceeds twenty percent (20%) of the Outstanding C/D
Preferred. Any redemption effected pursuant to this subsection 4(c) shall be
made on a pro rata basis among the holders of the Outstanding C/D Preferred in
proportion to the number of shares of Outstanding C/D Preferred for which
redemption has been requested.
(d) At any time after the Second Redemption Date but within thirty
(30) days after the receipt by the corporation of a written request from the
holders of the Outstanding C/D Preferred, that up to all of such holders' shares
be redeemed, and concurrently with surrender by such holders of the certificates
representing such shares, the corporation shall, to the extent it may lawfully
do so, redeem up to all shares held by such holders on the Second Redemption
Date by paying in cash therefor the Series C/D Redemption Price or the Series
C1/D1 Redemption Price, provided, however, that the corporation shall not be
--------- -------
required to redeem such shares unless and until the number of shares to be
redeemed pursuant to this subsection 4(d) equals or exceeds twenty percent (20%)
of the Outstanding C/D Preferred. Any redemption effected pursuant to this
subsection 4(d) shall be made on a pro rata basis among the holders of the
Outstanding C/D Preferred in proportion to the number of shares of Outstanding
C/D Preferred for which redemption has been requested.
6
<PAGE>
(e) At least fifteen (15) but no more than thirty (30) days prior to
each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Preferred Stock to be
redeemed, at the address last shown on the records of the corporation for such
holder, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to the corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as provided in subsection
(4)(g) on or after the Redemption Date, each holder of Preferred Stock to be
redeemed shall surrender to the corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled, provided that, in the event an appraisal of the Fair Market Value of
the Series C, Series C1, Series D or Series D1 Preferred Stock is required, the
corporation shall not pay the Redemption Price to any holder of Preferred Stock
until such Fair Market Value determination has been made. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(f) Upon, but not until, the payment of the Redemption Price in full
with respect to a share of Preferred Stock, the rights of the holder of such
share of Preferred Stock designated for redemption in the Redemption Notice
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates other than as provided in
paragraph (g) below) shall cease with respect to such share, and such share
shall not thereafter be transferred on the books of the corporation or be deemed
to be outstanding for any purpose whatsoever. If the funds of the corporation
legally available for redemption of shares of Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon the aggregate Redemption Price to be
received by such holder. The shares of Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the corporation are
legally available for the redemption of shares of Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
corporation has become obliged to redeem on any Redemption Date but which it has
not redeemed.
(g) In the event the Series C, Series C1, Series D or Series D1
Redemption Price is not paid in full within 30 days of the applicable Redemption
Date, and such payment is not prohibited by law, interest shall accrue on the
remaining outstanding Series C Redemption Price and the Series D Redemption
Price at the rate of 7% per annum from such 30th day until the Series C, Series
C1, Series D or Series D1 Redemption Price and all interest accrued thereon
shall be paid in full.
(h) In the event that any holder makes a request for redemption
pursuant to any provision of this Section 4, the corporation shall, within five
(5) business days of such redemption request, provide notice of such redemption
request to all other holders entitled at that time to redeem their shares.
7
<PAGE>
(i) For the avoidance of doubt, in the event that the corporation
receives a request for redemption pursuant to this Section 4 and, subsequent
thereto but prior to payment in full of the relevant Redemption Price there is a
liquidation, dissolution or winding up of the corporation, the amount payable
with respect to the unredeemed shares with respect to which redemption has been
requested shall be determined pursuant to this Section 4 and not pursuant to
Section 3.
5. Conversion Rights. The outstanding shares of Preferred Stock shall be
-----------------
convertible into Common Stock as follows (the "Conversion Rights"):
(a) Optional Conversion.
-------------------
(i) At the option of the holder thereof, each share of Preferred
Stock shall be convertible, at any time or from time to time prior to the close
of business on the business day before the date of redemption of such share,
into fully paid and nonassessable shares of Common Stock as provided herein.
(ii) Each holder of Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the corporation or any transfer agent
for the Preferred Stock or Common Stock, and shall give written notice to the
corporation at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. In the event that any holder
converts a number of shares less than the number stated on such holder's stock
certificate, the corporation shall deliver to such holder a new certificate
representing the remaining unconverted shares. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into fully paid and nonassessable shares of Common
Stock, as provided herein (i) immediately prior to the closing of a firm
commitment public offering underwritten by a nationally recognized investment
bank pursuant to an effective registration statement filed under the Securities
Act of 1933, as amended (the "Securities Act"), covering the offer and sale of
Common Stock for the account of the corporation in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $30,000,000 and the public offering price per share of which
equals or exceeds $8.55 per share of Common Stock before deduction of
underwriters' discounts and commissions (such price per share of Common Stock to
be appropriately adjusted to reflect Common Stock Events (as defined below)),
and such Common Stock shall be listed on the Nasdaq National Market, the
American Stock Exchange, the New York Stock Exchange or other national
securities market or exchange (a "Qualified IPO"); or (ii) the date specified by
written consent or agreement of (a) with respect to the Series A and A1
Preferred Stock, the holders of a majority of the then outstanding
8
<PAGE>
shares of Series A Preferred Stock and Series A1 Preferred Stock, voting as a
single class, (b) with respect to the Series B and B1 Preferred Stock, the
holders of a majority of the then outstanding shares of Series B Preferred Stock
and Series B1 Preferred Stock, voting together as a single class, (c) with
respect to the Series C and C1 Preferred Stock, the holders of two-thirds of the
then outstanding shares of Series C Preferred Stock and Series C1 Preferred
Stock, voting together as a single class and (d) with respect to the Series D
and D1 Preferred Stock, the holders of two-thirds of the then outstanding shares
of Series D Preferred Stock and Series D1 Preferred Stock, voting together as a
single class.
(i) Upon the occurrence of any event specified in subparagraph
5(b)(i) or (ii) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or its transfer
agent; provided, however, that the corporation shall not be obligated to issue
-------- -------
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Preferred Stock are either
delivered to the corporation or its transfer agent as provided below, or the
holder notifies the corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Preferred Stock, the holders of Preferred Stock shall
surrender the certificates representing such shares at the office of the
corporation or any transfer agent for the Preferred Stock or Common Stock.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred.
(c) Conversion Price. Each share of Preferred Stock shall be
----------------
convertible in accordance with subsection 5(a) or subsection 5(b) above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The current Conversion Price for the Series A Preferred Stock shall be
three times the Original Series A Issue Price, the current Conversion Price for
the Series A1 Preferred Stock shall be three times the Original Series A1 Issue
Price, the current Conversion Price for the Series B Preferred Stock shall be
three times the Original Series B Issue Price, the current Conversion Price for
the Series B1 Preferred Stock shall be three times the Original Series B1 Issue
Price, the current Conversion Price for the Series C Preferred Stock shall be
three times the Original Series C Issue Price, the current Conversion Price for
the Series C1 Preferred Stock shall be three times the Original Series C1 Issue
Price, the current Conversion Price for the Series D Preferred Stock shall be
three times the Original Series D Issue Price and the current Conversion Price
for the Series D1 Preferred Stock shall be three times the Original D1 Issue
Price. The Conversion Price of each series of Preferred Stock shall be subject
to adjustment from time to time as provided below.
(d) Adjustment Upon Common Stock Event. At any time after such series
----------------------------------
of Preferred Stock was first issued by the corporation (the "Purchase Date"
with respect to such series) upon the happening of a Common Stock Event (as
hereinafter defined), the Conversion Price of the Series A Preferred Stock,
the Conversion Price of the Series A1 Preferred Stock, the Conversion Price of
the Series B Preferred Stock, the Conversion Price of the Series B1 Preferred
Stock, the Conversion Price of the Series C Preferred Stock, the Conversion
Price of the Series C1
9
<PAGE>
Preferred Stock, the Conversion Price of the Series D Preferred Stock and the
Conversion Price of the Series D1 Preferred Stock shall, simultaneously with the
happening of such Common Stock Event, be adjusted by multiplying the Conversion
Price of such series of Preferred Stock in effect immediately prior to such
Common Stock Event by a fraction, (i) the numerator of which shall be the number
of shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (ii) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for such series of Preferred Stock. The Conversion Price for a series of
Preferred Stock shall be readjusted in the same manner upon the happening of
each subsequent Common Stock Event. As used herein, the term "Common Stock
Event" shall mean (i) the issue by the corporation of additional shares of
Common Stock as a dividend or other distribution on outstanding Common Stock,
(ii) a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (iii) a combination of the outstanding
shares of Common Stock into a smaller number of shares of Common Stock.
(e) Adjustments for Other Dividends and Distributions. If at any time
-------------------------------------------------
or from time to time after the Purchase Date the corporation pays a dividend or
makes another distribution to the holders of the Common Stock payable in
securities of the corporation other than shares of Common Stock, then in each
such event provision shall be made so that the holders of the Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable upon conversion
thereof, the amount of securities of the corporation which they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event (or such record date, as applicable) and had they thereafter,
during the period from the date of such event (or such record date, as
applicable) to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Preferred Stock or with respect to such other
securities by their terms.
(f) Adjustment for Reclassification, Exchange and Substitution. If at
----------------------------------------------------------
any time or from time to time after the Purchase Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series B1 Preferred Stock, Series C
Preferred Stock, Series C1 Preferred Stock, Series D Preferred Stock and Series
D1 Preferred Stock is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than by a Common Stock Event or a stock dividend,
----- ----
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 5), then in any such event each holder of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series B1 Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series D Preferred
Stock and Series D1 Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series
B1 Preferred Stock, Series C Preferred Stock, Series C1 Preferred Stock, Series
D Preferred Stock and Series D1 Preferred Stock could have been converted
immediately prior to
10
<PAGE>
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(g) Sale of Shares Below Conversion Price.
-------------------------------------
(i) Adjustment Formula. If at any time or from time to time
------------------
after the Purchase Date the corporation issues or sells, or is deemed by
the provisions of this subsection 5(g) to have issued or sold, Additional Shares
of Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5(d), a dividend or distribution as
provided in subsection 5(e) or a recapitalization, reclassification or other
change as provided in subsection 5(f), for an Effective Price (as hereinafter
defined) that is less than the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock in effect immediately prior to such issue or sale, then, and in each such
case, the Conversion Price for such series of Preferred Stock shall be reduced,
as of the close of business on the date of such issue or sale, to the price
obtained by multiplying such Conversion Price by a fraction:
(x) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the corporation for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale; and
(y) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(ii) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5(g):
(1) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the corporation, whether or not subsequently reacquired
or retired by the corporation, other than: (A) shares of Common Stock issued or
issuable upon conversion of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series B1 Preferred Stock, Series C Preferred Stock,
Series C1 Preferred Stock, Series D Preferred Stock or Series D1 Preferred
Stock; and (B) a total of 7,438,900 shares of Common Stock (or options, warrants
or rights therefor) issued to employees, officers, or directors of, or
contractors, consultants or advisers to, the corporation or any Subsidiary
pursuant to stock purchase or stock option plans, stock bonuses or awards,
warrants, contracts or other arrangements that are approved by at least seventy
five percent (75%) of the Board (such number of shares to be calculated net of
any repurchases of such shares by the corporation and net of any such expired or
terminated options, warrants or rights and to be proportionally adjusted to
reflect any subsequent Common Stock Event);
(2) The "Aggregate Consideration Received" by the corporation for any
issue or sale (or deemed issue or sale) of securities shall (A) to the extent it
consists of cash, be
11
<PAGE>
computed at the gross amount of cash received by the corporation before
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the corporation in connection with such issue or
sale and without deduction of any expenses payable by the corporation in
connection with any such issuance and sale; (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the unanimous approval of the Board; and (C) if
Additional Shares of Common Stock, Convertible Securities or Rights or Options
to purchase either Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities or other assets of
the corporation for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the unanimous approval of the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options.
(3) "Common Stock Equivalents Outstanding" shall mean the number of
shares of Common Stock that is equal to the sum of (A) all shares of Common
Stock of the corporation that are outstanding at the time in question, plus (B)
all shares of Common Stock of the corporation issuable upon conversion of all
shares of Preferred Stock or other Convertible Securities that are outstanding
at the time in question, plus (C) all shares of Common Stock of the corporation
that are issuable upon the exercise of Rights or Options that are outstanding at
the time in question assuming the full conversion or exchange into Common Stock
of all such Rights or Options that are Rights or Options to purchase or acquire
Convertible Securities into or for Common Stock.
(4) "Convertible Securities" shall mean stock or other securities
convertible into or exchangeable for shares of Common Stock.
(5) The "Effective Price" of Additional Shares of Common Stock shall
mean the quotient determined by dividing the total number of Additional Shares
of Common Stock issued or sold, or deemed to have been issued or sold, by the
corporation under this subsection 5(g), into the Aggregate Consideration
Received, or deemed to have been received, by the corporation under this
subsection 5(g), for the issue of such Additional Shares of Common Stock;
(6) "Rights or Options" shall mean warrants, options or other rights
to purchase or acquire shares of Common Stock or Convertible Securities.
(iii) Deemed Issuances. For the purpose of making any adjustment
----------------
to the Conversion Price of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock required under this
subsection 5(g), if the corporation issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the corporation shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an
12
<PAGE>
amount equal to the total amount of the consideration, if any, received by the
corporation for the issuance of such Rights or Options or Convertible
Securities, plus, in the case of such Rights or Options, the minimum amounts of
consideration, if any, payable to the corporation upon the exercise in full of
such Rights or Options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(1) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the corporation shall be deemed to have received the amount determined in
good faith by the unanimous approval of the Board;
(2) if the minimum amount of consideration payable to the corporation
upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(3) if the minimum amount of consideration payable to the corporation
upon the exercise of such Rights or Options or the conversion or exchange of
Convertible Securities is subsequently increased, then the Effective Price shall
again be recalculated using the increased minimum amount of consideration
payable to the corporation upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance
of such Rights or Options or Convertible Securities, shall be made as a result
of the actual issuance of shares of Common Stock on the exercise of any such
Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the corporation upon such exercise, plus the
consideration, if any, actually received by the corporation for the granting of
all such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion or exchange of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Preferred Stock.
(h) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
corporation, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall
13
<PAGE>
mail such certificate, by first class mail, postage prepaid, to each registered
holder of the Preferred Stock at the holder's address as shown in the
corporation's books.
(i) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Preferred Stock. In lieu of any fractional share
to which the holder would otherwise be entitled, the corporation shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
(j) Notices. Any notice required by the provisions of this Section 5
-------
to be given to the holders of Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the corporation.
(k) Special Mandatory Conversion.
----------------------------
(i) At any time following the Purchase Date of the Series A
Preferred Stock, if (a) the holders of shares of Series A Preferred Stock are
entitled to exercise the right of first offer (the "Right of First Offer") set
forth in Section 2.4 of the Second Amended and Restated Investors' Rights
Agreement by and among the corporation and certain shareholders of the
corporation, as amended from time to time (the "Rights Agreement"), with respect
to an equity or convertible debt financing of the corporation pursuant to which
the corporation offers, sells and issues shares of Additional Stock for no
consideration or at a consideration per share less than the Conversion Price for
the Series A Preferred Stock in effect immediately prior to the issuance of such
Additional Stock (the "Series A Dilutive Financing"), (b) the corporation has
complied with its notice obligations, or such obligations have been waived under
the Right of First Offer with respect to such Series A Dilutive Financing and
the corporation thereafter proceeds to consummate the Series A Dilutive
Financing, and (c) such holder (a "Non-Participating Series A Holder") does not
by exercise of such holder's Right of First Offer acquire his, her or its pro
rata share (prior to the right to exercise any over-allotment option) offered in
such Series A Dilutive Financing (a "Series A Mandatory Offering"), then
effective upon, subject to and concurrently with, the consummation of the Series
A Mandatory Offering (the "Series A Mandatory Offering Date"), all of such Non-
Participating Series A Holder's shares of Series A Preferred Stock shall
automatically and without further action on the part of such holder be converted
into an equivalent number of shares of Series A1 Preferred Stock; provided,
--------
however, that no such conversion shall occur in connection with a particular
- -------
Series A Dilutive Financing if, pursuant to the written request of the
corporation, such holder agrees in writing to waive his, her or its Right of
First Offer with respect to such Series A Dilutive Financing. Upon conversion
pursuant to this subsection 5(k)(i), the shares of Series A Preferred Stock so
converted shall be canceled and not subject to reissuance.
(ii) At any time following the Purchase Date of the Series B
Preferred Stock, if (a) the holders of shares of Series B Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Agreement,
with respect to an equity or convertible debt financing of the corporation
pursuant to which the corporation offers, sells and issues shares of Additional
Stock for no consideration or at a consideration per share less than the
Conversion Price for the Series B Preferred Stock in effect immediately prior to
the issuance of such Additional Stock (the "Series B Dilutive Financing"), (b)
the corporation has complied with its
14
<PAGE>
notice obligations, or such obligations have been waived, under the Right of
First Offer with respect to such Series B Dilutive Financing and the corporation
thereafter proceeds to consummate the Series B Dilutive Financing, and (c) such
holder (a "Non-Participating Series B Holder") does not by exercise of such
holder's Right of First Offer acquire his, her or its pro rata share (prior to
the right to exercise any over-allotment option) offered in such Series B
Dilutive Financing (a "Series B Mandatory Offering"), then effective upon,
subject to and concurrently with, the consummation of the Series B Mandatory
Offering (the "Series B Mandatory Offering Date"), all of such Non-Participating
Series B Holder's shares of Series B Preferred Stock shall automatically and
without further action on the part of such holder be converted into an
equivalent number of shares of Series B1 Preferred Stock; provided, however,
-------- -------
that no such conversion shall occur in connection with a particular Series B
Dilutive Financing if, pursuant to the written request of the corporation, such
holder agrees in writing to waive his, her or its Right of First Offer with
respect to such Series B Dilutive Financing. Upon conversion pursuant to this
subsection 5(k)(ii), the shares of Series B Preferred Stock so converted shall
be canceled and not subject to reissuance.
(iii) At any time following the Purchase Date of the Series C
Preferred Stock, if (a) the holders of shares of Series C Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Agreement,
with respect to an equity or convertible debt financing of the corporation
pursuant to which the corporation offers, sells and issues shares of Additional
Stock for no consideration or at a consideration per share less than the
Conversion Price for the Series C Preferred Stock in effect immediately prior to
the issuance of such Additional Stock (the "Series C Dilutive Financing"), (b)
the corporation has complied with its notice obligations, or such obligations
have been waived, under the Right of First Offer with respect to such Series C
Dilutive Financing and the corporation thereafter proceeds to consummate the
Series C Dilutive Financing, and (c) such holder (a "Non-Participating Series C
Holder") does not by exercise of such holder's Right of First Offer acquire his,
her or its pro rata share (prior to the right to exercise any over-allotment
option) offered in such Series C Dilutive Financing (a "Series C Mandatory
Offering"), then effective upon, subject to and concurrently with, the
consummation of the Series C Mandatory Offering (the "Series C Mandatory
Offering Date"), all of such Non-Participating Series C Holder's shares of
Series C Preferred Stock shall automatically and without further action on the
part of such holder be converted into an equivalent number of shares of Series
C1 Preferred Stock; provided, however, that no such conversion shall occur in
-------- -------
connection with a particular Series C Dilutive Financing if, pursuant to the
written request of the corporation, such holder agrees in writing to waive his,
her or its Right of First Offer with respect to such Series C Dilutive
Financing. Upon conversion pursuant to this subsection 5(k)(iii), the shares of
Series C Preferred Stock so converted shall be canceled and not subject to
reissuance.
(iv) At any time following the Purchase Date of the Series D
Preferred Stock, if (a) the holders of shares of Series D Preferred Stock are
entitled to exercise the Right of First Offer set forth in the Rights Amendment,
as amended, with respect to an equity or convertible debt financing of the
corporation pursuant to which the corporation offers, sells and issues shares of
Additional Stock for no consideration or at a consideration per share less than
the Conversion Price for the Series D Preferred Stock in effect immediately
prior to the issuance of such Additional Stock (the "Series D Dilutive
Financing"), (b) the corporation has complied with its notice obligations, or
such obligations have been waived, under the Right of First Offer with respect
to such Series D Dilutive Financing and the corporation thereafter proceeds to
15
<PAGE>
consummate the Series D Dilutive Financing, and (c) such holder (a "Non-
Participating Series D Holder") does not by exercise of such holder's Right of
First Offer acquire his, her or its pro rata share (prior to the right to
exercise any over-allotment option) offered in such Series D Dilutive Financing
(a "Series D Mandatory Offering"), then effective upon, subject to and
concurrently with, the consummation of the Series D Mandatory Offering (the
"Series D Mandatory Offering Date"), all of such Non-Participating Series D
Holder's shares of Series D Preferred Stock shall automatically and without
further action on the part of such holder be converted into an equivalent number
of shares of Series D1 Preferred Stock; provided, however, that no such
-------- -------
conversion shall occur in connection with a particular Series D Dilutive
Financing if, pursuant to the written request of the corporation, such holder
agrees in writing to waive his, her or its Right of First Offer with respect to
such Series D Dilutive Financing. Upon conversion pursuant to this subsection
5(k)(iv), the shares of Series D Preferred Stock so converted shall be canceled
and not subject to reissuance.
(v) The holder of any shares of Series A, Series B, Series C or
Series D Preferred Stock converted pursuant to this subsection 5(k) shall
deliver to the corporation during regular business hours at the office of any
transfer agent of the corporation for each such series of Preferred Stock, or at
such other place as may be designated by the corporation, the certificate or
certificates for the shares so converted, duly endorsed or assigned in blank or
to the corporation. As promptly as practicable thereafter, the corporation shall
issue and deliver to such holder, at the place designated by such holder, a
certificate or certificates for the number of full shares of the Series A1
Preferred Stock, the Series B1 Preferred Stock, the Series C1 Preferred Stock or
the Series D1 Preferred Stock to be issued and such holder shall be deemed to
have become a shareholder of record of Series A1, Series B1, Series C1 or Series
D1 Preferred Stock on either the Series A Mandatory Offering Date, the Series B
Mandatory Offering Date, the Series C Mandatory Offering Date or the Series D
Mandatory Offering Date, as the case may be.
(vi) In the event that any Series A1, Series B1, Series C1 and/or
Series D1 Preferred Stock is issued in connection with the Special Mandatory
Conversion provisions set forth in subsections 5(k)(i) through 5(k)(iv),
concurrently with such issuance, the corporation shall use its best efforts to
take all such action as may be required, including amending this Certificate of
Designation:
(1) in the case of an issuance of Series A1 Preferred Stock, (i) to
cancel all authorized shares of Series A1 Preferred Stock that remain unissued
after such issuance (other than any such shares reserved for issuance upon
exercise of then outstanding warrants for such shares), and (ii) to create and
reserve for issuance upon Special Mandatory Conversion of any Series A Preferred
Stock a new series of Preferred Stock equal in number to the number of shares of
Series A1 Preferred Stock so canceled and designated Series A2 Preferred Stock
with the designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series A1
Preferred Stock, except that the Conversion Price for such shares of Series A2
Preferred Stock once initially issued shall be the Series A Conversion Price in
effect immediately prior to such issuance;
(2) in the case of an issuance of Series B1 Preferred Stock, (i) to
cancel all authorized shares of Series B1 Preferred Stock that remain unissued
after such issuance (other than any such shares reserved for issuance upon
exercise of outstanding warrants to purchase such shares), and (ii) to create
and reserve for issuance upon Special Mandatory
16
<PAGE>
Conversion of any Series B Preferred Stock a new series of Preferred Stock equal
in number to the number of shares of Series B1 Preferred Stock so canceled and
designated Series B2 Preferred Stock with the designations, powers, preferences
and rights and the qualifications, limitations and restrictions identical to
those then applicable to the Series B1 Preferred Stock, except that the
Conversion Price for such shares of Series B2 Preferred Stock once initially
issued shall be the Series B Conversion Price in effect immediately prior to
such issuance;
(3) in the case of an issuance of Series C1 Preferred Stock, (i) to
cancel all authorized shares of Series C1 Preferred Stock that remain unissued
after such issuance (other than any such shares reserved for issuance upon
exercise of outstanding warrants to purchase such shares), and (ii) to create
and reserve for issuance upon Special Mandatory Conversion of any Series C
Preferred Stock a new series of Preferred Stock equal in number to the number of
shares of Series C1 Preferred Stock so canceled and designated Series C2
Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series C1 Preferred Stock, except that the Conversion Price for such
shares of Series C2 Preferred Stock once initially issued shall be the Series C
Conversion Price in effect immediately prior to such issuance;
(4) in the case of an issuance of Series D1 Preferred Stock, (i) to
cancel all authorized shares of Series D1 Preferred Stock that remain unissued
after such issuance (other than any such shares reserved for issuance upon
exercise of outstanding warrants to purchase such shares), and (ii) to create
and reserve for issuance upon Special Mandatory Conversion of any Series D
Preferred Stock a new series of Preferred Stock equal in number to the number of
shares of Series D1 Preferred Stock so canceled and designated Series D2
Preferred Stock with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then applicable
to the Series D1 Preferred Stock, except that the Conversion Price for such
shares of Series D2 Preferred Stock once initially issued shall be the Series D
Conversion Price in effect immediately prior to such issuance;
(5) to amend the provisions of this subsection 5(k) to provide that
any subsequent Special Mandatory Conversion of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and/or the Series D
Preferred Stock will be into shares of Series A2, Series B2, Series C2 or Series
D2 Preferred Stock, respectively, rather than Series A1, Series B1, Series C1 or
Series D1 Preferred Stock.
The corporation shall take the same actions with respect to the Series
A2, Series B2, Series C2 and Series D2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the
last such series to be authorized. The right to receive any dividend declared
but unpaid at the time of conversion on any shares of Preferred Stock
converted pursuant to the provisions of this subsection 5(k) shall accrue to
the benefit of the new shares of Preferred Stock issued upon conversion
thereof.
6. Voting Rights. The holder of each share of Preferred Stock shall have
-------------
the right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the Bylaws of
the corporation, and shall be entitled to vote, together with holders of Common
17
<PAGE>
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
7. Protective Provisions. So long as any shares of any series of
---------------------
Preferred Stock are outstanding, the corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of
holders of at least seventy-five percent (75%) of the outstanding shares of
Preferred Stock voting together as a single class, on an as-converted basis
except for subsection (c) hereof which shall require the approval (by vote or
written consent, as provided by law) of holders of at least sixty-six and two-
thirds percent (66 2/3%) of the outstanding shares of Preferred Stock voting
together as a single class, on an as converted basis:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of any series of Preferred Stock;
(c) enter into any agreement to voluntarily liquidate, dissolve or
wind up the corporation or take any action intended to effectuate any of the
foregoing;
(d) authorize the issuance of any other equity security, including any
other security convertible into or exercisable for any equity security (i)
having a preference over, or being on a parity with, any series of Preferred
Stock with respect to voting, dividends or upon liquidation, or (ii) having
rights similar to any of the rights of the Preferred Stock under this Section 7;
(e) alter or change the rights, preferences or privileges of the
shares of any series of Preferred Stock so as to affect adversely such shares;
(f) declare or pay any dividends or make other distributions on, or
redeem, purchase or acquire any Common Stock or any other class of capital stock
of the corporation except for redemptions made in accordance with the provisions
of Section 4 hereof and except for the repurchase of any Common Stock pursuant
to a repurchase right with respect to terminated employees;
(g) enter into any transaction or series of transactions for a value
greater than $50,000 with any affiliated person or entity (other than
transactions which have been approved by a majority of the disinterested
directors and the terms of which are comparable to transactions entered into on
an arm's length basis);
(h) amend the corporation's Certificate of Incorporation or Bylaws;
18
<PAGE>
(i) acquire all or substantially all of the assets or capital stock or
securities of, or otherwise combine with any corporation, partnership or other
business entity or form a subsidiary for such purpose; or
(j) do any act or thing which would result in taxation of the holders
of shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter amended from time to time).
7. Repurchase of Shares. In connection with repurchases by the
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law,
to the extent applicable, shall not apply in whole or in part with respect to
such repurchases.
IN WITNESS WHEREOF, this Company has caused this Certificate of Designation
to be signed and attested by its duly authorized officers this ____ day of
January, 1998.
________________________________________
K.B. Chandrasekhar,
President, Chief Executive Officer
and Chairman of the Board of Directors
ATTEST:
_________________________________
Adam W. Wegner, Secretary
<PAGE>
EXHIBIT 3.04
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.
<PAGE>
Restated Certificate of Incorporation
Except as expressly provided in any certificate of designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of the
holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock so
provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement
of any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by a resolution of the Board of Directors adopted
by the affirmative vote of a majority of the total number of directors that the
corporation would have if there were no vacancies.
Any vacancy on the Board of Directors, however resulting, and any newly
created directorships resulting from any increase in the authorized number of
directors shall be filled only by the affirmative vote of a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director, unless the Board of Directors determines that any such vacancies or
newly created directorships shall be filled by the stockholders.
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Any action required or permitted to be taken by the stockholders of the
corporation may be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Subject to the rights of the holders of any class or series of Preferred Stock,
special meetings of stockholders of the corporation shall be called only by the
Board of Directors or upon the request of the Chairman of the Board of Directors
or the Chief Executive Officer of the corporation. If a special meeting is
requested by the Chairman of the Board of Directors or the Chief Executive
Officer, the Board of Director shall determine the time and the place of such
meeting, which shall be called for no less than 35 days nor more than 120 days
after the receipt by the Secretary of the corporation of the request for such
meeting.
2
<PAGE>
Restated Certificate of Incorporation
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Actions shall be taken by the corporation's stockholders only at annual or
special meetings of stockholders, and the corporation's stockholders may not act
by written consent.
<PAGE>
EXHIBIT 3.06
---------------------------------------------------------------
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
AS ADOPTED JANUARY 15, 1998
---------------------------------------------------------------
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS 1
Section 1.1: Annual Meetings.............................. 1
Section 1.2: Special Meetings............................. 1
Section 1.3: Notice of Meetings........................... 1
Section 1.4: Adjournments................................. 2
Section 1.5: Quorum....................................... 2
Section 1.6: Organization................................. 2
Section 1.7: Voting; Proxies.............................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record 3
Section 1.9: List of Stockholders Entitled to Vote........ 4
Section 1.10: Action by Written Consent of Stockholders.... 4
Section 1.11: Inspectors of Elections...................... 5
Section 1.12: Notice of Stockholder Business; Nominations.. 6
ARTICLE II - BOARD OF DIRECTORS 8
Section 2.1: Number; Qualifications....................... 8
Section 2.2: Election; Resignation; Removal; Vacancies.... 8
</TABLE>
<PAGE>
<TABLE>
PAGE
----
<S> <C>
Section 2.3: Regular Meetings............................. 8
Section 2.4: Special Meetings............................. 9
Section 2.5: Telephonic Meetings Permitted................ 9
Section 2.6: Quorum; Vote Required for Action............. 9
Section 2.7: Organization................................. 9
Section 2.8: Written Action by Directors.................. 9
Section 2.9: Powers....................................... 9
Section 2.10: Compensation of Directors.................... 9
ARTICLE III - COMMITTEES 10
Section 3.1: Committees................................... 10
Section 3.2: Committee Rules.............................. 10
ARTICLE IV - OFFICERS 10
Section 4.1: Generally.................................... 10
Section 4.2: Chief Executive Officer...................... 11
Section 4.3: Chairman of the Board........................ 12
Section 4.4: President.................................... 12
Section 4.5: Vice President............................... 12
Section 4.6: Chief Financial Officer...................... 12
Section 4.7: Treasurer.................................... 12
Section 4.8: Secretary.................................... 12
Section 4.9: Delegation of Authority...................... 12
</TABLE>
<PAGE>
<TABLE>
PAGE
----
<S> <C>
Section 4.10: Removal...................................... 13
ARTICLE V - STOCK.................................................. 13
Section 5.l: Certificates................................. 13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.................. 13
Section 5.3: Other Regulations............................ 13
ARTICLE VI - INDEMNIFICATION 13
Section 6.1: Indemnification of Officers and Directors.... 13
Section 6.2: Advance of Expenses.......................... 14
Section 6.3: Non-Exclusivity of Rights.................... 14
Section 6.4: Indemnification Contracts.................... 14
Section 6.5: Effect of Amendment.......................... 14
ARTICLE VII - NOTICES 15
Section 7.l: Notice....................................... 15
Section 7.2: Waiver of Notice............................. 15
ARTICLE VIII - INTERESTED DIRECTORS 15
Section 8.1: Interested Directors; Quorum................. 15
ARTICLE IX - MISCELLANEOUS 16
Section 9.1: Fiscal Year.................................. 16
Section 9.2: Seal......................................... 16
Section 9.3: Form of Records.............................. 16
</TABLE>
<PAGE>
<TABLE>
PAGE
----
<S> <C>
Section 9.4: Reliance Upon Books and Records.............. 16
Section 9.5: Certificate of Incorporation Governs......... 16
Section 9.6: Severability................................. 16
ARTICLE X - AMENDMENT.............................................. 17
Section 10.1: Amendments................................... 17
</TABLE>
<PAGE>
BYLAWS
OF
EXODUS COMMUNICATIONS, INC.
(a Delaware corporation)
As Adopted January 15, 1998
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer or the holders of shares of the Corporation that are
entitled to cast not less than ten percent (10%) of the total number of votes
entitled to be cast by all stockholders at such meeting ("Ten Percent
-----------
Shareholders") or by a majority of the members of the Board of Directors.
- ------------
Special meetings may not be called by any other person or persons. If a special
meeting of stockholders is called by any person or persons other than by a
----- ----
majority of the members of the Board of Directors, then such person or persons
shall call such meeting by delivering a written request to call such meeting to
each member of the Board of Directors, and the Board of Directors shall then
determine the time, date and place of such special meeting, which shall be held
not more than one hundred twenty (120) nor less than thirty-five (35) days after
the written request to call such special meeting was delivered to each member of
the Board of Directors. Effective immediately after the closing of an
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, Ten Percent Shareholders may not call a
Special Meeting of Stockholders.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
<PAGE>
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment, a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting, the Corporation may transact
any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
------
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
-------- -------
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the
-2-
<PAGE>
chairman of the meeting deems appropriate. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Unless
otherwise provided by applicable law, the Certificate of Incorporation or these
Bylaws, every matter other than the election of directors shall be decided by
the affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon that are present in person or represented by proxy at
the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------------------------------
(a) Generally. In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
(b) Stockholder Request for Action by Written Consent. For such period of
-------------------------------------------------
time as stockholders are authorized to act by written consent pursuant to the
provisions of the Certificate of Incorporation and Section 1.10 hereof, any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
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<PAGE>
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that effective immediately after the closing of an
- -------- -------
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written
consent shall be effective to take the action set forth therein unless, within
sixty (60) days of the earliest dated consent delivered to the Corporation in
the manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing, and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a
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<PAGE>
"Certificate Action"), then if the Delaware General Corporation Law so
------------------
requires, the certificate so filed shall state that written stockholder consent
has been given in accordance with Section 228 of the Delaware General
Corporation Law and that written notice of the taking of corporate action by
stockholders without a meeting as described herein has been given as provided in
such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors and (v) certify
their determination of the number of shares represented at the meeting and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section
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<PAGE>
212(c)(2) of the Delaware General Corporation Law, the ballots and the regular
books and records of the Corporation, except that the inspectors may consider
other reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or similar
persons that represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification of
their determinations pursuant to this Section 1.11 shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by which
the information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder, to be timely, must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
------------
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such
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<PAGE>
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (1) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (2) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by
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<PAGE>
law or these Bylaws, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.12 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be seven (7), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors; and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held at such places, within or without the State of Delaware, and at such
times as the Board of
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<PAGE>
Directors may from time to time determine. Notice of regular meetings need not
be given if the date, times and places thereof are fixed by resolution of the
Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or persons
calling the meeting shall fix. Notice of the time, date and place of such
meeting shall be given, orally or in writing, by the person or persons calling
the meeting to all directors at least four (4) days before the meeting if the
notice is mailed, or at least twenty-four (24) hours before the meeting if such
notice is given by telephone, hand-delivery, telegram, telex, mailgram,
facsimile or similar communication method. Unless otherwise indicated in the
notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
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<PAGE>
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed
----------- ----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
------
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules, each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
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<PAGE>
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
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<PAGE>
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of president or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
------------ ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of a treasurer or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of secretary or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
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Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate previously issued by it that is alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative) is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes and penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall
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<PAGE>
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
- -------- -------
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation; provided, further, that the Corporation shall not
-------- -------
be required to indemnify a person for amounts paid in settlement of a proceeding
unless the Corporation consents in writing to such a settlement (such consent
not to be unreasonably withheld). As used herein, the term "Reincorporated
--------------
Predecessor" means a corporation that is merged with and into the Corporation in
- -----------
a statutory merger where (a) the Corporation is the surviving corporation of
such merger and (b) the primary purpose of such merger is to change the
corporate domicile of the Reincorporated Predecessor, and shall include Exodus
Communications, Inc., a California corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as such expenses are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
-------- -------
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification and
related rights to such person. Such rights may be greater than those provided
in this Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or
-14-
<PAGE>
protection conferred on a person pursuant to this Article VI and existing at the
time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the
-15-
<PAGE>
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; (ii) the material facts as to his, her or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
--------
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible
-16-
<PAGE>
consistent with such holding and the remaining provisions of these Bylaws
(including, without limitation, all portions of any section of these Bylaws
containing any such provision held to be invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation that are not themselves invalid,
illegal, unenforceable or in conflict with the Certificate of Incorporation)
shall remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
-17-
<PAGE>
EXHIBIT 4.01
Number Shares
[EXO- ] [ ]
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
[EXODUS LOGO APPEARS HERE]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 302088 10 9
THIS CERTIFIES THAT
SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT AS TO
THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF
SHARES
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE PER SHARE, OF
EXODUS COMMUNICATIONS, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SEAL APPEARS HERE]
/s/ Adam W. Wegner /s/ K.B. Chandrasekhar
------------------ ----------------------
SECRETARY CHAIRMAN OF THE BOARD
[VERTICALLY, IN LOWER RIGHT CORNER]
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY
/s/ Illegible
-------------
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT --____________________ Custodian ________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________________________________
(State)
UNIF TRF MIN ACT --_______________ Custodian (until age __________)
(Cust)
__________________________ under Uniform Transfers
(Minor)
to Minors Act ___________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
X __________________________________________
X __________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ______________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.01
[LETTERHEAD OF FENWICK & WEST]
February 23, 1998
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, CA 95051
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(File No. 333-44469) (the "Registration Statement") filed by you with the
Securities and Exchange Commission (the "Commission") on January 16, 1998 in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of [4,600,000] shares of your Common Stock (the "Stock"),
550,000 of which are presently issued and outstanding and may be sold by
certain selling stockholders (the "Selling Stockholders").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a part
thereof;
(2) your registration statement on Form 8-A filed with the Commission on
February 13, 1998;
(3) the Prospectus prepared in connection with the Registration Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books, the minute books of your predecessor, Exodus Communications,
Inc., a California corporation ("Exodus California"), and the minute
books of the predecessor of Exodus California, Fouress, Inc., a
Maryland corporation ("Fouress"), that are in our possession;
(5) the stock records that you have provided to us (consisting of a list
of stockholders and a list of option and warrant holders respecting
your capital stock as well as such stock records respecting Exodus
California);
(6) a Management Certificate addressed to us and dated of even date
herewith executed by you containing certain factual and other
representations;
<PAGE>
Exodus Communcations, Inc.
February 23, 1998
Page 2
(7) the April 1995 Agreement of Merger between Fouress and Exodus
California, the May 1995 Investment Representation Letters and the
June 1995 Investment Representation Letters under which the Selling
Stockholders acquired the Stock to be sold by them as described in the
Registration Statement; and
(8) the Custody Agreement, Transmittal Letter and Powers of Attorney
signed by the Selling Stockholders in connection with the sale of
Stock described in the Registration Statement.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information included in the documents referred
to above. We have made no independent investigation or other attempt to verify
the accuracy of any of such information or to determine the existence or non-
existence of any other factual matters; however, we are not aware of any facts
-------
that would lead us to believe that the opinion expressed herein is not accurate.
Based upon the foregoing, it is our opinion that the up to 550,000 shares
of Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are validly issued, fully paid and nonassessable and that the up to
4,050,000 shares of Stock to be issued and sold by you, when issued and sold
in accordance in the manner referred to in the relevant Prospectus associated
with the Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and is intended solely for the your
use as an exhibit to the Registration Statement for the purpose of the above
sale of the Stock and is not to be relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Fred Greguras
__________________________
Fred Greguras
Partner
<PAGE>
EXHIBIT 10.05
EXODUS COMMUNICATIONS, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted January 15, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,500,000 Shares plus (a) any authorized shares
not issued or subject to outstanding grants under the Company's 1997 Equity
Incentive Plan the ("PRIOR PLAN") on the Effective Date (as defined in Section
19 below); (b) shares that are subject to issuance upon exercise of an option
granted under the Prior Plan but cease to be subject to such option for any
reason other than exercise of such option; and (c) shares that were issued under
the Prior Plan which are repurchased by the Company at the original issue price
or forfeited. Subject to Sections 2.2 and 18, Shares that are subject to: (x)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (y) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue price;
and (z) an Award that otherwise terminates without Shares being issued, will
again be available for grant and issuance in connection with future Awards under
this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 750,000
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 1,250,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
of the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
-2-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
----------------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to be an
NQSO), but in any event, no later than the expiration date of
the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three (3)
months after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal
representative or authorized assignee) no later than twelve
(12) months after the Termination Date (or such shorter or
longer time period not exceeding five (5) years as may be
determined by the Committee, with any such exercise beyond (a)
three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's
death or Disability, or (b) twelve (12) months after the
Termination Date when the Termination is for Participant's
death or
-3-
<PAGE>
Exodus Communications, Inc.
1998 Equity Incentive Plan
Disability, deemed to be an NQSO), but in any event no later than the expiration
date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant,
the Participant's estate nor such other person who may then
hold the Option shall be entitled to exercise any Option with
respect to any Shares whatsoever, after termination of
service, whether or not after termination of service the
Participant may receive payment from the Company or Subsidiary
for vacation pay, for services rendered prior to termination,
for services rendered for the day on which termination occurs,
for salary in lieu of notice, or for any other benefits. In
making such determination, the Board shall give the
Participant an opportunity to present to the Board evidence on
his behalf. For the purpose of this paragraph, termination of
service shall be deemed to occur on the date when the Company
dispatches notice or advice to the Participant that his
service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time
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Exodus Communications, Inc.
1998 Equity Incentive Plan
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and
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Exodus Communications, Inc.
1998 Equity Incentive Plan
criteria as may be determined by the Committee. The Committee may adjust the
performance goals applicable to the Stock Bonuses to take into account changes
in law and accounting or tax rules and to make such adjustments as the Committee
deems necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares); or
(2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections
483 and 1274 of the Code; provided, however, that Participants
-------- -------
who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the
Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant
and a NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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Exodus Communications, Inc.
1998 Equity Incentive Plan
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or
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Exodus Communications, Inc.
1998 Equity Incentive Plan
cancellation of purchase money indebtedness, at the Participant's Exercise Price
or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
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Exodus Communications, Inc.
1998 Equity Incentive Plan
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine; provided, however, that the Committee may, in
-------- -------
its sole discretion, provide that the vesting of any or all Awards granted
pursuant to this Plan will accelerate. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
- -------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such
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Exodus Communications, Inc.
1998 Equity Incentive Plan
increase has been approved by the stockholders of the Company; and (c) in the
event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
canceled, any Shares issued pursuant to any Award granted pursuant to such
increase will be canceled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Exodus Communications, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
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Exodus Communications, Inc.
1998 Equity Incentive Plan
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national securities exchange
on which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
in The Wall Street Journal;
-----------------------
(d) in the case of an Award made on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
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Exodus Communications, Inc.
1998 Equity Incentive Plan
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Exodus Communications, Inc. 1998 Equity
Incentive Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE>
EXHIBIT 10.06
EXODUS COMMUNICATIONS, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted January 15, 1998
And Amended January 27, 1998
1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Exodus Communications, Inc. (the "COMPANY"), who are
described in Section 6.1 below, by granting such persons options to purchase
shares of stock of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by
the Board of Directors of the Company (the "BOARD"), this Plan will become
effective on the time and date (the "EFFECTIVE DATE") on which the registration
statement filed by the Company with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to
register the initial public offering of the Company's Common Stock is declared
effective by the SEC. This Plan shall be approved by the stockholders of the
Company, consistent with applicable laws, within twelve (12) months after the
date this Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
shall be non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or by
a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of
-----------
the Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "OPTIONEE").
6.2 Initial Grant. Each Optionee who is or becomes a member of
-------------
the Board on or after the Effective Date will automatically be granted an Option
for 20,000 Shares (an "INITIAL GRANT") on the earlier of the Effective Date or
on the date such Optionee becomes a member of the Board; provided that those
individuals who
<PAGE>
Exodus Communications, Inc.
1998 Directors Stock Option Plan
were members of the Board of Directors of Exodus Communications, Inc., a
California corporation, shall not be eligible to receive an Initial Grant.
6.3 Succeeding Grants. On the date of each Annual Meeting of
-----------------
Stockholders following an Optionee's Initial Grant (or previous grant from the
Company outside this Plan if such Optionee was ineligible to receive an Initial
Grant) provided the Optionee is a member of the Board on such date and has
served continuously as a member of the Board since the date of such Optionee's
Initial Grant or previous grant, as the case may be, the Optionee will
automatically be granted an Option for 5,000 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
--------------------
shall be evidenced by a written Stock Option Grant ("GRANT") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to thirty
--------------
three and one-third percent (33.33%) of the Shares at the end of each annual
anniversary of the Start Date for such Initial Grant, so long as the Optionee
continuously remains a director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
-----------------
twenty-five percent (25%) of the Shares at the end of each annual anniversary of
the Start Date for such Succeeding Grant, so long as the Optionee continuously
remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
--------------
Fair Market Value (as defined in Section 18.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
---------------------
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest when the Optionee ceases to
be a member of the Board or a consultant of the Company. The date on which the
Optionee ceases to be a member of the Board or a consultant of the Company shall
be referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
---------------------
member of the Board or a consultant of the Company for any reason except death
of the Optionee or disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a
-------------------
member of the Board or a consultant of the Company because of the death of the
Optionee or the disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
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Exodus Communications, Inc.
1998 Directors Stock Option Plan
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5
---------------
below, Options shall be exercisable as they vest.
8.2 Notice. Options may be exercised only by delivery to the
------
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon
-----------------
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods
-----------------------
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act and all applicable state securities
laws, as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative, unless otherwise determined by the
Committee. No Option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution, unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company at such time
after the close of each fiscal year of the Company as they are released by the
Company to its stockholders.
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Exodus Communications, Inc.
1998 Directors Stock Option Plan
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within six months of the
consummation of said event. Any options not exercised within such six-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan or any outstanding option, provided that the Board
may not terminate or amend the terms of any outstanding option without the
consent of the Optionee. In any case, no amendment of this Plan may adversely
affect any then outstanding Options or any unexercised portions thereof without
the written consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
-4-
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Exodus Communications, Inc.
1998 Directors Stock Option Plan
17.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
---------------
Journal;
-------
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported in The Wall Street Journal;
-----------------------
(d) in the case of an Option granted on the Effective Date, the
price per share at which shares of the Company's Common
Stock are initially offered for sale to the public by the
Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement
filed with the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
-5-
<PAGE>
EXHIBIT 10.07
EXODUS COMMUNICATIONS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
As Adopted January 15, 1998
And Amended January 27, 1998
1. ESTABLISHMENT OF PLAN. Exodus Communications, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY"
(collectively, "PARTICIPATING SUBSIDIARIES") shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 600,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. Such number shall be subject to adjustments effected
in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are customarily employed for twenty (20) hours or
less per week;
(b) employees who are customarily employed for five (5) months or less
in a calendar year;
(c) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
(d) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on May 1 and
November 1 of each year and ending on April 30 and October 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
- -----------------
Period shall commence
<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
on the first business day on which price quotations for the Company's Common
Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE")
and shall end on April 30, 2000. Each Offering Period shall consist of four (4)
six month purchase periods (individually, a "PURCHASE PERIOD") during which
payroll deductions of the participants are accumulated under this Plan. The
first Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -----------------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
---------------
Journal;
-------
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
-2-
<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported in The Wall Street Journal; or
-----------------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be
the price per share at which shares of the Company's Common
Stock are initially offered for sale to the public by the
Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement
filed with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary not to exceed
$250,000 per calendar year, provided however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in this Plan.
(b) A participant may decrease or increase the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing with
the Treasury Department a new authorization for payroll deductions not later
than fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Treasury Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under
-3-
<PAGE>
Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
the option granted to such participant with respect to the Offering Period to
the extent that such option is exercisable on the Purchase Date. The purchase
price per share shall be as specified in Section 8 of this Plan. Any cash
remaining in a participant's account after such purchase of shares shall be
refunded to such participant in cash, without interest; provided, however that
any amount remaining in such participant's account on a Purchase Date which is
less than the amount necessary to purchase a full share of Common Stock of the
Company shall be carried forward, without interest, into the next Purchase
Period or Offering Period, as the case may be. In the event that this Plan has
been oversubscribed, all funds not used to purchase shares on the Purchase Date
shall be returned to the participant, without interest. No Common Stock shall be
purchased on a Purchase Date on behalf of any employee whose participation in
this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. The maximum number
of shares which may be purchased by any employee at any single Purchase Date
(hereinafter the "MAXIMUM SHARE AMOUNT") shall be 1,000, until otherwise
determined by the Committee not less than thirty (30) days prior to the
commencement of any Offering Period. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant
affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
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Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Except
with respect to the first Offering Period, any funds accumulated in a
participant's account prior to the first day of such subsequent Offering Period
will be applied to the purchase of shares on the Purchase Date immediately prior
to the first day of such subsequent Offering Period. In the event that the Fair
Market Value on the First Offering Date is higher than the Fair Market Value on
the first day of the second Offering Period, any funds accumulated in a
participant's account prior to the first day of the second Offering Period will
be applied to the purchase of shares on the Purchase Date next following the
first day of such second Offering Period. A participant does not need to file
any forms with the Company to automatically be enrolled in the subsequent
Offering Period
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-----------------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the
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Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
successor corporation, which assumption will be binding on all participants),
(ii) a merger in which the Company is the surviving corporation but after which
the stockholders of the Company immediately prior to such merger (other than any
stockholder that merges, or which owns or controls another corporation that
merges, with the Company in such merger) cease to own their shares or other
equity interest in the Company, (iii) the sale of all or substantially all of
the assets of the Company or (iv) the acquisition, sale, or transfer of more
than 50% of the outstanding shares of the Company by tender offer or similar
transaction, the Plan will terminate immediately prior to the consummation of
such transaction, unless otherwise provided by the Committee.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
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Exodus Communications, Inc.
1998 Employee Stock Purchase Plan
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
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<PAGE>
EXHIBIT 10.10
OFFICE LEASE
THE HARBORSIDE FINANCIAL CENTER
JERSEY CITY, NEW JERSEY
-----------------------
AGREEMENT 0F LEASE
between
CAL - HARBOR II & III URBAN RENEWAL ASSOCIATES L.P., Landlord
and
EXODUS COMMUNICATIONS. Tenant
Dated: December 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 RENT............................................................ 1
ARTICLE 2 TERM............................................................ 2
ARTICLE 3 ADDITIONAL RENT................................................. 3
ARTICLE 4 ELECTRICITY..................................................... 21
ARTICLE 5 USE............................................................. 22
ARTICLE 6 ALTERATIONS AND INSTALLATIONS................................... 22
ARTICLE 7 REPAIRS......................................................... 27
ARTICLE 8 REQUIREMENTS OF LAW............................................. 29
ARTICLE 9 INSURANCE, LOSS, REIMBURSEMENT, LIABILITY....................... 30
ARTICLE 10 DAMAGE BY FIRE OR OTHER CAUSE.................................. 32
ARTICLE 11 ASSIGNMENT, MORTGAGING, SUBLETTING, ETC........................ 34
ARTICLE 12 CERTIFICATE OF OCCUPANCY....................................... 41
ARTICLE 13 ADJACENT EXCAVATION - SHORING.................................. 41
ARTICLE 14 CONDEMNATION................................................... 41
ARTICLE 15 ACCESS TO DEMISED PREMISES; CHANGES............................ 43
ARTICLE 16 CONDITIONS OF LIMITATION....................................... 44
ARTICLE 17 RE-ENTRY BY LANDLORD, INJUNCTION............................... 46
ARTICLE 18 DAMAGES........................................................ 46
ARTICLE 19 LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS............... 48
ARTICLE 20 QUIET ENJOYMENT................................................ 48
ARTICLE 21 SERVICES AND EQUIPMENT......................................... 49
ARTICLE 22 DEFINITIONS.................................................... 51
ARTICLE 23 INVALIDITY OF ANY PROVISION.................................... 52
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 24 BROKERAGE...................................................... 53
ARTICLE 25 SUBORDINATION.................................................. 53
ARTICLE 26 CERTIFICATE OF TENANT.......................................... 55
ARTICLE 27 LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL, WAIVER OF
TERMINATION RIGHTS............................................. 56
ARTICLE 28 SURRENDER OF PREMISES.......................................... 56
ARTICLE 29 RULES AND REGULATIONS.......................................... 57
ARTICLE 30 CONSENTS AND APPROVALS......................................... 57
ARTICLE 31 NOTICES........................................................ 58
ARTICLE 32 NO WAIVER...................................................... 58
ARTICLE 33 CAPTIONS....................................................... 59
ARTICLE 34 INABILITY TO PERFORM........................................... 59
ARTICLE 35 NO REPRESENTATIONS BY LANDLORD................................. 60
ARTICLE 36 NAME OF COMPLEX/BUILDING....................................... 60
ARTICLE 37 PARKING........................................................ 60
ARTICLE 38 INDEMNITY...................................................... 61
ARTICLE 39 MEMORANDUM OF LEASE............................................ 62
ARTICLE 40 SECURITY....................................................... 62
ARTICLE 41 MISCELLANEOUS.................................................. 63
ARTICLE 42 INTENTIONALLY OMITTED.......................................... 65
ARTICLE 43 ARBITRATION.................................................... 65
ARTICLE 44 OPTION TO RENEW................................................ 66
ARTICLE 45 RIGHT OF FIRST OFFER........................................... 68
ARTICLE 46 ROOF EQUIPMENT................................................. 72
ARTICLE 47 FUEL TANK SPACE................................................ 74
SCHEDULES
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
A - I 4th Floor Plan
A - II 8th Floor Plan
B - Description of Land
C - Landlord's Work
D - Arcade Area and Second Floor Space
E - Cleaning and Janitorial Services
F - Form of Estoppel Certificate
G - Rules and Regulations
H - Form of Letter of Credit
I - PR Newswire Space Plan
J - Roof Plan
iii
<PAGE>
AGREEMENT OF LEASE made as of the 30th day of December, 1996, between Cal-Harbor
II and III Urban Renewal Associates L.P., a New Jersey limited partnership
having an address at c/o Institutional Realty Management, LLC, Plaza III,
Harborside Financial Center, Jersey City, New Jersey 0731l ("Landlord") and,
Exodus Communications, Inc., a _________ corporation having an address at
______________________ ("Tenant").
W I T N E S S E T H
- - - - - - - - - -
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
(a) the portion of the fourth (4th) floor shown hatched on the plans annexed
hereto as Schedule A-I in the building known as Plaza II (the "Fourth Floor
Space"), and (b) the portion of the eighth (8th) floor shown hatched on the
plans annexed hereto as Schedule A-II in the building known as Plaza III (the
"Eighth Floor Space," the Fourth Floor Space and the Eighth Floor Space are
collectively the "Demised Premises"), in the office complex (the "Complex")
known as Harborside Financial Center consisting as of the date hereof of Plazas
I, II and III and the parking areas and other common areas serving same located
in Jersey City, New Jersey on the land (the "Land") described in Schedule B
annexed hereto (the Land together with all of the improvements now or hereafter
located thereon being hereinafter referred to as the "Property"), for a term
(the "Term'') of approximately 10 years commencing on the "Commencement Date"
and ending on the "Expiration Date" (as said terms are defined in Article 2
hereof), unless the Term shall sooner cease and terminate as hereinafter
provided. Unless otherwise specified herein, Plazas II and III are collectively
called the ''Building.''
The parties hereby covenant and agree as follows:
ARTICLE 1
RENT
1.01. (a) Tenant hereby agrees to pay to Landlord a basic annual
rent (the "Basic Annual Rent") at an annual rate equal to (i) for the period
(the "First Period") commencing on the Rent Commencement Date (as such term is
defined in Article 2 hereof) and ending on the day immediately preceding the
fifth (5th) anniversary of the Rent Commencement Date, the product of (x) Twenty
and 50/100 Dollars ($20.50) multiplied by (y) the number of rentable square feet
contained in the Demised Premises, and (ii) for the period commencing on the day
after the First Period and ending on the Expiration Date, the product of (x)
Twenty-three and 00/100 Dollars ($23.00) multiplied by (y) the number of
rentable square feet contained in the Demised Premises. Basic Annual Rent shall
be paid by Tenant in equal monthly installments in advance on the first day of
each calendar month during the Term from and after the Rent Commencement Date
(as said term is defined in Article 2 hereof), at the office of Landlord or such
other place as Landlord may designate, without any set off or deduction
whatsoever, except such deductions as are specifically referred to herein. The
first full month's installment of Basic Annual Rent and the security deposit
described in Article 40 hereof shall be paid by Tenant to
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<PAGE>
Landlord upon the execution of this Lease. Should the Rent Commencement Date
fall on any day other than the first day of a month, then the Basic Annual Rent
for such month shall be prorated on a per diem basis, and Tenant agrees to pay
the amount thereof for such partial month on the Rent Commencement Date.
(b) The parties hereby acknowledge that for all purposes of
this Lease the Fourth Floor Space shall be deemed to contain 2,900 rentable
square feet, the Eighth Floor Space shall be deemed to contain 8,661 rentable
square feet and the Demised Premises shall be deemed to contain 11,561 rentable
square feet.
1.02. Tenant shall pay the Basic Annual Rent and all additional rent
payable hereunder in lawful money of the United States by check (subject to
collection) drawn to Landlord's order on a bank which is a member of the New
York Clearinghouse Association or a successor thereto or a New Jersey bank. All
sums, other than Basic Annual Rent, payable by Tenant hereunder shall be deemed
additional rent and shall be payable on demand unless other payment dates are
hereinafter provided. Landlord shall have the same right and remedies
(including, without limitation, the right to commence a summary dispossess
proceeding) for a default in the payment of additional rent as for a default in
the payment of Basic Annual Rent notwithstanding the fact that Tenant may not
then also be in default in the payment of Basic Annual Rent.
1.03. (a) If Tenant shall fail to pay when due any installment of
Basic Annual Rent or any payment of additional rent and any such failure shall
continue for 5 business days, then Tenant shall pay Landlord, as additional
rent, a late charge equal to three (3%) percent of such installment or payment
as compensation for Landlord's additional administrative expenses relating to
such late payment.
(b) If Tenant shall fail to pay when due any installment of
Basic Annual Rent or any payment of additional rent and such failure shall
continue beyond the 5 business day period specified in paragraph (a) above,
Tenant shall pay in addition to the late charge provided in said paragraph (a)
interest on all such amounts (including the late charge) at the Interest Rate
(as said term is defined in Article 22 hereof), from the date when such
installment or payment shall have become due to the date of payment thereof, and
such interest shall be deemed additional rent.
(c) The provisions of this Section 1.03 are in addition to all
other remedies available to Landlord for nonpayment of Basic Annual Rent or
additional rent.
ARTICLE 2
TERM
2.01. (a) Subject to the provisions of paragraph (b) below, the
"Commencement Date" of the Term shall be (i) the date of this Lease with respect
to the Eighth Floor Space and
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<PAGE>
(ii) the date that Landlord's Agent (hereinafter defined) vacates the Fourth
Floor Space in accordance with Section 2.01(b) below in the case of the Fourth
Floor Space.
(b) Tenant accepts the Demised Premises in its "as is"
condition as of the Commencement Date and Landlord shall have no obligation to
perform any work or make any contribution to prepare the Demised Premises for
occupancy by Tenant. Tenant acknowledges that the Fourth Floor Space is
currently occupied by landlord's agent and its employees (collectively
"Landlord's Agent"). Landlord's Agent shall vacate the Fourth Floor Space within
fourteen (14) days after the date of this Lease.
(c) The "Rent Commencement Date" shall be April 1, 1997.
(d) The "Expiration Date" of the Term shall be March 31, 2007,
as the same may be extended by reason of the exercise of any extension or
renewal option contained in this Lease.
2.02. Except for Landlord's Work (as defined below), all
installations, materials and work which may be undertaken by Tenant to prepare,
equip, decorate and furnish the Demised Premises for Tenant's occupancy
(collectively, "Tenant's Work") shall be performed by Tenant at Tenant's expense
in accordance with Article 6 and the other applicable provisions of this Lease.
2.03. Landlord shall diligently perform (or cause to be performed)
the work described on Schedule C attached hereto ("Landlord's Work").
ARTICLE 3
ADDITIONAL RENT
3.01. A. Forpurposes hereof, the following definitions shall apply:
(a) The term "Tax Year" shall mean each period of twelve
months which includes any part of the period commencing on the date hereof and
ending upon the expiration of the Term which now or hereafter is or may be duly
adopted as the fiscal year for real estate tax purposes for Jersey City, New
Jersey. The term "Base Tax Year" shall mean the calendar year commencing January
1, 1997.
(b) The term "Taxes" shall mean (i) all real estate taxes,
assessments and special assessments, payments in lieu of any such taxes,
assessments or special assessments (including, without limitation, any payments
or charges of any kind or nature whatsoever imposed pursuant to N.J.S.A. (S)
40:55C-40 et seq. (West 1967 & Supp. 1987), as the same may be amended or
supplemented (collectively "Fox Lance Charges")), and any other governmental
levy, tax, charge or imposition (including any interest imposed thereon by
reason of Landlord's election to pay same in installments), general or special,
ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature
whatsoever, which are or may be assessed, levied or imposed by any Governmental
Authority (as defined in Section 22.04) upon, or become a lien or
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<PAGE>
due and payable in respect of, a particular portion of the Property as
hereinafter provided, or the sidewalks, plazas and streets adjacent thereto, and
(ii) any customary expenses incurred by Landlord, including payments to
attorneys, accountants and appraisers, in contesting any of the items set forth
in clause (i) of this sentence or the assessed valuations of such portion of the
Property or in achieving any tax abatement for such portion of the Property.
Except for any Fox Lance Charges which are based in whole or in part on income
(which shall be included in Taxes) and except as provided in the following
sentence with respect to changes in the method of taxation or in the taxing
authority, the term "Taxes" shall not include any income, franchise, transfer,
inheritance, capital stock, estate, profit or succession tax levied against
Landlord. If due to a future change in the method of taxation or in the taxing
authority, (x) a new or additional real estate tax or (y) a new income,
franchise, transfer, inheritance, capital stock, estate, profit or succession
tax or other tax or governmental imposition, however designated, shall be levied
against Landlord and/or the Property, in addition to or in substitution in whole
or in part for any tax which would constitute Taxes, or in lieu of additional
Taxes, such tax or imposition shall be deemed for the purposes hereof to be
included within the term "Taxes." In no event, shall Tenant be liable or
responsible for any Taxes, for any period prior to the Commencement Date.
(c) The term "Existing Building Taxes" shall mean the Taxes on
Plaza II and Plaza III (for purposes of this Article III, sometimes referred to
as the "Ancillary Building") and the land on which such buildings are located
including all sidewalks, plazas, streets and land adjacent to such buildings,
and all replacements thereof, and constituting a part of the same tax lot or
lots (i.e., tax lot A 14 and any replacement tax lot or lots). There shall also
be included in Existing Building Taxes any Taxes allocable to the so-called
"Arcade Area" and the "Second Floor Space" located in Plaza I as more
particularly shown on Schedule D annexed hereto (collectively, the "Retained
Premises") pursuant to such agreements as may be in effect from time to time
covering the payment of such Taxes by Landlord between Landlord (or any
Affiliated Entity (as defined in paragraph (i) below)) and the owner or net
lessee of Plaza I, as the case may be (collectively, the "Retained Premises
Agreements").
(d) The term "Plaza I Taxes" shall mean the Taxes on Plaza I and
the land on which such building is located including all sidewalks, plazas,
streets and land adjacent to such building, and all replacements thereof, and
constituting a part of the same tax lots (i.e., tax lots B 1, A13, and S-1, and
any replacement tax lot or tax lots), excluding, however, those Taxes allocable
to the Retained Premises pursuant to the Retained Premises Agreement and which
are included in Existing Building Taxes pursuant to paragraph (c) above.
(e) The term "Common Area Taxes" shall mean (x) the Common Area
Tax Share (as defined in paragraph (f) below) of all Taxes allocable to the
Property plus (y) any appraisal fees incurred and paid by Landlord pursuant to
any agreements as may be in effect from time to time affecting all or part of
the Property and relating in whole or in part to the payment of Common Area
Taxes and/or Common Area Expenses (as defined in Section 3.02(A)(c))
(collectively, "Reciprocal Agreements") or pursuant to this Lease, excluding,
however, the following items of Taxes:
(i) all Taxes included in Existing Building Taxes and in Plaza I
Taxes;
4
<PAGE>
(ii) all Taxes payable with respect to any portion of the Property
that is hereafter conveyed to a third party (other than to an
Affiliated Entity), except, however, that if any portion of the
Property so conveyed constitutes a parking structure, and if Landlord
both retains the right to use all or a portion of the parking spaces
within such structure for tenants of the Complex and pays all or a
portion of the Taxes allocable to such conveyed parking structure,
then such Taxes so payable by Landlord with respect to such conveyed
parking structure shall be included in Common Area Taxes;
(iii) all Taxes imposed or assessed (a) against any buildings or
structures constructed on either of the two piers (the "Piers") now
forming a part of the Property, against the portion of the Land on
which such buildings or structures are located, and against such areas
of the Property adjacent thereto which become unavailable for the
general use of the tenants of the Complex during the construction of
such buildings or structures by reason of such construction (such
exclusion to become effective from and after the time, if any, after
the date hereof, of "Commencement of Construction" (as hereinafter
defined) of such buildings or structures) and (b) against any
buildings or structures constructed on any portion of the Complex
other than Plaza I, Plaza II, Plaza III and the Piers, against the
portion of the Land on which such buildings or structures are located,
and against such areas of the Property adjacent thereto which become
unavailable for the general use of the tenants of the Complex during
the construction of such buildings or structures by reason of such
construction (such exclusion to become effective from and after the
time, if any, after the date hereof, of Commencement of Construction
of such buildings or structures), it being understood, however, that
if any such buildings or structures shall be parking structures, all
Taxes with respect to same and the land underlying same shall be
included within Common Area Taxes, provided that if such buildings or
structures are used for both parking and other uses, only the Taxes
allocable to the portion of such structures used for parking (and an
equitable allocation of the underlying land) shall be included in
Common Area Taxes, such allocation to be made on the basis set forth
in the balance of this paragraph (e). For purposes of this Lease,
"Commencement of Construction" shall mean the date on which, with
respect to a certain portion of the Property, significant excavation
commences in preparation for the installation of foundations and
footings, and in the case of the Piers, the date on which installation
of new pilings commences in contemplation of supporting a new building
or structure. At such time during or following construction of any
such building or structure when a portion of the Land (and/or any
buildings or structures constructed thereon), the Taxes allocable to
which had been excluded from Common Area Taxes as of the Commencement
of Construction, again becomes available for the general use of all
tenants of the Complex (or to a certain tenant or tenants of the
Complex for use as a so-called "Limited Common Area" (a Common Area
subject to certain additional restrictions as to use imposed by
Landlord, but which restrictions do not generally prohibit the use
thereof by other tenants of the Complex, and which for purposes of
this Article 3 shall nonetheless
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be deemed to be "available for the general use of all tenants of the
Complex"), the Taxes allocable to such portion of the Land (and to any
improvements thereon similarly available for the general use of all
tenants of the Complex) shall again be included in Common Area Taxes;
and
(iv) all Taxes imposed or assessed against the common areas on the
Piers developed in conjunction with the development of any buildings
or structures constructed on the Piers, provided (x) such buildings or
structures are utilized predominantly as hotel or residential space
and the residents and employees thereof have sufficient parking
located on the Pier on which such development was constructed (or on
the other Pier) so that, in the aggregate, they park predominantly on
such Pier (or on the other Pier) (such development being hereinafter
referred to as a "Self-Contained Pier Development"), and (y) the gross
area of such Self-Contained Pier Development shall not be included in
the denominator of the fraction used in computing Common Area Tax
Share.
If any item of Taxes (or allocable portion thereof) which pursuant to
this paragraph (e) is to be included in, or excluded from, Common Area Taxes is
not wholly within a separate tax lot, then the amount of such item of Taxes (or
allocable portion thereof) to be so included in or excluded from Common Area
Taxes shall be (x) with respect to the land, in the same proportion which the
square footage of the land to be so included or excluded bears to the square
footage of the entire tax lot in which such land is located, and (y) with
respect to buildings or structures, be included or excluded, as applicable, in
the same proportion which the current appraised value of the buildings or
structures to be so included or excluded bears to the current appraised value of
all of the buildings or structures included within the tax lot of which the
footprint of land in question is a part. If any item of Taxes (or allocable
portion thereof) which pursuant to this paragraph (e) is to be included in
Common Area Taxes because it is allocable to land which is improved with a
parking structure shall also be improved with buildings or structures used for
purposes other than parking, then the amount of such item of Taxes (or allocable
portion thereof) to be so included in Common Area Taxes shall be in the same
proportion which the current appraised value of the parking structure on such
land bears to the current appraised value of all of the buildings or structures
on such land. All appraisals hereunder shall be determined by an appraiser
selected and paid for by Landlord, who shall be a member in good standing of the
American Institute of Real Estate Appraisers and shall have at least ten (10)
years experience appraising major office buildings in northern New Jersey and/or
in the Borough of Manhattan, City, County and State of New York. The fees and
expenses of any such appraiser shall be deemed a part of Common Area Taxes.
(f) The Term "Common Area Tax Share" shall mean the share of
Common Area Taxes allocated to Plaza II, Plaza III and the Retained Premises, as
such share is determined from time to time as hereinafter set forth. The Common
Area Tax Share shall be determined as of the first day of each calendar year
(each, a "Tax Share Determination Date") and shall be equal to a fraction
(expressed as a percentage), the numerator of which shall be the aggregate gross
square footage contained in Plaza II, the Retained Premises and Plaza III, as of
the applicable Tax Share Determination Date, and the denominator of which shall
be the aggregate gross square footage contained in Plaza I, Plaza II and Plaza
III as of the applicable Tax Share Determination Date. If, at any time
hereafter, there is constructed (1) on any portion of the Land other than on the
Piers, any new buildings, or (2) on the Piers, any new building other than a
Self-Contained Pier Development, and in any of such cases, the tenants or
occupants thereof are permitted generally by Landlord to use the Common Areas
(as defined in Section 22.06 below), then the Common Area Tax Share shall be
modified to include in the denominator thereof, in addition to the aggregate
gross square footage contained in each of Plaza I, Plaza II and Plaza III as of
the applicable
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Tax Share Determination Date, that portion of the gross square footage contained
in each such new building which either (i) on the applicable Tax Share
Determination Date is subject to a lease (other than a so-called "master lease"
to an Affiliated Entity in which event the terms hereof shall apply to any
subtenant of such master lessee) and the lessee under such lease is occupying
the Demised Premises thereunder and has begun making payments of base rent
thereunder, or (ii) at any time prior to the applicable Tax Share Determination
Date was subject to a lease described in clause (i) above, or (iii) in the case
of a residential condominium development, was sold for the first time to an
owner-occupier which is not an Affiliated Entity. Without limiting the
provisions of clause (ii) above, in no event shall the denominator of the Common
Area Tax Share ever be reduced by reason that any space which was subject to a
lease described in clause (i) above is no longer subject to such a lease. If at
any time hereafter any building located on the Land, the gross square footage of
which is then included in the denominator of the Common Area Tax Share, shall be
conveyed to a third party (other than to an Affiliated Entity), and if after
such conveyance the tenants or occupants of such building are no longer
permitted generally to use the Common Areas, then from and after the next
succeeding Tax Share Determination Date, the Common Area Tax Share shall be
modified by excluding from the denominator thereof the gross square footage
contained in such conveyed building. Landlord and Tenant agree that as of the
date of this Lease, Plaza I (exclusive of the Retained Premises) contains
385,000 gross square feet, the Retained Premises contain 23,922 gross square
feet, Plaza II contains 726,078 gross square feet and Plaza III contains 750,000
gross square feet, and based upon such amounts, the Common Area Tax Share is
79.58%. The gross square footage of any other building located on the Land shall
be determined hereinafter in the same manner as the determination of gross
square footage reflected in the immediately preceding sentence.
(g) The term "Tenant's Tax Share" shall mean .77% constituting
the percentage resulting from dividing the number of rentable square feet from
time to time included in the Demised Premises and with respect to which Tenant
is obligated to make Tenant's Tax Payments pursuant to Section 3.01 (b) by the
number of rentable square feet in Plaza II, Plaza III and the Retained Premises,
which the parties agree is 1,500,000 rentable square feet as of the date of this
Lease. If at any time after the date hereof rentable square footage of office,
retail or other commercial space (exclusive of storage space that is an adjunct
to such space) shall be added to or subtracted from Plaza II, the Retained
Premises and/or Plaza III, Tenant's Tax Share shall be equitably adjusted so
that Tenant pays its proportionate share of Existing Building Taxes in the same
proportion which the rentable square feet from time to time included in the
Demised Premises as set forth herein bears to the total rentable area of office,
retail or other commercial space (exclusive of such storage space) in the
improvements as to which such Existing Building Taxes relate, using the same
standard of measurement to compute the rentable area of the new or additional
space or the subtracted space as that used to compute the rentable area of the
Demised
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Premises for purposes of this Lease. In the event of such adjustment,
Landlord and Tenant shall, at either party's request, execute an instrument
confirming such adjustment and making the appropriate change in Tenant's Tax
Share, but no such instrument shall be necessary to make the same effective.
(h) Tenant acknowledges that Landlord may transfer legal
ownership of portions of the Property to entities affiliated with Landlord for
purposes of obtaining tax abatements for the Property, for income tax planning
purposes or otherwise, and neither the definition of Common Area Taxes, nor of
Common Area Tax Share, nor of Existing Building Taxes nor of Tenant's Tax Share
shall be affected by reason of any such transfers to affiliated entities; all of
which shall be deemed for purposes hereof to continue to be owned by Landlord.
For purposes hereof an "Affiliated Entity" shall mean any entity which controls,
is under common control with, or is under the control of, Landlord and the term
"control" shall mean the direct or indirect ownership of 50% or more of the
outstanding voting stock in a corporation or equivalent ownership interest in a
non-corporate entity .
(i) If Landlord (or any Affiliated Entity) shall acquire any
additional land in the immediate vicinity of the Complex (each, an "Additional
Parcel"), then, at Landlord's election, exercisable by written notice to Tenant,
(a) the Taxes allocable to such Additional Parcel (or the portion thereof to be
used as Common Areas) shall be included in Common Area Taxes in accordance with
paragraph (e) above to the extent applicable, (b) the gross square footage of
any buildings then or thereafter constructed on such Additional Parcel, the
tenants or occupants of which are permitted generally to use the Common Areas,
shall, as of the applicable Tax Share Determination Date, be added to the
denominator of the Common Area Tax Share for purposes of calculating the Common
Area Tax Share in accordance with paragraph (f) above, using the same standard
of measurement to compute the rentable area of the new or additional buildings
as that used to compute the rentable area of the Demised Premises for purposes
of this Lease, and (c) such Additional Parcel shall thereafter be deemed a part
of the Land for all purposes of this Lease.
(j) In the event Tenant objects to any adjustment which may be
required under this Section 3.01 (a) with respect to Existing Building Taxes,
Common Area Taxes, Common Area Tax Share or Tenant's Tax Share, such objection
must be made in writing by Tenant within thirty (30) days after receipt of
Landlord's determination of such adjustment, specifying in detail the nature of
such objection, and failing such notice Landlord's determination shall be
conclusive. If Tenant does so object, either party may submit such dispute to
arbitration in accordance with the provisions of Article 43, but pending the
resolution of such dispute, Landlord's determination of Existing Building Taxes,
Common Area Taxes, Common Area Tax Share and Tenant's Tax Share shall control
and Tenant shall pay Tenant's Tax Payment (as defined in Section 3.01 (B)) in
accordance with such determination as a condition precedent to its right to
invoke the arbitration process herein provided without prejudice to Tenant's
position. In the event of the resolution of such dispute so that there shall
have been an overpayment of Tenant's Tax Payment, Landlord shall permit Tenant
to credit the amount of such overpayment against the next subsequent rental
payments under this Lease. After the termination of this Lease and the payment
to Landlord of the balance, if any, of all Basic Annual Rent and additional rent
due hereunder, Landlord shall pay to Tenant the amount of any credit not
previously applied by
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Tenant. In the event any such dispute shall involve more than one Tenant of the
Property, all of such disputes shall, at Landlord's election, be resolved in one
arbitration proceeding designated by Landlord.
(k) The term "Escalation Statement" shall mean a statement
setting forth the amount payable by Tenant for a specified Tax Year or Operating
Year (as defined in Section 3.02), as the case may be, or for some portion
thereof pursuant to this Article 3.
B. Tenant shall pay to Landlord as additional rent for each Tax Year
or partial Tax Year commencing from and after January 1, 1997, an amount equal
to Tenant's Tax Share of the excess of the Existing Building Taxes for such Tax
Year over the Existing Building Taxes for the Base Tax Year and Tenant's Tax
Share of the excess of the Common Area Taxes for such Tax Year over the Common
Area Taxes for the Base Tax Year (collectively, "Tenant's Tax Payment").
Landlord shall furnish Tenant an annual Escalation Statement (subject to
revision as hereinafter provided) for each Tax Year setting forth Tenant's Tax
Payment (or, if Landlord has not yet received bills evidencing the full amount
of Taxes payable during such Tax Year, Landlord's good faith estimate of
Tenant's Tax Payment, which shall for all purposes hereof be deemed to be the
Taxes for such Tax Year payable hereunder until such Taxes are finally
determined) for such Tax Year. Tenant's Tax Payment (determined as above
provided) shall be payable in the same number of installments as Landlord pays
(or is deemed to have paid, as hereinafter set forth) Taxes, each such
installment to be in such amount and due at such time (but not more frequently
than monthly) such that Landlord shall have received Tenant's Tax Share of (i)
all installments of Existing Building Taxes and (ii) all installments of Common
Area Taxes payable, in either case, to a Governmental Authority, or to any
designated party under any applicable Reciprocal Agreements (a "Responsible
Party"), or as tax escrow payments to any superior ground lessor or mortgagee,
not less than thirty (30) days prior to the date such installment of Existing
Building Taxes or Common Area Taxes is payable to such Governmental Authority,
Responsible Party or superior ground lessor or mortgagee, as applicable. If an
annual Escalation Statement is furnished to Tenant after the commencement of the
Tax Year to which it relates, then (i) until such Escalation Statement is
rendered, Tenant shall pay Tenant's Tax Payment for such Tax Year in
installments based upon the last Escalation Statement rendered to Tenant with
respect to Existing Building Taxes and Common Area Taxes, (ii) Tenant shall,
within ten (10) days after such annual Escalation Statement is furnished to
Tenant, pay to Landlord an amount equal to any underpayment of the installments
of Tenant's Tax Payment theretofore paid by Tenant for such Tax Year and (iii)
thereafter Tenant shall pay Tenant's Tax Payment in installments based on such
annual Escalation Statement. In the event of an overpayment by Tenant, Landlord
shall permit Tenant to credit the amount of such overpayment against the next
subsequent rental payments under this Lease. After the termination of this Lease
and the payment to Landlord of the balance, if any, of all Basic Annual Rent and
additional rent due hereunder, Landlord shall pay to Tenant the amount of any
credit not previously applied by Tenant. If there shall be any increase or
decrease in Existing Building Taxes or Common Area Taxes for any Tax Year,
whether during or after such Tax Year, Landlord shall furnish a revised
Escalation Statement for such Tax Year to Tenant, and Tenant's Tax Payment for
such Tax Year shall be adjusted and paid or credited, as appropriate, in the
same manner as hereinabove provided.
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C. If Landlord shall receive a refund of Existing Building
Taxes or Common Area Taxes for any Tax Year, Landlord shall promptly notify
Tenant and shall permit Tenant to credit against subsequent rental payments
under this Lease, Tenant's Tax Share of the refund, but not in excess of
Tenant's Tax Payment paid for such Tax Year. After the termination of this Lease
and the payment to Landlord of the balance, if any, of all Basic Annual Rent and
additional rent due hereunder, Landlord shall pay Tenant the amount of any
credit not previously applied by Tenant.
3.02. A. For purposes hereof the following definitions shall apply:
(a) The term "Operating Year" shall mean each calendar year
which includes any part of the period commencing on January 1, 1997 and ending
upon the expiration of the Term. The term "Base Operating Year" shall mean the
calendar year commencing January 1, 1997.
(b) The term "Tenant's Expense Share" shall mean .81%
constituting the percentage resulting from dividing the number of rentable
square feet from time to time included in the Demised Premises and with respect
to which Tenant is obligated to make Tenant's Expense Payments pursuant to
Section 3.02(b) by the number of rentable square feet in the Retained Premises,
Plaza II, Plaza III and the Retained Premises, exclusive of space leased to
retail tenants, which the parties agree is 1,430,000 rentable square feet as of
the date of this Lease. If at any time after the date hereof additional rentable
square footage of office space (exclusive of storage space that is an adjunct to
such space) shall be added to or subtracted from the Retained Premises, Plaza II
and/or Plaza III, Tenant's Expense Share shall be equitably adjusted so that
Tenant pays its proportionate share of Operating Expenses in the same proportion
which the rentable square feet from time to time included in the Demised
Premises as set forth herein bears to the total rentable area of office space
(exclusive of such storage space) in the improvements as to which such Operating
Expenses relate, using the same standard of measurement to compute the rentable
area of the new or additional space or subtracted space as that used to compute
the rentable area of the Demised Premises for purposes of this Lease. In the
event of such adjustment, Landlord and Tenant shall, at either party's request,
execute an instrument confirming such adjustment and making the appropriate
change in Tenant's Expense Share, but no such instrument shall be necessary to
make the same effective.
(c) The term "Common Area Expense Share" shall mean the share
of Common Area Operating Expenses allocated to Plaza II, Plaza III and the
Retained Premises, as such share is determined from time to time as hereinafter
set forth. The Common Area Expense Share shall be determined as of the first day
of each calendar year (each, an "Expense Share Determination Date") and shall be
equal to a fraction (expressed as a percentage), the numerator of which shall be
the aggregate gross square footage contained in Plaza II, the Retained Premises
and Plaza III, as of the applicable Expense Share Determination Date, and the
denominator of which shall be the aggregate gross square footage contained in
Plaza I, Plaza II and Plaza III as of the applicable Expense Share Determination
Date (the "Expense Share Fraction"). If, at any time hereafter, there is
constructed (1) on any portion of the Land other than on the Piers any new
buildings, or (2) on the Piers, any new building other than a Self-Contained
Pier Development, and in any of such cases, the tenants or occupants thereof are
permitted by Landlord generally to
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use the Common Areas, then the Expense Share Fraction shall be modified to
include in the denominator thereof, in addition to the aggregate of the gross
square footage contained in each of Plaza I, Plaza II and Plaza III as of the
applicable Expense Share Determination Date, the gross square footage contained
in that portion of each such new building which either (i) on the applicable
Expense Share Determination Date is subject to a lease (other than a so-called
"master lease" to an Affiliated Entity in which event the terms hereof shall
apply to any subtenant of such master lessee) and the lessee under such lease is
either occupying the Demised Premises thereunder, or has begun making payments
of base rent thereunder or (ii) at any time prior to the applicable Expense
Share Determination Date was subject to a lease described in clause (i) above,
or (iii) in the case of a residential condominium development, was sold for the
first time to an owner-occupier which is not an Affiliated Entity. Without
limiting the provisions of clause (ii) above, in no event shall the denominator
of the Expense Share Fraction ever be reduced by reason that any space which was
subject to a lease described in clause (i) above is no longer subject to such a
lease. If at any time hereafter any building located on the Land, the gross
square footage of which is then included in the denominator of the Expense Share
Fraction, shall be conveyed to a third party (other than to an Affiliated
Entity), and if after such conveyance the tenants or occupants of such building
are no longer permitted generally to use the Common Areas, then from and after
the next succeeding Expense Share Determination Date, the Expense Share Fraction
shall be modified by excluding from the denominator thereof the gross square
footage contained in such conveyed building. Landlord and Tenant agree that as
of the date of this Lease Plaza I (exclusive of the Retained Premises) contains
385,000 gross square feet, the Retained Premises contains 23,922 gross square
feet, Plaza II contains 726,078 gross square feet and Plaza III contains 750,000
gross square feet, and based upon such amounts, the Common Area Expense Share is
79.58%. The gross square footage of any other building located on the Land shall
be determined hereinafter in the same manner as the determination of gross
square footage reflected in the immediately preceding sentence.
(d) The term "Common Area Operating Expenses" shall mean the
Common Area Expense Share of the total of all unreimbursed (other than pursuant
to this Article 3) costs and expenses (including taxes thereon, if any),
computed on an accrual basis, incurred by Landlord in connection with operating,
maintaining, repairing and replacing the Common Areas (as defined in Section
22.05), including, without limitation, the cost and expense of the following
items to the extent they relate solely to or are reasonably allocable to the
Common Areas (Tenant hereby acknowledging that it is not possible to make such
allocation with mathematical certainty and that any such good faith allocation
made by Landlord shall be binding upon Tenant): gardening, landscaping,
planting, replanting, and replacing flowers and shrubbery; public liability,
property damage and fire insurance with such extended coverage and vandalism
endorsements required by the holder of any mortgage covering all or any portion
of the Common Areas or customarily carried with respect to mixed use office and
retail projects similar to the Complex in northern New Jersey; repairs; painting
and decorating; striping; the cost of electricity for lighting and maintenance
and replacements of lighting fixtures, tubes and bulbs; regulating automobile
and pedestrian traffic; sanitary control; removal of rubbish, garbage and other
refuse; removal of snow and ice, and sanding and salting; security, which shall
include special security undertakings for the common use and enjoyment of all
tenants and owners of all or a portion of the Complex; actions to prevent
unauthorized use of certain of the Common Areas; supplies used
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in the operation and maintenance of the Common Areas (including the cost of
inspection thereof); drainage; music program services and loud speaker systems,
including electricity therefor; heating, ventilating and air-conditioning
enclosed sidewalks, if any; cleaning all enclosed sidewalks, if any, including
carpeting or other floor covering; maintenance of decorations, if any; cost of
personnel to implement all of the aforementioned (including worker's
compensation insurance covering such personnel); all administrative and overhead
costs, excluding executive salaries above the grade of building manager; all
water and sewer charges; outside contractor snow removal costs; and any other
fees and expenses related solely to or which are reasonably allocable to the
operation, maintenance and repair of the Common Areas; provided, however, that
the foregoing costs and expenses shall exclude or have deducted from them, or
shall include in the specific circumstances hereinafter provided, as the case
may be, the following:
(i) Taxes;
(ii) interest, principal and refinancing and other charges on or
with respect to indebtedness;
(iii) amounts received by Landlord through proceeds of insurance to
the extent they are compensation for sums previously included in
Common Area Operating Expenses hereunder;
(iv) costs of repairs incurred by reason of fire or other casualty
or condemnation to the extent Landlord is compensated therefor by
insurance proceeds or condemnation award;
(v) advertising and promotional expenses;
(vi) leasing commissions and similar fees;
(vii) rent under any ground lease;
(viii) depreciation, except that if any equipment is purchased for
maintenance and operation of the Common Areas which is not ordinarily
expensed, then such equipment shall be depreciated on a straight-line
basis over the lesser of (i) the useful life of such equipment or (ii)
ten (10) years, and there shall be included in Common Area Operating
Expenses in each Operating Year the amount of such depreciation
attributable to such Operating Year, provided, however, that all
amounts thereof included in Common Area Operating Expenses in
Operating Years subsequent to the year paid shall have added thereto
interest at the Prime Rate (as defined in Section 22.03) (determined
as of the date on which such expense was incurred) plus one percent
(1%) from the date each such expense was incurred by Landlord;
(ix) as to salaries and other compensation and professional fees of
persons employed or retained at or for the Common Areas and at
additional locations other than the Common Areas, only a pro rata
allocation (based on an equitable time
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allocation) of the foregoing expenses incurred on behalf of the Common
Areas shall be included in Common Area Operating Expenses;
(x) costs and expenses payable to any Affiliated Entity or its
partners or stockholders to the extent that such costs and expenses
exceed, in any material respect, competitive costs and expenses
generally charged for materials or services rendered by persons or
entities (other than any Affiliated Entity or its partners or
stockholders) of similar skill, competence and experience;
(xi) all costs and expenses included in Operating Expenses;
(xii) all costs and expenses allocable to any portion of the Common
Areas that is hereafter conveyed to a third party (other than to an
Affiliated Entity), except, however, that if any portion of the Common
Areas so conveyed constitutes a parking structure, and if Landlord
both retains the right to use all or a portion of the parking spaces
within such structure for tenants of the Complex and pays all or a
portion of the costs and expenses allocable to such conveyed parking
structure then such costs and expenses payable by Landlord with
respect to such conveyed parking structure shall be included in Common
Area Operating Expenses;
(xiii) all costs and expenses allocable to (a) any buildings or
structures constructed on either of the Piers, or allocable to any
portions of the Common Areas adjacent thereto which become unavailable
for the general use of the tenants of the Complex during the
construction of such buildings or structures by reason of such
construction (such exclusion to become effective from and after the
time, if any, of Commencement of Construction (of such buildings or
structures) and (b) any buildings or structures constructed on any
portion of the Complex other than Plaza I, Plaza II, Plaza III and the
Piers, or allocable to any portions of the Common Areas adjacent
thereto which become unavailable for the general use of the tenants of
the Complex during the construction of such buildings or structures by
reason of such construction (such exclusion to become effective from
and after the time, if any, after the date hereof, of Commencement of
Construction of such buildings or structures). During construction of
any such building or structure, as and when any portion of the land
(and any improvements constructed thereon), the costs and expenses
allocable to which had been excluded from Common Area Operating
Expenses as of the Commencement of Construction, again becomes
available for the general use of all tenants of the Complex, the costs
and expenses allocable to such land (and to any improvements thereon
similarly available for the general use of all tenants of the Complex
including, without limitation, parking structures) shall again be
included in Common Area Operating Expenses; and
(xiv) all costs and expenses allocable to the common areas of a Self-
Contained Pier Development.
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If any of the costs and expenses which, pursuant to the terms of this
paragraph (d) are to be included in or excluded from Common Area Operating
Expenses depending upon the portion of the Property to which they relate, are
incurred with respect to both such included and excluded portions of the
Property, then Landlord shall make a good faith estimate of the amount of such
cost or expense allocable to such included or excluded portion of the Property,
and only the pro rata allocation (based on Landlord's estimate) of such cost or
expense incurred on behalf of the included portion of the Property shall be
included in Common Area Operating Expenses. Such allocation shall be binding on
Landlord and Tenant unless Tenant shall dispute same in accordance with Section
3.07 within thirty (30) days after Landlord gives Tenant notice of such
allocation. Tenant shall only be able to challenge such allocation if Tenant
can establish in arbitration in accordance with the provisions of this Lease
that such allocation was arbitrary and made in bad faith, giving due
consideration to the fact that it is not possible to make such allocation with
mathematical certainty. Pending such arbitration, Landlord's allocation shall
control and Tenant shall make Tenant's Expense Payments based thereon.
(e) The term "Operating Expenses" shall mean, subject to the
provisions of paragraphs (f) and (g) below, the total of all costs and expenses
(including taxes thereon, if any), computed on an accrual basis, incurred by
Landlord in connection with operating, repairing and maintaining Plaza II, Plaza
III and the Retained Premises (the "Existing Buildings") in a manner customary
for mixed use office/retail complexes in northern New Jersey similar to the
Complex including, without limitation, the costs and expenses with respect to:
steam, gas and any other fuel or utilities; water rates (including without
limitation, for public drinking facilities and bathrooms), water charges and
sewer rents; operation of the heating, ventilation and cooling systems;
electricity and other utilities for areas other than those leased or available
for lease to individual tenants as indicated by meter, or if there be no meter,
as determined by Landlord's electrical consultant (as defined in Section 4.08);
elevators and escalators; metal, elevator cab, lobby, interior mall and other
interior public area maintenance and cleaning; painting and decoration of non
tenant areas; window cleaning; sanitary control; security; maintenance and
replacement of lighting fixtures, tubes and bulbs in non tenant areas; music
program services and loud speaker system; depreciation of hand tools and other
movable equipment used in the operation or maintenance of the Existing
Buildings; maintenance of conduits in the Existing Buildings as necessary for
shared tenant systems; flood, fire, extended coverage, boiler and machinery,
sprinkler apparatus, public liability and property damage, loss of rental,
fidelity and plate glass insurance and any other insurance required by the
holder of any mortgage or ground lease covering all or any portion of the
Existing Buildings or customarily carried with respect to mixed use
office/retail complexes in northern New Jersey similar to the Property; wages,
salaries, bonuses, disability benefits, hospitalization, medical, surgical,
dental, optical, psychiatric, legal, union and general welfare benefits
(including group life insurance), any pension, retirement or life insurance plan
and other benefit or similar expense respecting employees of Landlord (or its
agents) up to and including the building manager, provided that to the extent
that Landlord employs the services of any such persons at the Existing Buildings
and at additional locations other than the Existing Buildings, then only a pro
rata allocation (based on an equitable time allocation) of the foregoing
expenses incurred on behalf of the Existing Buildings shall be included in
Operating Expenses; uniforms and working clothes for such employees and the
cleaning and replacement thereof; expenses imposed on Landlord pursuant to law
or to any
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collective bargaining agreement with respect to such employees; workmen's
compensation insurance, payroll, social security, unemployment and other similar
taxes with respect to such employees; salaries of bookkeepers and accountants,
provided that to the extent that Landlord employs the services of any such
persons at the Existing Buildings and at additional locations other than the
Existing Buildings, then only a pro rata allocation (based on an equitable time
allocation) of the foregoing expenses incurred on behalf of the Existing
Buildings shall be included in Operating Expenses; professional and consulting
fees, including legal and accounting fees; charges for independent contractors
performing work included within the definition of Operating Expenses;
association fees or dues; telephone and stationery; directory; building
telephone; repairs, replacements and improvements of the electrical, mechanical,
plumbing and HVAC systems and other systems and portions of the Existing
Buildings, which are necessary or appropriate for the continued operation of the
Existing Buildings in a manner customary for mixed use office/retail complexes
in northern New Jersey similar to the Complex or are otherwise imposed upon
Landlord by any Governmental Authority; and management fees for the management
of the Existing Buildings, or if no managing agent is employed by Landlord, a
sum in lieu thereof which is not in excess of the then prevailing rates for
management fees in northern New Jersey for mixed use office/retail complexes
similar to the Property. There shall also be included in Operating Expenses (but
only to the extent the same are not otherwise included therein) any items
described in the definition of Common Area Operating Expenses which are
performed to the exterior of Plaza II and Plaza III, but which, by reason of
their relating to areas adjacent to Plaza II and Plaza III, are not included in
Common Area Operating Expenses and are performed and paid for directly by the
owner of Plaza II and Plaza III. If any of the costs and expenses includible in
Operating Expenses are incurred by Landlord with respect to both the Existing
Buildings and other portions of the Property, then Landlord shall make a good
faith estimate of the amount of such cost or expense allocable to the Existing
Buildings and the amount thereof allocable to such other portions of the
Property, and only the pro rata allocation (based on Landlord's estimate) of
such cost or expense incurred on behalf of the Existing Buildings shall be
included in Operating Expenses. Such allocation shall be binding on Landlord and
Tenant unless Tenant shall dispute same in accordance with Section 3.07 within
thirty (30) days after Landlord gives Tenant notice of such allocation. Tenant
shall only be able to challenge such allocation if Tenant can establish in
arbitration in accordance with the provisions of this Lease that such allocation
was arbitrary and made in bad faith, giving due consideration to the fact `that
it is not possible to make such allocation with mathematical certainty. Pending
such arbitration, Landlord's allocation shall control and Tenant shall make
Tenant's Expense Payments based thereon. It is understood and agreed that
Landlord shall not be permitted to include the same item of expense in both
Operating Expenses and Common Area Expenses except to the extent such item of
expense is allocated between them as expressly contemplated hereby.
(f) If any repair, replacement or improvement within the
definition of Operating Expenses must be capitalized under generally accepted
accounting principles as determined by the accountants who prepare the accounts
with respect to the Existing Buildings, then, unless same is necessary to comply
with a Legal Requirement (in which case the same shall be included within
Operating Expenses in the year incurred) or except as otherwise provided in
paragraph (g) below, the cost thereof shall be amortized on a straight line
basis over the lesser of (i) the useful life of such repair, replacement or
improvement or (ii) a period of ten (10) years,
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and there shall be included in Operating Expenses in each Operating Year for
such portion of the amortization period which occurs during the Term, the amount
so amortized attributable to such Operating Year, provided, however, that all
amounts thereof included in Operating Expenses in Operating Years subsequent to
the year paid shall have added thereto interest at the Prime Rate plus one
percent (1%) from the date Landlord incurred such cost.
(g) The following shall be excluded or deducted from, or, in
the specific circumstances hereinafter provided, included in, as appropriate,
the costs and expenses otherwise included in Operating Expenses:
(i) the cost of electricity and other utilities furnished to the
Demised Premises and other space leased or available for lease to
tenants as measured by meters, or if there be no meters, as determined
by Landlord's electrical consultant (as defined in Section 4.08);
(ii) leasing commissions and similar fees;
(iii) salaries, fringe benefits and other compensation for Landlord's
executives above the grade of building manager;
(iv) amounts received by Landlord through proceeds of insurance to
the extent the proceeds are compensation for expenses which were
previously included in Operating Expenses;
(v) cost of repairs or replacements incurred by reason of fire or
other casualty or condemnation to the extent Landlord is compensated
therefor by insurance proceeds or a condemnation award;
(vi) advertising and promotional expenditures;
(vii) Taxes;
(viii) costs for performing tenant installations for any individual
tenant or for performing work or furnishing services to or for
individual tenants at such tenant's expense and any other contribution
by Landlord to the cost of tenant improvements;
(ix) capital expenditures incurred for the initial renovation of the
improvements constituting the Existing Buildings (e.g., the erection
of a new facade, new windows and a new elevator core);
(x) rent under any ground leases;
(xi) financing and refinancing costs and mortgage debt service;
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(xii) costs of furnishing services to other tenants or occupants to
the extent such services are materially in excess of services Landlord
offers to all tenants at Landlord's expense;
(xiii) amounts otherwise includible in Operating Expenses but
reimbursed directly by Tenant or other tenants to Landlord other than
by escalation provisions similar to this Article 3;
(xiv) costs and expenses payable to any Affiliated Entity, to the
extent that such costs and expenses exceed in any material respect
competitive costs and expenses for materials and services by unrelated
persons or entities (other than and Affiliated Entity or its partners
or stockholders) of similar skill, competence and experience;
(xv) franchise, income, inheritance or estate taxes (but not sales
and use taxes) imposed on Landlord;
(xvi) all amounts included in Common Area Operating Expenses; and
(xvii) depreciation, except that if any equipment is purchased for
maintenance and operation of the Existing Buildings which is not
ordinarily expensed, then such equipment shall be depreciated on a
straight-line basis over the lesser of (i) the useful life of such
equipment or (ii) ten (10) years, and there shall be included in
Operating Expenses in each Operating Year the amount of such
depreciation attributable to such Operating Year, provided, however,
that all amounts thereof included in Operating Expenses in Operating
Years subsequent to the year paid shall have added thereto interest at
the Prime Rate (as defined in Section 22.03) (determined as of the
date on which such expense was incurred) plus one percent (1 %) from
the date each such expense was incurred by Landlord.
(h) If during all or part of any Operating Year, Landlord
shall not furnish any particular item(s) of work or service (which would
constitute an Operating Expense) to portions of the Existing Buildings, due to
the fact such portions are not occupied or leased, or because such item of work
or service is not required or desired by the tenant of such portion, or such
tenant is itself obtaining and providing such item of work or service, then, for
the purpose of computing the additional rent payable hereunder, the amount of
Operating Expenses for such item for such period shall be increased by an amount
equal to the actual incremental cost which would reasonably have been incurred
during such period by Landlord if it had at its own expense furnished such item
of work or services to such portion of the Existing Buildings.
(i) Tenant acknowledges that Landlord may transfer legal
ownership of portions of the Property to an Affiliated Entity for purposes of
obtaining tax abatements for the Property, for tax planning purposes or
otherwise, and neither the definition of Operating Expenses nor of Tenant's
Expense Share nor of Common Area Expenses, nor of Common Area Expense Share
shall be affected by reason of any such transfers to Affiliated Entities; all of
which shall be deemed for purposes hereof to continue to be owned by Landlord.
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(j) If Landlord (or any Affiliated Entity) shall acquire an
Additional Parcel, then, at Landlord's election, exercisable by written notice
to Tenant (a) the Common Area Operating Expenses allocable to such Additional
Parcel (or the portion thereof to be used as Common Areas) shall be included in
Common Area Operating Expenses in accordance with paragraph (d) above to the
extent applicable, (b) the gross square footage of any improvements then or
thereafter constructed on such Additional Parcel, the tenants or occupants of
which are permitted generally to use the Common Areas, shall, as of the
applicable Expense Share Determination Date, be added to the denominator of the
Expense Share Fraction for purposes of calculating the Common Area Expense Share
in accordance with paragraph (c) above, and (c) such Additional Parcel shall
thereafter be deemed a part of the Land for all purposes of this Lease.
(k) In the event Tenant objects to any adjustment which may be
required under this Section 3.02(a) with respect to Operating Expenses, Common
Area Operating Expenses, Tenant's Expense Share or Common Area Expense Share,
such objection must be made in writing by Tenant within thirty (30) days after
receipt of Landlord's determination of such adjustment, specifying in detail the
nature of such objection, and failing such notice Landlord's determination shall
be conclusive. If Tenant does so object, either party may submit such dispute
to arbitration in accordance with the provisions of Article 43, but pending the
resolution of such dispute, Landlord's determination of Operating Expenses,
Common Area Operating Expenses, Tenant's Expense Share and Common Area Expense
Share shall control and Tenant shall pay Tenant's Expense Payment (as defined in
Section 3.02(b) below) in accordance with such determination as a condition
precedent to its right to invoke such arbitration process without prejudice to
Tenant's position. In the event of the resolution of such dispute so that there
shall have been an overpayment of any of Tenant's Expense Payment, Landlord
shall permit Tenant to credit the amount of such overpayment against the next
subsequent rental payments under this Lease. After the termination of this
Lease and the payment to Landlord of the balance, if any, of all Basic Annual
Rent and additional rent due hereunder, Landlord shall pay Tenant the amount of
any credit not previously applied by Tenant. In the event any such dispute
shall involve more than one tenant of the Property, all of such disputes shall,
at Landlord's election, be resolved in one arbitration proceeding designated by
Landlord.
B. Tenant shall pay to Landlord as additional rent for each
Operating Year an amount equal to Tenant's Expense Share of the excess of the
Operating Expenses for such Operating Year over the Operating Expenses for the
Base Operating Year and Tenant's Expense Share of the excess of the Common Area
Operating Expenses for such Operating Year over the Common Area Operating
Expenses for the Base Operating Year (collectively, "Tenant's Expense Payment").
C. Landlord shall furnish to Tenant for each Operating Year an
Escalation Statement (subject to revision as hereinafter provided) setting forth
Landlord's estimate of Tenant's Expense Payment for such Operating Year. Tenant
shall pay to Landlord on the first day of each month during such Operating Year
an amount equal to one-twelfth (1/12) of Landlord's estimate of Tenant's Expense
Payment for such Operating Year. If Landlord shall furnish such estimate for an
Operating Year after the commencement thereof, then (i) until the first day of
the month following the month in which such estimate is furnished to Tenant,
Tenant
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shall pay to Landlord on the first day of each month an amount equal to the
monthly sum payable by Tenant to Landlord under this paragraph (c) for the last
month of the preceding Operating Year; (ii) on the first day of the month
following the month in which such estimate is furnished to Tenant and monthly
thereafter for the balance of such Operating Year, Tenant shall pay to Landlord
an amount equal to one-twelfth (1/12) of Tenant's Expense Payment as shown on
such estimate; and (iii) Landlord shall notify Tenant in the Escalation
Statement containing such estimate whether the installments of Tenant's Expense
Payment previously paid for such Operating Year were more or less than the
installments which should have been paid for such Operating Year pursuant to
such estimate. If there shall be an underpayment, Tenant shall pay the amount
thereof within ten (10) days after being furnished with such Escalation
Statement or (ii) if there shall be an overpayment, Tenant shall be entitled to
a credit in the amount thereof against the next subsequent rental payments under
this Lease. After the termination of this Lease and the payment to Landlord of
the balance, if any, of all Basic Annual Rent and additional rent due hereunder,
Landlord shall pay Tenant the amount of any credit not previously applied by
Tenant. Landlord may at any time and from time to time (but not more often than
three times in any Operating Year) furnish to Tenant an Escalation Statement
setting forth Landlord's revised estimate of Tenant's Expense Payment for a
particular Operating Year and Tenant's Expense Payment for such Operating Year
shall be adjusted and paid or credited, as applicable, in the same manner as
provided in the preceding sentence.
D. After the end of each Operating Year Landlord shall submit to
Tenant an annual Escalation Statement prepared by Landlord or its agent setting
forth the Operating Expenses and Common Area Operating Expenses for the
preceding Operating Year and the balance of Tenant's Expense Payment, if any,
due to Landlord from Tenant for such Operating Year. If such annual Escalation
Statement shall show that the sums paid by Tenant under Section 3.02(c) exceeded
Tenant's Expense Payment for such Operating Year, Tenant shall be entitled to a
credit in the amount of such excess against the next subsequent rental payments
under this Lease. After the termination of the Lease and the payment to
Landlord of the balance, if any, of all Basic Annual Rent and additional rent
due hereunder, Landlord shall pay Tenant the amount of any credit not previously
applied by Tenant. If an annual Escalation Statement shall show that the sums
so paid by Tenant were less than Tenant's Expense Payment for such Operating
Year, Tenant shall pay the amount of such deficiency to Landlord within ten (10)
days after being furnished with such annual Escalation Statement.
E. The annual Escalation Statements with respect to Operating
Expenses and Common Area Operating Expenses to be furnished by Landlord or its
agent as provided above may be unaudited but shall be in reasonable detail.
Landlord and its agent may rely on Landlord's operating cost allocations and
estimates if such allocations or estimates are required for this Section 3.02.
F. Upon Tenant's written request, Landlord shall permit Tenant
or its representatives to inspect the books and records relating to the
operation of the Property for the Operating Year to which an Escalation
Statement relates at the office of Landlord's managing agent at such time or
times during normal business hours as Landlord shall reasonably designate.
Tenant shall have the right to obtain copies or make such abstracts thereof as
it may reasonably require in order to verify any Escalation Statement. If, based
upon Tenant's inspection, it is
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determined (either by agreement of the parties or by a final unappealable
arbitration award) that Landlord's annual Escalation Statement for Operating
Expenses for a particular Operating Year was overstated by more than 5%, then
Landlord will reimburse Tenant for the reasonable costs it incurred to outside,
independent auditors to conduct such inspection within ten (10) days after
demand based upon reasonable substantiation by Tenant of such costs.
3.03. Tenant shall pay to the appropriate Governmental Authority on
or before the due date thereof all taxes, assessments and other charges which
are or may be assessed, levied or imposed by any Governmental Authority upon, or
become a lien or due and payable in respect of, any leasehold interest of
Tenant, any investment of Tenant in the Demised Premises, any right of Tenant to
occupy the Demised Premises or any personal property of any kind owned,
installed or used by Tenant at or in connection with the operation of the
Demised Premises or in connection with Tenant's business conducted at the
Demised Premises and, at Landlord's request, furnish Landlord with reasonable
evidence, within ten (10) days after demand, that the same have been paid.
3.04. If the Commencement Date shall be other than the first day of a
Tax Year or an Operating Year or if the Expiration Date shall be a day other
than the last day of a Tax Year or an Operating Year, then Tenant's Tax Payment
and/or Tenant's Expense Payment for such partial year shall be equitably
adjusted taking into consideration the portion of such Tax Year or Operating
Year falling within the Term. Landlord shall, as soon as reasonably practicable,
cause an Escalation Statement with respect to Existing Building Taxes and Common
Area Taxes for the Tax Year and/or Operating Expenses and Common Area Operating
Expenses for the Operating Year in which the Term expires to be prepared and
furnished to Tenant. Such Escalation Statement shall be prepared as of the
Expiration Date of the Term if such date is December 31, and if not, as of the
first to occur of June 30 or December 31 after the Expiration Date of the Term.
Landlord and Tenant shall thereupon make appropriate adjustments of amounts then
owing.
3.05. In no event shall the Basic Annual Rent ever be reduced by
operation of this Article 3. The rights and obligations of Landlord and Tenant
under the provisions of this Article 3 shall survive the termination of this
Lease, and payments shall be made pursuant to this Article 3 notwithstanding the
fact that an Escalation Statement is furnished to Tenant after the expiration or
other termination of the Term.
3.06. Landlord's failure to render an Escalation Statement with
respect to any Tax Year or Operating Year shall not prejudice Landlord's right
to thereafter render an Escalation Statement with respect thereto or with
respect to any subsequent Tax Year or Operating Year.
3.07. Each Escalation Statement shall be conclusive and binding upon
Tenant unless within thirty (30) days after receipt of such Escalation Statement
Tenant shall notify Landlord that it disputes the correctness of such Escalation
Statement, specifying the particular respects in which such Escalation Statement
is claimed to be incorrect. Any such dispute may be submitted to arbitration in
accordance with Article 43 by either party, but pending the resolution of such
dispute, and as a condition precedent to Tenant's right to invoke such
arbitration process, Tenant shall make its payments in accordance with such
Escalation Statement without prejudice
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to Tenant's position. In the event of the resolution of such dispute so that
there shall have been an overpayment of any of Tenant's Tax Payment and/or
Tenant's Expense Payment, Landlord shall permit Tenant to credit the amount of
such overpayment against the next subsequent rental payments under this Lease.
After the termination of this Lease and the payment to Landlord of the balance,
if any, of all Basic Annual Rent and additional rent due hereunder, Landlord
shall pay to Tenant the amount of any credit not previously applied by Tenant.
Tenant agrees, at Landlord's request, to be a party to any arbitration between
Landlord and any other tenant of the Property concerning the interpretation of
any provision similar to a provision in this Article 3 in such other tenant's
lease. Tenant shall not be responsible for the cost of any such arbitration,
except that Tenant shall bear the cost of its own counsel, experts and
presentation of proof, if any.
3.08. Tenant will cooperate with Landlord in all reasonable respects
in obtaining and retaining any tax abatement or exemption for which the Property
may be eligible. Tenant will execute and file within ten (10) days after demand
any and all documents and instruments reasonably necessary to obtain and retain
such abatement or exemption.
ARTICLE 4
ELECTRICITY
4.01. Landlord agrees that prior to the Commencement Date risers,
feeders and wiring will be installed in the Building by Landlord to furnish
electrical service to the Demised Premises in accordance with work required
pursuant to No. 1 of Schedule C. After the Commencement Date any additional
risers, feeders or other equipment or service proper or necessary to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord at the sole cost and expense of Tenant, if in Landlord's
sole judgment the same are available and necessary for Tenant's use and will not
cause permanent damage or injury to the Property or the Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants.
4.02. Tenant covenants and agrees to pay directly to the utility
company supplying electricity to the Demised Premises the amounts due for
electric current consumed by Tenant as indicated by meters measuring Tenant's
consumption thereof.
4.03. Tenant's use of electric current in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. The electrical
conductor's and equipment for the Fourth Floor Space have a capacity of six (6)
watts per square foot, exclusive of heating, ventilation and air conditioning
equipment. Tenant shall not make or perform or permit the making or performing
of, any alterations to wiring, installations or other electrical facilities in
or serving the Demised Premises without the prior consent of Landlord in each
instance, and then only in accordance with the provisions of Article 6.
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4.04. Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Demised Premises by reason of any requirement, act or omission of the public
utility providing the Building with electricity or for any other reason
whatsoever (other than Landlord's gross negligence or willful misconduct).
Without limiting the foregoing, in no event shall Landlord be liable to Tenant
for any consequential damages arising from any such failure or defect.
4.05. At Landlord's option, Tenant shall purchase from Landlord,
Landlord's agent or Landlord's cleaning contractor all lighting tubes, lamps,
bulbs and ballasts used in the Demised Premises and Tenant shall pay Landlord's
reasonable charges (not to exceed the standard rate generally charged to other
tenants at the Building) for providing and installing same on demand as
additional rent.
ARTICLE 5
USE
5.01. The Demised Premises shall be used solely as and for executive
and general offices, including as a data center, and for no other purpose.
5.02. Tenant shall not use or permit the use of the Demised Premises
or any part thereof in any way which would violate any of the covenants,
agreements, terms, provisions and conditions of this Lease or for any unlawful
purposes or in any unlawful manner or in violation of the certificate of
occupancy for the Demised Premises or the Building, and Tenant shall not permit
the Demised Premises or any part thereof to be used in any manner or anything to
be done, brought into or kept therein which, in Landlord's good faith judgment
shall impair or interfere with (i) the character, reputation or appearance of
the Building as a first class office building, (ii) any of the Property services
or the proper and economic heating, cleaning, air conditioning or other
servicing of the Property or the Demised Premises, or (iii) the use of any of
the other areas of the Property by, or occasion discomfort, inconvenience or
annoyance to, any of the other tenants or occupants of the Property. Tenant
shall not install any electrical or other equipment of any kind which, in the
judgment of Landlord, might cause any such impairment, interference, discomfort,
inconvenience or annoyance or which might overload the risers or feeders
servicing the Demised Premises or other portions of the Building.
ARTICLE 6
ALTERATIONS AND INSTALLATIONS
6.01. Tenant shall make no alterations, installations, additions or
improvements in or to the Demised Premises without Landlord's prior written
consent and then only by contractors or mechanics who are approved by Landlord
beforehand or who are on the list of approved contractors for the Complex
prepared by Landlord and furnished to Tenant upon request. Landlord hereby
approves Nova Interiors, Nead Electric and Aztec Corporation to
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perform Tenant's Work with respect to the initially Demised Premises. All such
work, alterations, installations, additions and improvements shall be done at
Tenant's sole expense and at such times and in such manner as Landlord may from
time to time reasonably designate.
Any work in the Demised Premises shall be done solely in accordance
with plans and specifications (prepared by a licensed engineer) first approved
in writing by Landlord. Landlord shall have five (5) days to approve such plans;
provided, that in the event such plans are submitted to third party consultants
for their review, then Landlord shall have ten (10) days to approve such plans,
provided, that in either case, Landlord may extend the time period, as
applicable, by five (5) days by giving notice of same to Tenant by the end of
the original time period, as applicable, provided above. Tenant shall reimburse
Landlord promptly upon demand for any reasonable costs and expenses incurred by
Landlord in connection with Landlord's review of such Tenant's plans and
specifications. Landlord will not unreasonably withhold or delay its consent to
requests for non structural alterations, additions and improvements (provided
they will not interfere with the operation of the Complex nor affect the outside
of the Complex nor adversely affect its structure, electrical, HVAC, plumbing or
mechanical systems).
Any such approved alterations and improvements shall be performed in
accordance with the foregoing and the following provisions of this Article 6:
1. All work shall be done in a good and workmanlike manner.
2. (a) Any contractor employed by Tenant to perform any work
permitted by this Lease, and all of its subcontractors, shall agree to
employ only such labor as will not result in jurisdictional disputes
or strikes or cause disharmony with other workers employed at the
Property. Tenant will inform Landlord in writing of the names of any
contractor or subcontractors Tenant proposes to use in the Demised
Premises at least ten (10) days prior to the beginning of work by such
contractor or subcontractors.
(b) Tenant covenants and agrees to pay to the contractor,
as the work progresses, the entire cost of supplying the materials and
performing the work shown on Tenant's approved plans and
specifications less only customary retentions.
3. All work shall be performed in compliance with all Legal
Requirements.
4. All work shall be performed in accordance with the general
tenant guidelines for the Property regarding such work, which
guidelines Tenant acknowledges are available for its reference and use
in the Property manager's office.
5. Tenant shall keep the Property and the Demised Premises free
and clear of all liens for any work or material claimed to have been
furnished to Tenant or to the Demised Premises on Tenant's behalf, and
all work to be
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performed by Tenant shall be done in a manner which will not
unreasonably interfere with or disturb other tenants or occupants of
the Property.
6. During the progress of the work to be done by Tenant, said
work shall be subject to inspection by representatives of Landlord who
shall be permitted access and the opportunity to inspect, at all
reasonable times, but this provision shall not in any way whatsoever
create any obligation on Landlord to conduct such an inspection.
7. With respect to alteration or improvement work costing more
than $50,000, Tenant agrees to pay to Landlord, as additional rent,
promptly upon being billed therefor, a sum equal to five thousand and
00/100 Dollars ($5,000) together with all reasonable out of pocket
expenses, including but not limited to electrical and structural
engineering costs but excluding attorneys fees and disbursements, for
Landlord's indirect costs, field inspection and coordination in
connection with such work (including, without limitation, to review
Tenant's plans and specifications or to inspect or monitor such
alteration or improvement work).
8. Prior to commencement of any work, Tenant shall furnish to
Landlord certificates of insurance evidencing the existence of:
(a) worker's compensation insurance covering all persons
employed for such work with statutory required limits;
(b) employer's liability coverage including bodily injury
caused by disease with limits of not less than $100,000 per employee;
and
(c) commercial general liability insurance including, but
not limited to, completed operations coverage, products liability
coverage, contractual coverage, broad form property damage,
independent contractor's coverage and personal injury coverage naming
Landlord as well as such representatives and consultants of Landlord
as Landlord shall reasonably specify (collectively "Landlord's
Consultants"), including, without limitation, as of the date hereof,
Institutional Realty Management LLC and Jones Lang Wootton Realty
Advisors, as well as Tenant, as additional insureds, with coverage of
not less than $3,000,000 combined single limit coverage (or such
higher limits as Landlord may from time to time impose in its
reasonable judgment).
Such insurance shall be placed with solvent and responsible companies
reasonably satisfactory to the Landlord and licensed or authorized to
do business in the State of New Jersey, and the policies shall provide
that they may not be canceled without thirty (30) days' prior notice
in writing to Landlord.
9. Tenant shall require all contractors engaged or employed by
Tenant to indemnify and hold Tenant, Landlord, and Landlord's
Consultants,
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including, but not limited to, as of the date hereof Institutional
Realty Management LLC and Jones Lang Wootton Realty Advisors, harmless
in accordance with the following clauses (with such modifications
therein as may be required from time to time by reason of a change in
the parties constituting Landlord's Consultants):
"The contractor hereby agrees to the fullest extent permitted by law
to assume the entire responsibility and liability for and defense of
and to pay and indemnify Landlord, Tenant and Landlord's Consultants,
against any loss, cost, expense, liability or damage and will hold
each of them harmless from and pay any loss, cost, expense, liability
or damage (including, without limitation, judgments, attorneys' fees,
court costs, and the cost of appellate proceedings), which Landlord
and/or Tenant and/or Landlord's Consultants, incurs because of injury
to or death of any person or on account of damage to property,
including loss of use thereof, or any other claim arising out of, in
connection with, or as a consequence of the performance of the work by
the contractor and/or any acts or omissions of the contractor or any
of its officers, directors, employees, agents sub-contractors or
anyone directly or indirectly employed by the contractor or anyone for
whose acts the contractor may be liable as it relates to the scope of
this contract, except to the extent with respect to any of the persons
or entities indemnified hereunder, such injuries to person or damage
to property are alleged to be due and are held by a final unappealable
order of a court of competent jurisdiction to be due to the negligence
of the such person or entity seeking to be so indemnified."
The contractor's insurance shall specifically insure the foregoing
hold harmless provision verbatim or such other hold harmless provision
as is acceptable to Landlord.
10. Tenant, to the extent permitted by law, shall make
application for all building permits in its own name. Tenant shall
obtain any temporary certificate of occupancy or addendum to the
permanent certificate of occupancy required as a result of Tenant's
alterations and improvements. Landlord shall join in any and all
applications for permits, licenses or other authorizations if required
by any Governmental Authority, and may, in any event, so join in. If
Landlord is required to join in any such application Tenant shall
reimburse Landlord as additional rent for all documented out-of-pocket
expenses (including without limitation reasonable legal fees and
expenses) incurred by Landlord in connection with such application.
11. Within ninety (90) days after completion of any work Tenant
shall, at its sole cost and expense, furnish Landlord with one mylar
set of "as built" plans, drawings and specifications, which plans,
drawings and specifications and all rights therein, to the extent same
does not constitute intellectual property of Tenant and Tenant
notifies Landlord thereof, shall become the property of Landlord. The
transfer of all such rights as to the plans shall be confirmed in
writing by Tenant's architect. If any of the foregoing plans
constitute
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intellectual property of Tenant and Tenant notifies Landlord thereof,
Landlord agrees to keep same confidential, subject to delivery to
Landlord's agents, employees, attorneys and transactional advisors,
provided such parties agree to keep any plans delivered to them
confidential.
12. With respect to alteration or improvement work (excluding
the purchase and maintenance of equipment used exclusively for the
operation of a data processing center) costing more than $100,000,
prior to commencing same Tenant shall provide Landlord with a letter
of credit in the amount of 125% of the reasonable estimated cost of
such work and otherwise in form and substance reasonably satisfactory
to Landlord, as security for the full and faithful performance and
completion of all such work. Such letter of credit shall be returned
after such work has been 100% completed and Landlord shall have been
furnished with payment receipts, lien waivers and such other documents
as Landlord may reasonably request to assure that such work has been
completed lien free.
6.02. Notice is hereby given that Landlord shall not be liable for
any labor or materials furnished or to be furnished to Tenant upon credit, and
that no mechanic's or other lien for any such labor or materials shall attach to
or affect the reversion or other estate or interest of Landlord in and to the
Demised Premises. Any mechanic's lien filed against the Demised Premises or the
Property for work claimed to have been done for or materials claimed to have
been furnished to Tenant shall be discharged by Tenant at its expense within
thirty (30) days after Tenant receives notice of such filing, by payment, filing
of the bond required by law or otherwise.
6.03. All alterations, installations, additions and improvements made
and installed by Landlord, including without limitation all work referred to in
Article 2 hereof and in Schedule C, shall be the property of Landlord and shall
remain upon and be surrendered with the Demised Premises as a part thereof at
the end of the Term.
6.04. All alterations, installations, additions and improvements made
and installed by Tenant, or at Tenant's expense, upon or in the Demised Premises
which are of a permanent nature and which cannot be removed without damage to
the Demised Premises or the Property shall become and be the property of
Landlord, and shall remain upon and be surrendered with the Demised Premises as
a part thereof at the end of the Term, except that Landlord shall have the right
at any time up to six months prior to the expiration of the Term to serve notice
upon Tenant that any of such alterations, installations, additions and
improvements shall be removed and, in the event of service of such notice,
Tenant will, at Tenant's own cost and expense, remove the same in accordance
with such request, and restore the Demised Premises to its original condition,
ordinary wear and tear and casualty excepted. Notwith-standing the foregoing,
Tenant shall have the right to remove any and all equipment used exclusively for
the operation of a data processing center, provided Tenant repairs any and all
damage to the Demised Premises or the Property in connection with such removal,
if any, such that Tenant restores the Demised Premises and the Property to the
same condition in which it existed immediately prior to the aforementioned
removal.
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6.05. Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equipment, counters, screens, grille work, special paneled doors,
cages, partitions, metal railings, closets, paneling, free standing lighting
fixtures and equipment, drinking fountains, refrigeration equipment, and any
other movable property (exclusive of supplementary air conditioning equipment
and raised flooring which shall become the property of Landlord) shall remain
the property of Tenant which may at its option remove all or any part thereof at
any time prior to the expiration of the Term. In case Tenant shall decide not to
remove any part of such property, Tenant shall notify Landlord in writing not
less than three (3) months prior to the expiration of the Term, specifying the
items of property which it has decided not to remove. If, within thirty (30)
days after the service of such notice, Landlord shall request Tenant to remove
any of the said property, Tenant shall at its expense remove the same. As to
such property which Landlord does not request Tenant to remove, the same shall
be, if left by Tenant, deemed abandoned by Tenant and thereupon the same shall
become the property of Landlord.
6.06. If any alterations, installations, additions, improvements or
other property which Tenant shall have the right to remove or be requested by
Landlord to remove as provided in Sections 6.04 and 6.05 hereof (herein in this
Section 6.06 called the "Tenant's Property") are not removed on or prior to the
expiration of the Term, Landlord shall have the right to remove the Tenant's
Property and to dispose of the same without accountability to Tenant and at the
sole cost and expense of Tenant. In case of any damage to the Demised Premises
or the Property resulting from the removal of the Tenant's Property, Tenant
shall repair such damage or, in default thereof, shall reimburse Landlord for
Landlord's cost in repairing such damage. This obligation shall survive any
termination of this Lease.
6.07. Tenant shall keep records of Tenant's alterations,
installations, additions and improvements costing in excess of $50,000, and of
the cost thereof. Tenant shall, within forty-five (45) days after demand by
Landlord, furnish to Landlord copies of such records if Landlord shall require
same in connection with any proceeding to reduce the assessed valuation of the
Property, or in connection with any proceeding instituted pursuant to Article 14
hereof.
ARTICLE 7
REPAIRS
7.01. Tenant shall, at its sole cost and expense, be responsible for
the maintenance and repair of the Demised Premises (including all bathrooms and
other sanitary facilities located therein), and keep same in good order and
condition, including all necessary painting and decorating, and make such
repairs to the Demised Premises and the fixtures and appurtenances therein as
and when needed to preserve them in good working order and condition (except
that as to structural repairs Landlord shall be obligated to make same unless
they are necessitated by any act, omission, occupancy or negligence of Tenant or
by the use of the Demised Premises in a manner contrary to the purposes for
which same are leased to Tenant, in which case Tenant shall be so obligated).
Tenant shall keep all glass, including windows, doors and skylights, clean and
in good condition and repair and Tenant shall replace any glass that may
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be damaged with glass of the same kind and quality. All damage or injury to the
Property caused by Tenant moving property in or out of the Building or by
installation or removal of furniture, fixtures or other property, shall be
repaired, restored or replaced promptly by Tenant at its sole cost and expense,
which repairs, restorations and replacements shall be in quality and class equal
to the original work or installations. Tenant shall promptly make all repairs in
or to the Demised Premises or the Property for which Tenant is responsible,
provided that any repairs required to be made to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other Building systems shall
be performed only by Landlord. If Tenant fails to make such repairs, restoration
or replacements, same may be made by Landlord at the expense of Tenant and such
expense shall be collectible as additional rent and shall be paid by Tenant
within ten (10) days after rendition of a bill therefor.
7.02. If the Demised Premises includes loading docks, and or related
facilities, Tenant shall keep the loading docks and areas adjacent thereto and
the driveways and streets within the Property leading to said loading docks free
of all dirt, rubbish and other obstructions arising from Tenant's use or
occupancy of any such facilities or the use of such facilities by Tenant's
officers, agents, employees, suppliers or invitees including independent
contractors making deliveries or pick-ups from such loading docks.
7.03. Tenant shall not place a load upon any floor of the Demised
Premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed by law. The floor of the Demised Premises
will carry 150 pounds live load per square foot of floor space.
7.04. Business machines and mechanical equipment used by Tenant which
cause vibration, noise, cold or heat that may be transmitted to the Building
structure or to any leased space to such a degree as to be objectionable to
Landlord or to any other tenant at the Property shall be placed and maintained
by Tenant at its expense in settings of cork, rubber or spring type vibration
eliminators sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators, air conditioning and heating equipment will cause some
vibration, noise, heat or cold which may be transmitted to other parts of the
Building and Demised Premises. Landlord shall be under no obligation to endeavor
to reduce such vibration, noise, heat or cold beyond what is customary in
current good building practice for buildings of the same type as the Building.
7.05. Except as otherwise specifically provided in this Lease, there
shall be no allowance to Tenant for a diminution of rental value and no
liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from the making of any repairs, alterations,
additions or improvements in or to any portion of the Building or the Demised-
Premises or in or to fixtures, appurtenances or equipment thereof. Landlord
shall exercise reasonable diligence so as to minimize any interference with
Tenant's business operations, but shall not be required to perform the same on
an overtime or premium pay basis.
7.06. If Tenant shall install a supplemental air-conditioning system
subject to and in accordance with the requirements of this Lease, Tenant shall
maintain same in good order and condition, shall enter into a contract for the
maintenance thereof with a heating, ventilating
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and air-conditioning contractor reasonably acceptable to Landlord and shall
deliver to Landlord a copy of such contracts and all amendments thereto promptly
after execution thereof.
ARTICLE 8
REQUIREMENTS OF LAW
8.01. Tenant shall, at Tenant's expense, comply with all Legal
Requirements which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the Demised Premises, or the use or occupation thereof,
whether or not such compliance involves structural repairs or changes, provided
that Tenant shall not be liable for any such compliance relating to
environmental matters, whereby such compliance is required as a direct result of
any act or omission relating to the Demised Premises, which took place prior to
the Commencement Date.
8.02. Notwithstanding the provisions of Section 8.01 hereof, Tenant,
at its own cost and expense, in its name and/or (whenever necessary) Landlord's
name, may contest, in any manner permitted by law (including appeals to a court,
or governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any Legal Requirements with which Tenant is
required to comply pursuant to this Lease, and may defer compliance therewith
provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the Property to lien or sale;
(b) such non-compliance shall not be in violation of any
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord a surety bond
issued by a surety company of recognized responsibility, or other security
satisfactory to Landlord, indemnifying and protecting Landlord against any loss
or injury by reason of such non-compliance; and
(d) Tenant shall promptly, diligently and continuously
prosecute such contest. Landlord, without expense or liability to it, shall
cooperate with Tenant and execute any documents or pleadings required for such
purpose, provided that Landlord shall reasonably be satisfied that the facts set
forth in any such documents or pleadings are accurate.
8.03. All work performed pursuant to this Article by Tenant shall be
performed in accordance with the provisions of Article 6 hereof relating to
Alterations.
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ARTICLE 9
INSURANCE, LOSS, REIMBURSEMENT, LIABILITY
9.01. Tenant shall not do or permit to be done any act or thing upon
the Demised Premises which will invalidate or be in conflict with New Jersey
standard fire insurance policies covering the Property, and fixtures and
property therein, or which would increase the rate of fire insurance applicable
to the Property to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the Demised Premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on within the Demised Premises.
9.02. If, as a result of any act or omission by Tenant or violation
of this Lease, the rate of fire insurance applicable to the Property shall be
increased to an amount higher than it otherwise would be, Tenant shall reimburse
Landlord for all increases of Landlord's fire insurance premiums so caused; such
reimbursement to be additional rent payable within five (5) days after demand
therefor by Landlord. In any action or proceeding wherein Landlord and Tenant
are parties, a schedule or "make-up" of rates for the Property or Demised
Premises issued by the body making fire insurance rates for the Demised Premises
shall be presumptive evidence of the facts stated therein including the items
and charges taken into consideration in fixing the fire insurance rate then
applicable to the Demised Premises.
9.03. Landlord or its agents shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow or leaks from any part of the
Building, or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless any of the foregoing shall be caused by or
due to the gross negligence of Landlord, its agents, servants and/or employees.
9.04. Landlord or its agents shall not be liable for any damage which
Tenant may sustain if any window of the Demised Premises is broken, or
temporarily or permanently closed, darkened or bricked upon for any reason
whatsoever, except only Landlord's arbitrary acts if the result is permanent or
not remedied within a reasonable time, and Tenant shall not be entitled to any
compensation therefor or abatement of rent or to any release from any of
Tenant's obligations under this Lease, nor shall the same constitute an eviction
or constructive eviction.
9.05. Tenant shall reimburse Landlord for all expenses, damages or
fines incurred or suffered by Landlord by reason of any breach, violation or
non-performance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant, or by
reason of or arising out of the carelessness, negligence or improper conduct of
Tenant, or its agents, servants or employees, in the use or occupancy of the
Demised Premises. Subject to compliance with the provisions of Section 8.02
hereof, where applicable, Tenant shall have the right, at Tenant's own cost and
expense, to participate in the defense of any action or proceeding
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brought against Landlord, and in negotiations for settlement thereof if,
pursuant to this Section 9.05, Tenant would be obligated to reimburse Landlord
for reasonable expenses, damages or fines incurred or suffered by Landlord.
9.06. Tenant shall give Landlord written notice in case of fire or
accidents in the Demised Premises promptly after Tenant is aware of such event.
9.07. Tenant agrees to look solely to Landlord's interest in the
Property for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord, its partners, officers or shareholders, in the event of any
liability by Landlord, and no other property or assets of Landlord, its
partners, officers or shareholders shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord, its
partners, officers or shareholders and Tenant hereunder, or Tenant's use and
occupancy of the Demised Premises, or any other liability of Landlord, its
partners, officers or shareholders to Tenant.
9.08. (a) Notwithstanding anything to the contrary contained in this
Lease, Tenant agrees that it will, at its sole cost and expense, include in its
property insurance policies appropriate clauses pursuant to which the insurance
companies (i) waive all right of subrogation against Landlord and any tenant of
space in the Property with respect to losses payable under such policies and
(ii) agree that such policies shall not be invalidated should the insured waive
in writing prior to a loss any or all right of recovery against any party for
losses covered by such policies. Tenant shall furnish Landlord upon demand
evidence satisfactory to Landlord evidencing the inclusion of said clauses in
Tenant's insurance policies.
(b) Provided that Landlord's right of full recovery under its
fire insurance policies is not adversely affected or prejudiced thereby,
Landlord hereby waives any and all right of recovery which it might otherwise
have against Tenant, its servants, agents and employees, for loss or damage
occurring to the Property and the fixtures, appurtenances and equipment therein,
to the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its fire insurance policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees, and against every
other tenant at the Property who shall have executed a similar waiver as set
forth in this Section 9.08(b) for loss or damage to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent that same is covered by Tenant's insurance,
notwithstanding that such loss or damage may result from the negligence or fault
of Landlord, its servants, agents or employees, or such other tenant and the
servants, agents or employees thereof.
9.09. Tenant covenants and agrees to provide, at its expense, on or
before the Commencement Date and to keep in force during the Term, naming
Landlord, its agents (which as of the date hereof are Institutional Realty
Management LLC and Jones Lang Wootton Realty Advisors), and Tenant as insured
parties, (a) a commercial general liability insurance policy written on an
occurrence form (hereinafter referred to as a "Liability Policy"), including,
without
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limitation, blanket contractual liability coverage, premises-operation,
products/completed operations hazard, broad form property damage, independent
contractor's coverage and personal injury coverage protecting Landlord, its
agents, Institutional Realty Management LLC and Jones Lang Wootton Realty
Advisors, and Tenant against any liability whatsoever, occasioned by any
occurrence on or about the Demised Premises or any appurtenances thereto, (b) a
fire and other casualty policy (a "Fire Policy") insuring the full replacement
value of Tenant's Extra Work and all of the furniture, trade fixtures and other
personal property of Tenant located in the Demised Premises against loss or
damage by fire, theft, sprinkler leakage, boiler and machinery and such other
risks or hazards as are insurable under present and future forms of "All Risk"
insurance policies, (c) plate glass insurance, (d) business interruption
insurance and (e) workers compensation and employees liability insurance. Such
policies are to be written by good and solvent insurance companies licensed or
authorized to do business in the State of New Jersey satisfactory to Landlord
with a minimum A.M. Best's rating of A-VI, and shall be in such limits as
Landlord may reasonably require. Landlord reserves the right to increase limits
and adjust coverages as industry standards change. As of the date of this Lease
Landlord reasonably requires limits of liability under (i) the Liability Policy
of not less than $5,000,000 combined single limit per occurrence for bodily or
personal injury (including death) and property damage and (ii) the Fire Policy
equal to the full replacement cost of Tenant's Extra Work, Tenant's Finish Work,
if any, and furniture, trade fixtures and other personal property of Tenant
located at the Property with a deductible of no more than $1,000. Tenant will
furnish Landlord with such information as Landlord may reasonably request from
time to time as to the value of the items specified in clause (ii) above within
ten (10) days after request therefor. Such insurance may be carried (x) under a
blanket policy covering the Demised Premises and other locations of Tenant, if
any, provided that each such policy shall in all respects comply with this
Article and shall specify that the portion of the total coverage of such policy
that is allocated to the Demised Premises is in the amounts required pursuant to
this Section 9.09 and (y) under a primary liability policy of not less than
$1,000,000 and the balance under an umbrella policy. Prior to the time such
insurance is first required to be carried by Tenant and thereafter, at least
fifteen (15) days prior to the effective date of any such policy Tenant shall
deliver to Landlord a certificate evidencing such insurance. Said certificate
shall contain an endorsement that such insurance may not be canceled except upon
thirty (30) days' prior notice to Landlord. All insurance policies carried by
Tenant shall be written as primary policies, not contributing with or secondary
to coverage which Landlord carries. Tenant's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder entitling Landlord to exercise any or all of the remedies provided in
this Lease in the event of Tenant's default. Notwithstanding anything to the
contrary contained in this Lease, the carrying of insurance by Tenant in
compliance with this Section 9.09 shall not modify, reduce, limit or impair
Tenant's obligations and liability under Article 38 hereof.
ARTICLE 10
DAMAGE BY FIRE OR OTHER CAUSE
10.01. If Plaza II or Plaza III or the Demised Premises shall be
partially or totally damaged or destroyed by fire or other cause (and if this
Lease shall not have been terminated as
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in this Article 10 hereinafter provided), Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, except for
Tenant's Work and Tenant's personal property, at its expense with reasonable
dispatch after notice to it of the damage or destruction and the collection of
the insurance proceeds attributable to such damage.
10.02. If Plaza II or Plaza III or the Demised Premises shall be
damaged or destroyed by fire or other cause, then unless such fire or damage
shall have resulted from the negligence of Tenant or its employees, agents or
contractors, the rents payable hereunder shall be abated to the extent that the
Demised Premises shall have been rendered untenantable for the period from the
date of such damage or destruction to the date the damage shall be repaired or
restored, such abatement to be granted on a pro rata basis if only a portion of
the Demised Premises is rendered untenantable; provided, however, that should
Tenant reoccupy a portion of the Demised Premises as to which the abatement is
in effect during the period the restoration work is taking place and prior to
the date that the whole of said Demised Premises are made tenantable, Basic
Annual Rent and additional rent allocable to such portion shall be payable by
Tenant from the date of such occupancy.
10.03. If Plaza II or Plaza III shall be so damaged or destroyed by
fire or other cause (whether or not the Demised Premises are damaged or
destroyed) as to require a reasonably estimated expenditure made by Landlord or
a reputable contractor designated by Landlord of more than twenty percent (20%)
of the full insurable value of the Building immediately prior to the casualty
(or ten percent (10%) if such casualty occurs during the last two years of the
Term) then Landlord may terminate this Lease by giving Tenant notice to such
effect within one hundred eighty (180) days after the date of the casualty and
upon such notice this Lease and the estate hereby granted, whether or not the
Term shall have theretofore commenced, shall terminate as if that date was the
Expiration Date. In case of any damage or destruction mentioned in this Article
10 which Landlord is required to repair and restore, Tenant may terminate this
Lease by notice to Landlord if Landlord has not completed the making of the
required repairs and restorations within eighteen (18) months after the date of
such damage or destruction, or within such period after such date (not exceeding
six (6) months) as shall equal the aggregate period Landlord may have been
delayed in doing so by Force Majeure Causes (as defined in Article 34).
10.04. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of Plaza II or
Plaza 1972 III or of the Complex arising from damage or destruction caused by
fire or other casualty and Landlord shall not be required to do any such repair
or restoration except on Business Days from 9:00 A.M. to 5:00 P.M. Landlord
agrees to use reasonable efforts to perform any such work at such times (between
9:00 A.M. and 5:00 P.M.) and in such a manner as to minimize disturbance to
Tenant's business.
10.05. Notwithstanding any of the foregoing provisions of this
Article 10, if Landlord or the lessor of any superior lease or the holder of any
superior mortgage shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) applicable to damage or destruction of the
Demised Premises or the Property by fire or other cause by reason of some action
or inaction on the part of Tenant or any of its officers, partners, directors,
employees, agents or contractors, then, without prejudice to any other remedies
which may be
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available against Tenant, there shall be no abatement of Tenant's rent, but the
total amount of such rent not abated (which would otherwise have been abated)
shall not exceed the amount of uncollected insurance proceeds.
10.06. Landlord will not carry separate insurance of any kind on
Tenant's property (including, without limitation, any property of Tenant's which
shall become the property of Landlord as provided in Article 6), and, except as
provided by law or otherwise expressly provided herein, shall not be obligated
to repair any damage thereto or replace or clean the same, or any decorations,
installations, equipment or fixtures installed by or for Tenant at Tenant's
expense.
10.07. The provisions of this Article 10 shall be considered an
express agreement governing any cause of damage or destruction of the Demised
Premises by fire or other casualty and any law providing for such a contingency
now or hereinafter erected shall have no application in such case.
ARTICLE 11
ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
11.01. Except as otherwise expressly provided in this Article 11,
Tenant shall not, whether voluntarily, involuntarily or by operation of law,
without in each instance obtaining the prior consent of Landlord, (a) assign or
otherwise transfer this Lease or the term and estate hereby granted, (b) sublet
all or part of the Demised Premises or allow the same to be used or occupied by
anyone other than Tenant, or (c) mortgage, pledge or encumber this Lease or all
or part of the Demised Premises in any manner by reason of any act or omission
on the part of Tenant. For purposes of this Article 11, (i) the transfer,
directly or indirectly, of a majority of any class of the issued and outstanding
capital stock of any corporate tenant or subtenant, or the transfer of a
majority of the total interest in any other entity (partnership or otherwise)
which is a tenant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions (including,
without limitation, and by way of example only, the transfer of a majority of
the outstanding capital stock of a company which company owns 100% of a second
tier company, which in turn owns more than 50% of the outstanding capital stock
of a corporate tenant hereunder), shall be deemed an assignment of this Lease,
or of such sublease, as the case may be, (ii) a so-called "takeover" agreement
(i.e. an agreement where another entity agrees to become responsible for all or
a portion of Tenant's obligations under this Lease without actually entering
into an assignment or sublease) shall be deemed a transfer of this Lease, (iii)
any person or legal representative of Tenant, to whom Tenant's interest under
this Lease passes by operation of law, or otherwise, shall be bound by the
provisions of this Article 11, and (iv) a modification, amendment or extension
without Landlord's prior written consent of a sublease previously consented to
by Landlord shall be deemed a new sublease. Tenant agrees to furnish to Landlord
upon demand at any time and from time to time such information and assurances as
Landlord may reasonably request that neither Tenant, nor any subtenant, is in
violation of the provisions of this Section 11.01.
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11.02. (a) The provisions of clauses (a) and (b) of Section 11.01
hereof shall not apply to transactions entered into by Tenant with (i) an
"affiliate" (as hereinafter defined) or (ii) a corporation into or with which
Tenant is merged or consolidated or with an entity to which substantially all of
Tenant's assets are transferred, provided (a) such merger, consolidation or
transfer of assets is for a good business purpose and not principally for the
purpose of transferring the leasehold estate created hereby, and (b) the
assignee or successor entity (upon consummation of such transaction) has a net
worth at least equal to or in excess of the net worth of Tenant either (i)
immediately prior to such merger, consolidation or transfer or (ii) as of the
date hereof, whichever is greater.
(b) For purposes of this Article 11, an affiliate means (i)
a corporation controlled by, controlling or under common control with Tenant (an
"affiliated corporation") or (ii) a partnership or joint venture in which Tenant
or an affiliated corporation owns more than 50% of the general partnership or
joint venture interest therein. Without limiting the generality of the
foregoing, a corporation shall not be deemed controlled by another entity unless
more than 50% of each class of its outstanding capital stock is owned, both
beneficially and of record, by such entity.
(c) The provisions regarding the transfer of the capital
stock of a corporate tenant set forth in Section 11.01 shall not apply to any
corporation where all of its outstanding capital stock is listed on a national
securities exchange (as defined in the Securities Exchange Act of 1934, as
amended) or is traded in the "over the counter" market with quotations reported
by the National Association of Securities Dealers.
11.03. Any assignment or transfer, whether made with Landlord's
consent as required by Section 11.01 or without Landlord's consent pursuant to
Section 11.02, shall not be effective unless and until (a) the assignee shall
execute, acknowledge and deliver to Landlord a recordable agreement, in form and
substance reasonably satisfactory to Landlord, whereby the assignee shall (i)
assume the obligations and performance of this Lease and agree to be personally
bound by all of the covenants, agreements, terms, provisions and conditions
hereof on the part of Tenant to be performed or observed on and after the
effective date of any such assignment and (ii) agree that the provisions of this
Article 11 shall, notwithstanding such assignment or transfer, continue to be
binding upon it in the future, and (b) in the case of an assignment or transfer
pursuant to Section 11.02, Tenant or its successor shall have delivered to
Landlord financial statements certified by a reputable firm of certified public
accountants evidencing satisfaction of the net worth requirements referred to in
Section 11.02. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of Basic Annual Rent by Landlord from an assignee
or transferee or any other party, Tenant shall remain fully and primarily and
jointly and severally liable for the payment of the Basic Annual Rent and all
additional rent due and to become due under this Lease and for the performance
and observance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
11.04. The liability of Tenant, and the due performance by Tenant of
the obligations on its part to be performed under this Lease, shall not be
discharged, released or
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impaired in any respect by an agreement or stipulation made by Landlord or any
grantee or assignee of Landlord in connection with a mortgage or any other
agreement with a third party extending the time of or modifying any of the
obligations contained in this Lease, or by any waiver or failure of Landlord to
enforce any of the obligations on Tenant's part to be performed under this
Lease, and Tenant shall continue liable hereunder. If any such agreement or
modification operates to increase the obligations of Tenant under this Lease,
the liability under this Section 11.04 of the tenant named in the Lease or any
of its successors in interest (unless such party shall have expressly consented
in writing to such agreement or modification) shall continue to be no greater
than if such agreement or modification had not been made.
11.05. (a) If Tenant desires to assign or sublet all or part of the
Demised Premises, other than as provided in Section 11.02, it shall notify
Landlord in writing of its intention to do so specifying in such notice whether
it wishes to assign or sublet and if to sublet whether it is for all or part of
the Demised Premises and if for only a part thereof specifying on a plan such
portion thereof ("Notice of Intent"). Landlord shall have the right, but not the
obligation, (i) with respect to a proposed assignment of this Lease or
subletting of the entire Demised Premises, to terminate this Lease as of the
"Termination Date" (as hereinafter defined) as to all of the Demised Premises,
(ii) with respect to a proposed subletting of only a portion of the Demised
Premises for substantially the balance of the Term, to terminate this Lease with
respect to such portion of the Demised Premises as of the Termination Date and
(iii) with respect to a proposed subletting of only a portion of the Demised
Premises for less than substantially the balance of the Term, accept a sublease
from Tenant of such portion as of the Termination Date. Within thirty (30) days
after Landlord receives Tenant's Notice of Intent, Landlord shall notify Tenant
whether it elects to terminate this Lease as to all or the applicable portion of
the Demised Premises or sublease a portion of the Demised Premises, as the case
may be ("Response Notice"). If Landlord elects to so terminate this Lease or
sublease a portion of the Demised Premises, the Response Notice shall set forth
the date (the "Termination Date") as of which this Lease shall so terminate or
such sublease shall be effective, which date shall not be earlier than six
months nor later than one year after the date Landlord delivers the Response
Notice. For purposes hereof a sublease shall be deemed to be for substantially
the balance of the Term if the term thereof, together with any renewal terms to
which the subtenant is entitled in the event it exercises all options granted to
it by Tenant, shall be for substantially the balance of the Term of this Lease.
(b) (i) If in the Response Notice Landlord elects to
terminate this Lease with respect to the entire Demised Premises, Tenant shall
promptly execute and deliver to Landlord an instrument in form satisfactory to
Landlord modifying this Lease so that the Term shall expire as of the
Termination Date.
(ii) If in the Response Notice Landlord elects to terminate this
Lease with respect to only a portion of the Demised Premises, (x)
Tenant shall promptly execute and deliver to Landlord an appropriate
modification of this Lease (including the adjustment of Basic Annual
Rent and the additional rent payable pursuant to Article 3 in
proportion to that portion of the Demised Premises affected by such
termination) in form satisfactory to Landlord providing for such
termination as of the Termination Date and (y) Landlord shall, at
Tenant's sole cost and expense,
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perform all work, including the erection of demising walls, necessary
to physically separate the portion of the Demised Premises so released
from the Lease from the remainder of the Demised Premises. In
addition, if the portion of the Demised Premises so released from the
Lease does not have direct access to a public corridor in the Building
Landlord shall construct, at Tenant's sole cost and expense, such a
means of access. All amounts payable to Landlord hereunder shall be
paid simultaneously with the execution of any instrument confirming
the termination of the Lease as to all or part of the Demised Premises
contemplated hereby.
(iii) If in the Response Notice Landlord elects to sublease a portion
of the Demised Premises, Tenant shall promptly execute and deliver to
Landlord a sublease with Landlord or Landlord's designee in form
reasonably satisfactory to Landlord's and Tenant's counsel and on all
the terms contained in this Lease, except that:
(A) the rental terms shall be those specified in this
Lease on a per rentable square foot basis;
(B) the sublease shall not provide for any work to be
done for the subtenant or for any initial rent concessions or
contain provisions inapplicable to a sublease, except that Tenant
shall pay to subtenant the cost of performing all work, including
the erection of demising walls, necessary to physically separate
the subleased premises from the remainder of the Demised Premises
and to provide direct access thereto from a public corridor in
the Building (if the subleased premises does not have such
access);
(C) the subtenant thereunder shall have the right to
underlet the subleased premises, in whole or in part, or assign
the sublease, without Tenant's consent;
(D) the subtenant thereunder shall have the right to
make, or cause to be made, any changes, alterations, decorations,
additions and improvements that such subtenant may desire or
authorize;
(E) the sublease shall expressly negate any intention
that any estate created by or under such sublease be merged with
any other estate held by either of the parties thereto;
(F) any consent required of Tenant, as lessor under
that sublease, shall be deemed granted if consent with respect
thereto is granted by Landlord;
(G) there shall be no limitation as to the use of the
sublet premises by the subtenant thereunder;
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(H) any failure of the subtenant thereunder to comply
with the provisions of the sublease, other than with respect to
the payment of rent to Tenant, shall not constitute a default
thereunder if Landlord has consented to such non-compliance by
subtenant or a default by Tenant hereunder; and
(I) such sublease shall provide that Tenant's
obligations with respect to vacating the Demised Premises and
removing any changes, alterations, decorations, additions or
improvements made in the subleased premises shall be limited to
those which accrued and related to such of the foregoing as were
made prior to the effective date of the sublease.
(c) Tenant shall reimburse Landlord on demand for any costs
incurred by Landlord to review a Notice of Intent, including without limitation
any reasonable attorneys' fees, which payment shall be payable even if Tenant
subsequently withdraws same.
(d) If Landlord shall not elect to terminate this Lease or
sublease a portion of the Demised Premises as set forth in paragraph (a) above,
Landlord shall not unreasonably withhold or delay its consent to an assignment
of this Lease or subletting of all or a portion of the Demised Premises as set
forth in the Notice of Intent provided the provisions of Section 11.06 are
complied with and provided further that such assignment or subletting is
accomplished within 180 days following the giving of the Response Notice failing
which Tenant must again comply with the provisions of this Section 11.05.
11.06. Landlord shall not unreasonably withhold or delay its consent
to an assignment of this Lease or a subletting of the whole or a part of the
Demised Premises provided:
(a) Tenant shall have complied with the provisions of Section
11.05 and Landlord shall not have made any of the termination elections provided
for therein.
(b) Tenant shall furnish Landlord with the name and business
address of the proposed subtenant or assignee, information with respect to the
nature and character of the proposed subtenant's or assignee's business, or
activities, such references and current financial information with respect to
net worth, credit and financial responsibility as are reasonably satisfactory to
Landlord;
(c) The proposed subtenant or assignee is a reputable party
whose financial net worth, credit and financial responsibility is, considering
the responsibilities involved and the standards of Landlord in those respects
for the Building, reasonably satisfactory to Landlord;
(d) Tenant shall deliver an executed assignment or sublease to
Landlord at the time Landlord's consent is requested;
(e) The nature and character of the proposed subtenant or
assignee, its business or activities and intended use of the Demised Premises
are, in Landlord's reasonable
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judgment, in keeping with the standards of the Building and the floor or floors
on which the Demised Premises are located;
(f) The proposed subtenant or assignee is not then an occupant
of any part of the Complex or a party who dealt with Landlord or Landlord's
agent (directly or through a broker) with respect to space in the Complex,
during the 12 months immediately preceding Tenant's request for Landlord's
consent;
(g) All costs incurred with respect to providing reasonably
appropriate means of ingress and egress from the sublet space or to separate the
sublet space from the remainder of the Demised Premises shall, subject to the
provisions of Article 6 with respect to alterations, installations, additions or
improvements, be borne by Tenant;
(h) Each assignment or sublease shall specifically state that
(i) it is subject to all of the terms, covenants, agreements, provisions, and
conditions of this Lease, (ii) the subtenant or assignee, as the case may be,
will not have the right to further assign or sublet all or part of the Demised
Premises or to allow same to be used by others, without the consent of Landlord
in each instance in accordance with this Article 11, (iii) a consent by Landlord
thereto shall not be deemed or construed to modify, amend or affect the terms
and provisions of this Lease, or Tenant's obligations hereunder, which shall
continue to apply to the premises involved, and the occupants thereof, as if the
sublease or assignment had not been made, (iv) if Tenant defaults in the payment
of any rent, Landlord is authorized to collect any rents due or accruing from
any assignee, subtenant or other occupant of the Demised Premises and to apply
the net amounts collected to the Basic Annual Rent and additional rent due
hereunder, (v) the receipt by Landlord of any amounts from an assignee or
subtenant, or other occupant of any part of the Demised Premises shall not be
deemed or construed as releasing Tenant from Tenant's obligations hereunder or
the acceptance of that party as a direct tenant;
(i) Tenant shall reimburse Landlord on demand for any costs
incurred by Landlord to review the proposed assignment or sublease in connection
with the requested consent, including without limitation the cost of making
investigations as to the acceptability of the proposed assignee or subleases and
any reasonable attorneys' fees incurred by Landlord;
(j) The proposed subtenant or assignee is not (i) a bank or
trust company, safe deposit business, savings and loan association or loan
company; (ii) employment or recruitment agency; (iii) school, college,
university or educational institution whether or not for profit; or (iv) a
government or any subdivision or agency thereof;
(k) In the case of a subletting of a portion of the Demised
Premises, the portion so sublet shall be regular in shape and suitable for
normal renting purposes;
(l) INTENTIONALLY DELETED;
(m) The subletting or assignment shall not be advertised at a
lower rental rate than that being charged by Landlord at the time for similar
space then available in the Building; and
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(n) Landlord and Tenant shall have agreed on the computation
required by Section 11.07 hereof.
11.07. If Landlord shall give its consent to any assignment of this
Lease or to any sublease, Tenant shall in consideration therefor, pay to
Landlord, as additional rent:
(i) in the case of an assignment, an amount equal to fifty percent
(50%) of all sums and other consideration paid to Tenant by the
assignee for or by reason of such assignment (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of the sale thereof, the net
unamortized cost thereof determined on the basis of Tenant's federal
income tax returns), and less any expenses reasonably incurred by
Tenant in connection with such assignment, including without
limitation, costs of altering and preparing the Demised Premises for
new tenants, brokerage commissions and reasonable attorneys' fees and
disbursements; and
(ii) in the case of a sublease, fifty percent (50%) of any rents,
additional charges and other consideration payable under the sublease
to Tenant by the subtenant which is in excess of the Basic Annual Rent
and additional rent accruing during the term of the sublease in
respect of the subleased space (at the rate per square foot payable by
Tenant hereunder) pursuant to the terms hereof (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of the sale thereof, the net
unamortized cost thereof determined on the basis of Tenant's federal
income tax returns), and less any expenses reasonably incurred by
Tenant in connection with such subletting, including without
limitation, costs of altering and preparing the Demised Premises for
subtenants, brokerage commissions and reasonable attorneys' fees and
disbursements, provided that for purposes of computing amount payable
to Landlord hereunder such alteration costs, brokerage commissions and
attorneys' fees and disbursements shall be amortized on a straight
line basis over the term of the sublease.
The sums payable under this Section 11.07 shall be paid to Landlord as
and when paid by the assignee or subtenant to Tenant.
11.08. If Landlord exercises any of its options under Section 11.05,
Landlord shall be free to, and shall have no liability to Tenant, if Landlord
shall lease the Demised Premises or any portion thereof with respect to which
one of such options exercised, to Tenant's proposed assignee or subtenant, as
the case may be if any such proposed assignee or subtenant shall exist.
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ARTICLE 12
CERTIFICATE OF OCCUPANCY
12.01. Tenant shall promptly and diligently proceed to obtain a
building permit for Tenant's Work and a temporary certificate of occupancy
(which Tenant shall cause to remain in effect until a permanent certificate of
occupancy is obtained) to use the Demised Premises for general, executive and
administrative office purposes, including as a data center and Tenant shall
provide Landlord with a copy of each such permit and certificate promptly after
receipt thereof. Landlord shall reasonably cooperate with Tenant to the extent
reasonably necessary to enable Tenant to obtain such building permit and
certificate of occupancy, at Tenant's cost and expense.
ARTICLE 13
ADJACENT EXCAVATION - SHORING
13.01. If an excavation or other substructure work shall be made upon
the Land or the land adjacent to the Land, or shall be authorized to be made,
Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Demised Premises for the purpose of doing
such work as shall be necessary to preserve the wall of the Building from injury
or damage and to support the same by proper foundations without any claim for
damages or indemnity against Landlord, or diminution or abatement of rent.
ARTICLE 14
CONDEMNATION
14.01. (a) If all or substantially all of the Demised Premises shall
be lawfully condemned or taken by any Governmental Authority (as defined in
Article 22 (hereinafter "Condemned")), this Lease and the estate granted hereby
shall terminate as of the date of vesting of title in such Governmental
Authority.
(b) If less than all or substantially all of the rentable
area of the Demised Premises shall be Condemned, then this Lease shall continue
in effect as to the remaining portion of the Demised Premises but shall
terminate as to the portion so Condemned as of the date of vesting of title in
the Governmental Authority; provided, however, that if 25% or more of the
rentable area of the Demised Premises shall be Condemned, either Landlord or
Tenant may, at their option, terminate this Lease and the estate granted hereby
by giving written notice to the other within thirty (30) days after Landlord
shall have received notice of the vesting of title in the Governmental Authority
(a copy of which notice Landlord shall deliver to Tenant promptly after receipt
thereof) in which event this Lease and the estate granted hereby shall terminate
as of the last day of the month next succeeding the month in which such notice
is given.
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(c) If twenty five percent (25%) or more of Plaza II or Plaza
III or of the Complex (whether or not the Demised Premises is affected) shall be
Condemned or if so much of the parking area located on the Land shall be
Condemned so that the number of parking spaces remaining shall in Landlord's
judgment be insufficient for the continued operation of the Building or the
Complex, Landlord may, at Landlord's option, terminate this Lease and the estate
granted hereby by written notice given to Tenant within thirty (30) days after
Landlord shall have received notice of the vesting of title in the Governmental
Authority (a copy of which notice Landlord shall deliver to Tenant promptly
after receipt thereof) in which event this Lease and the estate granted hereby
will terminate on the last day of the month next succeeding the month in which
such notice is given.
(d) If neither Landlord nor Tenant elects to terminate this
Lease pursuant to paragraph (b) or (c) above, this Lease shall be and remain
unaffected by such condemnation, except that the Basic Annual Rent and the
additional rent payable under Article 3 shall be abated effective as of the date
of the vesting of title in the Governmental Authority in proportion to the
reduction in the rentable area of the Demised Premises resulting from such
condemnation.
14.02. In the event of termination of this Lease in any of the cases
herein before provided, this Lease and the term and estate hereby granted shall
expire as of the date of such termination with the same effect as if that were
the Expiration Date, and the Basic Annual Rent and additional rent payable
hereunder shall be apportioned as of such date.
14.03. In the event of any condemnation of all or a part of the
Property, Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including any award made for the value of the estate
vested by this Lease in Tenant. Tenant hereby expressly assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in or to
any such award or any part thereof, including, without limitation, any award for
the unexpired portion of the Term and agrees that it shall not be entitled to
receive any part of such award. Tenant shall, however, be entitled to make a
separate claim in such proceeding for loss of good will and moving expenses
provided such award is in addition to and not in reduction of Landlord's award
from the Governmental Authority.
14.04. In the event of any partial taking which does not result in a
termination of this Lease, Landlord, at its expense, shall proceed with
reasonable diligence to repair, alter and restore the remaining parts of the
Building and the Demised Premises to substantially their former condition to the
extent that the same may be feasible and so as to constitute a complete and
tenantable Building and Demised Premises except for Tenant's leasehold
improvements, furniture, furnishings, equipment and decorations, which shall be
repaired, altered and restored by Tenant at its expense. Landlord's obligation
under this Section 14.04 shall be limited in dollar amount to the net award
(after deducting all expenses incurred in obtaining same) available from the
Governmental Authority for the improvements taken or conveyed (exclusive of the
award for the Land or any portion thereof).
14.05. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation
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for the use and occupancy of the Demised Premises (or portion thereof taken) and
for moving expenses, and Landlord shall be entitled to receive that portion
which represents reimbursement for the cost of restoration of the Demised
Premises. This Lease shall be and remain unaffected by such taking and Tenant
shall continue to be responsible for all of its obligations hereunder insofar as
such obligations are not affected by such taking and shall continue to pay Basic
Annual Rent and additional rent in full when due. If the period of temporary use
or occupancy shall extend beyond the Expiration Date, that part of the award or
payment which represents compensation for the use and occupancy of the Demised
Premises (or portion thereof taken) shall be divided between Landlord and Tenant
so that Tenant shall receive so much thereof as represents compensation for the
period up to and including the Expiration Date and Landlord shall receive so
much thereof as represents compensation for the period after the Expiration
Date.
ARTICLE 15
ACCESS TO DEMISED PREMISES; CHANGES
15.01. Tenant shall permit Landlord to erect, use and maintain pipes,
ducts and conduits in and through the Demised Premises, provided the same are
installed adjacent to or concealed behind walls and ceilings of the Demised
Premises. Landlord shall, to the extent practicable, install such pipes, ducts
and conduits by such methods and at such locations as will not materially
interfere with or impair Tenant's layout or use of the Demised Premises.
Landlord or its agents or designees shall have the right, but only upon notice
to Tenant or any authorized employee of Tenant at the Demised Premises, to enter
the Demised Premises, during and after business hours, at Landlord's option, (a)
for the making of such repairs or alterations or improvements as Landlord may
deem, in its sole judgment, necessary or appropriate for the Building or which
Landlord shall be required to or shall have the right to make by the provisions
of this Lease or any other lease in the Complex and (b) for the purpose of
inspecting them or exhibiting them to existing or prospective purchasers,
mortgagees or lessees of all or part of the Land, Building or Property or to
prospective assignees, agents or designees of any such parties. Landlord shall
be allowed to take all material into and upon the Demised Premises that may be
required for the repairs or alterations or improvements above mentioned and may
take over discrete portions of the Demised Premises not in excess of five
percent (5%) at any one time to the extent necessary to perform such work or to
ensure the safety of Tenant's personnel without the same constituting an actual
or constructive eviction of Tenant in whole or in part, and the rent reserved
hereunder shall not abate while said repairs or alterations or improvements are
being made by reason of loss or interruption of the business of Tenant because
of the prosecution of any such work. Landlord shall exercise reasonable
diligence so as to minimize the disturbance to Tenant but nothing contained
herein shall be deemed to require Landlord to perform the same on an overtime or
premium pay basis.
15.02. Landlord reserves the right, without the same constituting an
actual or constructive eviction and without incurring liability to Tenant
therefor, to change the arrangement and/or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairways, toilets and other
public parts of the Building and common areas of the Complex (including without
limitation the Piers and parking areas); provided, however, that
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access to the Building shall not be cut off and that there shall be no
unreasonable obstruction of access to the Demised Premises.
15.03. Landlord may, at reasonable times and upon reasonable advance
notice to Tenant, (a) during the twelve (12) months prior to expiration of the
Term exhibit the Demised Premises to prospective tenants and (b) at any time
during the Term, exhibit the Demised Premises to actual and prospective holders
of Superior Instruments or purchasers of all or any portion of the Complex.
15.04. If Tenant shall not be personally present to open and permit
an entry into the Demised Premises at any time when for any reason an entry
therein shall be urgently necessary by reason of fire or emergency, Landlord or
Landlord's agents may forcibly enter the same without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property) and without in any manner affecting
the obligations and covenants of this Lease.
ARTICLE 16
CONDITIONS OF LIMITATION
16.01. This Lease and the term and estate hereby granted are subject
to the limitation that whenever Tenant or any guarantor of Tenant's obligations
hereunder shall become insolvent or generally fail to pay, or admit in writing
its inability to pay, debts as they become due; or Tenant or any such guarantor
shall apply for, consent to, or acquiesce in, the appointment of a trustee,
receiver, sequestrator or other custodian for Tenant or such guarantor or any
property of any thereof, or make a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence, a
trustee, receiver, sequestrator or other custodian shall be appointed for Tenant
or any such guarantor or for a substantial part of the property of any thereof
and not be discharged within 30 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency law,
or any dissolution, winding up or liquidation proceeding, shall be commenced in
respect of Tenant or any such guarantor, and, if not commenced by Tenant or such
guarantor, be consented to or acquiesced in by Tenant or such guarantor, shall
result in the entry of an order for relief or shall remain for thirty (30) days
undismissed; or Tenant or any such guarantor shall take any corporate action to
authorize, or in furtherance of, any of the foregoing, then Landlord may at any
time after receipt of notice of the occurrence of any such event, give Tenant a
notice of intention to end the Term at the expiration of five (5) days from the
date of service of such notice of intention, and upon the expiration of said 5
day period this Lease and the term and estate hereby granted, whether or not the
Term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 18.
16.02. This Lease and the term and estate hereby granted are subject
to further limitation as follows:
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(a) whenever Tenant shall fail to pay any installment of Basic
Annual Rent or any additional rent or any other charge payable by Tenant to
Landlord, on the day the same is due and payable pursuant to the terms hereof,
and such default shall continue for five (5) days after Landlord shall have
given Tenant a notice specifying such default, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations hereunder
(except as provided in clauses (a), (c), (d), (e) and (f) of this Section 16.02)
and if such situation shall continue and shall not be remedied by Tenant within
fifteen (15) days after Landlord shall have given to Tenant a notice specifying
the same, or, in the case of a happening or default which cannot with due
diligence be cured within a period of fifteen ( 15) days and the continuation of
the period required for cure will not subject Landlord to the risk of criminal
liability (as more particularly described in Article 8 hereof) or termination of
any superior lease or foreclosure of any superior mortgage, if Tenant shall not
(i) within said fifteen (15) day period advise Landlord of Tenant's intention to
duly institute all steps necessary to remedy such situation and (ii) duly
institute within said fifteen (15) day period, and thereafter diligently and
continuously prosecute to completion, all steps necessary to remedy the same, or
(c) whenever any event shall occur or any contingency shall
arise whereby this Lease or the estate hereby granted or the unexpired balance
of the Term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 11, or
(d) whenever Tenant shall vacate or abandon the Demised Premises
for a continuous period of at least thirty (30) days (unless as a result of a
casualty), or
(e) whenever Tenant shall default in complying with the
provisions of Section 6.02 with respect to the discharge of mechanic's liens
within the time period therein provided, or
(f) whenever Tenant shall default in the due keeping, observing
or performance of any covenant, agreement, provision or condition of Article 5
hereof on the part of Tenant to be kept, observed or performed and if such
default shall continue and shall not be remedied by Tenant within three (3)
business days after Landlord shall have given to Tenant a notice specifying the
same, then in any of said cases set forth in the foregoing clauses (a), (b),
(c), (d), (e) and (f), Landlord may give to Tenant a notice of intention to end
the Term at the expiration of five (5) days from the date of the service of such
notice of intention, and upon the expiration of said five (5) days this Lease
and the term and estate hereby granted, whether or not the Term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as provided
in Article 18.
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ARTICLE 17
RE-ENTRY BY LANDLORD, INJUNCTION
17.01. If Tenant shall fail to pay any installment of Basic Annual
Rent, or of any additional rent payable by Tenant to Landlord on the date the
same is due and payable, and if such default shall continue for five (5) days
after Landlord shall have given to Tenant a notice specifying such default, or
if this Lease shall terminate as in Article 16 provided, Landlord or Landlord's
agents and employees may immediately or at any time thereafter re-enter the
Demised Premises, or any part thereof, either by summary dispossess proceedings
or by any suitable action or proceeding at law, or otherwise, without being
liable to indictment, prosecution or damages therefrom. The word re-enter, as
herein used, is not restricted to its technical legal meaning.
17.02. In the event of a breach or threatened breach by Tenant of any
of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled at any time and Landlord
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
17.03. If this Lease shall terminate under the provisions of Article
16, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article 17, or in the event of the termination of this Lease, or of re-
entry by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, then (a)
Tenant shall thereupon pay to Landlord the Basic Annual Rent and additional rent
payable by Tenant to Landlord up to the time of such termination of this Lease,
or of such recovery of possession of the Demised Premises by Landlord, as the
case may be, and shall also pay to Landlord damages as provided in Article 18,
and (b) Landlord shall be entitled to retain all moneys, if any, paid by Tenant
to Landlord, whether as advance rent, security or otherwise, but such moneys
shall be credited by Landlord against any Basic Annual Rent or additional rent
due from Tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Articles 16 and 18 or
pursuant to law.
17.04. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of the Demised Premises, by reason of the violation by
Tenant of any of the covenants and conditions of this Lease or otherwise
ARTICLE 18
DAMAGES
18.01. If this Lease is terminated under the provisions of Article
16, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 17, or in the event of the termination of this Lease, or of re-entry by
or under any summary dispossess or other
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proceeding or action or any provision of law by reason of default hereunder on
the part of Tenant, Tenant shall pay to Landlord as damages, at the election of
Landlord, either
(a) a sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be, represents the
then value of the excess, if any, of
(1) the aggregate of the Basic Annual Rent and the
additional rent payable hereunder which would have been payable by
Tenant (conclusively presuming the additional rent to be the same as
was payable for the year immediately preceding such termination except
that additional rent on account of Taxes and Property Expenses shall
be presumed to increase at the average of the rates of increase
thereof previously experienced by Landlord during the period (not to
exceed 3 years) prior to such termination) for the period commencing
with such earlier termination of this Lease or the date of any such
re-entry, as the case may be, and ending with the Expiration Date, had
this Lease not so terminated or had Landlord not so re-entered the
Demised Premises, over
(2) the aggregate rental value of the Demised Premises for
the same period, or
(b) sums equal to the Basic Annual Rent and the additional rent
payable hereunder which would have been payable by Tenant had this Lease not so
terminated, or had Landlord not so re-entered the Demised Premises, payable upon
the due dates therefor specified herein following such termination or such re-
entry and until the Expiration Date; provided, however, that if Landlord shall
re-let the Demised Premises during said period, Landlord shall credit Tenant
with the net rents received by Landlord from such re-letting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord from such reletting, the expenses incurred or paid by Landlord in
terminating this Lease or in re-entering the Demised Premises and in securing
possession thereof, as well as the expenses of re-letting, including altering
and preparing the Demised Premises for new tenants, brokers' commissions, legal
fees, and all other expenses properly chargeable against the Demised Premises
and the rental thereof; it being understood that any such re-letting may be for
a period shorter or longer than the remaining term of this Lease. In no event
shall Tenant be entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder for the period of such re-letting, nor
shall Tenant be entitled in any suit for the collection of damages pursuant to
this subsection to a credit in respect of any net rents from a re-letting,
except to the extent that such net rents are actually received by Landlord. If
the Demised Premises or any part thereof should be re-let in combination with
other space, then proper apportionment on a square foot basis shall be made of
the rent received from such re-letting and of the expenses of re-letting.
If the Demised Premises or any part thereof be re-let by Landlord for
the unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent payable pursuant to such re-letting shall, prima facie, be the
fair and reasonable rental value for the Demised Premises, or part thereof, so
re-let during the term of the re-letting.
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18.02. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 16, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant. Nothing herein contained shall be construed to limit or
prejudice the right of Landlord to prove for and obtain as liquidated damages by
reason of the termination of this Lease or re-entry of the Demised Premises for
the default of Tenant under this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved whether or not such amount
be greater, equal to, or less than any of the sums referred to in Section 18.01.
ARTICLE 19
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
19.01. If Tenant shall default in the observance or performance of
any term or covenant on Tenant's part to be observed or performed under any of
the terms or provisions of this Lease, (a) Landlord may, but in no event shall
be required to, remedy such default for the account of Tenant, immediately and
without notice in case of emergency, or in any other case if Tenant shall fail
to remedy such default after Landlord shall have notified Tenant in writing of
such default and the applicable grace period for curing such default shall have
expired; and (b) if Landlord makes any expenditures or incurs any obligations
for the payment of money in connection with such default, including without
limitation, reasonable attorneys' fees in instituting, prosecuting or defending
any action or proceeding, such sums paid or obligations incurred, with interest
at the Interest Rate from the date paid or incurred, shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Landlord upon rendition
of a bill to Tenant therefor. The provisions of this Article 19 shall survive
the expiration or other termination of this Lease.
ARTICLE 20
QUIET ENJOYMENT
20.01. Landlord covenants and agrees that subject to the terms and
provisions of this Lease, if, and so long as, Tenant keeps and performs each and
every covenant, agreement, term, provision and condition herein contained on the
part or on behalf of Tenant to be kept or performed, then Tenant's rights under
this Lease shall not be cut off or ended before the expiration of the term of
this Lease, subject however, to the provisions of this Lease (including without
limitation, the provisions of Article 25 hereof with respect to Superior
Instruments (as defined in Article 25 hereof) which affect this Lease).
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ARTICLE 21
SERVICES AND EQUIPMENT
21.01. Landlord shall:
(a) Provide necessary passenger elevator facilities on
Business Days from 8:00 A.M. to 6:00 P.M. and shall have at least one elevator
subject to call at all other times. At Landlord's option, the elevators shall be
operated by automatic control or by manual control, or by a combination of both
of such methods. Tenant shall use passenger elevators solely for the
transportation of its employees and invitees and not for freight handling, the
delivery of packages requiring hand trucks or other similar items or the removal
of refuse.
(b) Provide freight elevator service on Business Days from
9:00 A.M. to 12:00 Noon and 12:30 P.M. to 5:00 P.M. All deliveries to Tenant
shall be made at freight docks located on the ground floor or at such other
locations as Landlord may from time to time designate.
(c) Maintain and keep in good order and repair (i) the air
conditioning, heating and ventilating unit existing on the date of this Lease in
the Fourth Floor Space and (ii) the other base building structural systems in
accordance with Section 7.01; it being understood that in no event shall
Landlord be responsible for the maintenance or repair of any other air
conditioning, heating or ventilating systems (on portions thereof) (whether
installed by Landlord or Tenant), including, without limitation, systems that
are installed to service Tenant's data processing, computer or telephone
operations. Landlord shall provide reasonable amounts of condenser water to the
Demised Premises from locations designated by Landlord 24 hours per day, 7 days
per week. Tenant shall have the right to tap into the Building's condenser
water riser via the tap currently located on the 8th floor of Plaza III;
provided, that the performance of such work shall be performed in accordance
with Article 6 and all other applicable provisions of this Lease. Tenant
acknowledges that Tenant shall be responsible for installing, at its sole cost
and expense, heating, ventilation and air conditioning equipment in the Demised
Premises (other than the existing 4th floor unit). Landlord has informed Tenant
that the windows of the Demised Premises and the Building are sealed, and that
the Demised Premises may become uninhabitable and the air therein may become
unbreathable without such equipment or during the hours or days when Landlord is
not able to furnish condenser water to the Demised Premises. Any use or
occupancy of the Demised Premises without such equipment or during such hours
shall be at the sole risk, responsibility and hazard of Tenant, and Landlord
shall have no responsibility or liability therefor. Such condition of the
Demised Premises shall not constitute nor be deemed to be a breach or a
violation of this Lease or of any provision thereof, nor shall it be deemed an
actual or constructive eviction nor shall Tenant claim or be entitled to claim
any abatement of rent nor make any claim for any damages or compensation by
reason of such condition of the Demised Premises. Nothing contained herein
shall be deemed to require Landlord to furnish at Landlord's expense such
electric energy as is required to operate the air conditioning system serving
the Demised Premises. Subject to the provisions of Article 4 hereof all such
electric energy shall be furnished to Tenant at Tenant's cost and expense.
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(d) Provide the cleaning and janitorial services described on
Schedule E annexed hereto on Business Days. In the event Landlord's cost of
providing such services to the Existing Buildings shall increase after the date
hereof, Tenant agrees to pay to Landlord as additional rent on the first day of
each and every month after such increase an amount equal to Tenant's Expense
Share of the monthly increase of Landlord's cost of providing such services to
the Existing Buildings. Landlord shall promptly notify Tenant of any such
increase. Tenant shall employ Landlord to provide any cleaning and janitorial
services in excess of those specified in Schedule E and Tenant shall deliver to
Landlord a list setting forth in reasonable detail all such excess cleaning and
janitorial services. Landlord, its cleaning contractor and their employees
shall have access to the Demised Premises at all times after 5:30 P.M. and
before 8:00 A.M. and shall have the right to use, without charge therefor, all
light, power and water in the Demised Premises reasonably required to clean the
Demised Premises as required under this Section 21.01. Tenant shall comply with
any rules Landlord and/or its cleaning contractor and/or any consultant to
Landlord may establish regarding the management and recycling of solid waste, as
may be necessary for Landlord to comply with any Legal Requirements, including
without limitation the New Jersey Department of Environmental Protection Rules
on Coastal Resources and Development (N.J.A.C. 7:7E - 1.1).
(e) Furnish water for lavatory and drinking and office cleaning
purposes. If Tenant requires, uses or consumes water for any other purposes,
Tenant agrees that Landlord may install a meter or meters or other means to
measure Tenant's water consumption, and Tenant further agrees to reimburse
Landlord for the cost of the meter or meters and the installation thereof, and
to pay for the maintenance of said meter equipment and/or to pay Landlord's cost
of other means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the cost of all water consumed in excess of that
estimated to be consumed for lavatory, drinking and office cleaning purposes, as
measured by said meter or meters or as otherwise measured, including sewer
rents.
(f) Maintain the common areas of the Complex in good order and
repair.
(g) Permit Tenant to use sufficient shaft space in Plaza III to
accommodate three 4" diameter conduits for a telecommunication shaftway;
provided, that all work required for Tenant to use such shaftway shall be
subject to Landlord's prior approval and shall be performed at Tenant's expense
in accordance with this Article 6 and the other applicable provisions of this
Lease; provided, further, that Landlord makes no representation or warranty
whatsoever concerning the suitability of such shaft space for such use by Tenant
(Tenant hereby acknowledging that in order to obtain access to such shaft space
Tenant will require access to the premises of other tenants in Plaza III and
Tenant shall be solely responsible for negotiating for such right of access).
21.02. Landlord reserves the right without any liability whatsoever,
or abatement of Basic Annual Rent or additional rent, to stop the heating, air
conditioning, elevator, plumbing, electric and other systems when necessary by
reason of accident or emergency or for repairs, alterations, replacements or
improvements, provided that except in case of emergency, Landlord will notify
Tenant in advance, if possible, of any such stoppage and, if ascertainable, its
estimated duration, and will proceed diligently with the work necessary to
resume such service as
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promptly as possible and in a manner so as to minimize interference with
Tenant's use and enjoyment of the Demised Premises, but Landlord shall not be
obligated to employ overtime or premium labor therefor.
21.03. It is expressly agreed that only Landlord or any one or more
persons, firms or corporations authorized in writing by Landlord (which
authorization shall be granted only if the employment of such person, firm or
corporation would not result in jurisdictional disputes or strikes or cause
disharmony with other workers or servicers employed at the Property or conflict
with the terms of any contract with such workers or servicers) will be permitted
to furnish laundry, drinking water, ice, food or beverages, cable television and
other similar supplies and services to tenants and licensees in the Building.
Landlord may fix, in its reasonable judgment, at any time and from time to time,
the hours during which and the regulations under which such supplies and
services are to be furnished. Landlord expressly reserves the right to act as
or to designate, at any time and from time to time, an exclusive supplier of all
or any one or more of the said supplies and services, provided that the quality
thereof and the charges therefor are reasonably comparable to that of other
suppliers. Landlord expressly reserves the right to exclude from the Building
any messenger service. It is understood, however, that Tenant or regular office
employees or guests of Tenant who are not employed by any supplier of such food
or beverages or by any person, firm or corporation engaged in the business of
purveying such food or beverages, may on an occasional or incidental basis (i)
personally bring food or beverages into the Building for consumption within the
Demised Premises by employees or guests of Tenant, or (ii) order food or
beverages for delivery from take-out or catering establishments, provided that
such deliveries do not materially cause elevator delays nor inconvenience the
other tenants of the Building. No food or beverage may be brought into the
Building for resale to or for consumption by any other tenant.
21.04. Landlord will not be required to furnish any other services,
except as otherwise provided in this Lease.
ARTICLE 22
DEFINITIONS
22.01. "Landlord" means only the owner, or the mortgagee in
possession, for the time being of the Building and land underlying the Building
(or the owner of a lease of the Building or of the Building and said land), so
that in the event of any transfer of title to said land and Building or said
lease, or in the event of a lease of the Building, or of said land and Building,
upon notification to Tenant of such transfer or lease the said transferor
Landlord shall be and hereby is entirely freed and relieved of all future
covenants, obligations and liabilities of Landlord hereunder, and it shall be
deemed and construed as a covenant running with the land without further
agreement between the parties or their successors in interest, or between the
parties and the transferee of title to said land and Building or said lease, or
the said lessee of the Building or of said land and Building, that the
transferee or the lessee, as applicable, has assumed and agreed to carry out any
and all such future covenants, obligations and liabilities of Landlord
hereunder.
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22.02. "Business Days" or "business days" shall exclude Saturdays,
Sundays and all days observed as federal, state and municipal holidays and all
other days recognized as holidays under any union contract affecting the
Property.
22.03. "Interest Rate" means a rate per annum equal to the lesser of
(a) two percent (2%) above the prime commercial lending rate of Citibank N.A.,
as published from time to time in the New York Times (the "Prime Rate") or (b)
the maximum rate of interest, if any, which Tenant may legally contract to pay.
22.04. "Legal Requirements" means laws, statutes and ordinances,
including environmental laws and regulations, building codes and zoning
regulations and ordinances and the orders, rules, regulations, directives and
requirements of all federal, state, county, city and borough departments,
bureaus, boards including boards of fire underwriters, New Jersey fire insurance
rating organizations and all similar organizations, agencies, offices,
commissions and other subdivisions thereof, or of any official thereof, or of
any other governmental, public or quasi-public authority (each, a "Governmental
Authority"), whether now or hereafter in force, which may be applicable to the
Property or the Demised Premises or any part thereof, or the sidewalks, curbs or
areas adjacent thereto and all requirements, obligations and conditions of all
instruments of record on the date of this Lease.
22.05. "Common Areas" means those portions of the Land and/or the
Property intended at the applicable point in time at which the Common Areas are
to be delineated to be for the common use by the tenants and/or owners of the
Complex, or any portion thereof, and their respective customers, employees,
lessees, licensees and invitees, which Common Areas shall include, without
limitation, any so-called "Limited Common Areas" i.e., areas adjacent to one or
more of the buildings at the Complex, the use of which Common Areas may be
restricted in whole or in part to the tenant(s) of such building or buildings.
Common Areas shall include, without limitation, those portions of The Harborside
Financial Center designated from time to time by Landlord as (i) plaza areas,
(ii) pedestrian walkways, (iii) parking premises including, without limitation,
any parking garages, and (iv) those roads, exits, entrances, driveways, ramps,
streets, curb cuts, pedestrian walkways and sidewalks which are intended for use
as pedestrian and/or vehicle access, ingress and egress from various portions of
the Complex to the parking premises, other portions of the Complex and public
streets.
ARTICLE 23
INVALIDITY OF ANY PROVISION
23.01. If any term, covenant, condition or provision of this Lease or
the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease shall not be affected
thereby and each remaining term, covenant, condition and provision of this Lease
shall be valid and shall be enforceable to the fullest extent permitted by law.
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ARTICLE 24
BROKERAGE
24.01. (a) Tenant covenants, represents and warrants that Tenant has
had no dealings or negotiations with any broker or agent other than Jones Lang
Wooton (representing Landlord's agent, Institutional Realty Management LLC) and
Cushman & Wakefield, Inc. (representing Tenant) in connection with the
consummation of this Lease, and Tenant covenants and agrees to pay, hold
harmless and indemnify Landlord from and against any and all cost, expense
(including reasonable attorneys' fees and court costs), loss and liability for
any compensation, commissions or charges claimed by any broker or agent, other
than the brokers set forth in this Section 24.01 (a), with respect to this Lease
or the negotiation thereof if such claim or claims by any such broker or agent
are based in whole or in part on dealing with Tenant or its representatives.
Landlord agrees to pay to the brokers specified in this Section 24.01(a) such
compensation, commissions or charges to which they are entitled pursuant to the
separate agreements between said brokers and Landlord.
(b) Landlord covenants and agrees to pay, hold harmless and
indemnify Tenant from and against any and all cost, expense (including
reasonable attorneys' fees and court costs), loss and liability for any
compensation, commissions or charges in connection with this Lease or the
negotiation thereof, claimed under any circumstances by the brokers specified in
Section 24.01 (a), or claimed by any other broker or agent if the claims by such
other brokers or agents are based in whole or part on dealing with Landlord or
its representatives and not with Tenant or its representatives.
ARTICLE 25
SUBORDINATION
25.01. This Lease is and shall be subject and subordinate to all
ground or underlying leases which may now or hereafter affect the Land, the
Building or the Complex and to all mortgages which may now or hereafter affect
such leases, the Land, the Building or the Complex, and to all renewals,
refinancings, modifications, replacements and extensions thereof (hereinafter
called "Superior Instruments"). The provisions of this Section 25.01 shall be
selfoperative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver at
its own cost and expense any instrument, in recordable form if required, that
Landlord, the holder of any Superior Instrument or any of their respective
successors in interest may request to evidence such subordination, within seven
(7) business days after such request.
25.02. In the event of a termination of any ground or underlying
lease, or if the interests of Landlord under this Lease are transferred by
reason of, or assigned in lieu of, foreclosure or other proceedings for
enforcement of any mortgage, or if the holder of any mortgage acquires a lease
in substitution therefor, then Tenant will, at the option to be exercised in
writing by the holder of any such Superior Instrument or any purchaser, assignee
or lessee, as
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the case may be, either (i) attorn to it and perform for its benefit all the
terms, covenants and conditions of this Lease on Tenant's part to be performed
with the same force and effect as if it were the landlord originally named in
this Lease, or (ii) enter into a new lease with it for the remaining term of
this Lease and otherwise on the same terms and conditions and with the same
options, if any, then remaining. The foregoing provisions of clause (i) of this
Section 25.02 shall inure to the benefit of such holder of a Superior
Instrument, purchaser, assignee or lessee, shall be self-operative upon the
exercise of such option, and no further instrument shall be required to give
effect to such option and to said provisions. Tenant, however, upon demand of
any such holder of a Superior Instrument, purchaser, assignee or lessee agrees
to execute, from time to time, within seven (7) business days after a request
therefor, instruments in confirmation of the foregoing provisions of this
Section 25.02, satisfactory to any such holder of a Superior Instrument,
purchaser, assignee or lessee, acknowledging such attainment and setting forth
the terms and conditions of its tenancy.
25.03. Notwithstanding anything contained herein to the contrary
under no circumstances shall any such holder of a Superior Instrument,
purchaser, assignee or lessee, as the case may be, whether or not it shall have
succeeded to the interests of the landlord under this Lease, be
(a) liable for any act, omission or default of any prior
landlord; or
(b) subject to any offsets, claims or defenses which Tenant
might have against any prior landlord; or
(c) bound by any Basic Annual Rent or additional rent which
Tenant might have paid to any prior landlord for more than one month in advance
or for more than three months in advance where such rent payments are payable at
intervals of more than one month; or
(d) bound by any modification, amendment or abridgment of the
Lease, or any cancellation or surrender of the same, made without its prior
written approval.
25.04. If, in connection with the financing of the Building or the
Complex, the holder of any mortgage shall request reasonable modifications in
this Lease as a condition of approval thereof, Tenant will not unreasonably
withhold, delay or defer making such modifications provided the same do not (i)
increase the Basic Annual Rent or additional rent payable by Tenant, (ii) reduce
the term hereof or (iii) extend the Term hereof other than as permitted in
Article 2 hereof.
25.05. Any holder of a Superior Instrument may at any time and from
time to time elect to have this Lease made prior to such Superior Instrument
and, upon notification of such election from such holder to Tenant, this Lease
shall have priority over such Superior Instrument, whether this Lease is dated,
executed, delivered and/or recorded prior or subsequent to the date such
Superior Instrument is dated, executed, delivered and/or recorded.
25.06. Tenant shall give each holder of a Superior Instrument a copy
of any notice of default served upon Landlord, provided that Tenant has been
notified of the address of
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such holder. If Landlord fails to cure any default as to which Tenant is
obligated to give notice pursuant to the preceding sentence within the time
provided for in this Lease, then each such holder shall have an additional
thirty (30) days after receipt of such notice within which to cure such default,
or if such default cannot be cured by such holder within that time (because such
holder must first obtain possession of the Demised Premises or other portions of
the Complex, or otherwise), then such additional time as may be necessary if,
within such 30 days, any such holder has commenced and is diligently pursuing
the remedies reasonably necessary to cure such default, in which event this
Lease shall not be terminated while such remedies are being so diligently
pursued.
ARTICLE 26
CERTIFICATE OF TENANT
26.01. Tenant shall, without charge, at any time and from time to
time, within ten ( 10) days after request by Landlord, execute, acknowledge and
deliver to Landlord, the holder of a Superior Instrument or any other person,
firm or corporation specified by Landlord, a written instrument in the form
attached hereto as Schedule F or such other form as may be required by the
holder of any Superior Instrument. If Tenant believes that any of the
certifications contained therein are inaccurate, said written instrument shall
set forth, in reasonable detail, the basis for Tenant's assertions that such
certifications are inaccurate.
26.02. Tenant agrees that, except for the first month's rent
hereunder, it will pay no rent under this Lease more than thirty (30) days in
advance of its due date, if so restricted by any existing or future Superior
Instrument or by an assignment of this Lease to the holder of such Superior
Instrument, and, in the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease, Tenant will not exercise such
right until Tenant shall have first given written notice of such act or omission
to the holder of any Superior Instrument who shall have furnished such holder's
last address to Tenant, and until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notices, during which
time such holder shall have the right, but shall not be obligated, to remedy or
cause to be remedied such act or omission. Tenant further agrees not to
exercise any such right if the holder of any such Superior Instrument commences
to cure such act or omission within a reasonable time after having received
notice thereof and diligently prosecutes such cure thereafter.
26.03. Tenant shall, without charge, at any time and from time to
time, deliver to Landlord within ten (10) days after request therefor (a) copies
of the most current financial statements of Tenant and of any guarantor of
Tenant's obligations under this Lease certified by an independent certified
public accountant and (b) such further detailed financial information with
respect to Tenant and any such guarantors as Landlord or the holder of any
Superior Instrument may request.
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ARTICLE 27
LEGAL PROCEEDINGS, WAIVER OF JURY
TRIAL, WAIVER OF TERMINATION RIGHTS
27.01. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way in connection with
this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy
of the Demised Premises, and/or any other claims (except claims for personal
injury or property damage), and any emergency statutory or any other statutory
remedy. It is further mutually agreed that in the event Landlord commences any
summary proceeding for non-payment of rent, Tenant will not interpose and does
hereby waive the right to interpose any counterclaim of whatever nature or
description in any such proceeding, unless Tenant receives an opinion from its
attorneys specifying the basis for the conclusion contained therein, that such
waiver will result in the waiver of its right to bring such claims in a separate
proceeding under applicable law. Tenant waives all rights now or hereafter
conferred by law (including, without limitation, the benefit of New Jersey
Revised Statutes, Title 46, Chapter 8, Sections 6 and 7), (a) to quit, terminate
or surrender this Lease or the Demised Premises or any part thereof, or (b) to
any abatement, suspension, deferment or reduction of the Basic Annual Rent or
additional rent payable under this Lease, regardless of whether such rights
shall arise from any present or future constitution, statute or rule of law.
ARTICLE 28
SURRENDER OF PREMISES
28.01. Upon the expiration or other termination of the Term, Tenant
shall quit and surrender to Landlord the Demised Premises, broom clean, in good
order and condition, ordinary wear and tear and damage by fire, the elements or
other casualty excepted, and Tenant shall remove all of its property as herein
provided. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of the Term.
28.02. If Tenant shall, without the written consent of Landlord, hold
over after the expiration of the Term, such tenancy shall be deemed a month-to-
month tenancy, which tenancy may be terminated as provided by applicable law.
During such tenancy, Tenant agrees to (a) pay to Landlord, each month, the
greater of the fair market rental value for the Demised Premises or one hundred
and fifty percent (150%) during the first thirty days of holding over, one
hundred and seventy five percent ( 175%) during the next thirty days of holding
over and two hundred percent (200%) thereafter of (x) the Basic Annual Rent and
(y) all additional rent payable by Tenant for the last month of the Term and (b)
be bound by all of the terms, covenants and conditions herein specified.
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ARTICLE 29
RULES AND REGULATIONS
29.01. Tenant and Tenant's servants, employees and agents shall
observe faithfully and comply strictly with the Rules and Regulations set forth
in Schedule G hereto entitled "Rules and Regulations" and such other and further
reasonable Rules and Regulations as Landlord or Landlord's agents may from time
to time adopt; provided, however, that in case of any conflict or inconsistency
between the provisions of this Lease and of any of the Rules and Regulations, as
originally or as hereafter adopted, the provisions of this Lease shall control.
Reasonable written notice of any additional Rules and Regulations shall be given
to Tenant.
29.02. Nothing in this Lease contained shall be construed to impose
upon Landlord any duty or obligation to enforce the Rules and Regulations or the
terms, covenants or conditions in any other lease, against any other tenant of
the Complex, and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
29.03. No Rule or Regulation shall be enforced against Tenant unless
such Rule or Regulation is being enforced against other tenants or occupants of
the Building under similar circumstances, if a similar rule or regulation is
contained in or promulgated pursuant to the leases and occupancy agreements
between Landlord and such tenants or occupants.
ARTICLE 30
CONSENTS AND APPROVALS
30.01. (a) Whenever Landlord's consent or approval is required in
this Lease, Landlord shall not unreasonably delay notifying Tenant whether its
approval shall be granted or withheld.
(b) When in this Lease Landlord's consent or approval is
required and this Lease provides that Landlord's consent or approval shall not
be unreasonably withheld and Landlord shall refuse such consent or approval, or
in any instance in which Landlord shall delay its consent or approval, Tenant in
no event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any claim, for money damages (nor shall Tenant claim any money
damages by way of set-off, counterclaim or defense) based upon any claim or
assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed
its consent or approval. Tenant's sole remedy shall be an action or proceeding
to enforce any such provision, for specific performance, injunction or
declaratory judgment.
(c) Whenever Landlord's consent or approval is required in
this Lease and this Lease does not provide that such approval or consent shall
not be unreasonably withheld, Landlord may determine in its sole discretion
whether to grant such consent or approval, regardless of whether such refusal to
consent or approve may be deemed arbitrary.
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ARTICLE 31
NOTICES
31.01. Any notice or demand, consent, approval or disapproval, or
statement (collectively called "Notices") required or permitted to be given by
the terms and provisions of this Lease, or by any law or governmental
regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in
writing and unless otherwise required by such law or regulation, shall be
personally delivered or sent by United States mail postage prepaid as registered
or certified mail, return receipt requested. Any Notice shall be addressed to
Landlord or Tenant, as applicable, at its address set forth on page 1 of this
Lease as said address may be changed from time to time as hereinafter provided.
After Tenant shall occupy the Demised Premises, the address of Tenant for
Notices shall be the Building. By giving the other party at least ten (10) days
prior written notice, either party may, by Notice given as above provided,
designate a different address or addresses for Notices.
31.02. Any Notice shall be deemed given as of the date of delivery as
indicated by affidavit in case of personal delivery or by the return receipt in
the case of mailing; and in the event of failure to deliver by reason of changed
address of which no Notice was given or refusal to accept delivery, as of the
date of such failure as indicated by affidavit or on the return receipt or by
notice of the postal service, as the case may be.
31.03. In addition to the foregoing, either Landlord or Tenant may,
from time to time, request in writing that the other party serve a copy of any
Notice on one other person or entity designated in such request, such service to
be effected as provided in Section 31.01 hereof.
ARTICLE 32
NO WAIVER
32.01. No agreement to accept a surrender of this Lease shall be
valid unless such agreement is in writing and signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys of
the Demised Premises prior to the termination of this Lease. The delivery of
keys to any employee of Landlord or of Landlord's agent shall not operate as a
termination of this Lease or a surrender of the Demised Premises. In the event
Tenant at any time desires to have Landlord sublet the premises for Tenant's
account, Landlord or Landlord's agents are authorized to receive said keys for
such purpose without releasing Tenant from any of the obligations under this
Lease. The failure of Landlord or Tenant to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease or any of the Rules and Regulations set forth herein, or hereafter adopted
by Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord, or the payment by Tenant, of rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth herein, or hereafter adopted, against Tenant and/or any
other tenant in the
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Complex shall not be deemed a waiver of any such Rules and Regulations. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver be in writing signed by such party. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on the account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment of rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
32.02. This Lease, including all schedules and exhibits hereto
contains the entire agreement between the parties, and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
ARTICLE 33
CAPTIONS
33.01. The captions are inserted only as a matter of convenience and
for reference, and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
ARTICLE 34
INABILITY TO PERFORM
34.01. If, by reason of (1) strike, (2) labor troubles, (3)
governmental preemption in connection with a national emergency, (4) any rule,
order or regulation of any governmental agency, (5) conditions of supply or
demand which are affected by war or other national, state or municipal
emergency, or any other cause, (6) fire or other casualty, (7) adjustment of
insurance claims, (8) acts of God or (9) any other cause beyond Landlord's
reasonable control ("Force Majeure Causes"), Landlord shall be unable to fulfill
its obligations under this Lease or shall be unable to supply any service which
Landlord is obligated to supply, this Lease and Tenant's obligation to pay rent
hereunder shall in no wise be affected, impaired or excused.
34.02 If, by reason of Force Majeure Causes, Tenant shall be unable
to fulfill its obligations under this Lease (other than the obligation to pay
Basic Annual Rent or any other sums due and payable under his Lease), this Lease
and Landlord's obligations under this Lease shall in no wise be affected,
impaired or excused.
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ARTICLE 35
NO REPRESENTATIONS BY LANDLORD
35.01. Tenant accepts the Demised Premises as is, in their present
condition, subject only to the performance of Landlord's Work, if any such work
is provided for in Article 2 hereof, in accordance with this Lease and without
any representation or warranty whatsoever by Landlord or Landlord's Agents as to
the condition of the Demised Premises or the value thereof or the utility
thereof or usefulness for any particular purpose or any other matter or thing
relating in any way to the Demised Premises or the Property other than as
specifically provided in this Lease. Tenant acknowledges that Landlord, has not
made and does not make, and Tenant is not relying upon, any representations or
warranties as to the physical condition, quality, value or character or other
matter relating to or affecting the Demised Premises, the Building or the
Property other than those contained in this Lease.
ARTICLE 36
NAME OF COMPLEX/BUILDING
36.01. The name of the Complex shall be Harborside Financial Center
and the names making up the Building shall be Plaza II and Plaza III,
respectively. Landlord shall have the full right at any time to name and change
the name of the Complex or the Building and to change the designated address of
the Complex or the Building. The Complex or the Building may be named after any
person, firm, or otherwise, whether or not such name is, or resembles, the name
of a tenant of the Complex or the Building.
ARTICLE 37
PARKING
37.01. Landlord shall make 6 parking spaces ("Tenant's Parking
Spaces") available to Tenant and Tenant shall hire same from Landlord, in such
areas (the "Parking Areas") of the Property as Landlord shall periodically
designate for parking. Landlord makes no representations or guarantees
whatsoever as to the specific location of Tenant's Parking Spaces or whether
Tenant's Parking Spaces will be under cover or open. Tenant's Parking Spaces
shall be used exclusively for the parking of standard size passenger cars (or
smaller cars), or such other vehicles as may be otherwise permitted by Landlord
or the independent contractor conducting the parking operation at the Parking
Area, belonging to or leased to or operated by Tenant, any of Tenant's permitted
subtenants, and their respective employees, visitors and invitees, and for no
other purpose. Tenant shall not allow any parking of any cars of Tenant or
Tenant's permitted subtenants, or their employees, visitors or invitees, outside
of the Parking Areas or in parking spaces within the Property designated for use
by Landlord or other tenants or their respective employees, visitors or
invitees. Landlord reserves the right to relocate or alter Tenant's Parking
Spaces if, in Landlord's sole judgment, it becomes desirable to do so during the
Term. Tenant
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shall upon request promptly furnish to Landlord the license numbers of the cars
operated by Tenant and Tenant's permitted subtenants and their employees and
contractors.
37.02. All parking spaces used by Tenant, its employees, visitors and
invitees will be used at their own risk, and Landlord shall not be liable for
any injury to person or property, or for loss or damage to any automobile or its
contents, resulting from theft, collision, vandalism or any other cause
whatsoever, unless such injury or loss is caused by the negligence or willful
act of Landlord.
37.03. Landlord shall have the right to license an independent
operator or conduct a parking operation open to the public with respect to the
Parking Areas or to conduct such operation itself.
37.04. Tenant shall pay to Landlord monthly, as additional rent, on
the first day of each month, without any set-off or deduction whatsoever, or in
lieu thereof, to any parking operator who shall be licensed by Landlord to
conduct a parking operation with respect to the Parking Areas, the amount
obtained by multiplying the number of Tenant's Parking Spaces by the monthly
rate then charged by Landlord or such operator to the general public for an
equivalent space for such month. If Tenant's Parking Spaces shall be first made
available to Tenant other than on the first day of a month, then Tenant shall
make the payments in respect of such Spaces for such month on the date same are
so made available appropriately prorated.
37.05. Landlord, or the parking lot operator, as the case may be,
shall have the right to tow, at Tenant's sole cost and expense, any of Tenant's
or Tenant's permitted subtenants', or their employees', visitors' or invitees',
cars that are parked outside of Tenant's Parking Spaces to the extent specific
spaces are reserved for tenants.
37.06. Landlord shall have the right to require that all cars to be
parked in Tenant's Parking Spaces shall exhibit such identification as Landlord
may from time to time deem reasonably necessary to control the use of the
Parking Areas. Landlord shall have the right to tow, at Tenant's sole cost and
expense, any of Tenant's or Tenant's permitted subtenants' or their employees',
visitors' or invitees', cars not exhibiting such identification if required.
37.07. Landlord shall have the right to institute valet parking, as a
Building service or a service of the parking operator, in which event Tenant
shall comply with all rules promulgated by Landlord or such parking operator
relating thereto.
ARTICLE 38
INDEMNITY
Tenant shall indemnify, defend, pay on behalf of and hold harmless
Landlord and all holders of Superior Instruments, and its and their respective
partners, joint ventures, directors, officers, invitees, agents, servants and
employees (each an "indemnitee" for purposes of this provision), from and
against any loss, damage, liability, cost, claim or expense (including
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reasonable attorneys' fees) arising from or in connection with (a) any act,
omission or negligence of Tenant or any subtenants, or its or their respective
partners, joint ventures, directors, officers, invitees, agents, servants and
employees, (b) any accident, injury or damage whatsoever occurring in the
Demised Premises, (c) the use or occupation of the Demised Premises by Tenant or
anyone claiming under or through Tenant or (d) any breach of this Lease by
Tenant. This provision shall not be construed to exculpate an indemnitee, or to
make Tenant responsible for, any loss, damage, liability, cost, claim or expense
resulting solely from or caused (whether by act or omission) solely by the gross
negligence or willful misconduct of such indemnitee.
ARTICLE 39
MEMORANDUM OF LEASE
39.01. Tenant shall not record this Lease or a memorandum thereof.
Tenant shall, at the request of Landlord, execute and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording, but said
memorandum of this Lease shall not in any circumstances be deemed to modify or
to change any of the provisions of this Lease.
ARTICLE 40
SECURITY
40.01. Tenant has deposited with Landlord an unconditional
irrevocable letter of credit (as hereinafter defined) substantially in the form
attached hereto as Schedule H (as the same may be modified in accordance with
this section, the "letter of credit") in an amount equal to Two Hundred Forty
Thousand and 00/100 Dollars ($240,000), as security for the full and punctual
performance by Tenant of all of the terms of this Lease. In the event Tenant
defaults in the performance of any of the terms of this Lease, Landlord may draw
upon the letter of credit in full and any amounts not applied as hereinafter
provided shall be held by Landlord subject to and in accordance with the
provisions of this Section. Landlord may then apply the whole or any part of
the security so drawn upon to the extent required for the payment of (i) any
rent or (ii) any sum which Landlord may expend or may be required to expend by
reason of Tenant's default including, without limitation, any damages or
deficiency in the re-letting of the Demised Premises, whether accruing before or
after summary proceedings or other re-entry by Landlord. Upon each such
application, Tenant shall, on demand, pay to Landlord the sum so applied in cash
which shall be added to the remaining proceeds from the letter of credit so that
the security held by Landlord shall be restored to the amount first set forth
above. If Tenant shall fully and punctually comply with all of the terms of
this Lease, the letter of credit or the amount of the security deposit, as the
case may be, shall be returned to Tenant after the termination of this Lease,
delivery of exclusive possession of the Demised Premises to Landlord and the
payment to Landlord of all amounts payable hereunder. In the event of a sale or
lease of the Building, Landlord shall have the right to transfer the letter of
credit or the security deposit to the vendee or lessee and Landlord shall ipso
facto be released by Tenant from all liability for the return of such security;
and Tenant agrees to look solely to the new landlord for the return of said
security and it
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is agreed that the provisions hereof shall apply to every transfer or assignment
made of the letter of credit or security to a new landlord. If 30 days prior to
the date of such sale, Landlord shall be holding a letter of credit as Tenant's
security, Tenant will upon five (5) days prior written notice, deliver a
substitute letter of credit naming the new landlord as the new beneficiary
thereof. In the event Tenant shall default in such obligation, Landlord may draw
upon the letter of credit and transfer the proceeds thereof to the new landlord.
Tenant shall not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, or attempted assignment or
encumbrance. In the event the letter of credit referred to above or any
substitute letter of credit is not renewed so that at all times the letter of
credit held by Landlord hereunder is valid for a period in excess of 30 days,
Landlord may draw upon said letter of credit and hold the proceeds thereof
subject to and in accordance with the terms of this Section.
40.02. So long as Tenant is not then in default under this Lease and
no monetary default or material non-monetary default under this Lease shall have
previously occurred, Tenant shall have the right, by notice (a "Reduction
Notice") given to Landlord at any time after each Reduction Date (as defined
below) to reduce the amount of security held by landlord pursuant to this
Article 40 by $24,000.00. If Tenant properly gives a Reduction Notice to
Landlord, Landlord shall return such letter of credit to Tenant; provided, that
Tenant has delivered to Landlord a substitute letter of credit in an amount
equal to the difference between the amount of the letter of credit which
Landlord is returning to Tenant less $24,000.00. Anything to the contrary
contained in this Section 40.02 notwithstanding, in no event shall the amount of
security held by Landlord pursuant to this Article 40 be less than $120,000.00.
"Reduction Date" means March 31, 1999, March 31, 2000, March 31, 2001, March 31,
2002 and March 31, 2003. Landlord agrees to reasonably cooperate with Tenant to
substitute any letter of credit in accordance with this Section 40.02; provided,
that such cooperation shall be without expense or liability to Landlord. If at
any time Tenant shall be in monetary default or material non-monetary default
under this Lease, this Section 40.02 shall be null and void and of no further
force and effect and Tenant shall have no further right to reduce the amount of
security held by Landlord pursuant to the Article 40.
ARTICLE 41
MISCELLANEOUS
41.01. Irrespective of the place of execution or performance, this
Lease shall be governed by and construed in accordance with the laws of the
State of New Jersey.
41.02. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted.
41.03. Except as otherwise expressly provided in this Lease, each
covenant, agreement, obligation or other provision of this Lease on Tenant's
part to be performed shall be deemed and construed as a separate and independent
covenant of Tenant, not dependent on any other provision of this Lease.
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41.04. All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require.
41.05. Time shall be of the essence with respect to the exercise of
any option granted under this Lease.
41.06. Except as otherwise provided herein whenever payment of
interest is required by the terms hereof it shall be at the Interest Rate
41.07. If the Demised Premises or any additional space to be included
within the Demised Premises shall not be available for occupancy by Tenant on
the specific date herein before designated for the commencement of the term of
this Lease or for the inclusion of such space for any reason whatsoever, then
this Lease shall not be affected thereby but, in such case, said specific date
shall be deemed to be postponed until the date when the Demised Premises or such
additional space shall be available for occupancy by Tenant, and Tenant shall
not be entitled to possession of the Demised Premises or such additional space
until the same are available for occupancy by Tenant; provided, however, Tenant
shall have no claim against Landlord, and Landlord shall have no liability to
Tenant by reason of any such postponement of said specific date, and the parties
hereto further agree that any failure to have the Demised Premises or such
additional space available for occupancy by Tenant on said specific date or on
the Commencement Date shall in no wise affect the obligations of Tenant
hereunder nor shall the same be construed in any wise to extend the Term.
41.08. In the event that Tenant is in arrears in payment of Basic
Annual Rent or additional rent hereunder, Tenant waives Tenant's right, if any,
to designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
41.09. All Schedules and Exhibits referred to in this Lease are
hereby incorporated in this Lease by reference.
41.10. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this Lease, their assigns.
41.11. Tenant hereby acknowledges that in order to avoid delay, this
Lease has been prepared and submitted to Tenant for signature with the
understanding that it shall not be deemed an offer by Landlord or bind Landlord
unless and until it is executed and delivered by Landlord.
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41.12. The exterior walls of the Building, the portions of any window
sills outside the windows and the windows are not part of the premises demised
by this Lease and Landlord reserves all rights to such parts of the Building.
41.13. INTENTIONALLY DELETED
41.14. Upon the expiration or sooner termination of this Lease or
upon the closure of Tenant's operations in the Demised Premises or upon the sale
or other disposition of all or any part of the Building or land thereunder by
Landlord, Tenant shall, at its sole cost and expense, comply with all applicable
provisions of all Legal Requirements relating to environmental laws and
regulations, including, without limitation, the New Jersey Industrial Site
Recovery Act (and all amendments and successors thereto) (including, without
limitation, obtaining a letter of non-applicability within three months after
the Expiration Date confirming that Tenant is not an industrial establishment)
with respect to the Demised Premises and any other portion of the Property
affected by Tenant's operations. Notwithstanding the foregoing, Tenant shall
not be liable for any such compliance relating to environmental matters, whereby
such compliance is required as a direct result of any act or omission relating
to the Demised Premises, which took place prior to the Commencement Date.
Tenant shall indemnify and hold harmless Landlord and any holder of a Superior
Instrument, and its and their respective partners, joint venturers, directors,
officers, agents, servants and employees from and against any loss, damage,
liability, cost, claim or expense (including reasonable attorneys' fees) arising
from or in connection with Tenant's failure to so comply with all such
provisions.
41.15. This Lease constitutes the entire agreement of the parties
with respect to the matters hereof, and may not be modified except by a written
instrument executed by Landlord and Tenant.
ARTICLE 42
INTENTIONALLY OMITTED
ARTICLE 43
ARBITRATION
43.01. Landlord may at any time request arbitration, and Tenant may
at any time when not in default in the payment of any Basic Annual Rent or
additional rent request arbitration, of any matter in dispute with respect to
which arbitration is expressly provided for in this Lease. The party requesting
arbitration shall do so by giving notice to that effect to the other party
specifying the nature of the dispute. Said dispute shall be determined in
Newark, New Jersey, by a single arbitrator, in accordance with the rules then
obtaining of the American Arbitration Association (or any organization which is
the successor thereto). The award in such arbitration may be enforced on the
application of either party by the order or judgment of a court of competent
jurisdiction. The fees and expenses of any arbitration shall be borne by the
parties
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equally, but each party shall bear the expense of its own attorneys and experts
and the additional expenses of presenting its own proof.
ARTICLE 44
OPTION TO RENEW
44.01. (a) Provided that (i) the PR Newswire Tenant (as defined
below) renews or extends the PR Newswire Lease (as defined below) beyond March
31, 2007 and (ii) both when it exercises the option to extend described below
and when the Extended Term (as defined below) commences (a) this Lease is in
full force and effect and (b) the party executing this Lease occupies at least
90% of the Demised Premises, Tenant shall have the option to extend the term of
this Lease for an additional term which is coterminous with the term for which
the PR Newswire Tenant renews or extends the PR Newswire Lease (the "Extended
Term"). If the PR Newswire Tenant renews or extends the PR Newswire Lease
beyond March 31, 2007, Landlord shall notify Tenant thereof (the "PR Extension
Notice"). If the PR Newswire Lease is terminated prior to the termination date
provided for in the PR Newswire Lease, Landlord shall notify Tenant thereof.
Such option to extend the term of this Lease may be exercised only by Tenant
giving written notice to Landlord on or before the date that is sixty (60) days
after Landlord gives the PR Extension Notice to Tenant. It is expressly agreed
that Tenant shall not have an option to extend the term of this Lease beyond the
expiration of the Extended Term. If this Lease shall be terminated before the
commencement of the Extended Term, Tenant's option to extend the term of this
Lease, or its exercise thereof, or the Extended Term or lease created by any
such exercise, shall be abrogated and rendered null and void. If Tenant fails
to timely give such notice, Tenant's option to extend this Lease shall be
terminated and be deemed waived by Tenant. The "PR Newswire Tenant" means PR
Newswire Association, Inc. and its successors and assigns under that certain
lease dated April 9, 1982, as amended, pursuant to which PR Newswire
Association, Inc. leases certain space on the 8th floor of Plaza III (the "PR
Newswire Lease").
(b) Upon Tenant's giving notice of its election to extend the
term of this Lease for the Extended Term, pursuant to paragraph (a) above, this
Lease shall be deemed automatically amended as of the date following the
Expiration Date as follows: (i) the Basic Annual Rent shall be the greater of
(x) the Basic Annual Rent payable under this Lease immediately prior to the
original Expiration Date or (y) the fair market rent for the Demised Premises
for the Extended Term as determined pursuant to Section 44.02; and (ii) the
Expiration Date of the Extended Term shall be the last day of the term for which
the PR Newswire Tenant renews or extends the PR Newswire Lease. Tenant and
Landlord shall promptly execute and deliver an appropriate modification of this
Lease to evidence said amendment.
44.02. (a) For purposes of this Article 44, in such instances that
it is provided that Tenant shall pay a "fair market rent" as Basic Annual Rent,
such fair market rent shall be proposed by Landlord giving notice therefor (a
"FMR Notice"), not later than the later of (i) January 1, 2007 and (ii) thirty
(30) days after Tenant exercises the option to extend the term of this Lease
pursuant to this Article 44.
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(b) Within thirty (30) days after Landlord gives a FMR
Notice, Tenant shall notify Landlord as to whether or not it agrees with
Landlord's proposed fair market rent, and if it does not so agree, Tenant shall
in such notice submit to Landlord its proposed fair market rent. If Tenant fails
to respond as aforesaid within said 30 day period, Tenant hereby agrees that it
shall be deemed conclusively to have agreed to the fair market rent proposed by
Landlord.
(c) If Landlord and Tenant do not agree upon the fair market
rent, the matter shall be submitted to arbitration in accordance with the
provisions of Article 43 hereof, subject, however, to the following
modifications
(i) the arbitrator selected shall have at least five years'
experience in the leasing or management of office space in the
northern New Jersey office market. The fees and expenses of the
arbitrator and all other expenses (not including the attorneys' fees,
witness fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne
equally by the parties hereto;
(ii) within two business days after the appointment of the
arbitrator, there shall be submitted to the arbitrator the FMR Notice
containing Landlord's proposed fair market rent and a copy of Tenant's
response thereto containing Tenant's proposed fair market rent;
(iii) within ten (10) business days thereafter, the arbitrator shall
select either the fair market rent proposed by Landlord or Tenant,
whichever the arbitrator determines is closest to his determination of
the fair market rent for the Demised Premises.
(iv) in rendering such decision, the arbitrator shall determine the
fair market rent that would be agreed upon by Landlord and a new
unrelated third party tenant, and in connection therewith shall assume
all of the following: (A) the Landlord and prospective tenant are
typically motivated; (B) the Landlord and prospective tenant are well
informed and well advised and each is acting in what it considers its
own best interest; (C) a reasonable time under then-existing market
conditions is allowed for exposure of the Demised Premises on the open
market; (D) the rent is unaffected by concessions, special financing
amounts and/or terms, or unusual services, fees, costs or credits in
connection with the leasing transaction; (E) the Demised Premises are
fit for immediate occupancy and use "as-is" and require no additional
work by Landlord and that no work has been carried out thereon by the
Tenant, its subtenant, or their predecessors in interest during the
term which has diminished the rental value of the Demised Premises;
(F) in the event the Demised Premises have been destroyed or damaged
by fire or other casualty, they have been fully restored; (G) that the
demised premises are to be let with vacant possession and subject to
the provisions of this Lease for a term equal to the Extensino Term;
(H) market rents then being charged for comparable space in other
similar office buildings in the same area; (I) the computation of the
number of rentable square feet contained in the Demised Premises shall
be based on the
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standard of measurement for such square footage then obtaining in the
Building but in no event less than the square footage specified in
Section 1.01(b); (J) the Base Tax Year and the Base Operating Year
shall be as stated herein and (K) a full brokerage commission shall be
payable by Landlord, on then market terms. In rendering such decision
and award, the arbitrator shall not modify the provisions of this
Lease.
(v) the decision and award of the arbitrator shall be in writing and
be final and conclusive on all parties and counterpart copies thereof
shall be delivered to each of said parties. Judgment may be had on
the decision and award of the arbitrator so rendered in any court of
competent jurisdiction.
(d) In the event that any payment of Basic Annual Rent is due
hereunder prior to the determination of the arbitrator Tenant shall pay as the
Basic Annual Rent it is obligated to pay under this Lease the amount set forth
in the FMR Notice. If the arbitrator determines that the Basic Annual Rent
payable pursuant to this Article 44 is less than that set forth in the FMR
Notice, then Tenant shall be entitled to a credit in the amount of its
overpayment for such period against subsequent payments of Basic Annual Rent or
additional rent due hereunder.
(e) Nothing contained in this Section 44.02 shall be deemed
in any way to alter or modify the provisions of Article 3 hereof.
44.03. If the PR Newswire Tenant does not renew the PR Newswire Lease
beyond March 31, 2007 and Landlord fails to notify Tenant thereof (the "PR Non-
Extension Notice") at least 180 days prior to the Expiration Date (unless Tenant
otherwise knew that the PR Newswire Tenant did not renew or extend the PR
Newswire Lease), then the Expiration Date shall be automatically extended for an
extension period commencing on the day after the originally scheduled Expiration
Date and ending on the date that is the earliest to occur of (i) the date that
is 180 days after Landlord gives the PR Non-Extension Notice to Tenant, (ii) the
date that is 180 days after Tenant first knew that the PR Newswire Tenant did
not renew or extend the PR Newswire Lease and (iii) the date that is 180 days
after the originally scheduled Expiration Date and such extension period shall
be upon all of the terms and conditions of this Lease existing prior to the
originally scheduled Expiration Date, except that Tenant shall have no right to
extend the term of this Lease beyond such extension period.
ARTICLE 45
RIGHT OF FIRST OFFER
45.01 Offer Space Option. (a) As used herein:
"Available" as used in this Section 45.01 means that the PR Newswire
Space is free of any present or future possessory right now existing in favor of
any third party (other than the possessory right of the PR Newswire Tenant
through March 31, 2007). Tenant's right of first
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offer is subordinate to any right of offer, refusal right, extension right or
similar right or option in favor of any third party existing as of the date of
this Lease.
"Offer Space" as used in this Section 45.01 means all of the Demised
Premises and all of the PR Newswire Space. Landlord and Tenant confirm that the
Offer Space is conclusively deemed to contain 41,178 rentable square feet.
"PR Newswire Space" means all of the space on the eighth (8th) floor
of Plaza III substantially as shown hatched on the floor plan annexed as Exhibit
I. Landlord and Tenant confirm that the PR Newswire Space is conclusively
deemed to contain 29,326 rentable square feet.
(b) Provided (i) the PR Newswire Tenant shall not have
renewed or extended the PR Newswire Lease beyond March 31, 2007, (ii) this Lease
shall not have been terminated and (iii) Tenant shall not be in default under
this Lease, then if the PR Newswire Space becomes, or Landlord reasonably
anticipates that within the next 12 months the PR Newswire Space will become
Available as of April 1, 2007, Landlord shall give to Tenant notice (an "Offer
Notice") thereof, specifying (a) the fixed annual rental ("Offer Rental") which
Landlord is then considering for the lease of the Offer Space, (b) the proposed
term of the lease for such Offer Space and (c) such other matters as Landlord
may deem appropriate for such Offer Notice. It is understood that if the PR
Newswire Space becomes, or Landlord reasonably anticipates that the PR Newswire
Space will become Available prior to April 1, 2007, the Offer Space Option
contained in this Section 45.01 shall not be applicable thereto and the Offer
Space Option contained in Section 45.02 shall be applicable thereto subject to
the terms and provisions set forth therein.
(c) Provided that on the date that Tenant exercises the Offer
Space Option under this Section 45.01 and on the Offer Space Inclusion Date (i)
this Lease shall not have been terminated and (ii) Tenant shall not be in
default under this Lease, Tenant shall have the option (the "Offer Space
-----------
Option"), exercisable by notice (an "Acceptance Notice") given to Landlord on or
- ------ -----------------
before the date that is 30 days after the giving of the Offer Notice (time being
of the essence) to lease all (but not less than all) of the Offer Space upon all
of the terms and conditions specified herein.
(d) If Tenant timely delivers the Acceptance Notice, then,
effective as of April 1, 2007 (the "Offer Space Inclusion Date"), Tenant shall
--------------------------
lease the Offer Space upon all of the terms and conditions set forth in this
Lease, except (i) Basic Annual Rent shall be the Offer Rental, (ii) Tenant's Tax
Share and Tenant's Expense Share shall be proportionately increased based on the
rentable square feet of the Offer Space, (iii) the term of Tenant's leasing of
the Offer Space shall commence on the Offer Space Inclusion Date and expire on
the date set forth in the Offer Notice, (iv) Landlord shall not be required to
perform Landlord's Work or any other work, pay any contribution or any other
amount, or render any services to make the Building or the Offer Space ready for
Tenant's use or occupancy, and Tenant shall accept the Offer Space in its "as
is" condition on the Offer Space Inclusion Date, (v) all references in this
Lease to the Demised Premises shall mean the Offer Space and (vi) as may be
otherwise set forth in the Offer Notice.
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(e) If Tenant fails to give an Acceptance Notice within the
period provided in paragraph (c) above, time of the essence, then (i) Landlord
may enter into one or more leases of the Offer Space with third parties on such
terms and conditions as Landlord shall determine, the Offer Space Option under
this Section 45.01 and the Offer Space Option under Section 45.02 shall be null
and void and of no further force and effect and Landlord shall have no further
obligation to offer the Offer Space to Tenant, and (ii) Tenant shall, upon
demand by Landlord, execute an instrument confirming Tenant's waiver of, and
extinguishing, the Offer Space Option under this Section 45.01 and the Offer
Space Option under Section 45.02, but the failure by Tenant to execute any such
instrument shall not affect the provisions of clause (i) above.
----------
(f) Promptly after the occurrence of the Offer Space
Inclusion Date, Landlord and Tenant shall confirm the occurrence thereof and
Tenant's leasing of the Offer Space by executing an instrument reasonably
satisfactory to Landlord and Tenant; provided, that failure by Landlord or
Tenant to execute such instrument shall not affect Tenant's leasing of the Offer
Space in accordance with this Article.
(g) If Landlord is unable to deliver possession of any
portion of the PR Newswire Space to Tenant for any reason on or before April 1,
2007, the Offer Space Inclusion Date with respect to any such portion shall be
the date on which Landlord is able to so deliver possession and Landlord shall
have no liability to Tenant therefor and this Lease shall not in any way be
impaired. This Section 45.01(g) constitutes "an express provision to the
contrary" within the meaning of Section 223(a) of the New York Real Property Law
and any other law of like import now or hereafter in effect.
(h) Anything in this Lease to the contrary notwithstanding,
this Article 45 shall be null and void and of no force or effect if Exodus
Communications is no longer the Tenant under this Lease.
45.02 Offer Space Option. (a) As used herein:
"Available" as used in this Section 45.02 means that the PR Newswire
Space is free of any present or future possessory right now existing in favor of
any third party. Tenant's right of first offer is subordinate to any right of
offer, refusal right, extension right or similar right or option in favor of any
third party existing as of the date of this Lease.
"Offer Period" means the period commencing on the Commencement Date to
and including March 30, 2007.
"Offer Space" as used in this Section 45.02 means the PR Newswire
Space.
(b) Provided (i) the PR Newswire Tenant shall not have
renewed or extended the PR Newswire Lease beyond March 31, 2007, (ii) this Lease
shall not have been terminated and (iii) Tenant shall not be in default under
this Lease, if the Offer Space becomes, or Landlord reasonably anticipates that
within the next 12 months (but not later than the last day of the Offer Period),
such Offer Space will become Available, Landlord shall give to Tenant
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notice (an "Offer Notice") thereof, specifying (a) the fixed annual rental
("Offer Rental") which Landlord is then considering for the lease of the Offer
Space, (b) the date or estimated date that the Offer Space has or shall become
Available and (c) such other matters as Landlord may deem appropriate for such
Offer Notice.
(c) Provided that on the date that Tenant exercises the Offer
Space Option under this Section 45.02 and on the Offer Space Inclusion Date (i)
this Lease shall not have been terminated and (ii) Tenant shall not be in
default under this Lease, Tenant shall have the option (the "Offer Space
Option"), exercisable by notice (an "Acceptance Notice") given to Landlord on or
before the date that is 30 days after the giving of the Offer Notice (time being
of the essence) to include all (but not less than all) of the Offer Space in the
Premises.
(d) If Tenant timely delivers the Acceptance Notice, then, on
the date on which Landlord delivers vacant possession of the Offer Space to
Tenant, (the "Offer Space Inclusion Date"), the Offer Space shall become part of
the Premises upon all of the terms and conditions set forth in this Lease,
except (i) Basic Annual Rent with respect to the Offer Space shall be the Offer
Rental, (ii) Tenant's Tax Share and Tenant's Expense Share shall be
proportionately increased to reflect the additional rentable square feet of the
Offer Space, (iii) Landlord shall not be required to perform Landlord's Work or
any other work, pay any contribution or any other amount, or render any services
to make the Building or the Offer Space ready for Tenant's use or occupancy, and
Tenant shall accept the Offer Space in its "as is" condition on the Offer Space
Inclusion Date, (iv) all references in this Lease to the Demised Premises shall
include the Offer Space and (v) as may be otherwise set forth in the Offer
Notice.
(e) If Tenant fails to give an Acceptance Notice within the
period provided in paragraph (c) above, time of the essence, then (i) Landlord
may enter into one or more leases of the Offer Space with third parties on such
terms and conditions as Landlord shall determine, the Offer Space Option under
this Section 45.02 and the Offer Space Option under Section 45.01 shall be null
and void and of no further force and effect and Landlord shall have no further
obligation to offer the Offer Space to Tenant, and (ii) Tenant shall, upon
demand by Landlord, execute an instrument confirming Tenant's waiver of, and
extinguishing, the Offer Space Option under this Section 45.02 and the Offer
Space Option under Section 45.01, but the failure by Tenant to execute any such
instrument shall not affect the provisions of clause (i) above.
----------
(f) Promptly after the occurrence of the Offer Space
Inclusion Date, Landlord and Tenant shall confirm the occurrence thereof and the
inclusion of the Offer Space in the Premises by executing an instrument
reasonably satisfactory to Landlord and Tenant; provided, that failure by
Landlord or Tenant to execute such instrument shall not affect the inclusion of
the Offer Space in the Premises in accordance with this Article.
(g) If Landlord is unable to deliver possession of any
portion of the Offer Space to Tenant for any reason on or before the date on
which Landlord anticipates that the Offer Space shall be Available as set forth
on the Offer Notice, the Offer Space Inclusion Date with respect to any such
portion shall be the date on which Landlord is able to so deliver possession and
Landlord shall have no liability to Tenant therefor and this Lease shall not in
any way be
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impaired. This Section 45.01(g) constitutes "an express provision to the
contrary" within the meaning of Section 223(a) of the New York Real Property Law
and any other law of like import now or hereafter in effect.
(h) Anything in this Lease to the contrary notwithstanding,
this Article 45 shall be null and void and of no force or effect if Exodus
Communications is no longer the Tenant under this Lease.
ARTICLE 46
ROOF EQUIPMENT
46.01. Subject to Landlord's prior approval, not to be unreasonably
withheld or delayed, Tenant shall have the right, subject to and in accordance
with the provisions of this Article 46, to use a portion of the roof of Plaza
III as designated on Exhibit J attached hereto and made a part hereof consisting
of approximately 20' x 28' to install, maintain and operate, at its sole cost
and expense, a back-up generator and day tank (the "Roof Equipment"). Tenant
shall furnish detailed plans and specifications for the Roof Equipment (or any
modification thereof) to Landlord for its approval. Tenant's use of the rooftop
of Plaza III shall be a non-exclusive use and Landlord may permit the use of any
other portion of the roof to any other person for any use including without
limitation installation of communication equipment or other generators or tanks.
Tenant shall use its reasonable efforts to insure that its use of the rooftop
does not impair such other person's data transmission and reception via its
respective communication equipment. If Tenant's construction, installation,
maintenance, repair, operation or use of the Roof Equipment shall interfere with
the rights of Landlord (including, without limitation, Landlord's right to use
the remainder of the roof) or other tenants in the Building, Tenant shall
cooperate with Landlord or such other tenants in eliminating such interference;
provided, however, the cost of remedying such interference shall be borne by the
party which is suffering such interference, unless such party was using the
affected equipment prior to the use of the Roof Equipment by Tenant, in which
case the cost of remedying such interference shall be borne by Tenant. Tenant
shall secure and keep in full force and effect, from and after the time Tenant
begins construction and installation of the Roof Equipment, such supplementary
insurance with respect to the Roof Equipment as Landlord may reasonably require.
Tenant shall pay any additional or increased insurance premiums incurred by
Landlord with respect to the Roof Equipment.
46.02. In connection with the installation, maintenance and operation
of the Roof Equipment, Tenant, at Tenant's sole cost and expense, shall comply
with all Legal Requirements, including, without limitation, any requirement to
install screening surrounding such installations, and shall procure, maintain
and pay for all permits required therefor, and Landlord makes no warranties
whatsoever as to the permissibility of Roof Equipment under applicable Legal
Requirements or the suitability of the roof of Plaza III for the installation
thereof. If Landlord's structural engineer deems it advisable that there be
structural reinforcement of the roof in connection with the installation of the
Roof Equipment Landlord shall perform same at Tenants' cost and expense and
Tenant shall not perform any such installation prior to the completion of any
such structural reinforcement. The installation of the Roof Equipment shall be
subject to the
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provisions of Article 6 applicable to alterations and installations. For the
purpose of installing, servicing or repairing the Roof Equipment, Tenant shall
have access to the rooftop of Plaza III at reasonable times upon reasonable
notice to Landlord and Landlord shall have the right to require, as a condition
to such access, that Tenant (or its employee, contractor or other
representative) at all times be accompanied by a representative of Landlord,
whom Landlord agrees to make available upon reasonable notice. Landlord agrees
to use reasonable efforts to cooperate with Tenant in order to grant Tenant
access to the rooftop in the event of an emergency. Tenant shall pay for all
electrical service required for Tenant's use of the Roof Equipment, to be
measured and charged in accordance with the provisions set forth in Article 4
hereof.
46.03. Tenant, at its sole cost and expense, shall promptly repair
any and all damage to the rooftop or to any other part of the Building caused by
the installation, maintenance, repair, operation or removal of the Roof
Equipment. Tenant shall be responsible for all costs and expenses for repairs
and maintenance of the roof which result from Tenant's use of the roof for the
construction, installation, maintenance, repair, operation and use of the Roof
Equipment. All installations made by Tenant on the rooftop or in any other part
of the Building pursuant to the provisions of this Article 46 shall be at the
sole risk of Tenant, and neither Landlord, nor any agent or employee of
Landlord, shall be responsible or liable for any injury or damage to, or arising
out of, the Roof Equipment. Tenant's indemnity under Section 38.01 shall apply
with respect to the installation, maintenance, operation, repair, presence or
removal of the Roof Equipment.
46.04. Upon the expiration of the Term, the Roof Equipment shall be
removed by Tenant at its sole cost and expense, and Tenant shall repair any
damage to and restore the rooftop or any other portions of the Building to their
condition existing immediately prior to Tenant's installation of the Roof
Equipment.
46.05. Tenant shall not be required to pay rent for the use of such
Roof Equipment or use of the rooftop or any shaft space in connection with the
use of rooftop for the purposes permitted herein and none of the same shall be
included in the calculation of Tenant's Tax Share or Tenant's Expense Share.
46.06. Notwithstanding anything to the contrary contained in this
Article 46, Landlord shall have the right, at Landlord's expense, on not less
than thirty (30) days' prior notice, to relocate the Roof Equipment to another
location on the roof of the Building, and Tenant shall cooperate in all
reasonable respects with Landlord in any such relocation; provided, that if such
relocation is done pursuant to any Legal Requirement, the cost thereof charged
at Landlord's actual cost shall be borne by Tenant.
46.07. The rights granted in this Article 46 are given in connection
with, and as part of the rights created under, this Lease and are not separately
transferable or assignable but shall inure to and benefit Tenant and its
permitted successors and assigns.
46.08. If the installation of the Roof Equipment or act or omission
relating thereto should revoke, negate or in an any manner impair or limit any
roof warranty or guaranty obtained by Landlord, then Tenant shall reimburse
Landlord for any loss or damage sustained or costs or
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expenses incurred by Landlord as a result of such impairment or limitation,
provided Landlord shall use reasonable efforts to give Tenant reasonable notice
of any anticipated impairment and the opportunity to take any action necessary
to avoid or eliminate such impairment..
ARTICLE 47
FUEL TANK SPACE
47.01. (a) Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord a portion of the first floor of Plaza III to be designated by
Landlord (not to exceed 100 square feet) (the "First Floor Space") for a term
(the "First Floor Term") commencing on the date of this Lease and expiring on
the Expiration Date (unless the Term shall sooner cease and terminate as herein
before provided) and otherwise upon the terms and conditions hereinafter set
forth.
(b) The basic annual rent for the First Floor Space shall be
at an annual rate equal to the product of [$10.00] multiplied by the number of
square feet contained in the First Floor Space, payable in equal monthly
installments appropriately prorated for any partial year and otherwise payable
in the same manner as the Basic Annual Rent with respect to the Demised
Premises.
(c) Tenant shall not be obligated to pay Tenant's share of
Existing Building Taxes, Common Area Taxes, Operating Expenses or Common Area
Operating Expenses with respect to the First Floor Space.
(d) Payment of basic annual rent with respect to the First
Floor Space shall commence as of the date of this Lease. If the date of this
Lease is not the first day of a month, then the basic annual rent with respect
to the First Floor Space shall be prorated on a per diem basis, and Tenant
agrees to pay the amount thereof for such partial month on the date of this
Lease.
(e) Tenant shall accept the First Floor Space on its "as is"
condition on the date of this Lease and Landlord shall have no obligation to
perform any work or make any contribution to ready the First Floor Space for
Tenant's use.
(f) Tenant shall not be entitled to any additional parking
spaces in connection with its leasing of the First Floor Space.
(g) Tenant shall pay, in accordance with the provisions of
Article 4 hereof, the amounts due for electrical current consumed by Tenant with
respect to the First Floor Space and shall pay to Landlord, as additional rent,
the costs of installing meters in the First Floor Space to measure such
consumption to the extent such meters have not already been installed.
(h) Tenant shall use the First Floor Space for the
installation, maintenance and operation of a fuel tank, and for no other
purpose.
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(i) Except as otherwise specifically provided in this Article
47, all references in this Lease to the Demised Premises shall be deemed to
include the First Floor Space, and all of the terms, provisions and conditions
of this Lease shall apply to the First Floor Space.
(j) Tenant shall construct and maintain in compliance with
all Legal Requirements a tank room in the First Floor Space in accordance with
Article 6 and all other applicable provisions of this Lease.
(k) Landlord shall not be required to provide any services
with respect to the First Floor Space.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
CAL HARBOR II & III URBAN RENEWAL ASSOCIATES L.P.
By: Cali Sub X Inc., a Delaware Corporation, its
General Partner
By: /s/ James G. Nugent 12/30/96
--------------------------------
James G. Nugent
Vice President
EXODUS COMMUNICATIONS, INC., Tenant
By: /s/ Richard S. Stoltz
--------------------------------
Name: Richard S. Stoltz
Title:COO/CFO
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SCHEDULE A-I
PLAZA II HARBORSIDE
FOURTH FLOOR FINANCIAL CENTER
A JONES LANG WOOTTON/US WEST PROJECT
BRADLEY P. GERTA
MARK RAVESLOOT
(212) 509-9600
[Diagram of Plaza II - Fourth Floor Plan]
A-I-1
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SCHEDULE A-II
PLAZA III HARBORSIDE
EIGHTH FLOOR FINANCIAL CENTER
A JONES LANG WOOTTON/US WEST PROJECT
BRADLEY P. GERTA
MARK RAVESLOOT
(212) 509-9600
[Diagram of Plaza III - Eighth Floor Plan]
A-II-1
<PAGE>
SCHEDULE B
DESCRIPTION OF LAND
All that certain tract or parcel of land and premises situate, lying and
being in the City of Jersey City, County of Hudson and the State of New Jersey,
being more particularly described as follows:
TRACT A
-------
PARCEL I
- --------
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with easterly line of Greens Street; running thence
(1) Along said easterly line of Greene Street, North 8 degrees 43 minutes 40
seconds East 202.03 feet to the center line of Fotmer Pearl Street; thence
(2) Along said center line, South 81 degrees 26 minutes 50 seconds East 294.72
feet; thence
(3) On a curve to the right 22.84 feet, said curve having a radius of 35.00
feet and a chord of South 37 degrees 50 minutes 14 seconds East 22.44 feet;
thence
(4) North 8 degrees 33 minutes 10 seconds East 78.75 feet; thence
(5) North 81 degrees 28 minutes 00 seconds West 136.05 feet; thence
(6) North 8 degrees 49 minutes 51 seconds East 200.00 feet; thence
(7) North 81 degrees 10 minutes 09 seconds West 25.00 feet; thence
(8) North 8 degrees 49 minutes 51 seconds East 393.84 feet; thence
(9) North 10 degrees 55 minutes 09 seconds East 200.00 feet; thence
(10) South 81 degrees 26 minutes 50 seconds East 1575.52 feet to the pierhead
line as approved by the Secretary of War of the United States 31 July 1941
and adopted by the former Board of Commerce and Navigation of the State of
New Jersey 6 April 1942; thence
(11) Along said pierhead line, South 11 degrees 51 minutes 32.2 seconds West,
1207.01 feet; thence
(12) North 81 degrees 26 minutes 50 seconds West 693.49 feet; thence
(13) North 8 degrees 33 minutes 10 seconds East 125.00 feet; thence
B-1
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(14) North 81 degrees 26 minutes 50 seconds West 503.80 feet to and along the
northerly line of Christopher Columbus Drive to the easterly line of Hudson
Street; thence
(15) Along said easterly line of Hudson Street, North 8 degrees 37 minutes 10
seconds East 56.00 feet to the end of northerly line of Hudson Street;
thence
(16) Along said northerly line of Hudson Street, North 81 degrees, 26 minutes 50
seconds West 70.00 feet to the westerly line of Hudson Street; thence
(17) Along said westerly line of Hudson Street, South 8 degrees 37 minutes 10
seconds West 55.99 feet to the northerly line of Christopher Columbus
Drive; thence
(18) Along said line, on a curve to the right 401.02 feet to the point
beginning, said curve having a radius of 3960.00 feet and a chord of North
78 degrees 26 minutes 55 seconds West 400.84 feet.
Excepting from the above described premises all that certain plot, place of
parcel of land, with buildings and improvements thereon erected, situate, lying
and being in the City of Jersey City, County of Hudson, State of New Jersey,
known and designated as New Lot A-13 in Block 11, as set forth on that certain
subdivision map entitled "Subdivision of Lot A-10 in Block 11" prepared by Lange
Surveying & Mapping, dated January 1983, being Map No. 3033 recorded in the
Office of the Register of Deeds of Hudson County on June 23, 1983.
TRACT A
-------
PARCEL II
- ---------
ALL that certain tract or parcel of land and premises, hereinafter more
particularly described, situate, lying and being in the City of Jersey City,
County of Hudson, State of New Jersey:
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with easterly line of Washington Street; thence
(1) Along said easterly line of Washington Street, North 8 degrees 44 minutes
40 seconds East 90.75 feet; thence
(2) South 86 degrees 45 minutes 20 seconds East 346.47 feet; thence
(3) South 83 degrees 52 minutes 45 seconds East 56.87 feet to the westerly line
of Greene Street; thence
(4) Along said westerly line of Greene Street, South 8 degrees 43 minutes 40
seconds West 193.94 feet to the northerly line of Christopher Columbus
Drive; thence
B-2
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(5) Along said northerly line of Christopher Columbus Drive on a curve to the
right 407.55 feet to the point of Beginning, said curve having a radius of
3960.00 feet and a chord of North 71 degrees 44 minutes 07 seconds West
407.36 feet.
TRACT A
-------
PARCEL III
- ----------
ALL that certain tract or parcel of land and premises, hereinafter more
particularly described, situate, lying and being in the City of Jersey City,
County of Hudson and the State of New Jersey:
BEGINNING at the intersection of the northerly line of Christopher Columbus
Drive with the westerly line of Hudson Street; running thence
(1) Along said westerly line of Hudson Street, North 8 degrees 37 minutes 10
seconds East 55.99 feet; thence
(2) South 81 degrees 26 minutes 50 seconds East 70.00 feet to the easterly line
of Hudson Street; thence
(3) Along said easterly line of Hudson Street; South 8 degrees 37 minutes 10
seconds West 56.00 feet to the northerly line of Christopher Columbus
Drive; thence
(4) Along said northerly line of Christopher Columbus Drive, North 81 degrees
26 minutes 50 seconds West 63.26 feet; thence
(5) Still along the northerly line of Christopher Columbus Drive, along a curve
to the right 6.74 feet to the point of beginning, said curve having a
radius of 3960 feet, and a chord of North 01 degrees 23 minutes 54 seconds
West 6.74 feet to the place of BEGINNING.
TRACT A
-------
PARCEL IV (DRIVEWAY EASEMENT)
- ---------
A driveway easement over all that certain tract or parcel of land and
premises, hereinafter more particularly described, situate, lying and being in
the City of Jersey City, County of Hudson and the State of New Jersey:
BEGINNING in the easterly line of Washington Street, distant 90.76 feet
northerly from the intersection of said easterly line of Washington Street with
the northerly line of Christopher Columbus Drive; running thence
(1) Along said easterly line of Washington Street, North 8 degrees 44 minutes
40 seconds East 60.28 feet; thence
(2) South 86 degrees 45 minutes 20 seconds East 342.20 feet; thence
B-3
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(3) South 83 degrees 52 minutes 45 seconds East 167.15 feet; thence
(4) South 81 degrees 28 minutes 00 seconds East 264.86 feet; thence
(5) South 8 degrees 33 minutes 10 seconds West 78.75 feet; thence
(6) Along a curve to the left 38.08 feet, said curve having a radius of 35.00
feet and a chord of North 50 degrees 17 minutes 52 seconds West 34.22 feet;
thence
(7) North 81 degrees 28 minutes 00 seconds West 232.58 feet; thence
(8) North 83 degrees 52 minutes 45 seconds West 164.38 feet; thence
(9) North 86 degrees 45 minutes 20 seconds West 346.47 feet to the point of
Beginning.
END OF TRACT A
--------------
TRACT B
-------
BEGINNING at a point distant 180.61 feet South of the South line of First
Street, and 286.02 feet East of the East line of Greene Street; running thence
(1) North 8 degrees 33 minutes 10 seconds East, a distance of 47.15 feet to a
point; thence
(2) South 81 degrees 26 minutes 50 seconds East, a distance of 387.00 feet to a
point; thence
(3) South 8 degrees 33 minutes 10 seconds West, a distance of 47.15 feet to a
point; thence
(4) North 81 degrees 26 minutes 50 seconds West, a distance of 387.00 feet to
the point or place of BEGINNING
NOTE FOR INFORMATION: Being known as Lot C-30 in Block 15 on the City of Jersey
City Tax Map.
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TRACT C
-------
ALL those three (3) (Parcels I, II and III) certain pieces or parcels of
land, situate in Jersey City, County of Hudson and State of New Jersey,
separately bounded and described in accordance with a Plat of Survey prepared by
Hermann K.F. Lange, New Jersey Land Surveyor No. 16982 of Lange Surveying and
Mapping, dated October, 1981 and April, 1983, and revised to December 22, 1983
as follows:
PARCEL I
- --------
BEGINNING at a point in the southerly line of First Street extended East,
distant 452.10 feet easterly from the intersection of said southerly line of
First Street, with the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street extended East, South 82 degrees
59 minutes 30 seconds East, 64.46 feet; thence
(2) South 21 degrees 41 minutes 43 seconds East, 206.21 feet to the westerly
line of lands known as Harborside Terminal; thence
(3) Along said westerly line of Harborside Terminal, South 10 degrees 31
minutes 36 seconds West 200.00 feet; thence
(4) Still along said line South 8 degrees 26 minutes 18 seconds West 393.83
feet; thence
(5) Still along said line, South 81 degrees 33 minutes 42 seconds East, 25.00
feet; thence
(6) Still along said line, South 8 degrees 25 minutes 18 seconds West, 200.00
feet; thence
(7) South 81 degrees 51 minutes 33 seconds East, 136.04 feet; thence
(8) South 8 degrees 09 minutes 37 seconds West, 78.78 feet; thence
(9) On a curve to the left 22.87 feet, said curve having a radius of 35.00
feet, and a chord of North 38 degrees 11 minutes 55 seconds West 22.47
feet; thence
(10) North 81 degrees 59 minutes 23 seconds West, 322.19 feet; thence
(11) North 84 degrees 16 minutes 18 seconds West, 17.92 feet; thence
(12) On a curve to the right, 54.89 feet, said curve having a radius of 193.00
feet, and a chord of North 00 degrees 15 minutes 43 seconds East, 54.71
feet; thence
(13) North 8 degrees 24 minutes 35 seconds East, 237.97 feet; thence
(14) On a curve to the right, 120.67 feet, said curve having a radius of 513.00
feet, and a chord of North 15 degrees 08 minutes 54 seconds East 120.39
feet; thence
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(15) North 21 degrees 53 minutes 13 seconds East, 109.73 feet; thence
(16) On a curve to the left, 123.96 feet, said curve having a radius of 527.00
feet, and a chord of North 15 degrees 08 minutes 54 seconds East, 123.68
feet; thence
(17) North 8 degrees 24 minutes 35 seconds East, 261.71 feet; thence
(18) On a curve to the left, 133.23 feet, said curve having a radius of 762.00
feet, and a chord of North 3 degrees 24 minutes 03 seconds East, 133.06 to
the point of BEGINNING.
TRACT C
-------
PARCEL II
- ---------
BEGINNING at a point in the southerly line of First Street distant 252.16
feet easterly from the intersection of said southerly line of First Street, with
the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street and its extension East, South 82
degrees 59 minutes 30 seconds East, 175.66 feet; thence
(2) On a curve to the right, 132.67 feet, said curve having a radius of 738.00
feet and a chord of South 3 degrees 15 minutes 35 seconds West, 132.49
feet; thence
(3) South 8 degrees 24 minutes 35 seconds West, 119.04 feet; thence
(4) North 81 degrees 53 minutes 42 seconds West, 37.33 feet; thence
(5) North 8 degrees 21 minutes 30 seconds East, 103.98 feet; thence
(6) North 37 degrees 59 minutes 28 seconds West, 207.25 feet to the point of
the Beginning.
TRACT C
-------
PARCEL III
- ----------
BEGINNING at a point in the easterly line of Washington Street, distant
90.76 feet northerly from the intersection of said easterly line of Washington
Street, with the northerly line of Christopher Columbus Drive; running thence
(1) Along said easterly line of Washington Street, North 8 degrees 21 minutes
18 seconds East, 60.28 feet; thence
(2) South 87 degrees 08 minutes 53 seconds East, 342.20 feet; thence
(3) South 84 degrees 16 minutes 18 seconds East, 44.05 feet; thence
(4) South 8 degrees 24 minutes 35 seconds West, 4.43 feet; thence
B-6
<PAGE>
(5) On a curve to the left, 55.92 feet said curve having a radius of 217.00
feet and a chord of South 01 degrees 01 minutes 37 seconds West 55.77 feet;
thence
(6) North 84 degrees 16 minutes 18 seconds West, 46.91 feet; thence
(7) North 87 degrees 08 minutes 53 seconds West 346.47 feet to the point of
Beginning.
TRACT C
-------
PARCEL IV
- ---------
BEING a railroad spur approximately 24 feet in width running through Block
15 Lots A and C9 on the tax map of the City of Jersey City and more particularly
described as follows:
BEGINNING at a point in the southerly line of First Street extended East
distant 427.82 feet easterly from the intersection of said southerly line of
First Street with the easterly line of Washington Street; running thence
(1) Along said southerly line of First Street extended East South 82 degrees 59
minutes 30 seconds East 24.28 feet; thence
(2) On a curve to the right 133.23 feet, said curve having a radius of 762.00
feet and a chord of South 3 degrees 24 minutes 03 seconds West 133.06 feet;
thence
(3) South 8 degrees 24 minutes 35 seconds West 261.71 feet; thence
(4) On a curve to the right 123.96 feet said curve having a radius of 527.00
feet and a chord of South 15 degrees 08 minutes 54 seconds West 123.68
feet; thence
(5) South 21 degrees 53 minutes 13 seconds West 109.73 feet; thence
(6) On a curve to the left 120.67 feet, said curve having a radius of 513.00
feet and a chord of South 15 degrees 08 minutes 54 seconds West 120.39
feet; thence
(7) South 8 degrees 24 minutes 35 seconds West 237.97 feet; thence
(8) On a curve to the left 54.89 feet, said curve having a radius of 193.00
feet and a chord of South 00 degrees 15 minutes 43 seconds West 54.71 feet;
thence
(9) North 84 degrees 16 minutes 18 seconds West 24.62 feet; thence
(10) On a curve to the right 55.92 feet, said curve having a radius of 217.00
feet and a chord of North 1 degree 1 minute 37 seconds East 55.77 feet;
thence
(11) North 8 degrees 24 minutes 35 seconds East 237.97 feet; thence
(12) On a curve to the right 126.31 feet, said curve having a radius of 537.00
feet and a chord of North 15 degrees 08 minutes 54 seconds East 126.02
feet; thence
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<PAGE>
(13) North 21 degrees 53 minutes 13 seconds East 109.73 feet; thence
(14) On a curve to the left 118.32 feet said curve having a radius of 503.00
feet and a chord of North 15 degrees 08 minutes 54 seconds East 118.04
feet; thence
(15) North 8 degrees 24 minutes 35 seconds East 261.71 feet; thence
(16) On a curve to the left 132.67 feet said curve having a radius of 738.00
feet and a chord of North 3 degrees 15 minutes 35 seconds East 132.49 feet
to the point of BEGINNING.
TRACT D
-------
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the City of Jersey
City, County of Hudson and the State of New Jersey, known and designated as New
Lot A-13 in Block 11, as set forth on that certain subdivision map entitled
"subdivision of Lot A-10 in Block 11" prepared by Lange Surveying & Mapping,
dated January 1983, being Map no. 3033 recorded in the Office of the Register of
Deeds of Hudson County on June 23, 1983.
B-8
<PAGE>
SCHEDULE C
LANDLORD'S WORK
1. Tap buss bar, provide #4 - 800 amps service and disconnect switch to 480
volts, meter pan and riser to a location in the 8th floor acceptable to
both Landlord and Tenant.
2. Landlord will provide perimeter baseboard heat along the eastern side of
the window line within the 8th Floor Space in the office area of such space
only.
3. The 8th Floor Space will be demised as per Schedule A-II.
4. Landlord will remove the access hatch located on the roof and replace it
with a poured concrete slab which is waterproofed, by December 24, 1996.
5. Landlord shall put up building standard demising walls along the western
side of the Eighth Floor Space, as to divide the Eighth Floor Space from PR
Newswire's space, as shown on Exhibit A-II, by December 18, 1996.
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SCHEDULE D
ARCADE AREA AND SECOND FLOOR SPACE
[Diagrams of Arcade Area and Second Floor Space]
D-1
<PAGE>
SCHEDULE E
CLEANING AND JANITORIAL SERVICES
--------------------------------
A. Nightly Personnel:
-----------------
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring
to be swept nightly using approved dust-down preparations; wash
flooring weekly, scrub when necessary.
All unwaxed flooring used as corridors adjacent to the core shall be
cleaned and wet mopped weekly.
2. All linoleum, vinyl, rubber, asphalt, tile and other similar types of
flooring (that may be waxed) to be swept nightly using approved dust-
down preparation. Waxing, if any, shall be done at Tenant's expense.
Mop up and wash floors for spills, smears and foot tracks throughout,
including the Demised Premises, as needed and wash floor in general as
required.
3. All carpeting and rugs to be vacuumed nightly.
4. Hand dust with treated cloth and wipe clean all furniture, fixtures
and custom wooden window enclosures nightly.
5. Empty and clean all waste receptacles nightly and remove from the
Demised Premises wastepaper to designated areas.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Dust interior of all waste disposal cans and baskets nightly; damp-
dust as necessary.
8. Wash clean all water fountains and coolers nightly.
9. Dust all floor and other ventilating louvres within reach; damp wipe
as necessary.
10. Dust all telephones as necessary.
11. Keep locker and slop sink rooms in a neat and orderly condition at all
times.
12. Wipe clean and polish all brass, if necessary, and other bright work
nightly.
13. Sweep all private staircases nightly.
14. Metal doors of all elevator cars to be properly maintained.
E-1
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15. Remove all gum and foreign matter on sight.
16. Clean all glass furniture tops as needed.
17. Collect and remove wastepaper, cardboard boxes and waster material.
18. Dust and wash closet and coat room shelving, coat racks and flooring.
B. Periodic Cleaning:
-----------------
1. Vacuum all furniture fabric and drapes not less than once a month.
2. Wash and remove all finger marks, ink stains, smudges, scuff marks and
other marks from metal partitions, sills, and all vertical surfaces
(doors, walls, window sills) including elevator doors, as necessary.
Clean and sweep all vacant areas as necessary.
3. Dust and clean electric fixtures, all baseboards and other fixtures or
fittings as necessary, but not less than once each month.
C. High Dusting. (To be performed once every three (3) months, unless
------------
otherwise specified), and to include, without limitation:
1. Vacuum and dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning. Damp dust as required.
2. Vacuum and dust all vertical surfaces such as walls, partitions,
doors, bucks, ventilating louvres, grilles, high moldings and other
surfaces not reached in nightly cleaning.
3. Dust all overhead pipes, sprinklers, ventilating and air conditioning
louvres, ducts, high moldings and other high areas not reached in
nightly cleaning.
4. Dust all venetian blinds. Dust all window frames.
5. Dust exterior or lighting fixtures.
6. Wash all furniture glass as needed.
7. Vacuum and dust ceiling tiles around ventilators and clean air
conditioning diffusers as required.
E-2
<PAGE>
SCHEDULE F
FORM OF ESTOPPEL CERTIFICATE
The undersigned ______________ ("Tenant"), in consideration of One Dollar
($1.00) and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, hereby certifies to __________________ ("Landlord"),
[the holder of any mortgage covering the property] (the "Mortgagee") and [the
vendee under any contract of sale with respect to the Property] (the
"Purchaser") as follows:
1. Tenant executed and exchanged with Landlord a certain lease (the
"Lease"), dated ______________, 1996, covering the fourth and eighth floor shown
hatched on the plan annexed hereto as Schedule A (the "Demised Premises") in the
building known as Plazas II and III in the office complex known as the
Harborside Financial Center located in Jersey City, New Jersey (the "Property"),
for a term to commence (or which commenced) on ____________, 1996, and to expire
on _______________.
2. The Lease is in full force and effect and has not been modified,
changed, altered or amended in any respect.
3. Tenant has accepted and is now in possession of the Demised Premises
and is paying the full rental under the Lease.
4. The Basic Annual Rent payable under this Lease is $___________. The
Basic Annual Rent and all additional rent and other charges required to be paid
under the Lease have been paid for the period up to and including
________________.
5. No rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
6. All work required under the Lease to be performed by Landlord has been
completed to the full satisfaction of Tenant.
7. There are no defaults existing under the Lease on the part of either
Landlord or Tenant.
8. There is no existing basis for Tenant to cancel or terminate the lease.
9. As of the date hereof, there exists no valid defense, offsets, credits,
deductions in rent or claims against the enforcement of any of the agreements,
terms, covenants or conditions of the Lease.
10. Tenant affirms that any disputes with Landlord giving rise to a claim
against Landlord is a claim under this Lease only and is subordinate to the
rights of the holder of the first institutional permanent mortgage of the fee or
leasehold of the building and shall be subject to all
F-1
<PAGE>
the terms, conditions and provisions thereof. Any such claims are not offsets to
or defense against enforcement of this Lease.
11. Tenant affirms that any dispute with Landlord giving rise to a claim
against Landlord is a claim under this Lease only and is subordinate to the
rights of the Purchaser pursuant to any contract of sale. Any such claims are
not offsets to or defense against enforcement of this Lease.
12. Tenant affirms that any claims pertaining to matters in existence at
the time Tenant took possession and which are known to or which were then
readily ascertainable by Tenant shall be enforced solely by money judgment
and/or specific performance against the Landlord named in the Lease and may not
be enforced as an offset to or defense against enforcement of this Lease.
13. There are no actions, whether voluntary or otherwise, pending against
the Tenant under the bankruptcy laws of the United State or any state thereof.
14. There has been no material adverse change in Tenant's financial
condition between the date hereof and the date of the execution and delivery of
the Lease.
15. Tenant acknowledges that Landlord has informed Tenant that an
assignment of Landlord's interest in the Lease has been or will be made to the
Mortgagee and that no modification, revision, or cancellation of the Lease or
amendments thereto shall be effective unless a written consent thereto of the
Mortgagee is first obtained, and that until further notice payments under the
Lease may continue as heretofore.
16. Tenant acknowledges that Landlord has informed Tenant that Landlord
has entered into a contract to sell the Property to Purchaser and that no
modification, revision or cancellation of the Lease or amendments thereto shall
be effective unless a written consent thereto of the Purchaser has been
obtained.
17. This certification is made to induce Purchaser to consummate a
purchase of the Property and to induce Mortgagee to make and maintain a mortgage
loan secured by the Property, knowing that said Purchaser and Mortgagee rely
upon the truth of this certification in making and/or maintaining such purchase
of mortgage, as applicable.
18. Except as modified herein, all other provisions of the Lease are
hereby ratified and confirmed.
Date:
By: /s/ Richard S. Stoltz
-----------------------------
TENANT
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<PAGE>
SCHEDULE G
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators, Common Areas and other facilities
of the Property by other tenants. Fire exits and stairways are for emergency
use only, and they shall not be used for any other purposes by the tenants,
their employees, licensees or invitees. No tenant shall encumber or obstruct,
or permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, Common Areas, fire exits or
stairways of the Property. Landlord reserves the right to control and operate
the Common Areas in such manner as it deems best for the benefit of the tenants
generally.
2. The cost of repairing any damage to the Common Areas or to any
facilities used in common with other tenants, caused by a tenant or the
employees, licensees or invitees of the tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to
enter and leave the Building whenever appropriate arrangements have been
previously made between Landlord and Tenant with respect thereto. Each tenant
shall be responsible for all persons for whom he requests such permission and
shall be liable to the Landlord for all acts of such persons. Any person whose
presence in the Building at any time shall, in the judgment of Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building or may be ejected therefrom.
In case of invasion, riot, public excitement or other commotion Landlord may
prevent all access to the Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and protection of
property in the Building. Landlord may require any person leaving the Building
with any package or other object to exhibit a pass from the tenant from whose
premises the package or object is being removed, but the establishment and
enforcement of such requirements shall not impose any responsibility on Landlord
for the protection of any tenant against the removal of property from the
premises of the tenant. Landlord shall, in no way, be liable to any tenant for
damages or loss arising from the admission, exclusion or ejection of any person
to or from the tenant's premises or the Building under the provisions of this
rule.
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<PAGE>
4. Except as permitted in Section 21.03 of the Lease, no tenant shall
obtain or accept or use in its premises ice, drinking water, food, beverage,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by Landlord in writing to
furnish such services, provided always that charges for such services by persons
authorized by Landlord are not excessive. Such services shall be furnished only
at such hours, in such places within the tenant's premises and under such
regulations as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant and only such window blinds as are supplied or permitted
by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail any hand trucks, except those equipped with
rubber tires and side guards. All deliveries to tenants, except mail, shall be
made to such place designated by Landlord and shall be distributed to tenants
only during the hours from 8:00 A.M. to 12:00 noon and 2:00 P.M. to 4:00 P.M.,
Monday through Friday.
7. All entrance doors in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds or drapes therein above the ground floor shall be lowered
or closed when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of Landlord, might disturb other tenants in
the Complex shall be made or permitted by any tenant and no cooking shall be
done in any tenant's premises except as expressly approved by Landlord. Nothing
shall be done or permitted in any tenant's premises, and nothing shall be
brought into or kept in any tenant's premises, which would impair or interfere
with any of the Building services or the proper and economic heating, cleaning
or other servicing of the Building or the premises, or the use or enjoyment by
any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating air conditioning, electrical or other equipment of any
kind which, in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.
9. No tenant shall permit any cooking nor food odors emanating from the
tenant's premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purpose for which they were designed or constructed and
G-2
<PAGE>
no sweepings, rubbish, rags, acids or other foreign substances shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by the tenant who, or whose servants, employees, agents, visitors or
licensees, shall have caused the same.
11. No signs, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
of the premises or the Building without the prior written consent of Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred by
such removal to the tenant or tenants violating this rule. Interior signs and
lettering on doors and elevators shall be inscribed, painted, or affixed for
each tenant by Landlord at the expense of such tenant, and shall be of a size,
color and style acceptable to Landlord. Landlord shall have the right to
prohibit any advertising by any tenant which impairs the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord such tenant shall refrain from or discontinue such advertising.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from Landlord, which may make a
reasonable charge therefor. Upon the termination of a tenant's lease, all keys
to the tenant's premises and toilet rooms shall be delivered to Landlord.
13. Except as provided in Article 6 of the Lease, no tenant shall mark,
paint, drill into, or in way deface any part of the Building or the premises
demised to such tenant. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct. No tenant shall install any resilient tile or similar floor
covering in the premises demised to such tenant, except in a manner approved by
Landlord.
14. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant in the
Building. No tenant shall advertise for laborers giving an address at the
Building.
15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale or display of goods or merchandise of any kind, or as a
restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which involves direct patronage of the general public in
the premises demised to such tenant, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of the regular duties, unless under special instructions
from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
G-3
<PAGE>
18. No tenant shall permit its employees to loiter around the hallways,
stairways, elevators, front, roof or any other party of the Building used in
common by the occupants thereof.
19. Each tenant, at its sole cost and expense, shall cause its premises to
be exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
20. Any cuspidors or similar containers or receptacles used in any
tenant's premises shall be cared for and cleaned by and at the expense of the
tenant.
21. Tenants shall use only the service elevator for deliveries and only at
hours prescribed by Landlord. Bulky materials, as determined by Landlord, may
not be delivered during usual business hours but only thereafter. Tenants shall
pay for use of the service elevator at rates prescribed by Landlord.
22. The toilets, wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sanitary napkins, sweepings, rubbish, rags, acids or other substances shall be
deposited therein, and the expense of any breakage, stopping, or damage
resulting from the violation of this rule shall be borne by the tenant who, or
whose officers, agents, employees, contractors or invitees, shall have caused
it.
23. No tenant shall sweep or throw or permit to be swept or thrown from
its premises any dirt or materials or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the
Building. If Landlord has specifically agreed to remove a tenant's normal
office waste, same shall be placed in sealed plastic bags and delivered by
tenant to a single location designated by Landlord on tenant's floor.
24. No animals other live creatures may be kept in or about the Building.
25. Smoking or carrying lighted cigars or cigarettes in the elevators of
the Complex is prohibited.
26. All equipment using gas in any form, including without limitation
boilers, heaters, kilns, and cooking ovens, is required to have safety equipment
which will close off gas flow if the constant pilot or main flame is
extinguished. Gas leak detectors and alarms are to be used in all rooms and
areas where gas exists in any form. All areas must be vented and air
circulation guaranteed. All such equipment shall be installed only after
Landlord's written approval shall have been granted for same.
27. The speed limit within The Harborside Financial Center is 5 MPH.
Reckless, careless, or dangerous driving is forbidden. These restrictions will
be enforced by Property security and violators may have their right to drive
within The Harborside Financial Center revoked. Violators should immediately be
reported to the Building manager.
G-4
<PAGE>
SCHEDULE H
IRREVOCABLE DOCUMENTARY CREDIT NUMBER _____
APPLICANT
______________________________
______________________________
______________________________
______________________________
______________________________
BENEFICIARY AMOUNT
Institutional Realty Management LLC ______________________________
Plaza II ______________________________
______________________________
Harborside Financial Center EXPIRATION
Jersey City, New Jersey 07311 ______________________________
Dear Sir(s),
We hereby establish in your favor our Irrevocable Standby Letter of Credit
Number _____ which is available for payment of your drafts at sight, drawn on
the [Name of Bank] and bearing the clause "DRAWN UNDER [NAME OF BANK] CREDIT
NUMBER ___."
it is a condition of this Letter of Credit that it shall be deemed to be
automatically extended for a period of one year from the present or any future
expiration date unless we shall notify you by written notice mailed at least 30
days prior to such expiration date that we elect not to renew for such
additional period. In the event we elect not to renew for such additional
period, the amount of this Credit is available for payment of your draft credit
at sight, drawn on the [Name of Bank], Credit Number
We hereby engage with you that your drawings in conformity with the terms of
this Letter of Credit will be duly honored on presentation.
This Letter of Credit shall be transferable by the Beneficiary without
additional charge.
** This documentary credit is subject to the "Uniform Customs and Practice for
Documentary Credits" (1983 revision) International Chamber of Commerce
(Publication No. 400).
[NAME OF BANK]
______________________________ ______________________________
For Cashier For Cashier
H-1
<PAGE>
SCHEDULE J
ROOF PLAN
[Diagram of Roof Plan]
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<PAGE>
AMENDMENT OF LEASE
------------------
Amendment of Lease (this "Amendment"), dated as of April 29, 1997 between
---------
CAL-HARBOR II and III URBAN RENEWAL ASSOCIATES L.P., a New Jersey limited
partnership whose address is c/o Institutional Realty Management, LLC at Plaza
II, Harborside Financial Center, Jersey City, New Jersey 07311 ("Landlord") and
--------
EXODUS COMMUNICATIONS, INC., a California corporation whose address is at 2350
Mission College Blvd., Suite 705, Regency Plaza, Santa Clara, California 95054.
WITNESSETH:
----------
WHEREAS, pursuant to that certain Agreement of Lease, dated December 30,
1996, between Landlord and Tenant (the "Lease"), Tenant is leasing from Landlord
-----
2,900 rentable square feet on the fourth floor of Plaza II (the "Fourth Floor
------------
Space") in the office complex (the "Complex") known as "Harborside Financial
- ----- -------
Center" located in Jersey City, New Jersey and 8,661 rentable square feet on the
eighth floor of Plaza III in the Complex (the "Eighth Floor Space"; the Fourth
------------------
Floor Space and the Eighth Floor Space are collectively the "Original Space");
--------------
and
WHEREAS, Landlord and Tenant desire to amend the Lease to provide, among
other things, that Landlord lease to Tenant and Tenant hire from Landlord
certain space on the seventh (7th) floor of Plaza III in the Complex and that
Tenant surrender to Landlord the Fourth Floor Space, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. Defined Terms. All capitalized terms used herein but not defined shall
-------------
have the meanings ascribed to them in the Lease.
2. Lease of New Space. (a) Landlord hereby leases to Tenant and Tenant
------------------
hereby hires from Landlord, upon and subject to the terms and conditions of this
Amendment, the portion of the seventh floor of Plaza III substantially as shown
hatched on the floor plan attached hereto as Schedule A (the "New Space"), for a
---------- ---------
term (the "New Space Term") commencing on the date hereof (the "New Space
-------------- ---------
Commencement Date") and ending, unless sooner terminated as provided in the
- -----------------
Lease, on March 31, 2007, as the same may be extended by reason of the exercise
of the renewal option contained in Section 6 below. Landlord and Tenant confirm
---------
that the New Space consists of 19,811 rentable square feet. Effective as of the
New Space Commencement Date, the term "Demised Premises" shall mean the Original
----------------
Floor Space and the New Space collectively. Effective as of the New Space
Commencement Date, the rentable area of the Demised Premises set forth in
Section 1.01(b) of the Lease shall be deemed to refer to the Original Space
- ---------------
only.
(b) Landlord, at its expense, shall perform in the New Space the work
described in Schedule B attached hereto ("Landlords Work"). All other
---------- --------------
installations, materials
<PAGE>
and work which may be undertaken by Tenant to prepare, equip, decorate and
furnish the New Space for Tenant's occupancy (including without limitation
putting up demising walls in accordance with plans and specifications to be
approved by Landlord) shall be at Tenant's expense and shall be performed by
Tenant in accordance with Article 6 and all other applicable provisions of the
Lease.
3. Terms Applicable to New Space. The lease of the New Space by Tenant
-----------------------------
shall be on all of the terms and conditions of the Lease, except that:
(a) The term of the lease of the New Space shall be as set forth in
Section 2 above. The term "Expiration Date" shall mean March 31, 2007, as the
- --------- ---------------
same may be extended by reason of the exercise of the renewal option contained
in Section 6 below.
---------
(b) Except as set forth in Section 2(b) above, Landlord shall not be
------------
required to perform any work, pay any amount, install any fixtures or equipment
or render any services to make the Building or the New Space ready or suitable
for Tenant's use or occupancy, and Tenant shall accept the New Space in its "as
is" condition on the New Space Commencement Date.
(c) Basic Annual Rent with respect to the New Space shall be payable
from and after the date hereof and shall be payable at the following rates:
(i) with respect to the period commencing on the date (the "New
-------
Space Rent Commencement Date") which is 60 days after the date hereof to and
- ----------------------------
including October 31, 1997, Fifty-Nine Thousand Four Hundred Fifty and 00/100
Dollars ($59,450.00) per annum payable in equal monthly installments of Four
Thousand Nine Hundred Fifty-Four and 17/100 Dollars ($4,954.17), (ii) with
respect to the period commencing on November 1, 1997 to and including March
31, 2002, Four Hundred Forty Eight Thousand Four Hundred Three and 00/100
Dollars ($448,403) per annum payable in equal monthly installments of Thirty
Seven Thousand Three Hundred Sixty Six and 92/100 Dollars ($37,366.92) and
(iii) with respect to the period commencing on April 1, 2002 to and including
March 31, 2007, Four Hundred Seventy Two Thousand Five Hundred Sixty Four and
00/100 Dollars ($472,564) per annum payable in equal monthly installments of
Thirty Nine Thousand Three Hundred Eighty and 33/100 Dollars ($39,380.33).
The monthly installments of Basic Annual Rent shall be paid by Tenant
in advance on the first day of each calendar month during the New Space Term
from and after the New Space Rent Commencement Date, at the office of Landlord
or such other place as Landlord may designate, without any setoff or deduction
whatsoever, except such deductions as are specifically referred to in the Lease.
If the New Space Rent Commencement Date is other than the first day of a month,
Basic Annual Rent with respect to the New Space for such month shall be pro
rated on a per diem basis and Tenant shall pay the amount thereof for such
partial month on the New Space Rent Commencement Date.
(d) From and after the New Space Commencement Date, the term "Tenant's
--------
Tax Share" shall mean 1.90% (subject to adjustment as provided in Section
- ---------
3.01A(g) of the Lease).
-2-
<PAGE>
(e) From and after the New Space Commencement Date, the term "Tenant's
--------
Expense Share" shall mean 1.99% (subject to adjustment as provided in Section
- -------------
3.01A(g) of the Lease).
(f) Except as expressly provided in Section 6(c) below, Article 44 of
------------
the Lease shall not apply to the New Space. Tenant's only right to renew the
Lease with respect to the New Space shall be subject to and in accordance with
Section 6 below and all references in Article 44 of the Lease to the "Demised
- ---------
Premises" shall not include the New Space.
(g) Except as expressly provided in Section 6(c) below, Article 45 of
------------
the Lease shall not apply to the New Space and all references in Article 45 of
the Lease to the "Demised Premises" shall not include the New Space.
4. Surrender of Fourth Floor Space. With respect to the Fourth Floor
-------------------------------
Space only, the Term shall end on the day immediately preceeding the New Space
Rent Commencement Date, on which day Tenant shall surrender and deliver to
Landlord vacant possession of the Fourth Floor Space and shall, with respect to
the Fourth Floor Space only, comply with all provisions of the Lease applicable
to the end of the Term (including without limitation, the payment to Landlord of
all Basic Annual Rent and Additional Rent applicable to the Fourth Floor Space
to and including such date). If Tenant fails to surrender and deliver vacant
possession of the Fourth Floor Space to Landlord on the New Space Rent
Commencment Date, Tenant shall constitute a holdover tenant in the Fourth Floor
Space and all of the provisions of Section 28.02 of the Lease shall apply to
such holdover by Tenant and, in addition to all of Landlord's rights and
remedies set forth in Section 28.02, Landlord shall have the right to give to
Tenant a notice of intention to end the Term at the expiration of five (5) days
from the date of service of such notice of intention, and upon the expiration of
said five (5) days the Lease (as amended hereby), and the term and estate
granted by the Lease and this Amendment shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 18 of the Lease. From the New Space Commencement Date
until the later of the day immediately preceeding the New Space Rent
Commencement Date and the date that Tenant surrenders the Fourth Floor Space to
Landlord in accordance with this Section 4, Tenant shall comply with all of the
---------
terms and provisions of the Lease (as amended hereby) with respect thereto
(including without limitation the payment to Landlord of Basic Annual Rent and
Additional Rent).
5. Security. (a) On the date hereof, Tenant has increased the security
--------
deposited with Landlord pursuant to Article 40 of the Lease by delivering to
Landlord an unconditional irrevocable letter of credit (as defined in the Lease)
in an amount equal to Two Hundred Thousand and 00/100 Dollars ($200,000), as
further security for the full and punctual performance by Tenant of all of the
terms of the Lease. Such letter of credit is in addition to the security
previously deposited with Landlord under Article 40 of the Lease. Such letter
of credit shall be held and applied by Landlord in accordance with the
provisions of Section 40.01 of the Lease and such provisions are hereby
incorporated by reference and made a part hereof as if fully set forth herein.
-3-
<PAGE>
(b) So long as Tenant is not then in default under the Lease and no
monetary default or material non-monetary default under the Lease shall have
previously occurred, Tenant shall have the right, by a Reduction Notice given to
Landlord at any time after each Reduction Date, to reduce the amount of security
held by Landlord pursuant to this Section 5(b) by $20,000.00. If Tenant
------------
properly gives a Reduction Notice to Landlord, Landlord shall return such letter
of credit to Tenant; provided, that Tenant has delivered to Landlord a
--------
substitute letter of credit in an amount equal to the difference between the
amount of the letter of credit which Landlord is returning to Tenant less
$20,000.00. Anything to the contrary contained in this Section 5(b)
------------
notwithstanding, in no event shall the amount of security held by Landlord
pursuant to this Section 5(b) be less than $100,000.00. Landlord agrees to
------------
reasonably cooperate with Tenant to substitute any letter of credit in
accordance with this Section 5(b); provided, that, such cooperation shall be
------------ -------- ----
without expense or liability to Landlord. If at any time Tenant shall be in
monetary default or material non-monetary default under the Lease, this Section
-------
5(b) shall be null and void and of no further force and effect and Tenant shall
- ----
have no further right to reduce the amount of security held by Landlord pursuant
to this Sectioh 5(b).
------------
(c) All references in this Section 5 to "the Lease" shall mean the
---------
Lease as amended by this Amendment.
6. Renewal Right. (a) Provided that (i) both when it exercises the
-------------
option to extend described below and when the New Space Extended Term (as
defined below) commences (A) the Lease is in full force and effect and (B) the
party executing this Amendment occupies at least 90% of the New Space and (ii)
Tenant's right to extend the Lease with respect to the New Space pursuant to
this Section 6 shall not have been rendered null and void in accordance with
---------
Section 6(c)(ii) below, Tenant shall have the option to extend the term of the
- ----------------
Lease with respect to the entire New Space only (it being understood that this
Section 6 is not applicable to the remainder of the Demised Premises) for an
- ---------
additional term commencing on April 1, 2007 and ending on May 31, 2010 (the "New
---
Space Extended Term"). Such option to extend the term of this Lease with
- -------------------
respect to the New Space may be exercised only by Tenant giving written notice
to Landlord on or before March 31, 2006. It is expressly agreed that Tenant
shall not have an option to extend the term of the Lease with respect to the New
Space beyond the expiration of the New Space Extended Term. If the Lease shall
be terminated before the commencement of the New Space Extended Term, Tenant's
option to extend the term of the Lease with respect of the New Space, or its
exercise thereof, or the New Space Extended Term or lease created by any such
exercise, shall be abrogated and rendered null and void. If Tenant fails to
timely give such notice, Tenant's option to extend the Lease with respect to the
New Space shall be terminated and be deemed waived by Tenant.
(b) Upon Tenant's giving notice of its election to extend the term of
the Lease with respect to the New Space for the New Space Extended Term pursuant
to subparagraph (a) above, the Lease shall be deemed automatically amended as of
April 1, 2007 as follows: (i) the Basic Annual Rent with respect to the New
Space shall be the greater of (x) the Basic Annual Rent payable under this
Amendment with respect to the New Space immediately prior to March 31, 2007 or
(y) the fair market rent for the New Space for the New Space Extended Term as
determined pursuant to subparagraph (c) below; and (ii) the Expiration Date of
the New Space
-4-
<PAGE>
Extended Term shall be May 31, 2010. Tenant and Landlord shall promptly
execute and deliver an appropriate modification of the Lease to evidence said
amendment.
(c) (i) Notwithstanding anything in this Agreement to the contrary,
if (A) Tenant timely exercises the option to extend the term of the Lease with
respect to the New Space in accordance with this Section 6 and (B) Tenant either
---------
exercises its right of renewal pursuant to Article 44 of the Lease or exercises
its Offer Space Option pursuant to Section 45.01 of the Lease and (C) the AICPA
Tenant (as defined below) does not lease the New Space for a term commencing on
or after July 1, 2010, then effective as of July 1, 2010 the New Space Extended
Term shall automatically be extended for a period commencing on July 1, 2010 and
ending on the last day of the Extended Term if Tenant exercised its right of
renewal pursuant to Section 44 of the Lease or the expiration date set forth in
the Offer Notice if Tenant exercised the Offer Space Option pursuant to Section
45.01 of the Lease. Such extension period shall be upon all of the terms and
provisions applicable to the Extended Term pursuant to Article 44 of the Lease
or the Offer Space Option pursuant to Section 45.01 of the Lease, as applicable,
except that the Basic Annual Rent with respect to the New Space shall be the
greater of the Basic Annual Rent payable under this Amendment with respect to
the New Space immediately prior to July 1, 2010 and the Basic Annual Rent
payable by Tenant with respect to the Extended Term or the Offer Space, as
applicable. "AICPA Tenant" means American Institute of Certified Public
------------
Accountants and its successors and assigns under that certain lease dated May
15, 1991, as amended.
(ii) Landlord shall have the right to inform Tenant in either
the PR Extension Notice or the Offer Notice that the AICPA Tenant has no
further right to lease the New Space. If Landlord so notifies Tenant then
(A) Article 44 or Article 45, as applicable, shall apply to the New
Space, (B) all references in Article 44 or Article 45, as applicable, to
the "Demised Premises" shall include the New Space, (C) Tenant shall only
have the right to extend the term of the Lease for the Extended Term
pursuant to Article 44 for the entire Demised Premises, including,
without limitation, the New Space or to exercise its Offer Space Option
pursuant to Section 45 for the entire Demised Premises, including,
without limitation, the New Space and (D) Tenant's right to extend the
term of the Lease with respect to the New Space only pursuant to this
Section 6 shall be null and void and of no further force and effect.
---------
(d) (i) For purposes of this Section 6, in such instances that it is
---------
provided that Tenant shall pay a "fair market rent" as Basic Annual Rent with
respect to the New Space, such fair market rent shall be proposed by Landlord
giving notice therefor (a "FMR Notice"), not later than October 1, 2006.
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(ii) Within thirty (30) days after Landlord gives a FMR Notice,
Tenant shall notify Landlord as to whether or not it agrees with Landlord's
proposed fair market rent, and if it does not so agree, Tenant shall in such
notice submit to Landlord its proposed fair market rent. If Tenant fails to
respond as aforesaid within said 30 day period, Tenant hereby agrees that it
shall be deemed conclusively to have agreed to the fair market rent proposed
by Landlord.
-5-
<PAGE>
(iii) If Landlord and Tenant do not agree upon the fair market
rent, the matter shall be submitted to arbitration in accordance with the
provisions of Article 43 of the Lease, subject, however, to the following
modifications:
(A) the arbitrator selected shall have at least five
years' experience in the leasing or management of office space in the northern
New Jersey office market. The fees and expenses of the arbitrator and all
other expenses (not including the attorneys' fees, witness fees and similar
expenses of the parties which shall be borne separately by each of the
parties) of the arbitration shall be borne equally by the parties hereto;
(B) within two business days after the appointment of the
arbitrator, there shall be submitted to the arbitrator the FMR Notice
containing Landlord's proposed fair market rent and a copy of Tenant's
response thereto containing Tenant's proposed fair market rent;
(C) within ten (10) business days thereafter, the
arbitrator shall select either the fair market rent proposed by Landlord or
Tenant, whichever the arbitrator determines is closest to his determination of
the fair market rent for the New Space.
(D) in rendering such decision, the arbitrator shall
determine the fair market rent that would be agreed upon by Landlord and a new
unrelated third party tenant, and in connection therewith shall assume all of
the following: (A) the Landlord and prospective tenant are typically
motivated; (B) the Landlord and prospective tenant are well informed and well
advised and each is acting in what it considers its own best interest; (C) a
reasonable time under then-existing market conditions is allowed for exposure
of the New Space on the open market; (D) the rent is unaffected by
concessions, special financing amounts and/or terms, or unusual services,
fees, costs or credits in connection with the leasing transaction; (E) the New
Space is fit for immediate occupancy and use "as-is" and require no additional
work by Landlord and that no work has been carried out thereon by the Tenant,
its subtenant, or their predecessors in interest during the term which has
diminished the rental value of the New Space; (F) in the event the New Space
has been destroyed or damaged by fire or other casualty, it has been fully
restored; (G) that the New Space is to be let with vacant possession and
subject to the provisions of the Lease for a 5-year term; (H) market rents
then being charged for comparable space in other similar office buildings in
the same area; (I) the computation of the number of rentable square feet
contained in the New Space shall be based on the standard of measurement for
such square footage then obtaining in the Building but in no event less than
the square footage specified in Section 2 above; (J) the Base Tax Year and the
---------
Base Operating Year shall be as stated in the Lease and (K) a full brokerage
commission shall be payable by Landlord, on then market terms. In rendering
such decision and award, the arbitrator shall not modify the provisions of the
Lease.
(E) the decision and award of the arbitrator shall be in
writing and be final and conclusive on all parties and counterpart copies
thereof shall be delivered to each of said parties. Judgment may be had on the
decision and award of the arbitrator so rendered in any court of competent
jurisdiction.
-6-
<PAGE>
(iv) In the event that any payment of Basic Annual Rent with respect
to the New Space is due hereunder prior to the determination of the arbitrator,
Tenant shall pay as the Basic Annual Rent with respect to the New Space it is
obligated to pay under the Lease the amount set forth in the FMR Notice. If the
arbitrator determines that the Basic Annual Rent payable pursuant to this
Section 6 is less than that set forth in the FMR Notice, then Tenant shall be
- ---------
entitled to a credit in the amount of its overpayment for such period against
subsequent payments of Basic Annual Rent or additional rent due under the Lease
with respect to the New Space.
(e) Nothing contained in this Section 6 shall be deemed in any way to
---------
alter or modify the provisions of Article 3 of the Lease.
(f) All references in this Section 6 to "the Lease" shall mean the
---------
Lease as amended by this Amendment.
7. Subject to Landlord's prior approval, not to be unreasonably withheld
or delayed, Tenant shall have the right, subject to and in accordance with
Article 46 of the Lease, to use a portion of the roof of Plaza III as designated
on Schedule C attached hereto consisting of approximately 1,200 usable square
----------
feet to install, maintain and operate, at its sole cost and expense, condensers
serving the Demised Premises. All references in Article 46 to the "Roof
Equipment" shall be deemed to include such condensers and all of the terms and
provisions of Article 46 shall apply hereto with the same force and effect as if
said Article 46 were set forth herein in its entirety. Tenant shall, at its
sole cost and expense, add additional dunnage on two (2) bays of 20' x 20' to
the west of the Roof Equipment existing on the date hereof in the same
configuration as such existing Roof Equipment (with 5' overhangs on each side).
8. Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
150 rentable square feet on the first floor of Plaza III substantially as shown
on the plan attached hereto as Schedule D (the "Additional First Floor Space")
---------- ----------------------------
commencing on the date of this Amendment and expiring on the Expiration Date
(unless the Term shall sooner cease and terminate as provided in the Lease) and
otherwise upon all of the terms and conditions set forth in Article 47 of the
Lease, including, without limitation, that (i) Tenant shall pay to Landlord as
basic annual rent for the Additional First Floor Space an annual amount equal to
$10 per rentable square foot contained in the Additional First Floor Space,
payable from and after the date of this Amendment in equal monthly installments
appropriately pro rated for any partial month and otherwise payable in the same
manner as Basic Annual Rent with respect to the Demised Premises. Tenant agrees
to use its best efforts to use its current First Floor Space to store an
additional fuel tank in accordance with all applicable laws and regulations,
provided, that, if Tenant is unable to use its current First Floor Space as
- -------- ----
provided in this sentence, and Tenant so notifies Landlord of such inability
within 10 days of the date of this Agreement (time of the essence), in addition
to the Additional First Floor Space being provided herein, Landlord shall lease
to Tenant and Tenant shall hire from Landlord an additional 100 rentable square
feet substantially as shown cross hatched on Schedule D ,which additional 100
----------
rentable square feet as of the date (the "Additional Inclusion Date") of
-------------------------
Tenant's notice to Landlord provided above, shall constitute part of the
Additional First Floor Space as defined above and shall be subject to
-7-
<PAGE>
all the terms and provisions of this paragraph and the Lease including,
without limitation, that Tenant shall pay to Landlord basic annual rent for
such additional space from and after the Additional Space Inclusion Date, an
annual amount equal to ten ($10.00) dollars per rentable square foot therein.
All references in Article 47 to the "First Floor Space" shall be deemed to
include the Additional First Floor Space and all of the terms and provisions
of Article 47 shall apply to the Additional First Floor Space with the same
force and effect as if said Article 47 were set forth herein in its entirety.
9. Landlord agrees that the New Space shall accommodate eight 4" conduits
and four 2" conduits between the New Space and the Eighth Floor Space. If the
conduits pass through the plenum of the adjacent 7th Floor tenant, Tenant shall
be responsible for mounting such conduits flush to the underside of the slab on
a to be determined route, in accordance with the terms of the Lease, including
without limitation Articles 6 and 7, and subject to the rights of other tenants
with in relation to such space. Landlord also agrees to provide such conduits
between the Additional First Floor Space and the New Space as is reasonably
necessary to supply power from Tenant's generator to the New Space.
10. (a) Tenant covenants, represents and warrants that Tenant has had no
dealings or negotiations with any broker or agent other than Institutional
Realty Management, LLC (representing landlord) and Cushman & Wakefield
(representing Tenant) in connection with the consummation of this Amendment, and
Tenant covenants and agrees to pay, hold harmless and indemnify Landlord from
and against any and all cost, expense (including reasonable attorneys' fees and
court costs), loss and liability for any compensation, commissions or charges
claimed by any broker or agent, other than Institutional Realty Management, LLC,
with respect to this Amendment or the negotiation thereof if such claim or
claims by any such broker or agent are based in whole or in part on dealing with
Tenant or its representatives. Landlord agrees to pay to Institutional Realty
Management, LLC such compensation, commissions or charges to which it is
entitled pursuant to a separate agreement between said broker and Landlord.
(b) Landlord covenants and agrees to pay, hold harmless and indemnify
Tenant from and against any and all costs, expenses (including reasonable
attorneys' fees and court costs), loss and liability for any compensation,
commissions or charges in connection with this Amendment or the negotiation
thereof, claimed under any circumstance by Institutional Realty Management, LLC,
or claimed by any other broker or agent if the claims by such other brokers or
agents are based in whole or part on dealings with Landlord or its
representatives and not with Tenant or its representatives.
11. This Amendment shall be binding upon and inure to the benefit of
Landlord and Tenant and their respective permitted successors and assigns.
12. This Amendment represents the understanding of the parties hereto with
respect to the subject matter hereof.
13. As amended hereby, the Lease is hereby ratified and confirmed in all
respects and shall continue in full force and effect. In the event of any
conflict between the terms of the Lease and this Amendment, the terms of this
Amendment shall govern.
-8-
<PAGE>
14. This Amendment shall be governed by and construed in accordance with
the laws of the State of New Jersey, without giving effect to the conflicts of
law principles thereof.
15. This Amendment may be executed in counterparts each of which when
taken together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
Cal-Harbor II and III Urban Renewal
Associate L.P., Landlord
Cali Sub X Inc., its general partner
/s/ James G. Nugent
By: __________________________________
James G. Nugent
Vice-President
Exodus Communications, Inc., Tenant
/s/ Richard S. Stoltz
By: __________________________________
Name: Richard S. Stoltz
Title: Chief Executive Officer
-9-
<PAGE>
STATE OF NEW JERSEY)
:
COUNTY OF UNION)
On this 30th day of April, 1997, before me personally came James G.
Nugent, to me known, who, being duly sworn by me, did depose and say that he
resides in Belmar, New Jersey, that he the Vice-President of Cali Sub X,
Inc., the corporation described in and which executed the above instrument on
behalf of Cal-Harbor II and III urban Renewal Associates L.P. and that he signed
his name thereto by order of the board of directors of said corporation.
/s/ Veronica E. Seifert
______________________________
Notary Public
STATE OF CALIFORNIA)
:
COUNTY OF SANTA CLARA)
On this 21st day of April, 1997, before me personally came to Richard S.
Stoltz, to me known, who, being duly sworn, did depose and say that he resides
in California, that he is the Chief Operating Officer/Chief Executive Officer
of Exodus Communications, Inc., the corporation described in and which
executed the above instrument and that he signed his name thereto by order of
the board of directors of said corporation.
/s/ Susan Butler
______________________________
Notary Public
-10-
<PAGE>
SCHEDULE A
[DIAGRAM OF NEW SPACE]
-11-
<PAGE>
SCHEDULE B
LANDLORD'S WORK
Landlord shall provide:
. A 13,200 volt riser providing the equivalent of 2,400 AMPS at 460
volts will be brought to the New Space. This riser will service both the New
Space (1,600 AMPS) and the Eighth Floor Space (800 AMPS). Tenant will be
responsible for stepping down and providing panels and will transfer the
existing 800 AMP service off the building buss duct and connect it to this new
service [as discussed with John Stewart].
. Remove tiles from floor.
. Demolish and remove the power and maintenance rooms on the floor.
. Repair or replace, as necessary perimeter base board heating units
on all sides.
. Repair or replace, as necessary window blinds on all three sides.
-12-
<PAGE>
SCHEDULE C
[DIAGRAM OF RENTABLE SQUARE FEET]
-13-
<PAGE>
SCHEDULE D
[DIAGRAM OF ADDITIONAL RENTABLE SPACE]
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<PAGE>
SECOND AMENDMENT OF LEASE
-------------------------
Second Amendment of Lease (this "Amendment"), dated as of January 27, 1998
---------
between CAL-HARBOR II and III URBAN RENEWAL ASSOCIATES L.P., a New Jersey
limited partnership whose address is c/o Mack/Cali Realty Corporation, 11
Commerce Drive, Cranford, New Jersey 17016 ("Landlord") and EXODUS
--------
COMMUNICATIONS, INC., a California corporation whose address is at 2650 San
Tomas Expressway, Santa Clara, CA, 95051 ("Tenant").
------
WITNESSETH:
----------
WHEREAS, pursuant to that certain Agreement of Lease, dated December 30,
1996, between Landlord and Tenant (the "Original Lease"), which Lease has been
--------------
amended by an Amendment of Lease dated April 29, 1997 (the "First Amendment";
---------------
the Original Lease and the First Amendment collectively referred to as the
"Lease"), Tenant is leasing from Landlord certain space as described in the
- ------
Lease, on the First floor, Seventh Floor and Eighth Floor in the office complex
(the "Complex") known as "Harborside Financial Center" located in Jersey City,
-------
New Jersey the "Original Space"); and
--------------
WHEREAS, Landlord and Tenant desire to amend the Lease to provide, among
other things, that Landlord lease to Tenant and Tenant hire from Landlord
certain additional space on the first (1st) and seventh (7th) floors of Plaza
III in the Complex, all upon the terms and conditions set forth herein.
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. Defined Terms. All capitalized terms used herein but not defined shall
-------------
have the meanings ascribed to them in the Lease.
2. Lease of New Space. (a) Landlord hereby leases to Tenant and Tenant
------------------
hereby hires from Landlord, upon and subject to the terms and conditions of this
Amendment, (x) the portion of the seventh floor of Plaza III substantially as
shown hatched on the floor plan attached hereto as Schedule A (the "Supplemental
---------- ------------
Seventh Floor Space") and (y) the portion of the first floor of Plaza III
- -------------------
substantially as shown hatched on the floor plan attached hereto as Schedule B
----------
(the "Supplemental First Floor Space"; collectively with the Supplemental
------------------------------
Seventh Floor Space the "New Space"), for a term (the "New Space Term")
--------- --------------
commencing on the date hereof (the "New Space Commencement Date") and ending,
---------------------------
unless sooner terminated or extended as provided in the Lease, on March 31,
2007, upon all of the terms and provisions set forth in the Lease, except Tenant
shall pay to Landlord a basic rent for the New Space as set forth below.
Landlord and Tenant confirm that the Supplemental Seventh Floor Space consists
of 18,250 rentable square feet and that the Supplemental First Floor Space
consists of 792 rentable square feet. Effective as of the New Space
Commencement Date, the term "Demised Premises" shall mean the Original Space and
----------------
the New Space collectively.
(b) Landlord, at its expense, shall perform in the Supplemental Seventh
Floor Space the work described in Schedule C attached hereto ("Landlord's
---------- ----------
Work"). All
<PAGE>
other installations, materials and work which may be undertaken by Tenant to
prepare, equip, decorate and furnish the New Space for Tenant's occupancy
shall be at Tenant's expense and shall be performed by Tenant in accordance
with Article 6 and all other applicable provisions of the Lease.
3. Terms Applicable to New Space. The lease of the New Space by Tenant
-----------------------------
shall be on all of the terms and conditions of the Lease, except that:
(a) The term of the lease of the New Space shall be as set forth in
Section 2 above. The term "Expiration Date" shall mean March 31, 2007, as the
- ---------------
same may be extended by reason of the exercise of the renewal option contained
in Section 6 of the First Amendment.
---------
(b) Section 1.01(b) shall be deleted in its entirety and replaced
with the following:
"The parties hereby acknowledge that for all purposes of this
Lease the demised premises shall be deemed to contain 47,800
rentable square feet."
(c) (i) Basic Annual Rent with respect to the Supplemental Seventh
Floor Space shall be payable on the date occurring in the fifth (5) month after
the New Space Commencement Date which is the same numerical date in the month as
the New Space Commencement Date (the "Supplemental Seventh Floor Rent
-------------------------------
Commencement Date") except that if no same numerical date shall exist in such
- -----------------
5th month, the Supplemental Seventh Floor Rent Commencement Date shall be the
last day of such 5th month.
(ii) Basic Annual Rent with respect to the Supplemental First
Floor Space shall be payable on the New Space Commencement Date (the
"Supplemental First Floor Space Rent Commencement Date").
-----------------------------------------------------
(d) (i) Basic Annual Rent with respect to the Supplemental Seventh
Floor Space shall be payable from and after the Supplemental Seventh Floor Space
Rent Commencement Date and shall be payable at the following rates:
(x) with respect to the period commencing on the
Supplemental Seventh Floor Space Rent Commencement Date to and including July
31, 2002, Four Hundred Twenty Eight Thousand Eight Hundred Seventy Five and
00/100 Dollars ($428,875.00) per annum payable in equal monthly installments
of Thirty Five Thousand Seven Hundred Thirty Nine and 58/100 (35,739.58); and
(y) with respect to the period commencing on August 1, 2002
to and including March 31, 2007, Four Hundred Forty Seven Thousand One Hundred
Twenty Five and 00/100 Dollars ($447,125.00) per annum payable in equal
monthly installments of Thirty Seven Thousand Two Hundred Sixty and 42/100
($37,260.42).
2
<PAGE>
(ii) Basic Annual Rent with respect to the Supplemental First Floor
Space shall be payable from and after the Supplemental First Floor Rent
Commencement Date to and including March 31, 2007, at the rate of Seven Thousand
Nine Hundred Twenty and 00/100 Dollars ($7,920.00) per annum payable in equal
monthly installments of Six Hundred Sixty and 00/100 Dollars ($660.00).
The monthly installments of Basic Annual Rent shall be paid by Tenant
in advance on the first day of each calendar month during the New Space Term
from and after the Supplemental Seventh Floor Space Rent Commencement Date and
the Supplemental First Floor Space Rent Commencement Date, at the office of
Landlord or such other place as Landlord may designate, without any setoff or
deduction whatsoever, except such deductions as are specifically referred to in
the Lease. If the Supplemental Seventh Floor Space Rent Commencement Date or
the Supplemental First Floor Space Rent Commencement Date is other than the
first day of a month, Basic Annual Rent with respect to the applicable space for
such month shall be pro rated on a per diem basis and Tenant shall pay the
amount thereof for such partial month on the Supplemental Seventh Floor Space
Rent Commencement Date or the Supplemental First Floor Space Rent Commencement
Date, as applicable.
(e) From and after the New Space Commencement Date, the term "Tenant's
--------
Tax Share" shall mean 3.19% (subject to adjustment as provided in Section
- ---------
3.01A(g) of the Lease).
(f) From and after the New Space Commencement Date, the term "Tenant's
--------
Expense Share" shall mean 3.34% (subject to adjustment as provided in Section
- -------------
3.01A(g) of the Lease).
(g) Except as expressly provided in Section 6(c) of the First
------------
Amendment, Article 44 of the Lease shall not apply to the New Space. Tenant's
only right to renew the Lease with respect to the New Space shall be subject to
and in accordance with Section 6 of the First Amendment, all references in
---------
Article 44 of the Lease to the "Demised Premises" shall not include the New
Space and all references in Section 6 of the First Amendment shall mean,
---------
collectively, the New Space (as defined in the First Amendment) and the New
Space (as defined in this Amendment).
(h) Except as expressly provided in Section 6(c) of the First
------------
Amendment, Article 45 of the Lease shall not apply to the New Space and all
references in Article 45 of the Lease to the "Demised Premises" shall not
include the New Space.
(i) Landlord and Tenant hereby acknowledge that the Lease and the
First Amendment are hereby modified to provide that for all purposes of the
Lease (as amended by the First Amendment and this Amendment) (x) the First Floor
Space and the Additional First Floor Space are substantially as shown on
Schedule D attached hereto and (y) the First Floor Space and the Additional
- ----------
First Floor Space shall be deemed to contain 286 rentable square feet in the
aggregate. Landlord and Tenant hereby acknowledge that the option granted to
Tenant in Section 8 of the First Amendment to hire from Landlord an additional
100 rentable square feet
3
<PAGE>
substantially as shown cross hatched in Schedule D attached thereto is null
----------
and void and of no force and effect.
4. (a) Subject to Landlord's prior approval, not to be unreasonably
withheld or delayed, Tenant shall have the right, subject to and in accordance
with Article 46 of the Lease, to use a portion of the roof of Plaza III adjacent
to the space designated on Schedule C of the First Amendment consisting of
----------
approximately 1,000 usable square feet, substantially as shown cross hatched on
the Roof Dunnage Plan attached hereto as Schedule E, to install, maintain and
----------
operate, at its sole cost and expense, HVAC equipment serving the Demised
Premises (the "Additional Roof Equipment"). Tenant shall furnish detailed plans
-------------------------
and specifications for the Additional Roof Equipment (or any modification
thereof) to Landlord for its approval. All references in Article 46 to the
"Roof Equipment" shall be deemed to include the Additional Roof Equipment and
all of the terms and provisions of Article 46 shall apply hereto with the same
force and effect as if said Article 46 were set forth herein in its entirety.
(b) During the term of the Lease Tenant shall have the exclusive right
to the 13,200 volt riser provided by Landlord under the First Amendment, subject
to all of the applicable provisions of the Lease.
(c) Subject to Article 6 and other applicable provisions of the
Lease, Tenant shall have the right to install, at its sole cost and expense,
subject to space availability and Landlords prior approval of location, two (2)
four inch (4") telecommunication risers.
(d) Subject to Landlord's prior approval, Tenant shall have the right
(subject to compliance with all Legal Requirements) to increase the size of the
fuel tanks, at Tenant's sole cost and expense, in the First Floor Space and
Additional First Floor Space.
5. (a) Tenant covenants, represents and warrants that Tenant has had no
dealings or negotiations with any broker or agent other than Jones Lang Wooton
USA (representing landlord) in connection with the consummation of this
Amendment, and Tenant covenants and agrees to pay, hold harmless and indemnify
Landlord from and against any and all cost, expense (including reasonable
attorneys' fees and court costs), loss and liability for any compensation,
commissions or charges claimed by any broker or agent, other than Jones Lang
Wooton USA, with respect to this Amendment or the negotiation thereof if such
claim or claims by any such broker or agent are based in whole or in part on
dealing with Tenant or its representatives. Landlord agrees to pay to Jones
Lang Wooton USA such compensation, commissions or charges to which it is
entitled pursuant to a separate agreement between said broker and Landlord.
(b) Landlord covenants and agrees to pay, hold harmless and indemnify
Tenant from and against any and all costs, expenses (including reasonable
attorneys' fees and court costs), loss and liability for any compensation,
commissions or charges in connection with this Amendment or the negotiation
thereof, claimed under any circumstance by Jones Lang Wooton USA or claimed by
any other broker or agent if the claims by such other brokers or agents are
based in whole or part on dealings with Landlord or its representatives and not
with Tenant or its representatives.
4
<PAGE>
6. This Amendment shall be binding upon and inure to the benefit of
Landlord and Tenant and their respective permitted successors and assigns.
7. This Amendment represents the understanding of the parties hereto with
respect to the subject matter hereof.
8. As amended hereby, the Lease is hereby ratified and confirmed in all
respects and shall continue in full force and effect. In the event of any
conflict between the terms of the Lease and this Amendment, the terms of this
Amendment shall govern.
9. This Amendment shall be governed by and construed in accordance with
the laws of the State of New Jersey, without giving effect to the conflicts of
law principles thereof.
10. This Amendment may be executed in counterparts each of which when
taken together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
Cal-Harbor II and III Urban Renewal
Associate L.P., Landlord
Cali Sub X Inc., its general partner
/s/ James G. Nugent
By: ________________________________
James G. Nugent
Senior Vice-President
Exodus Communications, Inc., Tenant
/s/ Richard S. Stoltz
By: ________________________________
Name: Richard S. Stoltz
Title:
5
<PAGE>
STATE OF NEW JERSEY)
:
COUNTY OF UNION)
On this 27th day of January, 1998, before me personally came James G.
Nugent, to me known, who, being duly sworn by me, did depose and say that he
resides in Monmouth County, that he is the Senior Vice-President of Cali
Sub X, Inc., the corporation described in and which executed the above
instrument on behalf of Cal-Harbor II and III Urban Renewal Associates L.P. and
that he signed his name thereto by order of the board of directors of said
corporation.
/s/ Karen Okupniak
__________________________________
Notary Public
Karen Okupniak
Notary Public of New Jersey
My Commission Expires March 6, 2002
STATE OF CALIFORNIA)
:
COUNTY OF SANTA CLARA)
On this 22nd day of January, 1998, before me personally came Richard
Stoltz, to me known, who, being duly sworn, did depose and say that he resides
in California, that he is the Chief Operating Officer/Chief Financial Officer
of Exodus Communications, Inc., the corporation described in and which
executed the above instrument and that he signed his name thereto by order of
the board of directors of said corporation.
/s/ Mary L. Woods
__________________________________
Notary Public
Mary L. Woods
Comm. #1143967
Notary Public -- California
Santa Clara County
My Commission Expires June 27, 2001
6
<PAGE>
SCHEDULE A
SUPPLEMENTAL SEVENTH FLOOR SPACE
[DIAGRAM OF FLOOR SPACE]
<PAGE>
SCHEDULE B
SUPPLEMENTAL FIRST FLOOR SPACE
[DIAGRAM OF FLOOR SPACE]
<PAGE>
SCHEDULE C
LANDLORD'S WORK
Landlord shall:
. Repair or replace, as necessary perimeter base board heating units for 5,000
square feet of office space.
. Repair or replace, as necessary perimeter window blinds.
<PAGE>
SCHEDULE D
FIRST FLOOR SPACE AND ADDITIONAL FIRST FLOOR SPACE
[DIAGRAM OF FLOOR SPACE]
<PAGE>
SCHEDULE E
EXODUS ROOF DUNNAGE PLAN
[DIAGRAM OF ROOF EQUIPMENT]
<PAGE>
EXHIBIT 10.22
TECHNOLOGY GROUP
FINOVA FINANCIAL INNOVATORS
FINOVA TECHNOLOGY FINANCE, INC.
a subsidiary of
FINOVA CAPITAL CORPORATION
10 WATERSIDE DRIVE
FARMINGTON, CT 06032-3065
TEL 860 676 1818
860 678 4374
FAX 860 676 1814
December 17, 1997
Mr. Richard Stoltz
Chief Financial Officer
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, CA 95051
Dear Richard:
FINOVA Technology Finance, Inc. (the "Lessor") is pleased to offer to lease the
Equipment described below to Exodus Communications, Inc. (the "Lessee").
The outline of this Commitment is as follows:
Lessee: Exodus Communications, Inc.
- -------
Lessor: FINOVA Technology Finance, Inc.
- -------
Equipment: The Equipment to be financed shall include not less
- ----------
than 60% Hard Assets (including, but not limited to:
computers, workstations, generators, shelving, routers,
office furniture and equipment) and not more than 40%
Soft Costs (including, but not limited to: software,
cabling, construction building, and leasehold
improvements). Prior to delivery, the Lessee shall
provide the Lessor with the detail of the Equipment to
include the manufacturer, model and cost of the
Equipment to include the manufacturer, model and cost
of the Equipment. All Equipment shall be subject to
review by the Lessor for its acceptability to the
Lessor for this lease and shall have been acquired
since June 30, 1997.
Equipment Cost: Not to exceed $4,000,000. At Lease Term Commencement,
- ---------------
the Lessor shall hold back 10% of the Equipment Cost to
be funded. At the time the Lessee completes its Initial
Public Offering of common stock, with net proceeds to
the Lessee of at least $30 million, the amount held
back from funding shall be funded to the Lessee.
Equipment Location: Santa Clara, CA and Jersey City, NJ.
- -------------------
Lease Term
- ----------
Commencement: Upon delivery of the Equipment or upon each completion
- -------------
of deliveries of items of Equipment with aggregate cost
of not less than $500,000, but no later than March 31,
1998.
1
<PAGE>
Term: From each Lease Term Commencement until forty-two (42)
- -----
months from the 30th day of the month following or
coincident with that Lease Term Commencement.
Rent: Monthly Rent equal to 2.8672% of Equipment Cost shall
- -----
be payable monthly in advance. The first month's rent
shall be payable upon signing the lease.
Adjustment to
- --------------
Rental Payments: The Monthly Rent Payments as of the date of each Lease
- ----------------
Term Commencement shall be increased or decreased
proportionally to the change in highest yields on four-
year U.S. Treasury Securities from the week ending
November 143, 1997 ("Index Yield") to the week
preceding the date of each Lease Term Commencement, as
published in The Wall Street Journal. The Index Yield
for this commitment shall be 5.77%. As of the date of
each Lease Term Commencement, the Monthly Rent Payments
shall be fixed for the term.
Interim Rent: Interim Rent shall accrue from each Lease Term
- -------------
Commencement until the 29th day of the month (27th day
of the month in the case of February unless the Lease
Term Commencement is on the 30th or 31st day of a month
(28th day of the month in the case of February).
Interim Rent shall be at the daily equivalent of the
currently adjusted Monthly Payment.
Net Lease: The lease shall be a net lease containing the usual
- ----------
provisions in the Lessor's lease agreements and such
other or different provisions that are agreed to be the
parties. The Lessee shall be responsible for
maintenance, insurance, taxes, and all other costs and
expenses.
Taxes: Sales or use taxes shall be added to the Equipment
- ------
Cost or collected on the gross rentals, as appropriate.
Insurance: Prior to any delivery of Equipment, the Lessee shall
- ----------
furnish confirmation of insurance acceptable to the
Lessor covering the Equipment including against all
risks of loss damage with the Lessor as the loss payee
and for comprehensive public liability and property
damage with the Lessor as an additional insured.
Conditions to Closing: Conditions precedent to every Lease Term Commencement
- ---------------------
shall include that no payment is then past due to the
Lessor or any assign of the Lessor from the Lessee,
that the Lessee is in compliance with the provisions of
this Commitment and the lease, that information
requested by the Lessor and all documentation then
required by the Lessor's counsel has been received by
the Lessor
2
<PAGE>
including resolutions of the Board of Directors of the
Lessee authorizing the transactions contemplated by
this Commitment and an opinion of counsel for the
Lessee satisfactory to counsel for the Lessor is not in
default under any material contract to which it is a
party or by which it or its property is bound, and that
there has not been any material adverse change or
threatened material adverse change in the financial or
other condition, business, operations, properties,
assets or prospects of the Lessee since October 31,
1997 or from the written information that has been
supplied to the Lessor prior to the date of this
Commitment by the Lessee.
The Lessor shall not be responsible for any failure of
suppliers or manufacturers of the Equipment or their
distributors to perform their obligations to the Lessor
or the Lessee. The Lessee shall provide monthly
financial statements and status reports during the
commitment period.
Purchase Agreement: The Lessee shall purchase all (but not less than all)
- -------------------
the Equipment at the expiration of the term of the
lease for ten percent (10.)%) of the Equipment Cost,
plus applicable sales and other taxes.
Additional Covenants: There shall be no actual or threatened conflict with,
- ---------------------
or violation of, any regulatory statute, standard or
rule relating to the Lessee, its present or future
operations, or the Equipment.
All information supplied by the Lessee shall be correct
and shall not omit any statement necessary to make the
information supplied not be misleading. There shall be
no material breach of the representations and
warranties of the Lessee in the lease. The
representations shall include that the Equipment Cost
of each item of the Equipment does not exceed the fair
and usual price for like quantity purchases of such
item and reflects all discounts, rebates and allowances
for the Equipment given to Lessee, any affiliate of
Lessee by the manufacturer, supplier or anyone else
including, without limitation, discounts for
advertising, prompt payment, testing or other services.
Lessee shall provide confirmation that the facilities
lease at each of the locations at which the equipment
is located, has remaining term of at lease 125% of the
term contemplated herein.
Fees and Expenses: The Lessee and the Lessor shall be responsible for
- ------------------
their own respective fees and expenses in connection
with the transaction.
Commitment Fee: Simultaneously with the acceptance of the Commitment
- ---------------
by the Lessee, a nonrefundable Commitment Fee of
$40,000 shall be then
3
<PAGE>
due to the Lessor. The Commitment Fee shall be applied
on a pro-rata basis to the second month's Rent Payment
due under the lease. The Application Fee of $10,000
previously paid by the Lessee to Meier Mitchell &
Company shall be applied to the Commitment Fee.
Commitment Expiration: This commitment shall expire on December 23, 1997
- ----------------------
unless prior thereto either extended in writing by the
Lessor or accepted as provided below by the Lessee.
Survival: This Commitment Letter shall survive closing. However,
- ---------
if there is any conflict between the terms and
conditions of the Master Lease Agreement (or Lease
Schedules) and those of this Commitment Letter, the
Master Lease Agreement (Lease Schedules) shall control.
Should you have any questions, please call me. If you wish to accept this
commitment, please do so indicate by signing and returning the enclosed
duplicate copy of this letter together with your check for $30,000 to me by
December 23, 1997.
Very truly yours,
Robert E. Schenkel
Vice President, Credit
Accepted this 23rd day of December, 1997
EXODUS COMMUNICATIONS, INC.
By: /s/ K. B. Chandrasekhar
---------------------------
Typed or Printed Name: K. B. Chandrasekhar
Title: President
4
<PAGE>
[LOGO OF FINOVA FINANCIAL INNOVATORS]
10 Waterside Drive
Farmington, Connecticut 06032-3065
(860) 676-1818
MASTER LEASE No. S6570, Dated December 19, 1997
FINOVA Technology Finance, Inc. ("we", "us" or "FINOVA") agrees to lease to
Exodus Communications, Inc. ("you" or "Lessee") and you agree to lease from us,
the Equipment described in any schedule to this Lease (a "Schedule"). The
Equipment also includes any replacement parts, repairs, additions and
accessories that you may add to the Equipment. We may treat any Schedule as a
separate lease containing all of the provisions of this Lease.
1. PURCHASING AND INSTALLING THE EQUIPMENT
We will purchase the Equipment from the Supplier you chose. The Supplier will
deliver the Equipment to you at your expense. You will properly install the
Equipment at your expense at the location(s) indicated in the Schedule.
2. TERM.
. The Term of each Schedule begins when any of the Equipment on that Schedule is
delivered to you , or a later date that we agree to in writing.
. The Term continues until you fully perform all of your obligations under this
Lease and the Schedule.
. If the Equipment is not delivered, installed and accepted by you by the date
indicated in the Schedule , we may terminate this Lease and the Schedule as to
the Equipment that was not delivered, installed and accepted by giving you 10
days written notice of termination. Any advance rental payment you may have
paid us is nonrefundable, even if the Term never starts or if we rightfully
terminate this Lease or the Schedule.
. Before we make any progress payment or final payment for the Equipment on any
Schedule, we require the following:
. That no payment is past due to us under any lease, loan or other financial
arrangement that you or any guarantor have with us or with FINOVA Capital
Corporation.
* That you are complying with all the terms of this Lease.
* That we have received all the documents we requested, including the signed
Schedule and Delivery and Acceptance Certificate.
* That there has been no material adverse change in your financial condition,
business, operations or prospects, or that of any guarantor, from the
financial condition that you disclosed to us in your application for credit.
3. RENT
. The rent is indicated on the Schedule. The rent is payable monthly in
advance. You agree that you owe us the total of all of these rent payments
over the Term of the Schedule.
. The first rent payment is due at the beginning of the Term or at a later date
that we agree to in writing. Subsequent rent payments are due on the same day
of each successive period until you pay us in full all of the rent and any
other charges or expenses you owe us.
. If the first rent payment is due later than the beginning of the Term, you
will also pay us interim rent on the first rent payment date. The interim
rent will be for the period from the beginning of the Term until the date
that the first rent payment is due. Interim rent will be calculated at the
same rate as the regular rent payment, but on a daily basis for the number
of days for which interim rent is due.
. YOUR OBLIGATION TO PAY US ALL RENT IS ABSOLUTE AND UNCONDITIONAL. YOU ARE NOT
<PAGE>
EXCUSED FROM PAYING THE RENT, IN FULL, FOR ANY REASON. YOU AGREE THAT YOU
HAVE NO DEFENSE FOR FAILURE TO PAY THE RENT AND YOU WILL NOT MAKE ANY
COUNTERCLAIMS OR SETOFFS TO AVOID PAYING THE RENT.
4. NON-CANCELABLE LEASE. YOU AGREE THAT YOU MAY NOT CANCEL OR TERMINATE
THIS LEASE OR ANY SCHEDULE.
5. PROTECTION OF OUR INTEREST IN THE EQUIPMENT; FEES.
. The Equipment is our property. It will remain our property. You will not own
the Equipment unless the Schedule gives you an option to purchase the
Equipment and you have exercised that option and paid us in full for the
Equipment and any other amounts you may owe us. If we request, you will put
labels stating "PROPERTY OF FINOVA" on the Equipment where they are clearly
visible.
. You give us permission to add to this Lease or any Schedule the serial numbers
and other information about the Equipment.
. While this Lease is intended to be a lease (and not a loan), you grant us a
security interest in the Equipment to protect our interest in the Equipment if
this Lease is later determined to be a security agreement. You give us
permission to file this Lease or a Uniform Commercial Code financing
statement, at your expense, in order to perfect this security interest. You
also give us permission to sign your name on the Uniform Commercial Code
financing statements where this is permitted by law.
. You will pay our cost to do searches for other filings or judgments against
you or your affiliates. You will also pay any filing, recording or stamp
fees or taxes resulting from filing this Lease or a Uniform Commercial Code
financing statement. You will also pay our fees in effect from time to time
for documentation, administration and Termination of this Lease.
. At your expense, you will defend our ownership rights in the Equipment
against, and keep the Equipment free of, any legal process, liens, security
interests, attachments, levies and executions. You will give us immediate
written notice of any legal process, liens, attachments, levies or
executions, and you will indemnify us against any loss that results to us
from these causes.
. You will notify us at least 15 days before you change the address of your
principal executive office.
. You will promptly sign and return additional documents that we may request in
order to protect our interest in the Equipment.
. The Equipment is personal property and will remain personal property. You
will not incorporate it into real estate and will not do anything that will
cause the Equipment to become part of real estate or a fixture.
6. CARE, USE, LOCATION AND ALTERATION OF THE EQUIPMENT
. You will make sure that the Equipment is maintained in good operating
condition, and that it is serviced, repaired and overhauled when this is
necessary to keep the Equipment in good operating condition. All maintenance
must be done according to the Supplier's or Manufacturer's requirements or
recommendations. All maintenance must also comply with any legal or
regulatory requirements.
. You will maintain service logs for the Equipment and permit us to inspect the
Equipment, the service logs and service reports. You give us permission to
make copies of the service logs and service reports.
. We will give you prior notice if we, or our agent, want to inspect the
Equipment or the service logs or service reports. We may inspect it during
regular business hours. You will pay our travel, meals and lodging costs to
inspect the Equipment, but only for one inspection per year. If we find
during an inspection that you are not complying with this Lease, you will
pay our travel, meals and lodging costs, our salary costs, and the costs and
fees of our agents for reinspection. You will promptly cure any problems
with the Equipment that are discovered during our inspection.
2
<PAGE>
. You will use the Equipment only for business purposes. You will obey all
legal and regulatory requirements in your use of the Equipment.
. You will make all additions, modifications and improvements to the Equipment
that are required by law or government regulation. Otherwise, you will not
alter the Equipment without our written permission. You will replace all
worn, lost, stolen or destroyed parts of the Equipment with replacement parts
that are as good or better than the original parts. The new parts will become
our property upon replacement.
. You will not remove the Equipment from the location indicated in the Schedule
without our written permission.
7. RETURN OF EQUIPMENT. UNLESS OTHERWISE STATED IN THE SCHEDULE:
. You must give us written notice at least 120 days before the end of the Term
if you want to purchase the equipment from us (assuming the Schedule
provides you with an option to purchase the Equipment).
. You must give us written notice at least 120 days before the end of the Term
if you want to return the Equipment to us.
. If you do not give us written notice at least 120 days before the end of the
Term either that you want to purchase or that you want to return the
Equipment, you will continue to rent the Equipment and this Lease and the
Schedule will be automatically extended until 120 days after we receive your
notice. The rent will be the fair market rental value of the Equipment, as
determined by us. Unless we notify you otherwise, the fair market rental
value will not exceed the rent then being charged under this Lease and the
Schedule.
. If you do give us 120 days written notice that you want to purchase the
Equipment but you do not pay us the purchase price, you will continue to rent
the Equipment. The rent will be the fair market rental value of the Equipment,
as determined by us. You will continue to pay us this rent until you have
paid the purchase price for the Equipment. The rent payments will not be
credited to the purchase price.
. If you do give us 120 days written notice that you want to return the
Equipment to us, but you do not return the Equipment in compliance with the
return conditions contained in the next paragraph, you will continue to rent
the Equipment. The rent will be the fair market rental value of the
Equipment, as determined by us. You will continue to pay us this rent until
you have returned the Equipment to us in compliance with these return
conditions.
. Return conditions: - You will return the Equipment, freight and insurance
prepaid by you, to us at a location we request in the United States of
America. It will be returned in good operating condition, as required by
section 6 above. The Equipment will not be subject to any liens when it is
returned. All advertising insignia will be removed and the finish will be
painted or blended so that nobody can see that advertising insignia used to be
there.
* You will pack or crate the Equipment for shipping in the original
containers, or comparable ones. You will do this carefully and follow all
recommendations of the Supplier and the Manufacturer as to packing or
crating.
* You will also return to us the plans, specifications, operating manuals,
software documentation, discs, warranties and other documents furnished by
the Manufacturer or Supplier. You will also return to us all service logs
and service reports, as well as all written materials that you may have
concerning the maintenance and operation of the Equipment.
* At our request, you will provide us with up to 60 days free storage of the
Equipment at your location, and will let us (or our agent) have access to
the Equipment in order to inspect it and sell it.
* You will pay us what it costs us to repair the Equipment if you do not
return it in the required condition.
3
<PAGE>
8. RISK OF LOSS
. You have the complete risk of loss or damage to the Equipment. Loss or damage
to the Equipment will not relieve you of your obligation to pay rent.
. If any Equipment is lost or damaged, you have two choices (although if you are
in default under this Lease, we and not you will have the two options). The
choices are:
(1) Repair or replace the damaged or lost Equipment so that, once again, we
own Equipment in good operating condition and have clear title to it.
(2) Pay us the present value (as of the date of payment) of the remaining rent
payments and our residual interest in the Equipment. We will calculate the
present value using a discount rate of five (5%) percent per year. Once
you have paid us this amount and any other amount that you may owe us, you
(or your insurer) may keep the Equipment for salvage purposes, on an "AS
IS, WHERE IS" basis.
9. INSURANCE
. Until you have properly returned the Equipment to us, you will keep it
insured. The amount of the insurance, the coverage, and the insurance
company must be acceptable to us.
. If you do not provide us with written evidence of insurance that is acceptable
to us, we may buy the insurance ourselves, at your expense. You will promptly
pay us the cost of this insurance. We have no obligation to purchase any
insurance. Any insurance that we purchase will be our insurance, and not
yours, and may insure the Equipment beyond the end of the Term.
. Insurance proceeds may be used to repair or replace damaged or lost
Equipment or to pay us the present value of the rent and our residual
interest in the Equipment. (See section 8, "Risk of Loss", above.)
. You appoint us as your "attorney-in-fact" to receive payments under the
insurance policies, and to endorse your name on all documents, checks or
drafts relating to insurance claims for Equipment.
. If you are in default, you appoint us as your "attorney-in-fact" to make
claims under the insurance policies.
10. TAXES
. You will pay all sales, use, excise, stamp, documentary and ad valorum taxes,
license and registration fees, assessments, fines, penalties and similar
charges imposed on the ownership, possession, use or lease of the Equipment.
. You will pay all taxes (other than our federal or state net income taxes)
imposed on you or on us the rent payments.
. You will reimburse us for any of these taxes that we pay or advance.
. Unless we notify you otherwise, we will file and pay for any personal property
taxes on the Equipment. You will reimburse us for the full amount of these
taxes, without regard to early payment discount. We may estimate the amount
of these taxes in advance and bill you periodically in advance for these
taxes.
11. INDEMNITY
. You will indemnify us, defend us and hold us harmless. This applies to any
and all claims, expenses and attorney's fees concerning or arising from the
Equipment, this Lease, or any Schedule. It includes any claims concerning
the manufacture, selection, delivery, possession, use, operation or return
of the Equipment.
. This obligation of yours to indemnify us continues even after the Term is
over.
12. DEFAULT
You are in default if any of the following happens:
. You do not pay us, when it is due, any rent payment or other payment that you
owe us under this Lease, any Schedule, or any other lease, loan or other
financial arrangement that you have with us or with FINOVA Capital
Corporation.
. Any of the financial information that you give us is not true and complete, or
you fail to tell us
4
<PAGE>
anything that would make the financial information misleading.
. You do something you are not permitted to do, or you fail to do anything that
is required of you, under this Lease, any Schedule or any other lease, loan or
other financial arrangement that you have with us.
. An event of default occurs for any other lease, loan or obligation of yours
(or any guarantor) that exceeds $25,000 that is not cured or waived by
another party in writing within thirty (30) days.
. You or any guarantor file bankruptcy, or involuntary bankruptcy is filed
against you or any guarantor.
. You or any guarantor are subject to any other insolvency proceeding other
than bankruptcy (for example, a receivership action or an assignment for
benefit of creditors).
. Without our permission, you or any guarantor sell all or a substantial part of
its assets, merge or consolidate, or a majority of your voting stock or
interests (or any guarantor's voting stock or interests) is transferred.
. There is a material adverse change in your financial condition, business,
operations or prospects, or that of any guarantor, from the financial
condition that you disclosed to us in your application for credit.
13. REMEDIES, DEFAULT INTEREST, LATE FEES
If you are in default we may exercise one or more of our "remedies." Each of
our remedies is independent. We may exercise any of our remedies, all of our
remedies or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any other remedy
or be an "election of remedies." If we do not exercise a remedy, or if we delay
in exercising a remedy, this does not mean that we are forgiving your default or
that we are giving up our right to exercise the remedy. Our remedies allow us
to do one or more of the following:
. Require you to immediately pay us all rent for the entire Term for any or all
Schedules.
. Require you to immediately pay us all amounts that you are required to pay us
for the entire Term of any other leases, loans or other financial arrangements
that you have with us.
. Sue you for all rent and other amounts you owe us plus the greater of (1) the
actual residual value of the Equipment or (2) the residual value we assumed
when we leased it to you. Future rent and residual value will be discounted
to present value using a discount rate of five (5%) percent per year.
. Require you at your expense to assemble the Equipment at a location we request
in the United States of America.
. Remove and repossess the Equipment from where it is located, without demand or
notice, or make the Equipment inoperable. We have your permission to remove
any physical obstructions to removal of the Equipment. We may also disconnect
and separate all Equipment from other property. No court order, court hearing
or "legal process" will be required for us to repossess the Equipment. You
will not be entitled to any damages resulting from removal or repossession of
the Equipment. We may use, ship, store, repair or lease any Equipment that we
repossess. We may sell any repossessed Equipment at private or public sale.
You give us permission to show the Equipment to buyers at your location free
of charge during normal business hours. If we do this, we do not have to
remove the Equipment from your location. If we repossess the Equipment and
sell it, we will give you credit for the net sale price, after subtracting our
costs of repossessing and selling the Equipment. If we rent the Equipment to
somebody else, we will give you credit for the net rent received, after
subtracting our costs of repossessing and renting the Equipment, but the
credit will be discounted to present value using the discount rate that we
used in calculating your rental payment under the Schedule for the Equipment.
The credit will be applied against what you owe us under this Lease, the
Schedules and any other leases, loans or other financial arrangements that you
have with us. If the credit exceeds the amount you owe under this Lease, the
Schedules and any other leases, loans or other financial arrangements that you
have with
5
<PAGE>
us, we will refund the amount of the excess to you.
. You will also pay us the following:
. All our expenses of enforcing our remedies. This includes all our expenses to
repossess, store, ship, repair and sell the Equipment.
. Our reasonable attorney's fees and expenses.
. Default interest on everything you owe us from the date of your default to the
date on which we are paid in full. The "default interest rate" will be one
and one-half (1.5%) percent per month. If this interest rate exceeds the
highest legal interest rate, you will only be required to pay us default
interest at the highest legal interest rate.
You realize that the damages we could suffer as a result of your default are
very uncertain. You also realize that the value of an unexpired lease Term is
difficult or impossible to calculate. This is why we have agreed with you in
advance on the discount rates and default interest rate to be used in
calculating the payments you will owe us if you default. You agree that, for
these reasons, the payments you will owe us if you default are "agreed" or
"liquidated" damages. You understand that these payments are not "penalties" or
"forfeitures."
You will pay us a late fee whenever you pay any amount that you owe us more than
ten (10) days after it is due. You will pay the late fee within one month after
the late payment was originally due. The late fee will be ten (10%) percent of
the late payment. If this exceeds the highest legal amount we can charge you,
you will only be required to pay the highest legal amount. The late fee is
intended to reimburse us for our collection costs that are caused by late
payment. It is charged in addition to all other amounts you are required to pay
us, including default interest.
14. PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Lease or a
Schedule, we may perform it for you. We will notify you in writing at least ten
(10) days before we do this. We do not have to perform any of your obligations
for you. If we do choose to perform them, you will pay us all of our expenses to
perform the obligations. You will also reimburse us for any money that we
advance to perform your obligations, together with interest at the default
interest rate on that amount. This will be additional "rent" that you will owe
us and you will pay it at the same time that your next rent payment is due.
15. ASSIGNMENT
WE MAY ASSIGN THIS LEASE OR ANY SCHEDULE OR ANY RENT PAYMENTS WITHOUT YOUR
PERMISSION.
WE MAY GRANT A SECURITY INTEREST IN THE EQUIPMENT WITHOUT YOUR PERMISSION.
THE PERSON TO WHOM WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT
HAVE ANY OF OUR OBLIGATIONS UNDER THIS LEASE. YOU WILL NOT BE ABLE TO RAISE ANY
DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE EQUIPMENT SO LONG AS YOU
ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS LEASE OR ANY SCHEDULE, EXCEPT IN CONNECTION WITH YOUR
REINCORPORATION INTO A DELAWARE CORPORATION. YOU ALSO ARE NOT ALLOWED TO SUBLET
THE EQUIPMENT OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR WRITTEN
PERMISSION.
16. UNIFORM COMMERCIAL CODE DISCLAIMERS OF WARRANTIES AND WAIVERS
WE DID NOT MANUFACTURE OR SUPPLY THE EQUIPMENT. WE ARE NOT A DEALER IN THE
EQUIPMENT. INSTEAD, YOU CHOSE THE EQUIPMENT.
WE DO NOT MAKE ANY WARRANTY AS TO THE EQUIPMENT. WE DO NOT MAKE ANY WARRANTY AS
TO
6
<PAGE>
"MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR
"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT.
WE WILL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY
ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN THE EQUIPMENT UNDER
"STRICT LIABILITY" LAWS OR ANY OTHER LAWS.
WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS OR GOODWILL.
WE MAKE NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR ACCOUNTING
PURPOSES.
If the Equipment is unsatisfactory, you will continue to pay us all rent and
other amounts you are required to pay us. You must seek repair or replacement
of the Equipment solely from the Manufacturer or Supplier and not from us. You
may use our rights under any Manufacturer or Supplier warranties on the
Equipment to get it repaired or replaced. Neither the Manufacturer nor the
Supplier is our "agent," so they cannot speak for us and they are not allowed to
make any changes in this Lease or any Schedule, or give up any of our rights.
17. UNIFORM COMMERCIAL CODE ARTICLE 2A PROVISIONS.
This Lease is a "Finance Lease" under Article 2A of the Uniform Commercial Code.
You agree that (a) we have advised you of the identity of the Supplier, (b) you
may have rights under the "supply contract" under which we are purchasing the
Equipment from the Supplier and (c) you may contact the Supplier for a
description of these rights.
YOU WAIVE ANY AND ALL OF YOUR RIGHTS AND REMEDIES UNDER ARTICLE 2A OF THE
UNIFORM COMMERCIAL CODE, INCLUDING SECTIONS 2A-508 THROUGH 2A-522 OF THE UNIFORM
COMMERCIAL CODE.
18. ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF
PROCESS, WAIVER OF JURY TRIAL.
THIS LEASE WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS LEASE IS GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, THE STATE IN WHICH
OUR OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS AND CONDITIONS OF
THIS LEASE OCCURED AND FROM WHICH PAYMENT FOR THE EQUIPMENT WILL BE ORDERED
HOWEVER, IF THIS LEASE IS UNENFORCEABLE UNDER ARIZONA LAW, IT WILL INSTEAD BE
GOVERNED BY THE LAWS OF THE STATE IN WHICH THE EQUIPMENT IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH
PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR
ADDRESS INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
19. INFORMATION SUPPLIED BY YOU AND ANY GUARANTOR
. All financial information and other information that you or any guarantor have
given us is true and complete. You or any guaranty have not failed to tell us
anything that would make the financial information misleading. There has been
no material adverse change in your financial condition, business, operations
or prospects, or the financial condition of any
7
<PAGE>
guarantor, from the financial condition that you disclosed to us in your
application for credit.
. You have supplied us with information about the Equipment. You promise to us
that the amount we are paying for the Equipment is no more than the fair and
usual price for this kind of Equipment, taking into account any discounts,
rebates and allowances that you or any affiliate of yours may have been given
for the Equipment.
. During the Term you will promptly give copies of any filings you make with
the Securities and Exchange Commission (SEC). You and any guarantor will
also provide us with the following financial statements:
* Quarterly balance sheet and statements of earnings and cash flow - within 45
days after the end of your first three fiscal quarters in each fiscal year.
These will be certified by the chief financial officer.
* Annual balance sheet and statements of earnings and cash flow - within 90 days
after the end of each fiscal year. These will be audited by independent
auditors acceptable to FINOVA. Their audit report must be unqualified.
These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.
All financial statements and SEC filings that you or any guarantor provide us
will be true and complete. They will not fail to tell us anything that would
make them misleading.
20. BOARD MEETINGS/STOCKHOLDERS' MEETINGS
You will give to us notice of all meetings of your board of directors and of
your stockholders (or if you are a partnership or limited liability company, of
your partners or members). You will also send us copies of all documents sent
to the stockholders, partners or members for these meetings at the same time you
send the documents to them. We have your permission to attend and observe (but
not participate in) all meetings of your stockholders (or, if you are a
partnership or limited liability company, of your partners or members).
21. NOTICES
We may give you written notice in person, by mail, by overnight delivery
service, or by fax. Notice will be sent to your address below your signature.
Mail notice will be effective three (3) days after we mail it with prepaid
postage to the right address. Overnight delivery notice requires a receipt and
tracking number. Fax notice requires a receipt from the sending machine showing
that it has been sent to your fax number and received.
You may give us notice the same way that we may give you notice.
22. GENERAL
This Lease benefits our successors and assigns. This Lease benefits only those
successors and assigns of yours that we have approved in writing.
This Lease binds your successors and assigns. This Lease binds only those
successors and assigns of ours that clearly assume our obligations in writing.
TIME IS OF THE ESSENCE OF THIS LEASE.
This Lease and all of the Schedules is the entire agreement between you and us
concerning the Equipment. This Lease, all of the Schedules and our commitment
letter to you dated December 17, 1997 are the entire agreement between you and
us concerning the Equipment.
Only an officer of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Lease or any Schedule on our behalf, and this must be
in writing. Only he or she may give up any of our rights, and this must be in
writing. If more than one person is the Lessee under this Lease, then each of
you is jointly and severally liable for your obligations under this Lease.
This Lease is only for your benefit and for our benefit. It is not intended to
benefit any other person.
If any provision in this Lease is unenforceable, then that provision must be
deleted. Only unenforceable provisions are to be deleted. The rest of the lease
will remain as written.
8
<PAGE>
23. PUBLICITY
We may make press releases and publish a tombstone announcing this transaction
and its total amount. You may not publicize this transaction in any way without
our prior written consent.
LESSOR: LESSEE:
FINOVA TECHNOLOGY FINANCE, INC. EXODUS COMMUNICATIONS, INC.
10 WATERSIDE DRIVE 2650 SAN TOMAS EXPRESSWAY
FARMINGTON, CONNECTICUT 06032-3065 SANTA CLARA, CALIFORNIA 95051
BY: BY: /s/ Richard S. Stoltz
__________________________________ ___________________________________
PRINTED NAME: PRINTED NAME: Dick Stoltz
________________________ __________________________
TITLE: TITLE: COO & CFO
_______________________________ ________________________________
FAX NUMBER: (860) 676-1814 Taxpayer ID# 77-0403076
DATE ACCEPTED:_______________________ FAX NUMBER: 408-346-2206
___________________________
DATED: January 9, 1998
________________________________
9
<PAGE>
February 6, 1998
Mr. Richard Stoltz
Chief Financial Officer
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, CA 95051
Re: Modification to Commitment Letter dated December 17, 1997 ("Commitment
Letter") and Amendment to Master Lease No. S6570 dated December 19, 1997
("Master Lease")
Dear Mr. Stoltz:
The Commitment Letter provides that the Equipment to be leased under the Master
Lease shall be not less than 60% Hard Assets and not more than 40% Soft Costs.
The first Schedule to the Master Lease is approximately 99% Soft Costs (as that
term is defined in the Commitment Letter).
We are willing to fund the first Schedule only on the condition that you agree
to provide Hard Assets (as that term is defined in the Commitment Letter) for
funding by us on or before March 31, 1998, such that, after such funding, the
total Soft Costs funded shall not exceed 40% of our fundings under the Master
Lease.
Unless otherwise agreed to in writing by Lessor and Lessee, if you are unable to
provide us with sufficient Hard Assets for funding by March 31, 1998 to allow
the proportion for all Schedules under the Master Lease (taken as a whole) of
funded Hard Assets to funded Soft Costs to equal 60 / 40 or exceed 60% Hard
Assets, then, on or before March 31, 1998, you will either provide additional
collateral acceptable to us in place of such Hard Assets, or you will pay down
the balance of the Master Lease Schedules such that such proportion equals 60 /
40 or exceeds 60% Hard Assets.
Failure to comply with the preceding paragraph shall constitute an Event of
Default under the Master Lease and under each Schedule.
This letter agreement shall be deemed to be a modification of the Commitment
Letter and an amendment to the Master Lease.
Sincerely yours,
FINOVA TECHNOLOGY FINANCE, INC.
/s/ Linda A. Moschitto
Linda A. Moschitto
Director, Contract Administration
Accepted and Agreed:
EXODUS COMMUNICATIONS, INC.
By: /s/ Richard S. Stoltz
__________________________________
Typed or Printed Name: Dick Stoltz
Title: CFO/COO
<PAGE>
EXHIBIT 10.23
SUBLEASE AGREEMENT
------------------
I. DEFINED TERMS
-------------
Base Rent:
<TABLE>
<CAPTION>
Months Monthly Base Rent
------ -----------------
<S> <C> <C>
1 - 12 $71,500 ($1.30 per
rentable square foot).
13 - 24 $74,250 ($1.35 per
rentable square foot).
25 - 36 $77,000 ($1.40 per
rentable square foot).
37 - 48 $79,750 ($1.45 per
rentable square foot).
49 - 60 $82,500 ($1.50 per
rentable square foot).
61 - 72 $85,250 ($1.55 per
rentable square foot).
73 - 84 $88,000 ($1.60 per
rentable square foot).
85 - 96 $90,750 ($1.65 per
rentable square foot).
97- 108 $93,500 ($1.70 per
rentable square foot).
109 - 118 $96,250 ($1.75 per
rentable square foot).
</TABLE>
<TABLE>
<S> <C>
Building: 2251 Lawson Lane in Santa, California.
Effective Date: January 12, 1998.
Expiration Date: November 30, 2008.
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Landlord: John A Sobrato and Susan R. Sobrato, a
married couple, Carl E. Berg and Mary
Ann Berg, a married couple, Clyde J.
Berg and Nancy Berg, a married couple,
and Robert M. Granum, II and Kay Granum.
Master Lease: That certain Lease Agreement dated April
3, 1979, as amended by an Addendum No. 1
to Lease dated June 7, 1979, Addendum
No. 2 to Lease dated October 19, 1979
and Addendum No. 3 to Lease dated
December 17, 1979.
Permitted Uses: Sales and data center and other legal
related uses.
Premises: Improved real property as more
particularly described in the Master
Lease, attached hereto as Exhibit A.
---------
Commencement Date: February 1, 1998.
Security Deposit: See Section 10 hereof.
Sublessee: Exodus Communications, Inc., a
California corporation
Sublessee's Address: 2251 Lawson Lane
Santa Clara, California 94088-3470
Attention: Chief Operating Officer
Phone: (408) 346-2000
with a copy to:
Exodus Communications
2650 San Tomas Expressway
Santa Clara, California 55051
Attention: General Counsel
Sublessee's Share: Forty-One Percent (41%)
Sublessor: AMDAHL CORPORATION, A Delaware
corporation
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Sublessor's Address: 1250 East Arques Avenue
Mail Stop 110
P.O. Box 3470
Sunnyvale, California 94088-32470
Attn: Director, Corporate Real Estate
Phone: (408) 746-6639
Sublet Space; That portion of the Premises covering
the second floor of the Building, as
more particularly described in the
Sublet Space Floor Plan, attached hereto
as Exhibit B, consisting of
---------
approximately 55,000 rentable square
feet.
Term: One Hundred Eighteen (118) months,
commencing on the Commencement Date and
ending on the Expiration Date, unless
terminated earlier in accordance with
its terms.
Broker: Sublessor: Grubb & Ellis/Colliers
Parrish International
Sublessee: CPS
Exhibits: Exhibit A - Sublet Space Floor Plan
---------
Exhibit B - Master Lease
---------
Exhibit C - Antenna Site License
--------- Agreement
Exhibit D - Sublessor's Work
---------
</TABLE>
iii
<PAGE>
SUBLEASE AGREEMENT
------------------
(Exodus Communications, Inc.)
THIS SUBLEASE ("Sublease"), dated January __, 1998 (the "Effective
Date"), is made by and between AMDAHL CORPORATION, a Delaware corporation
("Sublessor"), and EXODUS COMMUNICATIONS, INC., a California corporation
("Sublessee").
RECITALS
--------
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties, the parties hereto agree as follows:
A. John A. Sobrato and Susan R. Sobrato, a married couple, Carl E
Berg and Mary Ann Berg, a married couple, Clyde J. Berg and Nancy Berg, a
married couple, and Robert M. Granum, II and Kay Granum (collectively, the
"Landlord"), as landlord, and Sublessor, as tenant, are now parties to that
certain Lease Agreement dated April 3, 1979, as amended by an Addendum No. l to
Lease dated June 7, 1979, Addendum No. 2 to Lease dated October 19, 1979 and
Addendum No. 3 to Lease dated December 17, 1979 (as amended, the "Master Lease")
with respect to certain premises (the "Premises") located at 2251 Lawson Lane in
Santa Clara, California.
B. Sublessor desires to sublease to Sublessee the Sublet Space in the
Premises and Sublessee desires to sublease the Premises from Sublessor on all of
the terms, covenants and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties, the parties hereto agree as follows:
1. SUBLEASE. Sublessor shall sublease to Sublessee, and Sublessee
--------
shall sublease from Sublessor, the Sublet Space for the Term upon all of the
terms, covenants and conditions herein contained. In addition, Sublessor shall
lease to Sublessee, and Sublessee shall lease from Sublessor, any and all
permanent improvements ("Improvements") on the Sublet Space constructed and/or
owned by Sublessor, upon all of the terms, covenants and conditions herein
contained. As used herein, "Sublet Space" shall include the Sublet Space and
the Improvements. Sublessee shall have access to the Sublet Space twenty-four
(24) hours a day, seven (7) days a week, including weekends and holidays.
a. EARLY OCCUPANCY. Sublessee may, at Sublessee's sole risk,
---------------
enter the Sublet Space prior to the Commencement Date solely to install trade
fixtures and equipment; provided, however, that (a) Sublessee's early entry
shall not interfere with Sublessor's construction or repair activities on the
Sublet Space or cause labor difficulties; (b) Sublessee shall provide Sublessor
with satisfactory evidence that Sublessee has obtained the insurance required of
Sublessee under this Sublease; (c) such early occupancy shall be on all of the
terms and conditions of this Sublease (except for Sublessee's obligations to pay
Base Rent and
<PAGE>
Additional Rent), and (d) Sublessee shall pay Sublessor the utility charges
related to such early occupancy by Sublessee.
b. SATELLITE DISH LICENSE AGREEMENT. On the Effective Date,
--------------------------------
Sublessor and Sublessee shall enter into an Antenna Site License Agreement in
the form attached hereto as Exhibit C.
2. CONDITION OF SUBLET SPACE.
-------------------------
a. PHYSICAL CONDITION. As of the Effective Date, Sublessee
------------------
acknowledges that Sublessee shall have conducted Sublessee's own investigation
of the Sublet Space and the physical condition thereof, including accessibility
and location of utilities, improvements, existence of hazardous materials,
including but not limited to asbestos, asbestos containing materials,
polychlorinated biphenyls (PCB) and earthquake preparedness, which in
Sublessee's Judgment affect or influence Sublessee's use of the Sublet Space and
Sublessee's willingness to enter this Sublease. Sublessee recognizes that
Sublessor would not sublease the Sublet Space except on an "as is" basis and
acknowledges that Sublessor has made no representations of any kind in
connection with improvements or physical conditions on, or bearing on, the use
of the Sublet Space, except as described in Section 2.c. below. Sublessee shall
rely solely on Sublessee's own inspection and examination of such items and not
on any representations of Sublessor (except the representation of Sublessor in
Section 2.c. below), express or implied. Sublessee further recognizes and
agrees that neither Sublessor (except as described in Exhibit D below) nor
---------
Landlord shall be required to perform any work of construction, alteration or
maintenance of or to the Sublet Space; provided, however, Sublessor shall
deliver the Sublet Space to Sublessee in broom clean condition.
b. FURTHER INSPECTION. Sublessee represents and warrants to
------------------
Sublessor that as of the Effective Date Sublessee shall examine and inspect all
matters with respect to taxes, income and expense data, insurance costs, bonds,
permissible uses, the Master Lease, zoning, covenants, conditions and
restrictions and all other matters which in Sublessee's judgment bear upon the
value and suitability of the Sublet Space for Sublessee's purposes. Sublessee
has and will rely solely on Sublessee's own inspection and examination of such
items and not on any representations of Sublessor, express or implied.
c. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES. Sublessor hereby
------------------------------------------
represents and warrants to Sublessee that: (i) the Building systems servicing
the Sublet Space are in good working order and condition as of the Commencement
Date of this Sublease, (ii) to the best of Sublessor's knowledge, the Sublet
Space, including any Improvements therein made by Sublessor (a) were in
compliance with all applicable laws at the time they were built, and (b) are in
good working order and condition as of the Commencement Date. Unless Sublessor
receives a written notice regarding an alleged breach of the representations and
warranties of Sublessor contained herein on or prior to the date that is six (6)
months after the Effective Date, then Sublessor's obligations and liability with
respect to such representation, warranty or covenants shall terminate at such
time.
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3. SUBLEASE SUBJECT TO MASTER LEASE.
--------------------------------
a. INCLUSIONS. It is expressly understood, acknowledged and
----------
agreed by Sublessee that all of the other terms, conditions and covenants of
this Sublease shall be those stated in the Master Lease except as excluded in
Section 3.b herein, modified as appropriate in the circumstances so as to make
such Articles, and any Sections contained therein, applicable only to the
subleasing hereunder by Sublessor of the particular Sublet Space covered hereby.
Whenever the word "Premises" is used in the Master Lease, for purposes of this
Sublease, the word Sublet Space shall be substituted. Sublessee shall be subject
to, bound by and comply with all of said Articles and Sections of the Master
Lease with respect to the Sublet Space and shall satisfy all applicable terms
and conditions of the Master Lease relating to the Sublet Space for the benefit
of both Sublessor and Landlord, it being understood and agreed that wherever in
the Master Lease the word "Tenant" appears, for the purposes of this Sublease,
the word "Sublessee" shall be substituted, and wherever the word "Landlord"
appears, for the purposes of this Sublease, the word "Sublessor" shall be
substituted; and that upon the breach of any of said terms, conditions or
covenants of the Master Lease by Sublessee or upon the failure of Sublessee to
pay Rent or comply with any of the provisions of this Sublease, Sublessor may
exercise any and all rights and remedies granted to Landlord by the Master
Lease. In the event of any conflict between this Sublease and the Master Lease,
the terms of this Sublease shall control. Whenever the provisions of the Master
Lease incorporated as provisions of this Sublease require the written consent of
Landlord, said provisions shall be construed to require the written consent of
both Landlord and Sublessor. Sublessee hereby agrees that this Sublease is
subordinate and subject to the Master Lease and that any termination thereof not
due to a default by Sublessor thereunder shall likewise terminate this Sublease.
b. EXCLUSIONS. The terms and provisions of the following
----------
Sections and portions of the Master Lease are not incorporated into this
Sublease: the preamble, 2, 3, 4, 5, 7, 13, 15, the last paragraph of 17, 20, 21,
22, 24, 25, 31, 33, 34 and 35 and Amendment No. 1, Amendment No. 2 and Amendment
No. 3 to Lease.
c. TIME FOR NOTICE. The time limits provided for in the
---------------
provisions of the Master Lease for the giving of notice, making of demands,
performance of any act, condition or covenant, or the exercise of any right,
remedy or option, are amended for the purposes of this Sublease by lengthening
or shortening the same in each instance by five (5) days, as appropriate, so
that notices may be given, demands made, or any act, condition or covenant
performed, or any right, remedy or option hereunder exercised, by Sublessor or
Sublessee, as the case may be, within the time limit relating thereto contained
in the Master Lease. If the Master Lease allows only five (5) days or less for
Sublessor to perform any act, or to undertake to perform such act, or to correct
any failure relating to the Premises or this Sublease, then Sublessee shall
nevertheless be allowed three (3) days to perform such act, undertake such act
and/or correct such failure.
4. OBLIGATIONS. It shall be the obligation of Landlord to (i)
-----------
provide all services to be provided by Landlord under the terms of the Master
Lease, and (ii) to satisfy all obligations and covenants of Landlord made in the
Master Lease. Sublessee acknowledges that Sublessor shall be under no
obligation to provide any such services or satisfy any such obligations or
covenants;
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provided, however, Sublessor, upon written notice by Sublessee, shall diligently
attempt to enforce all obligations of Landlord under the Master Lease.
5. BASE RENT. Upon execution hereof, Sublessee shall deliver the
---------
first month's Base Rent to Sublessor, to be applied against Sublessee's first
obligation to pay Base Rent hereunder. Sublessee shall pay to Sublessor the
Base Rent in advance on the first day of each month of the Term, commencing on
the Commencement Date without being invoiced by Sublessor. In the event the
first day of the Term shall not be the first day of a calendar month or the last
day of the Term is not the last day of the calendar months the Base Rent shall
be appropriately prorated based on a thirty (30) day month. All installments of
Base Rent shall be delivered to Sublessor's Address, or at such other place as
may be designated in writing from time to time by Sublessor, in lawful money of
the United States and without deduction or offset for any cause whatsoever.
6. TAXES.
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a. REAL PROPERTY TAXES. Sublessee shall pay to Sublessor
-------------------
Sublessee's Share of the real property taxes due for the Property and owed by
Sublessor pursuant to the terms of the Master Lease. Those taxes shall be paid
as provided for in Section 8 below.
b. PERSONAL PROPERTY TAXES. Prior to delinquency, Sublessee
-----------------------
shall pay all taxes and assessments levied upon trade fixtures, alterations,
additions, improvements, inventories and other personal property located and/or
installed on the Sublet Space by Sublessee; and Sublessee shall provide
Sublessor copies of receipts for payment of all such taxes and assessments. To
the extent any such taxes are not separately assessed or billed to Sublessee,
Sublessee shall pay the amount thereof as invoiced by Sublessor.
7. OPERATING EXPENSES.
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a. PAYMENT OF OPERATING EXPENSES. Sublessee shall pay to
-----------------------------
Sublessor Sublessee's Share of the Operating Expenses for the Building and
Property.
b. DEFINITION OF OPERATING EXPENSES. "Operating Expenses" shall
--------------------------------
include all Expenses incurred by Sublessor in the operation, maintenance, repair
and management of the Property and the Building during the Sublease Term,
including, but not limited to, (a) repair, maintenance, utility costs and
landscaping of the common areas of the Property; (b) repair and management of
the Building interior and exterior and the structural portions of the roof; (c)
insurance premiums and/or reserves or deductibles relating to the insurance
and/or self-insurance maintained by Sublessor with respect to the Property; (d)
maintenance contracts for HVAC and other Building systems and elevators, if any;
(e) telephone service, (f) garbage service and other utilities serving the
Sublet Space which are not separately metered, and (g) capital improvements made
to or capital assets acquired for the Property after the Commencement Date that
reduce Operating Expenses or are reasonably necessary for the health and safety
of the occupants of the Property or are required under any governmental law or
regulation, which capital costs or allocable portion thereof shall be amortized
over the period determined by Sublessor, together with interest on the
unamortized balance at the Applicable Interest Rate (as defined in Section 9
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below), but in no event more than the maximum rate permitted by law. Operating
Expenses shall not include maintenance or replacement of building foundations,
exterior walls or the roof membrane.
c. UTILITIES. The Sublet Space shall be separately metered at
---------
Sublessee's expense. Sublessee shall promptly pay, as the same become due, all
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Sublessee on or about the Sublet Space during the Term, including, without
limitation, (1) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, and water service available to the Sublet Space as of
the Commencement Date), and (2) penalties for discontinued or interrupted
service.
8. ESTIMATED EXPENSES.
------------------
a. PAYMENT. "Estimated Expenses" for any particular year shall
-------
mean Sublessor's estimate of Operating Expenses and real property taxes
(collectively referred to as "Building Costs") for a calendar year. On or about
the last month of each calendar year, Sublessor shall give Sublessee notice of
the Estimated Expenses for the ensuing calendar year. Sublessee shall pay
Sublessee's Share of the Estimated Expenses with installments of Base Rent in
monthly installments on the first day of each calendar month during such year.
If at any time Sublessor determines that Operating Expenses and real property
taxes are projected to vary from the then Estimated Expenses, Sublessor may, by
notice to Sublessee, revise such Estimated Expenses, and, at Sublessor's option,
either (i) Sublessee's monthly installments for the remainder of such year shall
be adjusted so that by the end of such calendar year Sublessee has paid to
Sublessor Sublessee's Share of the revised estimate for such year, or (ii)
Sublessee shall reimburse Sublessor such additional or unusual costs within
fifteen (15) days of invoice therefor. Failure or delay by Sublessor in
delivering any estimate, demand or reconciliation shall not affect the rights
and obligations of the parties hereunder; Sublessee shall pay on demand any
increase in estimated Additional Rent upon receipt of a revised estimate
retroactive to January of that calendar year.
b. ADJUSTMENT. "Adjustment" shall mean the difference between
----------
Estimated Expenses and Sublessee's Share of Building Costs for any calendar
year. After the end of each calendar year, Sublessor shall deliver to Sublessee
a statement of Sublessee's Share of Building Costs for such calendar year,
accompanied by a computation of the Adjustment. If Sublessee's payments are
less than Sublessee's Share thereof, then Sublessee shall pay the difference
within twenty (20) days after receipt of such statement. If Sublessee's
payments exceed Sublessee's Share thereof, then (provided that Sublessee is not
in default), Sublessor shall credit such amount to installments thereof.
9. LATE PAYMENT CHARGES AND INTEREST. Any payment of Rent or other
---------------------------------
amount from Sublessee to Sublessor in this Sublease which is not paid on the
date due shall accrue interest from the date due until the date paid at an
annual rate of ten percent (10%) (the "Applicable Interest Rate"). If any
installment of Rent is not paid promptly on the first of
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the month, or otherwise when due, Sublessee shall pay to Sublessor a late
payment charge equal to five percent (5%) of the amount of such delinquent
payment of Rent, in addition to the installment of Rent then owing. This Section
9 shall not relieve Sublessee of Sublessee's obligation to pay any amount owing
hereunder at the time and in the manner provided.
10. SECURITY DEPOSIT.
----------------
a. DELIVERY. Upon execution hereof, Sublessee shall deposit
--------
with Sublessor: (i) a cash security deposit (the "Cash Deposit") in the amount
of Ninety-Six Thousand Two Hundred Fifty Dollars ($96,250), and (ii) an
unconditional, irrevocable letter of credit in the amount of Four Hundred
Twenty-Five Thousand Dollars ($425,000) (the "Letter of Credit" and, together
with the Cash Deposit, the "Security Deposit"). The Letter of Credit shall be in
form and content, and issued by a financial institution, acceptable to Sublessor
b. LETTER OF CREDIT TERMS. The Letter of Credit shall provide
----------------------
for its payment to Sublessor upon its presentation of a statement from Sublessor
that an event of default by Sublessee exists hereunder. Upon the failure of
Sublessee to deliver a replacement letter of credit (or an extension of the
existing Letter of Credit) on or before thirty (30) days prior to any maturity
date of any such Letter of Credit, Sublessor may draw upon the same and
thereafter treat such cash as a portion of the Security Deposit. In the event
that an event of default by Sublessee hereunder does not then exist, (i) on the
first day of the thirty-seventh (37th) month of the Sublease Term, the amount of
the Letter of Credit required of Sublessee hereunder shall be reduced to Three
Hundred Seventy-Five Thousand Dollars ($375,000), and (ii) on the first day of
the forty-ninth (49th) month of the Sublease Term, the amount of the Letter of
Credit required of Sublessee hereunder shall be reduced to Three Hundred Twenty-
Five Thousand Dollars ($325,000). On the first day of the sixtieth (60th) month
of the Sublease Term, provided that Sublessee is not then in default hereunder,
and has not defaulted in the payment of Rent due hereunder at any time
previously during the Sublease Term, the amount of the Letter of Credit shall be
adjusted in the following manner. If Sublessee has satisfied all of the
financial covenants described in Section 10.c. below during the relevant time
period described below, then the amount of the Letter of Credit required of
Sublessee hereunder shall be reduced to Two Hundred Seventy-Five Thousand
Dollars ($275,000) for the remainder of the Sublease Term. If Sublessee has
failed to satisfy any of the financial covenants described in Section 10.c.
below during the relevant time period described below, then the amount of the
Letter of Credit required of Sublessee hereunder shall be increased to Six
Hundred Fifty Thousand Dollars ($650,000) for the remainder of the Sublease
Term.
c. SUBLESSEE'S REPORTING REQUIREMENTS. Each year during the
----------------------------------
Sublease Term, not later than ninety (90) days from the date on which
Sublessee's fiscal year ends, Sublessee shall deliver to Sublessor audited
financial statements prepared by a CPA firm of national standing. The initial
audited financial statements shall be due not later than March 31, 1998 for the
fiscal year ending December 31, 1997. Quarterly, not later than forty-five (45)
days from the date on which each fiscal quarter of Sublessee ends during the
Sublease Term, Sublessee shall deliver to Sublessor quarterly financial
statements prepared in conformance with generally accepted accounting principles
and certified by a corporate officer of Sublessee. At a
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minimum, the quarterly financial statements provided shall include a balance
sheet, fiscal year-to-date income statement and a statement of cash flows for
the relevant fiscal quarter, and shall include comparable figures covering the
same time period for the prior fiscal year. The initial quarterly financial
statements will be due not later than May 15, 1998 for the fiscal quarter ending
March 31, 1998. Beginning with the quarter ending March 31, 1999, Sublessor
shall maintain a ratio of net earnings before interest expense and income taxes
divided by interest expense, measured on a quarterly basis, of not less than
5.00:1.00. For the purposes of determining whether the amount of the Letter of
Credit will increase or decrease on the first day of the sixtieth (60th) month
of the Sublease Term only, (i) beginning with the quarter ending March 31, 1999,
Sublessee shall maintain a ratio of total liabilities to tangible net worth,
measured on a quarterly basis, of not more than 2.42:1.00, and (ii) beginning
with the fiscal year ending December 31, 1998, Sublessee shall maintain a
minimum level of tangible net worth not less than $13,186,000 as of December 31,
1998, $26,372,000 as of December 31, 1999, $39,558 as of December 31, 2000,
$52,745,000 as of December 31, 2001, and $65,931,000 as of December 31, 2002.
For the purposes of calculating these covenants, tangible net worth shall be
defined as total net worth, exclusive of any outstanding subordinated debt which
has not been irrevocably converted into equity, less intangible assets, all
amounts due from related entities, and the net amount of capitalized software
assets. For the purposes of calculating these covenants, total liabilities shall
be defined as the sum of the liabilities reported on the balance sheet for a
given period, plus, at Sublessor's discretion, a reasonable estimation of any
material contingent liabilities.
d. APPLICATION OF SECURITY DEPOSIT. The Security Deposit shall
-------------------------------
secure Sublessee's obligations under this Sublease to pay Rent and other
monetary amounts, to maintain the Sublet Space and repair damages thereto, to
surrender the Sublet Space to Sublessor upon the termination of this Sublease in
the condition required for surrender of the Premises pursuant to the terms of
the Master Lease (Sublessee hereby assuming all such obligations of Sublessor
with respect to the Sublet Space hereunder), and to discharge Sublessee's other
obligations hereunder. Sublessor may use and commingle the Security Deposit
with other funds of Sublessor. If an event of default by Sublessee exists under
the terms of this Sublease, Sublessor may, but without any obligation to do so,
apply all or any portion of the Security Deposit (using either the Cash Deposit
or the Letter of Credit, in Sublessor's sole discretion) towards fulfillment of
Sublessee's unperformed obligations. If Sublessor does so apply any portion of
the Security Deposit, Sublessee's failure to remit to Sublessor a sufficient
amount in cash (or, to the extent that Sublessor drew on a Letter of Credit, a
replacement Letter of Credit) to restore the Security Deposit to the original
amount within five (5) days after receipt of Sublessor's written demand to do so
shall constitute an event of default hereunder. Upon termination of this
Sublease, if Sublessee has then performed all of Sublessee's obligations
hereunder, Sublessor shall return the Security Deposit, or whatever amount
remains of the Security Deposit after Sublessor applied all or a portion of the
Security Deposit to perform Sublessee's obligations hereunder, to Sublessee
without payment of interest.
11. USE. The Sublet Space is to be used for the Permitted Use, and
---
for no other purpose or business without the prior written consent of Sublessor.
In no event shall the Sublet Space be used for a purpose or use prohibited by
the Master Lease.
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12. ASSIGNMENT AND SUBLETTING.
-------------------------
a. CONSENT REQUIREMENT. Sublessee shall not do any of the
-------------------
following (collectively referred to herein as a "Transfer"), whether
voluntarily, involuntarily or by operation of law, without the prior written
consent of Sublessor, which consent shall not be unreasonably withheld or
delayed: (i) sublet all or any part of the Sublet Space or allow it to be
sublet, occupied or used by any person or entity other than Sublessee or any
customer of Sublessee gaining temporary, limited access to its equipment which
is co-located at the Sublet Space, provided that such access rights are not used
in any way to contravene the subletting provisions of this Section 12; (ii)
assign its interest in this Sublease; (iii) mortgage or encumber the Sublease
(or otherwise use the Sublease as a security device) in any manner; or (iv)
materially amend or modify an assignment, sublease or other transfer that has
been previously approved by Sublessor. Sublessee shall reimburse Sublessor for
all reasonable costs and attorneys' fees incurred by Sublessor in connection
with the evaluation, processing, and/or documentation of any requested Transfer,
whether or not Sublessor's consent is granted. Sublessor's reasonable costs
shall include the cost of any review or investigation performed by Sublessor or
consultant acting on Sublessor's behalf of (i) Hazardous Materials used, stored,
released, or disposed of by the potential Subtenant or Assignee, and/or (ii)
violations of law by the Sublessee or the proposed Subtenant or Assignee. Any
Transfer so approved by Sublessor shall not be effective until Sublessee has
delivered to Sublessor an executed counterpart of the document evidencing the
Transfer which (i) is in a form reasonably approved by Sublessor, (ii) contains
the same terms and conditions as stated in Sublessee's notice given to Sublessor
pursuant to this Section 12, and (iii) in the case of an assignment of the
Sublease, contains the agreement of the proposed transferee to assume all
obligations of Sublessee under this Sublease arising after the effective date of
such Transfer and to remain jointly and severally liable therefor with
Sublessee. Any attempted Transfer without Sublessor's consent shall constitute
an Event of Sublessee's Default and shall be voidable at Sublessor's option.
Sublessor's consent to any one Transfer shall not constitute a waiver of the
provisions of this Section 12 as to any subsequent Transfer. No Transfer, even
with the consent of Sublessor, shall relieve Sublessee of its personal and
primary obligation to pay the rent and to perform all of the other obligations
to be performed by Sublessee hereunder. The acceptance of rent by Sublessor from
any person shall not be deemed to be a waiver by Sublessor of any provision of
this Sublease nor to be a consent to any Transfer.
b. PROCEDURE. At least 30 days before a proposed Transfer is to
---------
become effective, Sublessee shall give Sublessor written notice of the proposed
terms of such Transfer and request Sublessor's approval, which notice shall
include the following: (i) the name and legal composition of the proposed
transferee; (ii) a current financial statement of the transferee, financial
statements of the transferee covering the preceding three years if the same
exist, and (if available) an audited financial statement of the transferee for a
period ending not more than one year prior to the proposed effective date of the
Transfer, all of which statements are prepared in accordance with generally
accepted accounting principles; (iii) the nature of the proposed transferee's
business to be carried on in the Sublet Space; (iv) all consideration to be
given on account of the Transfer; (v) a current financial statement of
Sublessee; and (vi) an accurately filled out response to Sublessor's standard
Hazardous Materials Questionnaire. Sublessee shall
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provide to Sublessor such other information as may be reasonably requested by
Sublessor within seven days after Sublessor's receipt of such notice from
Sublessee. Sublessor shall respond in writing to Sublessee's request for
Sublessor's consent to a Transfer within the later of (i) 15 days of receipt of
such request together with the required accompanying documentation, or (ii)
seven days after Sublessor's receipt of all information which Sublessor
reasonably requests within seven days after it receives Sublessee's first notice
regarding the Transfer in question. If Sublessor fails to respond in writing
within said period, Sublessor will be deemed to have withheld consent to such
Transfer. Sublessee shall immediately notify Sublessor of any material
modification to the proposed terms of such Transfer.
c. SUBLESSOR'S ELECTION. In the event that Sublessee seeks to
--------------------
make any Transfer, Sublessor shall have the right to terminate this Sublease or,
in the case of a sublease of less than all of the Sublet Space, terminate this
lease as to that part of the Sublet Space proposed to be so sublet, either (i)
on the condition that the proposed transferee immediately enter into a direct
lease of the Sublet Space with Sublessor (or, in the case of a partial sublease,
a lease for the portion proposed to be so sublet) on the same terms and
conditions contained in Sublessee's notice, or (ii) so that Sublessor is
thereafter free to lease the Sublet Space (or, in the case of a partial
sublease, the portion proposed to be so sublet) to whomever it pleases on
whatever terms are acceptable to Sublessor. In the event Sublessor elects to so
terminate this Sublease, then (i) if such termination is conditioned upon the
execution of a lease between Sublessor and the proposed transferee, Sublessee's
obligations under this Sublease shall not be terminated until such transferee
executes a new lease with Sublessor, enters into possession and commences the
payment of rent, and (ii) if Sublessor elects simply to terminate this Sublease
(or, in the case of a partial sublease, terminate this Sublease as to the
portion to be so sublet), the lease shall so terminate in its entirety (or as to
the space to be so sublet) fifteen (15) days after Sublessor has notified
Sublessee in writing of such election. Upon such termination, Sublessee shall be
released from any further obligation under this Sublease if it is terminated in
its entirety, or shall be released from any further obligation under the
Sublease with respect to the space proposed to be sublet in the case of a
proposed partial sublease. In the case of a partial termination of the Sublease,
the Base Rent and Sublessee's Share shall be reduced to an amount which bears
the same relationship to the original amount thereof as the area of that part of
the Sublet Space which remains subject to the Sublease bears to the original
area of the Sublet Space. Sublessor and Sublessee shall execute a cancellation
and release with respect to the Sublease to effect such termination.
d. TERMS OF TRANSFER. If Sublessor consents to a Transfer
-----------------
proposed by Sublessee, Sublessee may enter into such Transfer, and if Sublessee
does so, the following shall apply:
(i) Sublessee shall not be released of its liability for
the performance of all of its obligations under the Sublease.
(ii) If Sublessee assigns its interest in this Sublease,
then Sublessee shall pay to Sublessor fifty percent (50%) of all Subrent (as
defined in Section 12.d.(iv)) received by Sublessee over and above (i) the
assignee's agreement to assume the obligations of Sublessee
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under this Sublease, and (ii) all Permitted Transfer Costs related to such
assignment. In the case of assignment, the amount of Subrent owed to Sublessor
shall be paid to Sublessor on the same basis, whether periodic or in lump sum,
that such Subrent is paid to Sublessee by the assignee.
(iii) If Sublessee sublets any part of the Sublet Space,
then with respect to the space so subleased, Sublessee shall pay to Sublessor
fifty percent (50%) of positive difference, if any, between (i) all Subrent paid
by the subtenant to Sublessee, less (ii) the sum of all Base Rent and Additional
Rent allocable to the space sublet and all Permitted Transfer Costs related to
such sublease. Such amount shall be paid to Sublessor on the same basis, whether
periodic or in lump sum, that such Subrent is paid to Sublessee by its
subtenant. In calculating Sublessor's share of any periodic payments, all
Permitted Transfer Costs shall be first recovered by Sublessee.
(iv) Sublessee's obligations under this Section 12.d shall
survive any transfer, and Sublessee's failure to perform its obligations
hereunder shall be an Event of Sublessee's Default. At the time Sublessee makes
any payment to Sublessor required by this Section 12, Sublessee shall deliver an
itemized statement of the method by which the amount to which Sublessor is
entitled was calculated, certified by Sublessee as true and correct. Sublessor
shall have the right at reasonable intervals to inspect Sublessee's books and
records relating to the payments due hereunder. Upon request therefor, Sublessee
shall deliver to Sublessor copies of all bills, invoices, and other documents
upon which its calculations are based. Sublessor may condition its approval of
any Transfer upon obtaining a certification from both Sublessee and the proposed
transferee of all Subrent and other amounts that are to be paid to Sublessee in
connection with such Transfer.
(v) As used in this Section 12.d. (v), the term "Subrent"
shall mean any consideration of any kind received, or to be received, by
Sublessee as result of the Transfer, if such sums are related Sublessee's
interest in this Sublease or in the Sublet Space, including payments from or on
behalf of the transferee (in excess of the book value thereof) for Sublessee's
assets, fixtures, leasehold improvements, inventory, accounts, goodwill,
equipment, furniture and general intangibles. As used in this Section 12, the
term "Permitted Transfer Costs" shall mean (i) reasonable leasing commissions
paid to third parties not affiliated with Sublessee in order to obtain the
Transfer in question, and (ii) all reasonable attorneys' fees incurred by
Sublessee with respect to the Transfer in question.
e. CORPORATE REORGANIZATION. If Sublessee is a corporation, the
------------------------
following shall be deemed a voluntary assignment of Sublessee interest in this
Sublease: (i) any dissolution, merger, consolidation, or other reorganization of
or affecting Sublessee (except that Sublessee's reincorporation as a Delaware
corporation shall not be deemed an assignment for the purposes of this Sublease)
whether or not Sublessee is the surviving corporation; and (ii) if the capital
stock of Sublessee is not publicly traded, the sale or transfer to one person or
entity (or to any group of related persons or entities) stock possessing more
than fifty percent (50%) of the total combined voting power of all classes of
Sublessee's capital stock issued, outstanding and entitled to vote for the
election of directors. If Sublessee is a Partnership, any withdrawal or
substitution (whether voluntary, involuntary or by operation of law, and whether
occurring at one
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time or over a period of time) of any partner owning twenty-five percent (25%)
or more (cumulatively) of any interest in the capital or profits of the
partnership, or the dissolution of the partnership, shall be deemed a voluntary
assignment of Sublessee's interest in this Sublease.
13. MAINTENANCE AND REPAIR.
----------------------
a. SUBLESSOR. Sublessor shall maintain and repair only the
---------
roof, foundation and the structural soundness of the exterior walls of the
Building and utility facilities stubbed to the Sublet Space in good condition,
reasonable wear and tear excepted. The term "walls" as used herein shall not
include windows, glass or plate glass, doors, special store fronts or office
entries, unless otherwise specified by Sublessor in writing. Further, Sublessor
shall maintain, repair and repaint the exterior walls, overhead doors, canopies,
entries, handrails; gutters and other exposed parts of the Building as necessary
to maintain safety and aesthetic standards. Sublessor shall maintain, repair,
and operate the common areas of the Property, including but not limited to,
mowing grass and general landscaping, maintenance of parking-areas, driveways
and alleys, parking lot sweeping, exterior lighting, pest control and window
washing. If there is central HVAC or other building service equipment and/or
utility facilities serving portions of the Common Area and/or both the Sublet
Space and other parts of the Building, Sublessor shall maintain and operate (and
replace when necessary) such equipment.
(i) PROCEDURE AND LIABILITY. Sublessee shall immediately
-----------------------
give Sublessor written notice of defect or need for repair of the items
described above, after which Sublessor shall use commercially reasonable efforts
to repair same or cure such defect with contractors of Sublessor's choice.
Sublessor's liability with respect to any defects, repairs or maintenance for
which Sublessor is responsible under any of the provisions of this Sublease
shall be limited to the cost of such repairs or maintenance or the curing of
such defect, and shall be further limited by the terms of Section 17 of this
Sublease. If Sublessee or Sublessee's Parties caused any damage necessitating
such repair, then Sublessee shall pay the cost thereof, upon demand.
(ii) WAIVER. Sublessee hereby waives the benefit of
------
California Civil Code Section 1941 and 1942, and any other statute providing a
right to make repairs and deduct the cost thereof from the Rent.
b. SUBLESSEE'S MAINTENANCE AND REPAIR.
----------------------------------
(i) SUBLESSEE'S OBLIGATION TO MAINTAIN. Sublessee shall
----------------------------------
be responsible for the following during the Term:
1. GENERAL. Sublessee shall clean and maintain in
good order, condition, and repair and replace when necessary the Sublet Space
and every part thereof through regular inspections and servicing, including but
not limited to: (i) all plumbing and sewage facilities (including all sinks,
toilets, faucets and drains), and all ducts, pipes, vents or other parts of the
HVAC or plumbing system; (ii) all fixtures, interior walls, floors, carpets and
ceilings; (iii) all windows, doors, entrances, plate glass, showcases and
skylights (including cleaning both interior and exterior surfaces); (iv) all
electrical facilities and all equipment (including all
11
<PAGE>
lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and
systems); and (v) any automatic fire extinguisher equipment in the Sublet Space.
2. UTILITY FACILITIES. With respect to utility
facilities serving the Sublet Space (including electrical wiring and conduits,
gas lines, water pipes, and plumbing and sewage fixtures and pipes), Sublessee
shall be responsible for the maintenance and repair of any such facilities which
serve only the Sublet Space, including all such facilities that are within the
walls or floor, or on the roof of the Sublet Space, and any part of such
facility that is not within the Sublet Space, but only up to the point where
such facilities join a main or other junction (e.g., sewer main or electrical
transformer) from which such utility services are distributed to other parts of
the Project as well as to the Sublet Space. Sublessee shall replace any damaged
or broken glass in the Sublet Space (including all interior and exterior doors
and windows) with glass of the same kind, size and quality. Sublessee shall
repair any damage to the Sublet Space (including all exterior doors and windows)
caused by vandalism or any unauthorized entry.
(ii) PROPERTY MANAGEMENT. Sublessee hereby agrees to
engage Integrated Facilities Resources, an operating business unit of Sublessor
(the "Management Company"), to perform the property management activities
required of Sublessee hereunder with respect to the Sublet Space. Management
Company agrees to perform such property management services, at the expense of
Sublessee (based on Management Company's then-existing rates), with the
understanding that in no way is Management Company's agreement to perform such
activities hereunder meant to terminate, reduce or abate Sublessee's obligations
to Sublessor pursuant to this Sublease.
14. ALTERATIONS. Sublessee shall make no alterations, additions or
-----------
improvements (collectively, "Alterations") to the Sublet Space (including,
-----------
without limitation, roof and wall penetrations) or any part thereof without
obtaining the prior written consent of Sublessor and Sublessor in each instance,
provided that Sublessee may install the Alterations described in Schedule 1
----------
attached hereto with the prior written consent of Sublessor (the "Pre-Approved
Alterations"), provided that such alterations are otherwise performed in
accordance with the terms of this Section 14. Sublessor may impose as a
condition to such consent such requirements as Sublessor may deem necessary, in
its sole but reasonable discretion, including, without limitation: (i) that
Sublessor be furnished with working drawings before work commences; (ii) that
performance and labor and material payment bonds be furnished; (iii) that
Sublessor approve the contractor by whom the work is to be performed; (iv) that
adequate course of construction insurance be in place and the Sublessor is named
as an additional insured under the contractor's liability and property damage
policies; and (iv) that Sublessor's instructions relating to the manner in which
the work is to be done and the times during which it is to be accomplished be
complied with. All such alterations, additions or improvements must be done in
compliance with all applicable laws and private regulations, in a good and
workmanlike manner and diligently prosecuted to completion. Sublessee shall
deliver to Sublessor upon commencement of such work, a copy of the building
permit with respect thereto. All such work shall be performed so as not to
obstruct the access to the Sublet Space of any other tenant in the Building or
Property. Should Sublessee make any alterations without Sublessor's prior
written consent, Sublessor shall
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<PAGE>
have the right, in addition to and without limitation of any right or remedy
Sublessor may have under this Sublease, at law or in equity, to require the
Sublessee to remove all or some of the alterations, additions or improvements at
Sublessee's sole cost and restore the Sublet Space to the same condition as
existed prior to undertaking the alterations. Sublessee shall notify Sublessor
in writing at least ten (10) days prior to the commencement of any such work in
or about the Sublet Space and Sublessor shall have the right at any time and
from time to time to post and maintain notices of nonresponsibility in or about
the Sublet Space. All Sublessee's Alterations shall remain the property of
Sublessee during the Term but shall not be altered or removed from the Sublet
Space. At the expiration or sooner termination of the Term, all Sublessee's
Alterations shall be surrendered to Sublessor and shall then become Sublessor's
property, and Sublessor shall have no obligation to reimburse Sublessee for all
or any portion of the value or cost thereof; provided, however, that if
Sublessor requires Sublessee to remove any Sublessee's Alterations, Sublessee
shall so remove such Sublessee's Alterations prior to the expiration or sooner
termination of the Sublease Term. Notwithstanding any thing to the contrary
herein, neither Sublessor nor Landlord shall have any rights to any of the
Alterations described in Schedule 2 attached hereto, and all such Alterations
----------
shall be removed by Sublessee, at Sublessee's expense, on or before the
expiration or sooner termination of the Sublease Term and any damage to the
Premises caused by such removal has been repaired by Sublessee.
15. DAMAGE AND DESTRUCTION.
----------------------
a. TERMINATION OF MASTER LEASE. If the Sublet Space is damaged
---------------------------
or destroyed and Landlord or Sublessor exercises any option either may have to
terminate the Master Lease, if any, this Sublease shall terminate as of the date
of the termination of the Master Lease.
b. CONTINUATION OF SUBLEASE. If the Master Lease is not
------------------------
terminated following any damage or destruction as provided above, this Sublease
shall remain in full force and effect and Sublessee shall be entitled to any
reduction or abatement of Base Rent in an amount in proportion to the
corresponding reduction in base rent for the Sublet Space which Sublessor
receives under the Master Lease. Sublessor shall diligently enforce any
obligation of Landlord to rebuild the Sublet Space in accordance with the Master
Lease; and (ii) Sublessor shall make available to Sublessee any insurance
proceeds Sublessor receives as a result of such damage or destruction.
16. EMINENT DOMAIN.
--------------
a. TOTAL CONDEMNATION. If all of the Sublet Space is condemned
------------------
by eminent domain, inversely condemned or sold in lieu of condemnation, for any
public or a quasi-public use or purpose ("Condemned" or "Condemnation"), this
Sublease shall terminate as of the date of title vesting in such proceeding, and
Base Rent shall be adjusted to the date of termination.
b. PARTIAL CONDEMNATION. If any portion of the Sublet Space is
--------------------
Condemned, and Sublessor exercises any option to terminate the Master Lease,
this Sublease shall automatically terminate as of the date of the termination of
the Master Lease. If Sublessor
13
<PAGE>
has the option to terminate the Master Lease, Sublessor shall promptly give
Sublessee notice of such option and shall exercise such option if so directed by
Sublessee subject to the relevant provisions of the Master Lease and further
provided that such partial condemnation renders the Sublet Space unusable for
Sublessee's business, as reasonably determined by Sublessor. If this Sublease is
not terminated following any such Condemnation, this Sublease shall remain in
full force and effect. Sublessor shall diligently enforce any rights under the
Master Lease to require Lessor to rebuild the Sublet Space. Base Rent shall be
equitably adjusted to take into account interference with Sublessee's ability to
conduct its operations on the Sublet Space as a result of the Sublet Space being
Condemned. Sublessee hereby waives the provisions of California Code of Civil
Procedure Section 1265.130 permitting a court of law to terminate this Sublease.
c. SUBLESSEE'S AWARD. Subject to the provisions of the Master
-----------------
Lease, Sublessee shall have the right to recover from the condemning authority,
but not from Sublessor, such compensation as may be separately awarded to
Sublessee in connection with costs and removing Sublessee's merchandise,
furniture, fixtures, leasehold improvements and equipment to a new location.
17. INSURANCE. All insurance policies required to be carried by
---------
Sublessee, pursuant to the Master Lease, shall contain a provision whereby
Sublessor and Landlord are each named as additional insureds under such
policies.
18. BROKERAGE COMMISSION. Sublessee warrants for the benefit of
--------------------
Sublessor that its sole contact with Sublessor or the Sublet Space in connection
with this transaction has been directly with Sublessor and that no broker other
than Sublessee's Broker may make a claim through Sublessee. Sublessee further
warrants for the benefit of Sublessor that no broker or finder other than
Sublessee's Broker can properly claim a right to a commission or a finder's fee
based upon contacts between the claimant and Sublessee with respect to the other
party or the Sublet Space. Sublessee shall indemnify, defend by counsel
acceptable to Sublessor and hold Sublessor harmless from and against any loss,
cost or expense, including, but not limited to, attorneys' fees and court costs,
resulting from any claim for a fee or commission by any broker or finder other
than Sublessee's Broker in connection with the Sublet Space and this Sublease.
19. LIABILITY.
---------
a. LIMITATION ON LIABILITY. Sublessor shall have no liability
-----------------------
to Sublessee arising out of any disruption in the availability of the use of
Sublessor's facilities or any product or service to be provided by Sublessor to
Sublessee hereunder regardless of cause, provided such disruption is not due to
the intentional or grossly negligent acts of Sublessor. Sublessor shall not be
responsible for Sublessee's employees personal property while occupying the
Sublet Space, including but not limited to motor vehicles parked in a related
parking lot, provided such loss is not due to the intentional or grossly
negligent acts of Sublessor. While Sublessor provides security and environmental
services to the Sublet Space, those services are incidental to Sublessee's
occupancy of the Sublet Space. Sublessor disclaims responsibility for security
breaches, environmental issues or related issues that may arise in connection
with Sublessee's occupancy of the Sublet Space. Sublessee agrees to hold
Sublessor harmless in such matters.
14
<PAGE>
b. SUBLESSEE'S INDEMNITY. Sublessee shall defend, indemnify and
---------------------
hold harmless Sublessor, its partners, employees, and agents, and Landlord,--
from and against any and all claims, liabilities, suits, judgments, awards,
damages, losses, fines, penalties, costs and expenses, including reasonable
attorney's fees, that Sublessor, its partners, employees and agents, and
Landlord may suffer, incur or be liable for by reason of or arising out of or
related to the breach by Sublessee of any of the duties, obligations,
liabilities or covenants applicable to Sublessee hereunder, Sublessee's
occupancy or use of the Sublet Space, any alterations, additions or
modifications made to the Sublet Space by Sublessee or Sublessee's negligence or
willful misconduct. This indemnification shall survive termination of this
Sublease.
20. RIGHT TO CURE SUBLESSEE'S DEFAULTS. If Sublessee shall at any
----------------------------------
time fail to make any payment or perform any other obligation of Sublessee
hereunder, then Sublessor shall have the right, but not the obligation, after
the lesser of five (5) days' notice to Sublessee or the time within which
Landlord may act on Sublessor's behalf under the Master Lease, or without notice
to Sublessee in the case of any emergency, and without waiving or releasing
Sublessee from any obligations of Sublessee hereunder, to make such payment or
perform such other obligation of Sublessee in such manner and to such extent as
Sublessor shall deem necessary, and in exercising any such right, to pay any
incidental costs and expenses, employ attorneys and other professionals, and
incur and pay attorneys' fees and other costs reasonably required in connection
therewith. Sublessee shall pay to Sublessor upon demand all sums so paid by
Sublessor and all incidental costs and expenses of Sublessor in connection
therewith, together with interest thereon at the Interest Rate.
21. RIGHT OF FIRST REFUSAL.
----------------------
a. GRANT. Subject to the terms of this Section 21, Sublessor
-----
grants to Sublessee a right of first refusal ("Right of First Refusal") during
the Term of this Sublease to sublease any space which is available for sublease
on the first floor of the Building ("Available Space").
b. COVENANTS OF SUBLESSOR. Subject to the conditions precedent
----------------------
established by Section 21.d below, if at any time during the Term of this
Sublease Sublessor receives an offer which Sublessor is willing to accept to
sublease any Available Space, Sublessor shall first provide Sublessee with a
written notice ("Refusal Notice") detailing (a) the rent at which said Available
Space would be subleased to the third party, (b) the rentable square footage and
location thereof, (c) the date the Available Space will become available and (d)
all other terms upon which Sublessor proposes to lease the Available Space to
Sublessee.
c. EXERCISE OF SUBLESSEE'S RIGHT OF FIRST REFUSAL. Subject to
----------------------------------------------
the conditions precedent established by Section 21.d below, Sublessee may
exercise Sublessee's Right of First Refusal to lease all (but not less than all)
of the Available Space described in the Refusal Notice by providing Sublessor
with written notice ("Acceptance Notice") thereof within five (5) business days
of Sublessor's delivery to Sublessee of the Refusal Notice. If Sublessee does
not exercise its Right of First Refusal within said five (5) business day
period, Sublessor
15
<PAGE>
shall be relieved of Sublessor's obligation to lease the Available Space
mentioned in the First Refusal Availability Notice to Sublessee and the
provisions of this Section 21 shall not apply to Sublessor.
d. CONDITIONS TO RIGHT OF FIRST REFUSAL. Notwithstanding
------------------------------------
anything to the contrary in this Section 21, Sublessor shall have no obligation
to provide Sublessee with an Refusal Notice, and Sublessee shall have no right
to exercise Sublessee's Right of First Refusal, if: (i) Sublessee is in default
either: (a) at the time Sublessor seeks to lease the Available Space in
question, or at the time Sublessee seeks to give Sublessor an Acceptance Notice,
whichever, is relevant, or (b) upon the date Sublessee seeks to take possession
of the Available Space referenced in the Refusal Notice, (ii) Sublessee has
sublet more than twenty percent (20%) of the rentable space located in the
Sublet Space, or (iii) Sublessee has received more than three (3) notices of
default from Sublessee during the Term of this Sublease. Sublessee's Right of
First Refusal shall be personal to Sublessee and shall not be transferable with
any assignment of this Sublease or subletting of the Sublet Space.
e. TERMS FOR RIGHT OF FIRST REFUSAL. In the event that
--------------------------------
Sublessee exercises Sublessee's Right of First Refusal, Sublessee's occupancy of
the Available Space taken shall be on all of the same terms and conditions
described in the Refusal Notice; provided, however, that in no event shall the
Base Rent due per rentable square foot for such Available Space be less than the
same Rent then due per rentable square foot for the Sublet Space pursuant to
this Sublease.
f. ONE-TIME RIGHT. Sublessee agrees and acknowledges that
--------------
Sublessee's Right of First Refusal hereunder is a one-time right only with
respect to the portion of the Available Space specified in the Refusal Notice,
and that in the event that Sublessee shall fail to provide Sublessor with an
Acceptance Notice within five (5) days of Sublessor's delivery of an Refusal
Notice then all of Sublessor's obligations, and Sublessee's rights, under this
Section 21 with respect to the portion of the Available Space specified in the
Refusal Notice shall forever terminate and be of no force or effect.
g. AMENDMENT TO SUBLEASE. Sublessor and Sublessee hereby agree
---------------------
to execute an amendment to this Sublease ("Sublease Amendment") prior to
Sublessee's occupancy of the Available Space in question. The Sublease Amendment
shall specify, among other things, the Rent, date of occupancy, increase in
Sublessee's pro rata share and square footage of the Available Space taken in
connection with Sublessee's exercise of Sublessee's Right of First Refusal.
22. SIGNS. Sublessee may place a monument sign on the Property
-----
during the Term of this Sublease, provided that the location, content, graphics,
size and location of such sign shall be subject to the prior written approval of
Sublessor and Landlord. Any such approved signs shall strictly conform to all
laws, private restrictions, and any sign criteria then established by Landlord,
and shall be installed at the expense of Sublessee. Sublessee shall maintain
such signs in good condition and repair. If Sublessee fails to maintain
Sublessee's signs, or if Sublessee fails to remove such sign(s) upon the
termination of this Sublease and repair any damage caused by such removal,
Sublessor may do so at Sublessee's expense.
16
<PAGE>
23. PARKING. Sublessee is allocated and shall have the non-exclusive
-------
right to use two hundred twenty (220) parking spaces contained within the
Property for its use and the use of Sublessee's Parties. Sublessee shall not at
any time use more parking spaces than the number so allocated to Sublessee or
park its vehicles or the vehicles of others in any portion of the Property not
designated by Sublessor or Landlord as a nonexclusive parking area. Neither
Sublessee nor Sublessee's Parties shall have the exclusive right to use any
specific parking space. Sublessor reserves the right, after having given
Sublessee reasonable notice, to have any vehicles owned by Sublessee or
Sublessee's Parties utilizing parking spaces in excess of the parking spaces to
be towed away at Sublessee's cost. All trucks and delivery vehicles shall be
loaded and unloaded in a manner which does not interfere with the businesses of
other occupants of the Building. Nothing contained in this Sublease shall be
deemed to create liability upon Sublessor for any damage to motor vehicles of
visitors or employees, for any loss of property from within those motor
vehicles, or for any injury to Sublessee or Sublessee's Parties, unless
ultimately determined to be caused by the gross negligence or willful misconduct
of Sublessor, its agents, servants and employees ("Sublessor's Parties").
24. MISCELLANEOUS.
-------------
d. ENTIRE AGREEMENT. This Sublease contains all of the
----------------
covenants, conditions and agreements between the parties concerning the Sublet
Space, and shall supersede all prior correspondence, agreements and
understandings concerning the Sublet Space, both oral and written. No addition
or modification of any term or provision of this Sublease shall be effective
unless set forth in writing and signed by both Sublessor and Sublessee.
e. CAPTIONS. All captions and headings in this Sublease are for
--------
the purposes of reference and convenience and shall not limit or expand the
provisions of this Sublease.
f. LANDLORD'S CONSENT. This Sublease is conditioned upon
------------------
Landlord's written approval of this Sublease within fifteen (15) days after the
Effective Date. If Landlord refuses to consent to this Sublease, or if the
fifteen (15) day consent period expires, this Sublease shall terminate and
neither party shall have any continuing obligation to the other with respect to
the Sublet Space; provided Sublessor shall return the Deposit, if previously
delivered to Sublessor, to Sublessee.
d. AUTHORITY. Each person executing this Sublease on behalf of
---------
a party hereto represents and warrants that he or she is authorized and
empowered to do so and to thereby bind the party on whose behalf he or she is
signing.
e. ATTORNEY'S FEES. In the event either party shall bring any
---------------
action or proceeding for damages or for an alleged breach of any provision of
this Sublease to recover rents, or to enforce, protect or establish any right or
remedy hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and court costs as part of such action or proceeding.
17
<PAGE>
f. HOLDOVER. This Sublease shall terminate without further
--------
notice at the expiration of the Sublease Term. If Sublessee holds over at the
Sublet Space or any part thereof after the expiration or earlier termination of
the Term, such holding over shall constitute a month-to-month tenancy, at a rent
equal to one hundred fifty percent (150%) of the base rent due under the
Sublease for the first month of such hold over period and two hundred percent
(200%) of the base rent due under the Sublease thereafter. Nothing in the
foregoing sentence shall be deemed Sublessor's permission for Sublessee to hold
over, and acceptance of Base Rent by Sublessor following expiration of
termination of the Sublease shall not constitute a renewal of this Sublease. In
addition to the foregoing, Sublessee shall indemnify, defend by counsel
satisfactory to Sublessor, protect and hold Sublessor harmless from any and all
liabilities, claims, causes of action, damages, costs or expenses (including
reasonable attorney's fees) directly or indirectly resulting from Sublessee's
holding over at the Sublet Space beyond the expiration or termination of the
Term.
g. ACCESS. Sublessor reserves the right to enter the Sublet
------
Space in order to inspect the Sublet Space and/or the performance by Sublessee
of the terms of this Sublessee.
e. NOTICES. All notices to be given hereunder shall be in
-------
writing and mailed postage prepaid by certified or registered mail, return
receipt requested, national overnight courier service or delivered by a personal
or courier delivery, or sent by facsimile (immediately followed by one of the
preceding methods), to Sublessor at the address ("Sublessor's Address") listed
below and/or to Sublessee at the address listed below, or to such other place as
Sublessor or Sublessee may designate in a written notice given to the other
party; provided that as of the Commencement Date of this Sublease, Sublessee's
address shall be the address of the Sublet Space.
i. TIME. Time is of the essence of every provision of this
----
Sublease.
j. CONFIDENTIALITY. Sublessor, Sublessee and Landlord shall
---------------
each keep all information related to this Sublease confidential. Sublessor,
Sublessee and Landlord shall not disclose any such information to any other
person or entity, without obtaining the prior written consent of each of the
other parties.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed one (1) or more
copies of this Sublease, dated as of the Effective Date.
"SUBLESSOR"
AMDAHL CORPORATION,
a Delaware corporation
By: /s/ Edward S. Hartford
----------------------------------
Name: Edward S. Hartford
Vice President,
Corporate Facilities
"SUBLESSEE"
EXODUS COMMUNICATIONS, INC.,
a California corporation
By: /s/ Richard Stoltz
----------------------------------
Name: Richard Stoltz
Title: Chief Operating Officer
and Chief Economic Officer
By: /s/ K.B. Chandrasekhar
----------------------------------
K.B. Chandrasekhar
19
<PAGE>
CONSENT OF LANDLORD
Landlord, as landlord under the Master Lease, hereby consents to the
execution and delivery of the Sublease by and between Sublessor and Sublessee
and the subletting of the Sublet Space in accordance with the terms of the
Sublease.
Landlord hereby certifies to Sublessor that:
1. There exists no default, breach, failure of condition or event of
default under the Master Lease by Landlord or to the best of Landlord's
knowledge, Sublessor, nor any event or condition which, with notice or the
passage of time or both, would constitute a default, breach, failure of
condition or event of default thereunder and Landlord and, to the best of
Landlord's knowledge, Sublessor, has as of the date hereof, complied with all of
the terms and conditions of the Master Lease. each keep all information related
to this Sublease confidential. Sublessor, Sublessee and Landlord shall not
disclose any such information to any other person or entity, without obtaining
the prior written consent of each of the other parties.
2. The expiration date of the Master Lease is: _________________________.
3. Landlord has inspected the Sublet Space prior to the Commencement Date
and has found no damage or condition in the Sublet Space that would require
Sublessor to repair the Sublet Space pursuant to the terms of the Master Lease.
4. The Sublet Space may be used for sales and data center and other
legally related uses.
5. Sublessee shall have the right to install the Pre-Approved Alterations
on the Sublet Space, provided that they were otherwise performed in accordance
with the terms of Section 14 of the Sublease.
"Landlord"
By:_____________________________________
Its:____________________________
20
<PAGE>
EXHIBIT A
(Plan Showing Sublet Space Floor Plan)
21
<PAGE>
EXHIBIT B
---------
AMDAHL
SOBRATO/BERG
BUILDING 0-7
(12/06/79)
ADDENDUM N0. 3 TO LEASE
-----------------------
THIS ADDENDUM NO. 3 TO LEASE is entered as of the ____ day of _______ 1979,
by and between JOHN A. SOBRATO and SUSAN R. SOBRATO, a married couple, CARL E.
BERG and Mary ANN BERG, a married couple, CLYDE J. BERG and NANCY BERG, a
married couple, and ROBERT M. GRANUM, II and KAY GRANUM, a married couple
(hereinafter collectively called "Lessor") and AMDAHL CORPORATION, a Delaware
corporation (hereinafter called "Lessee").
W I T N E S S E T H:
-------------------
The parties enter this Addendum No. 3 to Lease on the basis of the
following facts, intentions and understandings:
A. Lessor and Lessee entered into that certain lease (hereinafter called
"Lease") dated April 3, 1979 whereby Lessor leased unto Lessee those certain
premises situated in the City o(Pounds) Santa Clara, County of Santa Clara,
State of California, and described as follows, to wit: that property which is
shown as Parcel 1 on that certain Parcel Map recorded April 13, 1979 in Book 439
of Maps, at Pages 17 and 18, Official Records of Santa Clara County (comprising
approximately 7.365 acres) together with the improvements consisting of a two-
story office building, which office building shall contain at least one hundred
twenty-eight thousand (128,000) gross square feet.
B. Lessor and Lessee have amended the Lease per Addendum to Lease dated
June 7, 1979 and per Addendum No. 2 to Lease dated October 19, 1979
(hereinafter collectively called "Prior Addenda").
C. Lessor and Lessee have modified the Lease per Letter Agreement
Modifying Lease (hereinafter called "Letter Agreement") dated August 27, 1979.
D. Lessor and Lessee now desire to amend the Lease as hereinafter
provided.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
1. Prior Addenda and Letter Agreement. The Prior Addenda and the Letter
----------------------------------
Agreement are hereby canceled and nullified.
22
<PAGE>
2. Witnesseth. Monthly Rental. The rental of Sixty Thousand Dollars
---------------------------
($60,000.00) per month payable on the first day of each calendar month
throughout the term of the Lease, as set forth on Page 5 of the Lease, is hereby
changed and amended to be Seventy-Five Thousand One Hundred Forty-Six Dollars
and Eighty-Seven Cents ($75,146.87) per month.
3. Witnesseth. Term. The term of the Lease as set forth on Page 4 of
-----------------
the Lease is hereby changed and amended to be twenty-nine (29) years and shall
continue to be subject to the renewal options set forth in Paragraph 33 of the
Lease.
4. Witnesseth. Lessee hereby approves all contractors, subcontractors
----------
and materialmen involved in construction of the office building as well as the
design, materials and workmanship of the construction. Lessee further approves
all expenses incurred to date relating to construction of the Improvements.
5. Witnesseth. Acceptance. Lessee and Lessor hereby confirm and agree
-----------------------
that the office building was Fully Complete and Ready for Occupancy, as defined
on Page 2 of the Lease, on December 1, 1979 and on said date Lessee accepted the
office building for occupancy.
6. Witnesseth. Repairs. Notwithstanding anything to the contrary in the
--------------------
WITNESSETH, Lessor's obligation to repair defects in the materials and
construction of the office building and any other improvements constructed by
Lessor shall include all patent and latent defects in the office building and
other improvements, but shall not include repairs required due to ordinary wear
and tear or repairs required due to damage caused by Lessee.
7. Paragraph 7. Assignment and Subletting. Wherever in Paragraph 7 of
---------------------------------------
the Lease the consent of Lessor is required to an assignment of the Lease, The
Board of Trustees of the National Electrical Contractors Association Pension
Benefit Trust Fund shall also have the right of approval of any such assignment,
as long as such approval is not unreasonably withheld, such approval to be based
upon the financial condition and management capabilities of the proposed
assignee. Lessee shall continue to remain liable under the Lease in the event
of a sublease, unless Lessor exercises Lessor' 8 right of first refusal to enter
into a direct Lessor/Lessee relationship with any such party.
8. Cancellation or Surrender. Lessor and Lessee shall not mutually agree
-------------------------
to the cancellation or surrender of the Lease without obtaining the prior
written consent of The Board of Trustees of the National Electrical contractors
Association - Pension Benefit Trust Fund as long as such approval is not
reasonably withheld.
9. Lease. Except as specifically modified and amended by this Addendum
-----
No. 3 to Lease, the Lease shall remain in full force and effect upon the terms,
covenants and conditions contained in the Lease.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum No. 3 to
Lease in one (1) or more copies on the day and year first above written.
"Lessor"
JOHN A. SOBRATO and SUSAN R. SOBRATO,
CARL E. BERG and Mary ANN BERG,
CLYDE J. BERG and NANCY BERG,
ROBERT M. GRANUM, II and KAY GRANUM
/s/ John A. Sobrato
-----------------------------------
John A. Sobrato
/s/ Susan R. Sobrato
-----------------------------------
Susan R. Sobrato
/s/ Carl E. Berg
-----------------------------------
Carl E. Berg
/s/ Mary Ann Berg
-----------------------------------
Mary Ann Berg
/s/ Clyde J. Berg
-----------------------------------
Clyde J. Berg
/s/ Nancy Berg
-----------------------------------
Nancy Berg
/s/ Robert M. Granum, II
-----------------------------------
Robert M. Granum, II
/s/ Kay Granum
-----------------------------------
Kay Granum
"Lessee"
AMDAHL CORPORATION
By: /s/ Don L. Beck
-----------------------------------
Don L. Beck
Its: Facilities Manager
APPROVED AND AGREED TO:
The Board of Trustees of the
National Electrical Contractors
Association - Pension Benefit Trust Fund
By: _____________________________
Its: ______________________________
24
<PAGE>
AGREEMENT
---------
LICENSE AGREEMENT BETWEEN AMDAHL CORPORATION AND THE CITY OF SANTA CLARA
FOR USE OF CITY ELECTRIC CONDUITS
THIS AGREEMENT, made and entered into this 11th day of September 1979, by
and between the CITY OF SANTA CLARA, a municipal corporation of the State of
California, (hereinafter referred to as "CITY"), and Amdahl Corporation, a
------------------
Delaware corporation, P.O. Box 5070, Sunnyvale, California 94086 ( (hereinafter
referred to as "AMDAHL").
NOW, THEREFORE, it is agreed by the parties hereto as follows:
A. WHEREAS, CITY has installed four (4) conduits (each 5 inches in
diameter) (hereinafter collectively called "CONDUITS across Lawson Lane 200 feet
east of San Tomas Expressway as set forth on Exhibit "A", attached hereto and
incorporated herein by this reference thereto; and,
B. WHEREAS, the CONDUITS are not now in use, nor is their use
contemplated in the foreseeable future; and,
C. WHEREAS, AMDAHL has a need to install certain underground cables and
wires across Lawson Lane to interconnect its building, and the location of the
CONDUITS will accommodate said need.
NOW, THEREFORE, it is further agreed by the parties hereto as follows:
1. CITY will extent the CONDUITS to the north and south property lines as
shown on the attached Exhibit "A" (City drawing #9063 dated June 19, 1979).
2. AMDAHL will have the responsibility of extending, from its property
line onto its property, one (1) or more of the CONDUITS, as AMDAHL deems
necessary for its purpose.
3. AMDAHL may install in one (1) or more of the CONDUITS cables and/or
wires of AMDAHL's choice as AMDAHL deems necessary for its purpose. AMDAHL
shall obtain an encroachment permit from CITY for its facilities.
4. AMDAHL agrees to pay CITY $200.00 after notice from CITY and at least
five (5) days in advance before CITY commences CITY's proposed work described in
Paragraph 1 above.
5. AMDAHL agrees to pay CITY a license fee for each calendar year for
AMDAHL'S use of the CONDUITS and in the amount of $60.00/year. Said payment
shall be made by the first of January of each year this license agreement is in
effect. Payment for the first year and the year of termination will be prorated
on monthly basis. Said amount may be changed by the CITY giving AMDAHL at least
thirty (30) days advance notice of a license fee change, such license fee change
to become effective on the next ensuing payment date.
<PAGE>
6. The parties agree that this license agreement is possible only because
there is no current CITY need for the CONDUITS. In the event CITY requires any
one (1) or more of the CONDUITS for CITY'S use, CITY may elect to terminate this
license agreement. However, AMDAHL may make application for an encroachment
permit which would allow AMDAHL to construct four (4) additional conduits
parallel to and within one hundred (100) feet of the CONDUITS for the sole use
of AMDAHL.
Either party may terminate this agreement by giving written notice of said
termination at least sixty (60) days before the effective date.
7. AMDAHL agrees to repair, at its sole expense and to CITY'S reasonable
satisfaction, any damage to the CONDUITS caused by AMDAHL, its employees, agents
or assigns, including restoration of the street or adjacent CITY property.
8. CITY reserves the right not to repair any damage to the CONDUITS when
caused by other than AMDAHL, its employees, agents or assigns.
9. In the event CITY must destroy, damage or alter the CONDUITS in
pursuit of cost savings to the CITY, AMDAHL shall have the option of saving CITY
harmless from such monetary loss, in which case CITY shall not destroy, damage
or alter the CONDUITS. CITY shall give AMDAHL'S Facilities Manager thirty (30)
days prior written notice in which to make such election.
10. CITY does not warrant the suitability of the CONDUITS for any use made of
such facilities by AMDAHL.
11. AMDAHL agrees to protect, defend, hold harmless and indemnify the CITY
from and against all claims, loss, liability, cost and expense, or damage,
(including all costs and reasonable attorney's fees in providing a defense) for
any loss of or damage to property (real and/or personal) and for personal injury
to or death of any person or persons, arising out of, or occurring by reason of
the negligence or recklessness of AMDAHL, its employees agents or assigns.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement in
duplicate the day and year first above written.
ATTEST: CITY OF SANTA CLARA
/s/ R.S. Beluk /s/ William A. Gissler
- ------------------------ ------------------------------
City Clerk Mayor
/s/ SRM Rauliff
------------------------------
City Mayor
APPROVED AS TO FORM:
AMDAHL CORPORATION
/s/ Michael A. Downey /s/ Dan L. Beck 9/4/79
- ------------------------ ------------------------------
Assistant City Attorney Its: Facilities Manager
3
<PAGE>
AMDAHL CORPORATION
SOBRATO-BERG
BUILDING 07
10/19/79
ADDENDUM # 2 TO LEASE
---------------------
THIS ADDENDUM TO LEASE, executed in duplicate as of the 19th day of
October, 1979, between JOHN A. SOBRATO and SUSAN R. SOBRATO, a married couple,
CARL E. BERG and Mary ANN BERG, a married couple, (hereinafter collectively
called "Lessor"), and AMDAHL CORPORATION, a Delaware corporation (hereinafter
called "Lessee").
WITNESSETH
----------
A. Lessor and Lessee entered into that certain lease (hereinafter called
"Lease") dated April 3, 1979, whereby Lessor leased unto Lessee those certain
premises situated in the City of Santa Clara, County of Santa Clara, State of
California, and described as follows, to wit: that property which is shown as
Parcel 1 on that certain Parcel Map recorded April 13, 1979 in Book 439 of Maps,
at Pages 17 and 18, Official Records of Santa Clara County (comprising
approximately 7.365 acres) together with the improvements consisting of a two-
story office building which office building shall contain at least one hundred
twenty-eight thousand (128,000) gross square feet. The Lease has been amended
by that certain Addendum to Lease dated seventh day of June, 1979.
B. Lessor and Lessee desire to amend the Lease as hereinafter provided.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
l. Witnesseth, Monthly Rental. The rental of Seventy-Three Thousand Six
--------------------------
Hundred Ninety Two Dollars ($73,692.00) per month and as amended in the Addendum
to Lease dated seventh of June, 1979, payable on the first day of each calendar
month throughout the term of the Lease, as set forth on Page 5 of the Lease, is
hereby changed and amended to be Seventy Five Thousand One Hundred Forty-Six
Dollars and Eighty-Seven Cents ($75,146.87).
2. Witnesseth. Term. The term of this Lease, twenty (20) years as set
-----------------
forth on Page 4 of the Lease is hereby changed and amended to be twenty-nine
(29) years and shall continue to be subject to the renewal options as set forth
in Paragraph 33 of the Lease.
3. Lease. Except as specifically modified and amended by this Addendum #
-----
2 to Lease, and the Addendum to Lease dated seventh of June, 1979, the Lease
shall remain in full force and effect upon the terms, covenants and conditions
contained in the Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Lease
in one (1) or more copies on the day and year first above written.
"Lessor"
-------------------------------
/s/ John A. Sobrato
John A. Sobrato
-------------------------------
/s/ Susan R. Sobrato
Susan R. Sobrato
-------------------------------
/s/ Carl E. Berg
Carl E. Berg
-------------------------------
/s/ Mary Ann Berg
Mary Ann Berg
-------------------------------
"Lessee"
AMDAHL CORPORATION
By /s/ Don L. Beck
-------------------------------
Don L. Beck
Its: Facilities Manager
2
<PAGE>
10/19/79 AMDAHL
SOBRATO
(8/27/79)
______________, 1979
Mr. John A. Sobrato
Sobrato-Berg Properties III
20700 Valley Green Drive
Cupertino, California 95014
Re: Letter Agreement Modifying Lease
--------------------------------
Dear John:
This Letter Agreement shall serve as a modification of the lease
(hereinafter called "Lease") between JOHN A. SOBRATO and SUSAN R. SOBRATO, a
married couple, CARL E. BERG and Mary ANN BERG, a married couple (hereinafter
collectively called "Lessor" and AMDAHL CORPORATION (hereinafter called
"Lessee"), a Delaware corporation, which Lease is dated April 3, 1979 and
amended per the Addendum to Lease dated June 7, 1979, whereby Lessor leased to
Lessee certain premises (hereinafter called "Premises") situated in the City of
Santa Clara, County of Santa Clara, State of California, the Premises being
located on the property described in Exhibit A to the Lease. Lessor and Lessee
hereby agree to the following modifications and understandings to and regarding
the Lease.
1. Lessor shall be responsible for construction of the office building as
provided for in the Lease. Lessee shall have the right to approve the design,
materials, subcontractors, materialmen, all contracts and all expenses of
construction prior to Lessor contracting for, performing or paying for same.
2. Except as provided in Paragraph 5 hereof, notwithstanding the rental
amount of ($75,146.87) Seventy Five Thousand One Hundred Forty Six and Eighty
Seven Cents per month
<PAGE>
to be payable by Lessee to Lessor as set forth in the WITNESSETH of the Lease,
as amended by the Addendum to Lease.
3. Lessor, at Lessor's sole expense, shall be responsible for the
Construction Costs, as hereinafter defined, except as provided in Paragraph 5
hereof.
4. "Construction Costs" shall mean all costs incurred and paid for by
Lessor in constructing the office building, including but not limited to, fees
to independent contractors working on construction of the office building,
materials for the office building, title insurance premiums, architects' and
engineers' fees for development of plans for the office building, and City fees
and permit changes, all necessary bonds and insurance policies, costs for
interest on the construction during the course of construction, including points
for commitments therefor, the cost of the land underlying the Premises (at the
rate of Five Dollars ($5.00) per square foot), interest at the prime rate on the
cost of the land underlying the Premises (at the rate of Five Dollars ($5.00)
per square foot) during construction only, costs of permits, any construction
fees or area fees of the City of Santa Clara, any taxes on the land during the
construction period, any costs to extend utility service to the property, and
the cost of soil tests, on-site supervision costs, and a fee to Lessor of one
point nine twenty-five percent (1.925%) for management fees, exclusive of
Lessor's one point nine twenty-five percent (l.925%) management fee.
5. Lessee, at Lessee's sole expense, shall be responsible for all of the
Construction Costs, as defined in Paragraph 4, in excess of Six Million Nine
Fifty Thousand Dollars ($6,950,000.)
6. Lessee shall have access to all of Lessor's records and accounts
relating to construction of the office building and the Construction Costs at
all times, and Lessee shall have the right to audit such books and records at
any time Lessor shall deliver to Lessee, prior to
2
<PAGE>
execution, all contracts and plans, and Lessor shall obtain Lessee's standard
warranties from all contractors, subcontractors and materialmen. Lessee shall
have the right to make changes in the Plans, as defined in the Lease, at any
time; provided, however, in the event any such Lessee changes in the Plans delay
the scheduled completion date of the project beyond December 1, 1979 and such
delay is not attributable to any cause or event other than Lessee's changes in
the Plans, the commencement date of the Lease with regard to monthly rent only
shall occur earlier than as defined in the Lease by the number of days equal to
the number of days of delay in the scheduled completion date of the project
beyond December 1, 1979, which are solely attributable to Lessee's changes in
the Plans.
7. Lessor agrees to use Lessor's best efforts to get the lowest possible
interest rate and the highest principal amount (up to Six Million Nine Hundred
Fifty Thousand Dollars ($6,950,000) on any permanent financing on the Premises
or any financing on the Premises referred to herein or in the Lease; provided,
however, Lessee shall have the right to provide any such financing if Lessee is
able to obtain a lower interest rate on any such financing prior to the
submittal of any loan application by Lessor which has previously been approved
by Lessee.
8. Notwithstanding anything to the contrary in the WITNESSETH, Lessor's
obligation to repair defects in the materials and construction of the office
building and any other improvements constructed by Lessor pursuant to the Lease,
shall include all patent and latent defects in the office building and other
improvements constructed by Lessor pursuant to Lease, but shall not include
repairs required due to ordinary wear and tear or repairs required due to damage
caused by Lessee.
3
<PAGE>
9. Lessee hereby authorizes Lessor to apply for permanent financing from
any institutional lender approved by Lessee on the following terms:
1. Amount - $6,100.00 to $6,950,000.00
------
2. Amortization Term - Twenty-Nine (29) years.
-----------------
3. Lender Call Privilege - Twenty-Nine (29)years
---------------------
4. Interest Rate - 9 3/4%
-------------
5. Loan Fee - 0 - 3 1/2%
--------
6. Rent Coverage Over Monthly Debt Service Charge - 1.25
----------------------------------------------
Lessor's loan application in conformance with the foregoing is hereby attached
hereto.
10. Notwithstanding anything to the contrary herein, in the event Lessor
is unable to obtain interim financing in an amount sufficient to pay for all
Construction Costs, Lessee shall be responsible for Construction Costs in excess
of Six Million Nine Hundred Fifty Thousand Dollars ($6,950,000.00) according to
the following:
(a) Lessee shall not be required to pay Lessor any sum of money until
Lessor has expended all interim financing funds and Lessee has received a
verified affidavit from Lessor's interim financing lender (Union Bank) that
all interim financing funds have been exhausted exclusive of such lender's
reserve requirements;
(b) Upon Lessee's approval of invoices for such Construction Costs,
such approval to occur within thirty (30) days after Lessee's receipt of
such invoices, Lessee shall pay Lessor any amounts due Lessor. In the
event Lessee does not pay Lessor within sixty (60) days, Lessor may draw
upon Letter of Credit as specified in paragraph 11(c) below.
(c) Lessee's obligations contained in Paragraph 11 (b) shall be
secured by an irrevocable conditional letter of credit in the name of
Lessor in the amount of Five Hundred Fifty Thousand Dollars (550,000.00)
which letter of credit shall provide
4
<PAGE>
that Lessor may draw on the letter of credit upon delivery to the bank
issuing the letter of credit of a verified affidavit stating that Lessee
has failed to perform according to the provisions of Paragraph 11 (b) and
the amount due Lessor as well as the invoice(s) reflecting the payments due
Lessor;
(d) Lessee may reduce the amount of the conditional letter of credit
from time to time as payments are made to Lessor and in amounts equal to
the payments made to Lessor (Lessor shall execute all documents required to
so reduce the amount of the letter of credit).
11. In the event Lessee makes changes to the building that cause the
permanent lender to reduce the amount of the committed permanent financing
amount of Six Million Nine Hundred Fifty Thousand Dollars, then Lessee shall be
responsible for the difference pursuant to Paragraph 5 hereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed two (2) or more copies
of this Letter Agreement on October 19, 1979.
"Lessor"
/s/ John A. Sobrato
-------------------
John A. Sobrato
/s/ Susan R. Sobrato
--------------------
Susan R. Sobrato
/s/ Carl E. Berg
----------------
Carl E. Berg
/s/ Mary Ann Berg
-----------------
Mary Ann Berg
"Lessee"
AMDAHL CORPORATION
By: /s/ Don L. Beck
---------------
Don L. Beck
Its: Facilities Manager
6
<PAGE>
AMDAHL
SOBRATO-BERG
BUILDING 0-7
(6/7/79)
ADDENDUM TO LEASE
-----------------
THIS ADDENDUM TO LEASE, executed in duplicate as of the 7th day of June,
1979, between JOHN A. SOBRATO and SUSAN R. SOBRATO, a married couple, CARL E.
BERG and MARY ANN BERG, a married couple, (hereinafter collectively called
"Lessor"), and AMDAHL CORPORATION, a Delaware corporation (hereinafter called
"Lessee").
WITNESSETH
----------
A. Lessor and Lessee entered into that certain lease (hereinafter called
"Lease") dated April 3, 1979, whereby Lessor leased unto Lessee those certain
premises situated in the City of Santa Clara, County of Santa Clara, State of
California, and described as follows, to wit: that property which is shown as
Parcel 1 on that certain Parcel Map recorded April 13, 1979 in Book 439 of Maps,
at Pages 17, and 18, Official Records of Santa Clara County (comprising
approximately 7.365 acres) together with the improvements consisting of a two-
story office building which office building shall contain at least one hundred
twenty-five thousand (125,000) gross square feet.
B. Lessor and Lessee desire to amend the Lease as hereinafter provided.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
1. Witnesseth. Monthly Rental. The rental of Sixty Thousand Dollars
---------------------------
($60,000.00) per month payable on the first day of each calendar month
throughout the term of the Lease, as set forth on Page 5 of the Lease, is hereby
changed and amended to be Seventy Three Thousand Six Hundred NinetyTwo Dollars
($73,692.00) per month.
2. Paragraph 34. Rental Increases. Paragraph 34 of the Lease is hereby
-------------------------------
deleted and replaced by the following language:
"The monthly rental for each five (5) year period during which this
Lease remains in force and effect, commencing with the sixth (6th)
year of this Lease, shall increase by the amount equal to seven
percent (7%) of the monthly rental payable during the five (5) year
period immediately preceding each such period.
3. Lease. Except as specifically modified and amended by this Addendum
-----
to Lease, the Lease shall remain in full force and effect upon the terms,
covenants and conditions contained in the Lease.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to Lease
in one (1) or more copies on the day and year first above written.
"Lessor"
/s/ John A. Sobrato
-------------------
John A. Sobrato
/s/ Susan R. Sobrato
--------------------
Susan R. Sobrato
/s/ Carl E. Berg
----------------
Carl E. Berg
/s/ Mary Ann Berg
-----------------
Mary Ann Berg
"Lessee"
AMDAHL CORPORATION
By: /s/ Don L. Beck
---------------
Don L. Beck
Its: Facilities Manager
8
<PAGE>
AMDAHL
SOBRATO
(6/7/79)
June 7, 1979
Mr. John A. Sobrato
Sobrato-Berg Properties III
20700 Valley Green Drive
Cupertino, California 95014
Re: Letter Agreement Modifying Lease
--------------------------------
Dear John:
This Letter Agreement shall serve as a modification of the lease
(hereinafter called "Lease") between JOHN A SOBRATO and SUSAN R. SOBRATO, a
married couple, CARL E. BERG and MARY ANN BERG, a married couple (hereinafter
collectively called "Lessor") and AMDAHL CORPORATION (herein after called
"Lessee"), a Delaware corporation, which Lease is dated April 3, 1979 and
amended per the Addendum to Lease dated even date herewith, whereby Lessor
leased to Lessee certain premises (hereinafter called "Premises") situated in
the City of Santa Clara, County of Santa Clara, State of California, the
Premises being located on the property described in Exhibit A to the Lease.
Lessor and Lessee hereby agree to the following modifications and understandings
to and regarding the Lease.
1. Lessor shall be responsible for construction of the office building as
provided for in the Lease. Lessee shall have the right to approve the design,
materials, subcontractors, materialmen, all contracts and all expenses of
construction prior to Lessor contracting for, performing or paying for same.
2. Except as provided in Paragraphs 5 and 6 hereof, notwithstanding the
rental amount of Seventy Three Thousand Seven Hundred Twelve Dollars
($73,712.00) per month to be pay able by Lessee to Lessor as set forth in the
WITNESSETH of the Lease, as amended by the Addendum to Lease, the monthly rental
for the Premises shall be calculated by fully amortizing the Construction Costs,
as hereinafter defined, over twenty (20) years at the loan constant equal to the
interest rate on Lessor's permanent financing on the Premises plus a rental
constant of one and one-half percent (1-1/2%). (For example, assuming the
Construction Costs are One Million Dollars ($1,000,000.00), and assuming the
interest rate on Lessor's permanent financing is nine and one-half percent (9-
1/2%), the monthly rental would be calculated by fully amortizing One Million
Dollars ($1,000,000.00) over twenty (20) years at eleven percent (11%) payable
monthly and would be equal to Ten Thousand Three Hundred Twenty-One Dollars and
Eighty-Eight Cents ($10,321.88) per month).
3. Lessor, at Lessor's sole expense, shall be responsible for the
Construction Costs, as hereinafter defined, except as provided in Paragraph 5
hereof.
<PAGE>
4. Construction Costs shall include, but shall not be limited to, fees to
independent contractors working on construction of the office building,
materials for the office building, title insurance premiums, architects' and
engineers' fees for development of plans for the office building, and City fees
and permit charges, all necessary bonds and insurance policies, costs for
interest on the construction during the course of construction, including points
for commitments therefor, the cost of the land underlying the Premises (at the
rate of Five Dollars ($5.00) per square foot), interest at the prime rate on the
cost of the land underlying the Premises (at the rate of Five Dollars ($5.00)
per square foot) during construction only, costs of permits, any construction
fees or area fees of the City of Santa Clara, any taxes on the land during the
construction period, any costs to extend utility service to the property, and
the cost of soil tests, on-site supervision costs, and a fee to Lessor of
$100,000.00 percent (1.925%) management fees, exclusive of Lessor's one and
925/100 percent (1.925%) management fee.
5. Lessee, at Lessee's sole expense, shall be responsible for all of the
Construction Costs, as defined in Paragraph 4, in excess of Six Million One
Hundred Seventy Thousand Dollars ($6,170,000.00); provided, however, such Six
Million One Hundred Seventy Thousand Dollar ($6,170,000) amount shall be
increased to Six Million Eight Hundred Thousand Dollars ($6,800,000.00), and
Lessor shall then be responsible for such Six Million Eight Hundred Thousand
Dollars ($6,800,000.00) sum of Construction Costs, if Lessor is able to secure
permanent financing in the amount of Six Million Eight Hundred Thousand Dollars
($6,800,000.00) pursuant to either of the following subparagraphs.
(a) In the event Lessor is able to obtain permanent financing in the
amount of Six Million Eight Hundred Thousand Dollars ($6,800,000.00) at an
interest rate less than nine and three-quarters percent (9-3/4%) amortized over
thirty (30) years; in such case the monthly rental for the Premises shall be
calculated as provided in Paragraph 2 hereof.
(b) In the event Lessor is unable to obtain permanent financing in the
amount of Six Million Eight Hundred Thousand Dollars ($6,800,000.00) at an
interest rate of less than nine and three-quarters percent (9-3/4%) prior to
October 1, 1979, but Lessor is able to obtain permanent financing in the amount
of Six Million Eight Hundred Thousand Dollars ($6,800,000.00) at a higher but
still the best interest rate available to Lessor amortized over a thirty (30)
year period. In such case, at the sole option of Lessee, monthly rental for the
Premises shall be determined by either of the following two formulas:
(i) The initial monthly rental for the Premises shall be
Lessor's monthly debt service payment under said permanent financing multiplied
by one and one-quarter (1-1/4/1.25), or, ________ percent (____%).
2
<PAGE>
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE ("Amendment") is entered into this 17th day of May,
1989, by and between Berg & Berg Developers ("Landlord") and AMDAHL CORPORATION,
a Delaware corporation ("Tenant").
THE PARTIES ENTER INTO THIS AMENDMENT based upon the following facts,
understandings and intentions:
A. Landlord and Tenant entered into that certain lease ("Lease") dated
April 3, 1979, pursuant to which Landlord agreed to lease to Tenant the building
located at 2251 Lawson Lane, Santa Clara, CA ("Building") as more fully
described in the Lease.
B. Landlord and Tenant now desire to modify the obligations of the Tenant
found in the Lease regarding approval of alterations, as further described in
the terms and conditions set forth in this Amendment. The capitalized terms
used herein (unless otherwise defined herein) shall have the meanings set forth
in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Alterations. Notwithstanding anything to the contrary found in
-----------
Section 5 of the Lease, Tenant need not obtain Landlord's consent to make non-
structural alterations, additions or improvements which do not affect the
Building's systems until the cost of any such alteration, addition or
improvement made or proposed to be made by Tenant exceeds Fifty Thousand Dollars
($50,000.00) per alteration, addition or improvement.
2. Full Force and Effect. Except as amended hereby, the term covenants
and conditions contained in the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
"Landlord": Berg & Berg Developers
By: /s/ Carl E. Berg
----------------
Its: G.P.
----
"Tenant": AMDAHL CORPORATION
a Delaware corporation
By: /s/ Bruce Eaton
---------------
Bruce Eaton, Manager
Corporate Real Estate
<PAGE>
AMDAHL: SOBRATO BERG
SANTA CLARA: BLDG. 0-7
(03/22/79)
LEASE
-----
THIS LEASE, executed in duplicate as of the 3rd day of April, 1979, between
JOHN A. SOBRATO and SUSAN R. SOBRATO, a married couple, CARL E. BERG and MARY
ANN BERG, married couple, hereinafter collectively called Lessor, and AMDAHL
CORPORATION, a Delaware corporation, hereinafter called Lessee.
WITNESSETH: that Lessor does hereby lease unto Lessee and Lessee does
hereby hire and take from Lessor those certain premises situated in the City of
Santa Clara, County of Santa Clara, State of California, and described as
follows, to wit: that property which is shown as Parcel ____ (comprising
approximately 7.365 acres) on the map attached hereto as Exhibit "A", and made a
part hereof, the precise legal description of said premises to be attached
hereto as part of Exhibit "A", within sixty (60) days of the date hereof, said
legal description to be first approved by Lessee, together with the improvements
consisting of a two-story office building which office building shall contain at
least one hundred twenty-five thousand (125,000) gross square feet. The office
building shall be constructed on the premises by independent contractors to be
employed by and under the supervision of Lessor, as general contractor, in
accordance with the plans and specifications ("Plans") to be prepared by Lessor,
all such construction to be at the expense of Lessor and Lessee as provided in a
separate Letter Agreement between Lessor and Lessee. Such Plans are subject to
the reasonable approval of Lessee and will be attached hereto as Exhibit "B", at
such time, and made a part hereof. Lessee shall have the right to approve all
contractors, subcontractors and materialmen as well as the design, materials and
workmanship of
<PAGE>
the construction. Lessee shall also have the right to approve all expenses
relating to construction of said improvements before Lessor has contracted for
same.
This Lease shall not become effective and the lease term shall not commence
unless and until the two-story office building, consisting of at least one
hundred twenty-five thousand (125,000) enclosed, gross square feet, is Fully
Complete and Ready for Occupancy, as defined herein. If such office building is
not Fully Complete and Ready for Occupancy by November 1, 1979 (extended by the
length of a delay, directly caused by strikes, acts of God or by any other cause
which is both beyond the reasonable control of Lessor and not now reasonably
foreseeable by Lessor), Lessee, at its option, shall have the right to terminate
this Lease and Lessor shall refund to Lessee any and all sums which may have
been paid by Lessee to Lessor prior to such time. Lessee shall also have the
right to terminate this Lease and receive any and all sums which may have been
paid by Lessee to Lessor prior to such time if the landscaping relating to
Parcel bigger or any remaining work on the office building exterior is not
completed in accordance with all of the applicable Plans within sixty (60) days
after such building is Fully Complete and Ready for Occupancy or if the required
attachment to Exhibit "A" hereto has not been attached within the time
prescribed herein. "Fully Complete and Ready for Occupancy" shall mean that (i)
all necessary governmental approvals, permits, consents and certificates have
been obtained by or for Lessor for the lawful construction by Lessor, and
occupancy by Lessee, of said premises and improvements, excluding work
attributable to trade fixtures and any special fit-up requested by Lessee, but
including the certificate of occupancy for said premises and improvements unless
Lessee has occupied the premises and improvements prior to Lessor's receipt of
such certificate, (ii) all of the building interior fully meets all of the
applicable Plans, (iii) all of the building exterior substantially meets the
applicable Plans, including paved parking
2
<PAGE>
areas, and (iv) said building interior is in "broom clean" finished condition.
Notwithstanding anything to the contrary herein, Lessor warrants that there
shall be no defects in the materials or construction of the office building and
any other improvements constructed by Lessor as provided herein, and Lessor
shall repair any such defects in the materials or construction of the office
building and any other improvements constructed by Lessor as provided herein if
any such defects are discovered within seven (7) years after the commencement of
the term of this Lease. Lessor shall also be responsible for the enforcement of
any customary or expressed warranties from any subcontractors, material or
equipment supplier, architect and engineer.
The term shall be for twenty (20) years, subject to the renewal options set
forth in Paragraph 33 hereof. Unless Lessee has theretofore elected to
terminate this Lease, as provided hereinabove, the term shall commence when the
office building is Fully Complete and Ready for Occupancy and (i) Lessee has
entered into occupancy of the office building or (ii) Lessor has received the
certificate of occupancy for the office building, whichever shall occur first.
Rental shall be payable in lawful money of the United States of America, which
Lessee agrees to pay to Lessor without deduction, setoff or demand at 20700
Valley Green Drive, Cupertino, California 95014, or such place or places as may
be designated in writing from time to time by Lessor, in advance, in
installments as follows: The rental shall be Sixty Thousand Dollars
($60,000.00) per month payable on the 1st day of each calendar month throughout
the term of this Lease, subject to modification as provided in a separate Letter
Agreement between Lessor and Lessee.
It is further mutually agreed between the parties as follows:
1. USE AND POSSESSION. The premises and improvements are to be used for
------------------
administrative offices, engineering, research, development, warehousing,
receiving and inspecting, manufacturing, shipping, employees' cafeteria,
assembly of computer-oriented
3
<PAGE>
electronic equipment and any other legal uses. If Lessee with Lessor's consent
takes possession prior to the commencement of said term, Lessee shall do so
subject to all the covenants and condition hereof and shall pay rent for the
period ending with the commencement of the said term at the same monthly rate as
that prescribed for the first month of the said term, subject to proration as
provided in the WITNESSETH. Any such early taking of possession shall not be
deemed a formal acceptance of the premises and/or improvements as being Fully
Complete and Ready for Occupancy and shall not be deemed a waiver of any of
Lessee's rights hereunder.
2. HOLDING OVER. If Lessee holds possession hereunder after the
------------
expiration of the term of this Lease with consent of Lessor, Lessee shall become
a tenant from month to month upon all of the terms and conditions herein
specified.
3. ENTRY BY LESSOR. Following reasonable notice, and when accompanied by
---------------
an employee of Lessee, Lessor and the agents and employees of Lessor shall have
the right to enter upon said premises at all reasonable times to inspect the
same to see that no damage has been or is done and to protect any and all rights
of Lessor and to post such reasonable notices as Lessor may desire to protect
the rights of the Lessor. Lessor may for a period commencing ninety (90) days
prior to the end of the lease term, or any extension thereof, have reasonable
access to the premises for the purpose of exhibiting the same to prospective
tenants and may place upon said premises any usual or ordinary "for sale" or "to
lease" signs.
4. CONDITION AND REPAIRS. Subject to the WITNESSETH hereinbefore
---------------------
provided, Lessee shall at Lessee's sole cost and expense, maintain, repair and
keep the interior and exterior of the premises, including the roof and all
structural components, and each and every part thereof and all appurtenances
thereto (including, without limitation, sidewalks fronting thereon, wiring,
plumbing, sewage system, heating and air cooling installations, glazing and
4
<PAGE>
skylights, in or bordering the premises and any store front), in good condition
and repair during the term of this Lease; damage thereto by wear and tear, fire,
earthquake, acts of God or the elements, other casualties and defects in design,
materials and construction excepted. In the event Lessee should fail to start
the repairs required of Lessee forthwith upon thirty (30) days written notice by
Lessor, Lessor, in addition to all other remedies available hereunder or by law,
and without waiving any alternative remedies, may make the same and Lessee
agrees to repay Lessor as additional rent the cost as part of the rental payable
on the next day upon which rent becomes due. Lessee agrees upon the expiration
of the term of this Lease or sooner termination to surrender the premises in the
same condition as received; ordinary wear and tear, fire, earthquake, acts of
God or the elements, other casualties and defects in design, materials and
construction excepted. In the event that any alterations, repairs or acts of
any kind shall be required to be done by reason of Lessee's occupancy in
connection with the premises or any part thereof under the provisions of any
law, ordinance or rule now in force or hereafter enacted by municipal, state or
national authority, the same shall be made at the cost and expense of Lessee.
Lessee shall maintain the landscaping. All vinyl wall surfaces are to be
maintained in as good a condition as when Lessee took possession free of holes,
gouges, or defacements. Lessee to limit attachments to vinyl wall surfaces
exclusively to V-joints with no larger than #6 screws.
All repairs, alterations and improvements that may be required under this
Paragraph 4 shall be done at the cost and expense of Lessee. Lessee will at all
times permit any proper notices, including proper notices of non-responsibility,
to be posted and to remain posted until the completion and acceptance of such
work.
5. WASTE AND ALTERATIONS. Lessee shall not commit, or permit to be
---------------------
committed, any waste upon the said premises. Lessee shall obtain Lessor's
written consent,
5
<PAGE>
which consent shall not be unreasonably withheld, for any alteration or repair
costing more than Five Thousand Dollars ($5,000.00), and no work shall commence
until two (2) days after Lessee receives Lessor's written consent. Lessor hereby
gives his consent to the installation and removal, upon termination, of computer
flooring paid for by Lessee.
Upon termination of this Lease, Lessee may remove its property and Lessee
shall restore the premises to original condition at Lessee's expense. Except as
otherwise provided herein, any property that is installed by Lessee after Lessee
takes possession, which has become an integral part of the building, shall, if
agreed by Lessor and Lessee, become Lessor's property. In the event of any
subsequent additions or alterations, Lessee agrees to restore to original
condition as existed when Lessee first occupied upon written request of Lessor.
Lessee shall have the right to remove trade fixtures, equipment and personal
property at any time.
6. ABANDONMENT. Lessee shall not vacate or abandon the premises at any
-----------
time during the term, and if Lessee shall abandon, vacate or surrender said
premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the premises shall be deemed to be
abandoned, subject to applicable provisions of law, at the option of Lessor,
except such property as may be mortgaged by Lessee.
7. ASSIGNMENT AND SUBLETTING. Lessee may assign or sublet all or part of
-------------------------
the premises without Lessor's consent to a parent, subsidiary, affiliate or in
connection with a merger, consolidation or sale of substantially a11 of its
assets.
With respect to any other sublease or assignment, Lessee shall not assign
this Lease, or any interest therein, and shall not sublet the said premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person to occupy or use the said premises, or any portion thereof, without
the written consent of Lessor first had and obtained, which consent
6
<PAGE>
shall not be unreasonably withheld, and a consent to one assignment, subletting,
occupation or use by any other person, shall not be deemed to be a consent to
any subsequent assignment, subletting, occupation or use by another person. Any
such assignment or subletting without such consent shall be void, and shall, at
the option of the Lessor, terminate this Lease, providing Lessor has not
unreasonably withheld such consent. With respect to any other sublease or
assignment except as provided in the first paragraph of this Paragraph 7, of
this Lease, this Lease shall not, nor shall any interest therein, be assignable,
as to the interest of Lessee, be operation of law, without the written consent
of Lessor, which shall not be unreasonably withheld. With respect to any other
sublease or assignment except as provided in the first paragraph of this
Paragraph 7, of this Lease, if Lessee desires to assign its rights under this
Lease or to sublet all or a part of the premises, Lessee shall first notify
Lessor of the proposed terms and conditions of such assignment or subletting;
and Lessor shall have the right of first refusal to enter into a direct lessor-
lessee relationship with such party under such proposed terms and conditions, in
which event Lessee shall be relieved of its obligations hereunder to the extent
of the lessor-lessee relationship entered into between Lessor and such third
party; provided that Lessor shall not have the above right of first refusal if
the term of a proposed assignment or sublease including option to extend is for
a term not in excess of five (5) years.
8. INDEMNIFICATION OF LESSOR. Lessee shall, during the term of this
-------------------------
Lease, save harmless Lessor from any and all loss, damage, claims of damage,
demands, obligations, cause or causes of action, or liabilities of any kind or
nature (including reasonable costs or attorneys' fees if Lessor is made a party
to any action to which Lessee's indemnity runs hereunder), by reason of injury
or death of any person or persons or damage to any property of any kind and to
whomsoever belonging, occurring on the premises if caused by Lessee, Lessee's
7
<PAGE>
officers, directors, employees, agents, subtenants and assignees,
concessionaires and licensees, except that Lessor shall be liable to Lessee for
damages resulting from the acts, willful omissions or negligence of Lessor,
Lessor's officers, directors, employees and agents. Lessor shall hold Lessee
harmless from all damages arising out of any such damage. A party's obligation
under this Paragraph 8 to hold the other party. harmless shall be limited to
any excess sum over insurance proceeds, if any, received by the party being
indemnified, including, without limitation, all attorneys' fees and other
litigation costs and indemnified expenses incurred by the person.
9. INSOLVENCY OR BANKRUPTCY. Either (a) the appointment of a receiver to
------------------------
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors, or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease by Lessee. Upon the happening of any such
event, subject to the applicable grace periods set forth in Paragraph 10 hereof,
this Lease shall terminate ten (10) days after written notice of termination
from Lessor to Lessee.
10. DEFAULT. Any of the following events shall constitute a default of
-------
this Lease:
(a) Failure to pay rent or any other sums due to Lessor upon the date
when said payment is due, said failure continuing for a period of ten (10)
days after written notice of default;
(b) Abandonment or vacation by Lessee of all of the premises;
(c) A general assignment by Lessee for the benefit of creditors;
8
<PAGE>
(d) The filing of a voluntary petition in bankruptcy by Lessee or the
filing of an involuntary petition by Lessee's creditors, said petition
remaining undischarged for a period of thirty (30) days;
(e) The appointment of a receiver to take possession of substantially
all of Lessee's assets or of the leased premises, said receivership
remaining undissolved for a period of thirty (30) days;
(f) Attachment, execution or other judicial seizure of substantially
all of Lessee's assets or the premises, such attachment, execution or other
seizure remaining undismissed or undischarged for a period of thirty (30)
days after the date thereof;
(g) Failure to commence repairs, required to be made by Lessee
hereunder, within thirty (30) days after written notice thereof from Lessor
to Lessee;
(h) Failure to perform any of Lessee's covenants hereunder, except
those listed in items (a) through (h) above, said failure continuing for
thirty (30) days after written notice thereof from Lessor to Lessee, unless
Lessee has in good faith commenced curing a breach of this Lease.
In the event of a default, and in addition to all other rights and remedies
Lessor may have at law, Lessor shall have the option to do any or all of the
following:
A. REENTRY. Immediately reenter and remove all persons and property from
-------
the premises, storing said personal property in a public warehouse or elsewhere
at the cost of and for the account of Lessee. No such reentry or taking of
possession of the premises by Lessor shall be construed as an election on his
part to terminate this Lease, unless written notice of such intention is given
by the Lessor to Lessee or unless the termination thereof be decreed by a court
of competent jurisdiction.
9
<PAGE>
B. WITHOUT TERMINATION OF THE LEASE PURSUE THE REMEDY PROVIDED BY THIS
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LEASE AND CIVIL CODE SECTION 1951.4. Without termination of the Lease, collect
- -----------------------------------
by suit or otherwise each installment of rent or other sum as it becomes due
hereunder, or to enforce by suit or otherwise, any other term or provision
hereof on the part of Lessee required to be kept or performed, it being
specifically agreed that all unpaid installments of rent or other sums shall
bear interest at the highest legal rate from the due date thereof until paid.
Without terminating the Lease, Lessor shall relet the premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such other terms and
conditions as Lessor in his reasonable discretion may deem advisable with the
right to make alterations and repairs to said premises necessary for reletting.
Upon such reletting, (i) Lessee is immediately liable to pay to Lessor, in
addition to any indebtedness other than rent due hereunder, the cost and expense
of such reletting, including reasonable expenses to prepare the premises for
such reletting and reasonable attorneys' fees and real estate commissions, and
the amount, if any, by which the rent reserved in this Lease for the period of
such reletting (up to but not beyond the term of the Lease) exceeds the amount
agreed to be paid as rent by new Lessee for the demised premises for such period
on such reletting, or (ii) at the option of Lessor, rent received by Lessor for
such reletting shall be applied first to payment of any indebtedness, other than
rent due hereunder from Lessee to Lessor; second, to payment of any costs and
expenses of such reletting; third, to payment of rent due and unpaid hereunder;
and, the residue, if any, shall be held by Lessor and applied in payment of
future rent as may become due and parable hereunder. If Lessee has been
credited with Any rent to be received for reletting under option (i), and such
rent shall not be promptly Paid to Lessor by new
10
<PAGE>
Lessee, or if such rentals received from such reletting under option (ii) during
any month be less than paid during that month by Lessee hereunder, Lessee shall
pay any such deficiency to Lessor. Such deficiency shall be calculated and paid
monthly.
PROVIDED, HOWEVER, that if the Lessor does not relet said premises himself,
then Lessee may sublet or assign his interest 1n the Lease, or both, pursuant to
Paragraph 7 hereunder.
Any reasonable expenses incurred for renovation and alteration of the
Premises in order to put said premises in condition for occupancy by the
assignee or sublessee of Lessee, shall be borne by Lessee.
C. TERMINATION OF THE LEASE PURSUANT TO SECTION 1951.2 OF THE CIVIL CODE.
---------------------------------------------------------------------
Notwithstanding any such reletting without termination, Lessor may at any time
thereafter elect to terminate this Lease for and such previous breach. Should
Lessor at any time terminate this Lease for any breach, in addition to any other
remedy he may have, he may recover from Lessee, at the time of award, any and
all of the following damages:
(i) All unpaid rent up to the time of termination, plus interest
thereon at the legal rate.
(ii) Between the date of termination and the date of award, the
difference between the unpaid rent and the amount of such rental loss that
the Lessee proves Lessor could reasonably have avoided, plus interest
thereon at the legal rate.
(iii) The discounted present value of the difference between the
unpaid rent for the balance of the term after the award and the amount of
such rental loss the Lessee proves the Lessor could have reasonably
avoided. The discount rate shall be the prime interest rate of the Federal
Reserve Bank of San Francisco, plus one percent (1%).
11
<PAGE>
All of these amounts shall be immediately due and payable at date of award,
from the Lessee to Lessor.
In addition to the amount recovered for damages for loss of past and future
rents, Lessor shall be entitled to recover reasonable expenses in retaking the
property, in making repairs Lessee was obligated to make, in preparing the
property for reletting, and in reletting the property, and other such damages as
necessary to compensate Lessor for all the detriment caused by Lessee,
including, but not limited to, breaches of specific covenants of the Lease such
as the promise to maintain and the promise to restore the premises on
termination.
11. SURRENDER OF LEASE. The voluntary or other surrender of this Lease by
------------------
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall not
terminate all or any existing subleases or subtenancies, but shall operate as an
assignment to Lessor of any or all such subleases or subtenancies.
12. LITIGATION EXPENSES. If either party shall bring an action against
-------------------
the other by reason of the breach of any covenant, warranty or condition hereof,
or otherwise arising out of this Lease, whether for declaratory or other relief,
the prevailing party in such suit shall be entitled to its costs of suit and
reasonable attorneys' fees, which shall be payable whether or not such action is
prosecuted to judgment. Prevailing party within the meaning of this paragraph
shall include, without limitation, a party who brings an action against the
other after the other's default, if such action is dismissed upon the other's
payment of the sums allegedly due or performance of the covenants allegedly
breached, or if the plaintiff or crosscomplainant obtains substantially the
relief sought by it in the action.
13. UTILITIES. Lessee shall pay for all the water, sewage, fuel, gas,
---------
oil, heat, electricity, telephone, janitorial and landscape maintenance during
the term of this Lease.
12
<PAGE>
14. LIENS. Lessee shall keep the premises and building of which the
-----
premises are a part free and clear of any liens and encumbrances arising out of
any work performed or materials furnished by or at the direction of Lessee and
shall indemnify, hold harmless and defend Lessor from any liens and encumbrances
arising out of any work performed or materials furnished by or at the direction
of Lessee; provided, however that such covenant shall not include any
construction done by Lessor. In the event any such lien is filed, Lessee shall
do all acts necessary to discharge any lien within thirty (30) days of filing,
or if lessee desires to contest any such lien, then Lessee shall deposit with
Lessor one and one-half (1-1/2) times the amount of said lien as security for
the payment of said lien claim or provide adequate bonding for such lien.
15. TAXATION. In addition to all other payments herein provided to be
--------
made by Lessee and as additional rental hereunder, Lessee agrees to par to the
county Tax collector prior to delinquency, all real property taxes and special
assessments which have become or may become a lien upon the demised premises (or
are otherwise imposed or assessed on the demised premises) or any portion
thereof or upon improvements thereon or improvements added thereto during the
term of this Lease, provided that any said taxes and assessments shall be paid
over the maximum period permitted by law and Lessee shall be liable on only
those payments due during the term hereof. If Lessee fails to pay such taxes
and/or assessments, in addition to all other remedies Lessor has herein, Lessor
shall have the right to pay any or all of such taxes and/or assessments and to
recover reimbursement therefor from Lessee. Taxes and assessments for the year
in which this Lease commences and for the year in which it terminates shall be
equitably prorated. Lessee shall have the right to contest any assessment or
tax, and in the event that Lessee decides to attempt such contest, Lessor shall
provide documents that are reasonably necessary to that end.
13
<PAGE>
If at any time during the term of this Lease a tax or excise on rents or
other tax, however described, is levied or assessed against Lessor, as a
substitute in whole or in part for real property taxes assessed or imposed on
premises, Lessee shall pay before delinquency such tax or excise on rents or
such other tax to the extent that such tax or excise on rents or other tax is a
substitute in whole or in part for real property taxes on the premises. In the
event that a tax or excise on rents is levied or assessed against Lessor, as a
substitute in whole or in part for taxes assessed or imposed on the premises,
and the taxing authority takes the position that Lessee cannot pay and discharge
such tax on behalf of the Lessor, then at the election of Lessor, Lessor may
increase the rent charged hereunder by the exact portion of such tax which is a
substitute in whole or in part for real property taxes on the premises, and
Lessee agrees to pay said portion as additional rent at the time rental payments
are due.
Lessee shall be liable for all taxes levied against personal property
inventory and trade fixtures.
16. USES PROHIBITED. Lessee shall not use, or permit said premises, or
---------------
any part thereof, to be used, for any purpose or purposes other than the purpose
or purposes for which the said premises are hereby leased; and no use shall be
made or permitted to be made of the said premises, nor acts done, which will
cause a cancellation of any insurance policy covering said building, or any part
thereof, nor shall Lessee sell, or permit to be kept, used or sold, in or about
said premises any article which may be prohibited by said insurance policies.
Lessee shall, at Lessee's sole cost and expense, comply with any and all
requirements, pertaining to said premises, of any insurance organization or
company, necessary for the maintenance of the hereinafter mentioned fire and
public liability insurance covering said building and appurtenances.
14
<PAGE>
17. INSURANCE. Lessee shall maintain comprehensive public liability,
---------
plate glass and property damage insurance to protect against any liability to
the public, or to any employee, agent or invitee of Lessee or Lessor, incident
to the use of or resulting from any accident occurring in or about the premises,
with limits of liability of not less than One Million Dollars ($1,000,000.00)
for injury to one person, Two Million Dollars ($2,000,000.00) for injury to two
or more persons, and Five Hundred Thousand Dollars ($500,000.00) for property
damage. A11 policies of insurance provided for herein shall:
(a) Be written in companies authorized to do business in the State of
California, and rated "AAA" or better in Best's Insurance Reports, or as
specifically otherwise accepted by Lessor by written consent.
(b) Be written as primary policies of insurance and not contributing
with or in excess of any coverage which Lessor may carry, and cover, insure and
name Lessor as an additional assured.
(c) Contain an endorsement requiring thirty (30) days' written notice
to Lessor prior to cancellation or any change in coverage.
During the term of this Lease, Lessee, at its expense, shall maintain in
force insurance against loss or damage by fire to the improvements located upon
the leased premises in the initial amount of Five Million Eight Hundred
Thousand Dollars ($5,800,000.00) with extended and vandalism coverage and
special extended perils ("all risk"), which amount may be increased in future
years based upon bona fide appraised increases in replacement cost. However,
Lessee need not purchase insurance covering damage due to earthquake.
Such insurance shall be procured from a responsible insurance company or
companies authorized to do business in California, and the policies evidencing
such insurance may be
15
<PAGE>
endorsed with a mortgagee's loss payable endorsement in standard form and shall
be delivered to Lessor (and kept by Lessor or encumbrancer), and renewals
thereof shall be delivered by Lessee to Lessor at least thirty (30) days prior
to their respective expiration dates and shall be kept by Lessor or any
encumbrancer. Lessor shall be named as additional insured on said policies which
shall provide that Lessor be given thirty (30) days' notice of any nonpayment of
premium or cancellation.
Each party shall cause each insurance policy obtained by it to provide that
the insurance company waives all right of recovery by war of subrogation against
either party in connection with any damage covered by any policy. If any
insurance policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of subrogation,
the party undertaking to obtain the insurance shall notify the other party of
this fact. The other party shall have a period of ten (10) days after receiving
the notice either to place the insurance with a company that is reasonably
satisfactory to the other party that will carry the insurance with a waiver of
subrogation, or to agree to pay the additional premium if such a policy is
obtainable at additional cost. If the insurance cannot be obtained or the party
in whose favor a waiver of subrogation is desired refuses to pay the additional
premiums charged, the other party is relieved of the obligation to obtain a
waiver of subrogation rights with respect to the particular insurance involved.
18. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessee shall, at his sole
----------------------------------------
cost and expense, comply with all of the requirements of all Municipal, State
and Federal authorities now in force pertaining to Lessee's occupancy of the
premises.
16
<PAGE>
19. EFFECTS OF CONVEYANCE. If Lessor is not in default of any of its
---------------------
obligations hereunder, the term "Lessor" as used in this Lease means only the
owner for the time being of the land and buildings containing the premises, so
that, in the event of any sale of said land and buildings, or in the event of a
lease of said buildings, the transferring Lessor shall be and hereby is entirely
freed and relieved of all covenants and obligations of the Lessor hereunder;
provided that the purchasing Lessor of the buildings assumes and agrees to carry
out any and all covenants and obligations of the Lessor hereunder.
20. ADVERTISEMENTS AND SIGNS. Lessee shall not inscribe, paint or affix
------------------------
any signs, advertisements, placecards or awnings on the exterior or roof of the
premises or upon the entrance doors, windows, or the sidewalk on or adjacent to
the premises without the prior written consent of Lessor. Lessor shall not
unreasonably withhold such consent. Any signs so placed on the premises shall
be so placed upon the understanding and agreement that Lessee will remove same
at expiration or termination of this Lease and will repair any damage or injury
to the premises caused thereby, and if not so removed by Lessee, then Lessor may
remove it at Lessee's expense.
21. DESTRUCTION OF PREMISES. If the building on the premises is damaged
-----------------------
or destroyed by fire, earthquake, act of God, the elements or as the result of
faulty construction or design, Lessee shall give immediate notice thereof to
Lessor and the monthly rent due hereunder shall be immediately reduced by an
amount equal to the amount of rent per square foot to be paid hereunder
multiplied by the number of unusable square feet of floor space. If any such
damage or destruction is covered by insurance as provided in paragraph 17
hereof, Lessor shall, at Lessor's sole cost and expense, repair the damage or
destruction as soon as possible after such damage or destruction; provided,
however, that if such damage or destruction exceeds thirty-five
17
<PAGE>
percent (35%) of the replacement value of the building, either party may
terminate this Lease within thirty (30) days after such damage or destruction.
If neither party has terminated this Lease, or the damage or destruction is less
than said thirty-five percent (35%), Lessor shall be responsible for
reconstruction as above provided, and Lessor shall be entitled to all real
property insurance proceeds. If this Lease is terminated, Lessor shall be
entitled to receive all real property insurance proceeds less the portion of
such insurance proceeds attributable to Lessee's equipment and Lessee's
improvements which have been paid for or installed by Lessee, which portion
shall be paid to Lessee. If a damage or destruction caused by fire, earthquake,
acts of God or the elements is not covered by insurance as provided in Paragraph
17 hereof, Lessor shall, at Lessor's sole cost and expense, repair the damage as
soon as possible after such damage or destruction; provided, however, that if
such damage or destruction exceeds thirty-five percent (35%) of the replacement
value of the building, either party may terminate this Lease within thirty (30)
days after such damage or destruction. If a damage or destruction caused by
fire, earthquake, acts of God or the elements is not covered by insurance as
provided in Paragraph 17 hereof and neither party has terminated this Lease, or
the damage or destruction is less than said thirty-five percent (35%), Lessor
shall be responsible for reconstruction as above provided, but Lessor's expense
for said reconstruction shall be repaid to Lessor by Lessee in equal
installments amortized over the remaining term of this Lease, including any
options exercised by Lessee, including interest at a rate of two percent (2%)
over the best rate obtainable by Lessor for funds used to finance such
reconstruction.
22. CONDEMNATION. The word "condemnation" or "condemned" as used in this
------------
Lease shall mean the exercise of the power of eminent domain expressed by the
condemnor in any writing as well as by the filing of any action or proceeding
for such purpose by any entity
18
<PAGE>
having the right of power of eminent domain, and shall include a voluntary sale
by Lessor to any such entity, either under threat of condemnation or while
condemnation proceedings are pending, and "condemnation" shall occur upon the
actual taking of possession by the condemnor. In the event the demised premises
or any part thereof is condemned and such condemnation materially interferes
with Lessee's use of the premises, this Lease shall terminate, and Lessor and
Lessee shall be entitled to their respective interests in the amount of any
award made with respect thereto, Lessee to receive any portions of the award
made as compensation for moving expenses, the value of Lessee's trade fixtures,
equipment, alteration, improvements and personal property which Lessee is
entitled to remove, and Lessee 's loss of business. The appraisal of the court,
or the condemning entity if the condemnation is not determined by a court, of
the amount of any such award allocable to such items shall be conclusive. If the
total award be fixed by negotiation and be greater than the condemning entity's
appraisal, the portion attributable to such items shall be the same proportion
of the actual award as said items were of the entity's appraisal. If such
condemnation does not materially interfere with Lessee's use of the premises,
this Lease shall continue except that rental shall be reduced for the remainder
of the term of this Lease, as may be extended, in proportion to the amount of
the premises condemned, using the square footage of the building as a base. In
such event Lessor, at Lessor's expense, shall repair and remodel the remainder
of the premises so that the remaining premises can be used effectively by
Lessee. If Lessor's portion of the award is not sufficient to repair and
remodel, then Lessee shall reimburse Lessor for the cost of such repairs and
remodeling to the extent they exceed Lessor's portion of the award in the same
manner as provided in the last sentence of paragraph 21.
23. WAIVER. The waiver by Lessor of any breach of any term, covenant or
------
condition herein contained shall not be deemed to be a waiver of such term,
covenant or
19
<PAGE>
condition or any subsequent breach of the sate or any other term, covenant or
condition therein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's knowledge of
such preceding breach at the time of acceptance of such rent.
24. NON-DISTURBANCE. Notwithstanding any subordination of this Lease,
---------------
Lessee shall have the right to quiet possession and shall not be disturbed by a
successor in interest to Lessor, provided Lessee is not in default under this
Lease and so long as Lessee shall pay rent and observe all other provisions of
this Lease.
25. ARBITRATION. In each case where there is a dispute between the
-----------
parties under this Lease the dispute shall be settled by arbitration. Such
arbitration shall be determined as provided in this paragraph and a11
arbitrators shall be disinterested persons of at least ten years' experience in
an executive capacity in the active management of major real properties in the
Northern California Area. The parts desiring such arbitration shall give notice
to that effect to the other party, specifying in said notice the name and
address of such person designated to act as arbitrator on its behalf. Within
twenty (20) days after the service of such notice, the other party shall give
notice to the first party specifying the name and address of the person
designated to act as arbitrator on its behalf. If the second party fails to
notify the first part of the appointment of its arbitrator, as aforesaid, within
or by the time above specified, then the appointment of the second arbitrator
shall be made in the same manner as hereinafter provided for the appointment of
a third arbitrator in a case where the two arbitrators appointed hereunder and
the parties are unable to agree upon such appointment. The arbitrators so
chosen shall meet within ten (10) days after the second arbitrator is appointed.
If the said two arbitrators shall not agree upon the
20
<PAGE>
decision to be made in such dispute, they shall, themselves, appoint a third
arbitrator who shall be a competent and impartial person; and in the event of
their failure to make such decision to appoint such arbitrator within ten (10)
days after their meeting, the third arbitrator shall be selected by the parties
themselves if they can agree thereon within a further period of fifteen (15)
days. If the parties do not so agree, then either party, on behalf of both, may
request the then presiding judge of any Court having jurisdiction thereof to
appoint such third arbitrator, and the other party shall not raise any question
as to the Court's full power and jurisdiction to entertain the application and
make the appointment and the person so appointed shall be the third arbitrator.
The decision of the arbitrators so chosen shall be given within a period of
thirty (30) days after the appointment of such third arbitrator. The decision in
which any two of the arbitrators so appointed and acting hereunder concur shall
in all cases be binding and conclusive upon the parties. Each party shall pay
the fees and expenses of the one of the two original arbitrators appointed by
such party or in whose stead as above provided such arbitrator vas appointed,
and the fees and expenses of the third arbitrator, if any, shall be borne
equally by both parties. Except as otherwise provided in this Lease, said
arbitration shall be conducted in accordance with the rules then obtaining of
the American Arbitration Association, and judgment upon any arbitration decision
rendered may be entered by any Court having jurisdiction thereof.
26. NOTICES. All notices to be given hereunder shall be in writing.
-------
27. SUCCESSORS AND ASSIGNS. The covenants and agreements contained in
----------------------
this Lease shall be binding upon the parties hereto and upon their respective
heirs, executors, administrators, successors and assigns.
21
<PAGE>
28. REMEDIES CUMULATIVE. The remedies available to Lessor under the terms
-------------------
of this agreement and in law or equity shall be cumulative and the exercise of
one remedy shall not constitute an election of remedies.
29. TIME. Time is of the essence of this Lease.
----
30. CAPTIONS. The captions in this Lease are for convenience only and are
--------
not a part of this Lease and do not in any way limit or amplify the terms and
provisions of this Lease.
31. SPECIAL MAINTENANCE. Lessee shall provide maintenance at least
-------------------
bimonthly to all air conditioning and heating equipment and repair or replace
any equipment when required, including the cost of labor, when not covered by
existing warranties. Lessee to supply Lessor with a copy of maintenance
agreement contract with a licensed air conditioning service contractor or
provide preventative maintenance in accordance with accepted industry practice.
32. FLOOR TILE. Lessee to replace floor tile to Lessor's satisfaction in
----------
the event tile is not in the same condition at the expiration of this Lease as
when first received, exclusive of normal wear and tear, damages by fire,
earthquake, acts of Got or the elements, other casualties or resulting from
defects in construction, materials or design.
33. RENEWAL OPTIONS. Lessee shall have an option to renew this Lease for
---------------
fifteen (15) consecutive five (5) year terms, commencing on the expiration of
the original term of this Lease, be giving notice to Lessor at least one hundred
and twenty (120) days prior to the expiration of the original, or the then
extended term, of Lessee's election to exercise this option to renew. The
extended terms shall be upon all the terms and conditions set forth herein,
including, but not limited to, paragraph 34 hereof.
22
<PAGE>
34. RENTAL INCREASES. The monthly rental for each five (5) year period
----------------
during which this Lease remains in force and effect, commencing with the sixth
(6th) year of this Lease, shall increase by the amount equal to seven percent
(7%) of the monthly rental payable during the five (5) year period immediately
preceding each such period.
35. SHORT FORM. Lessee shall hare the right to record a short form of
----------
this Lease and Lessor agrees to assist Lessee in such recordation.
36. EXHIBITS. Exhibits A, B and C attached hereto and to be attached
--------
hereto are incorporated herein by reference thereto.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
"Landlord"
/s/ John A. Sobrato
-------------------
John A. Sobrato
/s/ Susan R. Sobrato
--------------------
Susan R. Sobrato
/s/ Carl E. Berg
----------------
Carl E. Berg
/s/ Mary Ann Berg
-----------------
Mary Ann Berg
"Tenant"
AMDAHL CORPORATION
By: /s/ Don L. Beck
---------------
Don L. Beck
Its: Facilities Manger
24
<PAGE>
EXHIBIT A
---------
PLAN OF SUBLET SPACE FLOOR PLAN
25
<PAGE>
EXHIBIT B
---------
6. In the event any permanent financing obtained by Lessor includes a
provision allowing the lender to call the maturity of the permanent loan (and
thereby achieve total repayment of the permanent loan) prior to thirty (30)
years and if the lender exercises such right, the monthly rental for the
Premises, effective on the date of such refinancing, shall be recalculated
according to the following formula:
X + (B-A) = New Monthly Rental
X = the monthly rental payable during the immediately preceding
calendar month, as it may have been increased pursuant to
Paragraph 34 of the Lease.
A = one-twelfth (1/12) of the number of dollars equal to the interest
rate on Lessor's previous permanent financing multiplied by then
then existing outstanding principal balance under such permanent
financing at the time of total repayment of such financing.
B = one-twelfth (1/12) of the number of dollars equal to the interest
rate on Lessor's replacement permanent financing multiplied by
the existing outstanding principal balance under Lessor's
previous permanent financing at the time of total repayment of
such financing.
Provided, however, in no instance shall the monthly rental for the Premises
after such recalculation be less than "X" in the above formula.
7. Lessee shall have access to all of Lessor's records and accounts
relating to construction of the office building and the Construction Costs at
all times, and Lessee shall have the right to audit such books and records at
any time. Lessor shall deliver to Lessee, prior to execution, all contracts and
plans, and Lessor shall obtain Lessee's approval of all contracts and plans
prior to execution and implementation of same. Lessor shall obtain standard
warranties from all contractors, subcontractors and materialmen. Lessee shall
have the right to make
26
<PAGE>
changes in the Plans, as defined in the Lease, at any time; provided, however,
in the event any such Lessee' changes in the Plans delay the scheduled
completion date of the project beyond December 1st, 1979 and such delay is not
attributable to any cause or event other than Lessee's changes in the Plans, the
commencement date of the Lease with regard to monthly rent only shall occur
earlier than as defined in the Lease by the number of days equal to the number
of days of delay in the scheduled completion date of the project beyond December
1, 1979 which are solely attributable to Lessee's changes in the Plans.
8. Lessor agrees to use Lessor's best efforts to get the lowest possible
interest rate on any permanent financing on the Premises or any financing on the
Premises referred to herein or in the Lease; provided, however, Lessee shall
have the right to provide any such financing if Lessee is able to obtain a lower
interest rate on any such financing.
9. Notwithstanding anything to the contrary in the WITNESSETH, Lessor's
obligation to repair defects in the materials and construction of the office
building and any other improvements constructed by Lessor pursuant to the Lease,
shall include all patent and latent defects in the office building and other
improvements constructed by Lessor pursuant to Lease, but shall not include
repairs required due to ordinary wear and tear or repairs required due to damage
caused by Lessee.
10. Lessee hereby authorizes Lessor to apply for permanent financing from
Mutual of New York on the following terms:
1. Amount - $6,800,000.00.
------
2. Amortization Term - Thirty (30) years.
-----------------
3. Lender Call Privilege - Fifteen (15) years.
---------------------
27
<PAGE>
4. Interest Rate - 10% with lender right to increase up to 10 1/4%
-------------
upon California usury law 10% limitation being changed.
5. Rent Coverage Over Monthly Debt.
-------------------------------
Service Charge - 1.25.
--------------
Lessor's loan application in conformance with the foregoing shall
be attached hereto within thirty (30) days after Lessor's application.
In the event the interest rate under the above authorized permanent
financing is actually increased by the lender to 10 1/4%, effective on the day
of such increase in the interest rate, the monthly rental for the Premises shall
be recalculated under Paragraph 5(b)(i) hereof.
IN WITNESS WHEREOF, the parties hereto have executed two (2) or more copies
of the Letter Agreement on June 7, 1979.
"Lessor"
/s/ John A. Sobrato
-------------------
John A. Sobrato
/s/ Susan R. Sobrato
--------------------
Susan R. Sobrato
/s/ Carl E. Berg
----------------
Carl E. Berg
/s/ Mary Ann Berg
-----------------
Mary Ann Berg
"Lessee"
AMDAHL CORPORATION
APPROVED FINANCE By: /s/ Don L. Beck
---------------
Don L. Beck
_________________________ Its: Facilities Manger
James Hughes
28
<PAGE>
EXHIBIT C
---------
ANTENNA SITE LICENSE AGREEMENT
THIS ANTENNA SITE LICENSE AGREEMENT (this "Agreement") is made and entered
---------
into effective as of January __, 1998 (the "Effective Date"), by and between
--------------
AMDAHL COMPANY, a Delaware corporation ("Licensor"), and EXODUS COMMUNICATIONS,
--------
INC. ("Licensee").
--------
WITNESSETH:
WHEREAS, Licensor is the tenant in a building (the "Building") located at
--------
2251 Lawson Lane in Sunnyvale, California.
WHEREAS, Licensee and Licensor have entered into a Sublease Agreement (the
"Sublease") dated as of January __, 1998, covering certain space in the Building
--------
and Licensee desires to enter into this Agreement in order to install a
satellite dish on the roof of the Building, and Licensor consents to granting
Licensee such right upon the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and each in consideration of the
duties, covenants and obligations of the other hereunder, Licensor and Licensee
hereby agree as follows:
1. Definitions. Licensor and Licensee agree that the respective terms as
-----------
used herein shall have the following meanings:
"Antenna Site" means a portion of the roof of the Building as
------------
designated on Exhibit A attached hereto and made a part hereof.
---------
"Satellite Dish" means one (1) satellite dish not to exceed 24 inches
--------------
in diameter, with the appearance and quality of such satellite dish being
approved by Licensor in Licensor's sole discretion.
"Site Equipment" means the Satellite Dish, including, without
--------------
limitation, any cabling or wiring and accessories used in connection therewith
and approved by Licensor for the installation, operation and maintenance of the
Satellite Dish, as more particularly described in Exhibit B attached hereto and
---------
made a part hereof for all purposes.
2. License. Subject to and upon the terms, provisions and conditions
-------
hereinafter set forth, Licensor has granted and does hereby grant to Licensee, a
non-exclusive license (the "License") to use the Antenna Site for the
-------
installation, operation and maintenance, at Licensee's sole expense, of the Site
Equipment. The License granted by this Agreement is limited to allowing
Licensee to install, maintain, repair and operate on the Antenna Site only the
Site Equipment which Licensee owns for purposes of providing (i) communication
services used in the operation of Licensee's international business activities
where Licensee holds a Federal Communications Commission ("FCC") license for
---
said use, (ii) common carriage where Licensee holds a FCC license as a Radio
Common Carrier, (iii) communication services for
29
<PAGE>
others where Licensee holds a FCC license as the system operator, or (iv)
transceivers for use by others where others hold a FCC license for the operation
of said transceivers.
3. Term. Subject to and upon the terms and conditions set forth herein,
----
the term of this Agreement shall commence on the Commencement Date (as defined
in the Sublease) and shall expire upon the expiration or termination of the
Sublease.
4. Use. Licensee shall not use, or permit the Antenna Site to be used,
---
for any purpose other than that stated in Paragraph 2 above, or for any purpose
(i) which is unlawful, disreputable or deemed to be extra-hazardous on account
of fire, (ii) which generates chemicals or hazardous substances, (iii) which
would cause structural loads to be exceeded, or (iv) will cause any of the rates
for any insurance carried by Licensor or any other occupant of the Building to
be increased or in such a manger as will affect or cause a cancellation of any
such insurance policy. In all events, Licensee shall not engage in any activity
which is not in keeping with the first-class standards of the Building.
Additionally, Licensee shall comply with, and shall cause its employees, agents
and contractors to comply with, all Legal Requirements (defined below).
As used in this Agreement, "Legal Requirements" shall mean any applicable
------------------
law, statute, ordinance, order, rule, regulation, decree or requirement of a
Governmental Authority, and "Governmental Authority" shall mean the United
----------------------
States, the state, county, city and political subdivisions in which the Building
is located or which exercise jurisdiction over the Building, and any agency,
department, commission, board, bureau or instrumentality of any of the foregoing
which exercise jurisdiction over the Building.
5. Survival. Any claim, cause of action, liability or obligation arising
--------
during the term of this Agreement and under the provisions hereof in favor of a
party hereto and against or obligating the other party hereto shall survive the
expiration or any earlier termination of this Agreement.
6. Compliance with Technical Standards, Legal Requirements and Building
--------------------------------------------------------------------
Rules. Licensee agrees that the installation, operation and maintenance of the
- -----
Site Equipment at all times, and at Licensee's expense, shall comply with such
technical standards (including, without limitation, technical standards relating
to frequency compatibility, radio interference protection, antenna type and
location, and physical installation) as are reasonably established by Licensor
(the "Technical Standards"). Licensor shall have the right to change the
-------------------
Technical Standards from time to time without the consent of Licensee if any
such change is determined by Licensor as necessary (a) to comply with Legal
Requirements, (b) for the safety or care of all or any portion of the Building
or any portion thereof, or (c) to the extent necessary to address changes in
communication equipment specifications. If any new Technical Standards
established by Licensor shall require that Licensee modify or revise the then
existing installation, operation or maintenance of the Site Equipment, Licensee
shall make such modifications or revisions within a reasonable time thereafter.
Additionally, the access to, and installation, maintenance and operation of, the
Site Equipment must at all times be in strict compliance with all Legal
Requirements and with the rules and regulations of the Building reasonably
adopted by Licensor from time to time (the "Building Rules").
--------------
30
<PAGE>
7. Interference. If, in the reasonable judgment of Licensor, any
------------
electrical, electromagnetic, radio frequency or other interference shall result
from the operation of any of the Site Equipment, Licensee agrees to shut down
Licensee's equipment upon thirty (30) days' prior notice to Licensee; provided,
however if an emergency situation exists, as determined by Licensor in its
reasonable discretion, Licensor may shut down Licensee's equipment immediately
and shall give Licensee notice thereof as soon as possible thereafter. Licensee
shall indemnify, defend, protect and hold harmless Licensor from all expenses,
costs, damages, loss, claims or other liabilities arising out of said shutdown,
unless the necessity for such shutdown is caused by the gross negligence or
willful misconduct of Licensor. Licensee agrees to cease operations (except for
intermittent testing on a schedule approved by Licensor) until the interference
has been corrected to the satisfaction of Licensor. If such interference has
not been corrected within sixty (60) days, Licensor, at its sole option, either
may terminate this Agreement forthwith, or may require that Licensee immediately
remove from the Antenna Site the specific item of the Site Equipment causing
such interference, in which latter case the Monthly License Fee shall be reduced
by the portion of the fee applicable to such equipment for the remainder of the
term of this Agreement and all other terms and conditions of this Agreement
shall remain in full force and effect.
8. Common Equipment. If Licensor, at its sole option and expense, or any
----------------
other person or entity, furnishes any antennae, satellite dish, transmission
lines, combiners, multicouplers and/or other related equipment (herein called
the "Common Antenna Systems") on the roof of the Building, and provided that the
----------------------
Common Antenna Systems are compatible with the Site Equipment, Licensor, at its
sole option, may require, by written notice to Licensee, that Licensee connect
the Site Equipment to the Common Antenna Systems within one hundred eighty (180)
days after the date of such notice. Licensor also may require Licensee to pay a
reasonable one-time connection fee and a recurring Common Antenna System's
maintenance fee in connection therewith. After receipt of such notice from
Licensor, Licensee may elect to either (a) terminate this Agreement, or (b) to
connect the Site Equipment to the Common Antenna Systems and pay the applicable
fees. Licensee must notify Licensor of its election in writing within thirty
(30) days after receipt of Licensor's notice. If Licensee does not respond
within said 30-day period then Licensee shall be deemed to have elected option
(a), and such termination shall be effective one hundred eighty (180) days after
the date of such notice from Licensor.
9. Relocation Right. Licensor reserves the right to require Licensee
----------------
from time to time to relocate the Site Equipment to a new location in the
Building designated by Licensor (the "New Antenna Site"), in which event the
----------------
Licensor (the "New Antenna Site"), in which event the New Antenna Site shall be
----------------
deemed to be the Antenna Site for all purposes under this Agreement, provided
that the New Antenna Site does not materially and adversely affect the operation
of the Site Equipment. If Licensor requires Licensee to relocate the Site
Equipment to the New Antenna Site pursuant to the provisions of this Paragraph 9
and Licensor is not then requiring (i) any other licensee or tenant maintaining
a satellite dish or an antenna system in the Building to relocate its equipment
to the same general location as the New Antenna Site, or (ii) any other licensee
or tenant maintaining a satellite dish or an antenna system in the same general
location as the original Antenna Site to relocate its equipment to a new site,
then in such event (but only
31
<PAGE>
in such event) Licensor shall reimburse Licensee for the reasonable actual costs
incurred by Licensee to physically move Licensee's Site Equipment from the
original Antenna Site to the New Antenna Site within thirty (30) days of receipt
of an invoice and supporting documentation therefor. Notwithstanding anything to
the contrary in the immediately preceding sentence, if Licensor or Landlord
under the Sublease has previously required Licensee to relocate the Site
Equipment to a new location and Licensee was not reimbursed for the costs
incurred by Licensee to so move the Site Equipment from the old location to the
new location, and Licensor (and not Landlord under the Sublease) then requires
Licensee to relocate the Site Equipment to a new location, then Licensor shall
reimburse Licensee for the reasonable actual costs incurred by Licensee to
physically move the Site Equipment from the previous location to the newly
designated New Antenna Site within thirty (30) days of receipt of an invoice and
supporting documentation therefor. All of the terms, covenants and conditions of
this Agreement shall remain the same for the New Antenna Site as are stated
herein to be applicable to the original Antenna Site except Licensor and
Licensee agree to amend this Agreement to identify the space comprising the New
Antenna Site.
10. Damage to Building. At Licensee's own cost and expense, and by use of
------------------
a contractor or contractors approved in writing by Licensor, Licensee shall
repair or replace in accordance with Legal Requirements any damage or injury
done to the Building, or any portion thereof, caused by Licensee or Licensee's
agents, employees or contractors, which repairs or replacements must be made to
the same or as good a condition as existed prior to such injury or damage
(reasonable wear and tear excepted); provided, however, Licensor, at its option,
may make such repairs or replacements after written notice to Licensee, and
Licensee shall repay Licensor the actual cost thereof, plus a charge equal to
fifteen percent (15%) of such costs for administrative cost recovery, within
thirty (30) days after receipt of an invoice therefor.
11. Maintenance. At Licensee's own cost and expense, and by use of a
-----------
contractor or contractors approved in writing by Licensor, Licensee shall keep
the Site Equipment and the Antenna Site in a good condition, at least similar to
the condition as of the Commencement Date, normal wear and tear excepted, and
shall perform all repairs and improvements to the Site Equipment required by
Legal Requirements. If Licensee fails to commence any such repairs or
improvements to the Site Equipment within ten (10) days after written notice
from Licensor, and thereafter diligently proceed with such repair until
completion, Licensor, at its option, may make such repair or any replacement
reasonably deemed necessary by Licensor, and Licensee shall pay to Licensor the
actual cost thereof. Licensee shall exercise reasonable efforts to control its
agents, employees, invitees and visitors to the Antenna Site in such a manner as
not to create any nuisance, or interfere with, annoy or disturb any other
licensee, tenant of the Building, or Licensor in its operation of the Building
or any portion thereof. Licensor shall have no obligation to license, maintain,
operate or safeguard the Site Equipment.
12. Assignment and Sublicensing.
---------------------------
(a) Licensee may not assign this Agreement without the prior written
consent of Licensor, which consent Licensor may withhold in its sole discretion.
(Licensee's reincorporation in the State of Delaware shall not be deemed an
assignment for the purposes of
32
<PAGE>
this License.) Licensee shall not be permitted to sublicense to, or share the
Site Equipment with, third parties without the prior written consent of
Licensor, which consent Licensor may withhold in its sole discretion.
Notwithstanding anything to the contrary contained herein, no such assignment or
sublicense by Licensee shall relieve Licensee of any covenants or obligations
under this Agreement. As used herein, "Permitted Entity" shall mean any assignee
----------------
(but not sublessee) to which this Agreement is assigned in accordance with this
Paragraph 12(a).
(b) Licensor shall have the right to transfer and assign, in whole or
in part, all its rights and obligations under this Agreement and in the
Building, the Building and/or any portion of the Building, and in such event and
upon its transferee's assumption of Licensor's obligations thereafter accruing
under this Agreement (and such transferee to have the benefit of, and be subject
to, the provisions of Paragraph 20), no further liability or obligation shall
thereafter accrue against Licensor hereunder.
13. Inspection. Licensee shall permit Licensor or its agents or
----------
representatives at all reasonable hours upon reasonable prior written notice to
Licensee (except for emergencies for which such entry may be made at any time
and without notice) to have access to the Site Equipment to (a) inspect the Site
Equipment, (b) make technical measurements or tests related to the Site
Equipment, (c) perform any obligations of Licensee under this Agreement which
Licensee has failed to perform, and (d) assure Licensee's compliance with the
terms and provisions of this Agreement and with all Technical Standards, Legal
Requirements and Building Rules, and in doing so, Licensor shall exercise
reasonable efforts not to materially interfere with Licensee's use of the Site
Equipment.
14. Licensor's Review of Plans and Approval of Contractors.
------------------------------------------------------
(a) Prior to installing or allowing any equipment to be installed in
or on the Antenna Site, Licensee shall submit detailed plans and specifications
of the planned installation for Licensor's approval. Licensor shall have
fifteen (15) days after submission to review and approve such plans which must
in all events be in compliance with the Technical Standards and with all Legal
Requirements. In no event will Licensor's approval of such plans be deemed a
representation that such plans comply with Legal Requirements and with the
Technical Standards or will not cause interference with the Site Equipment or
other communications operations, such being Licensee's sole responsibility.
(b) Licensor shall have the right of prior approval of any contractors
(each such contractor hereinafter referred to as an "Outside Contractor")
------------------
performing any installation, modification or maintenance work on behalf of
Licensee on the Antenna Site, which approval shall not be unreasonably withheld.
If Licensee performs its own installation, modification or maintenance work,
Licensor's right of prior approval also shall extend to Licensee as a
contractor, and any reasonable withholding or recision of Licensor's approval of
Licensee as a contractor shall not relieve Licensee of its obligations
hereunder. Licensee shall submit the name of any proposed contractor to
Licensor prior to such contractor performing any work on behalf of Licensee on
the Antenna Site and Licensor shall notify Licensee within fifteen (15) days
after such submission as to whether Licensor has approved such contractor.
33
<PAGE>
(c) All work performed by an Outside Contractor shall be performed in
a good and workmanlike manner, and in compliance with Legal Requirements, the
Technical Standards, this Agreement and the Building Rules. It shall be the
responsibility of Licensee to ensure that the Outside Contractor shall (i)
conduct its work in such a manner so as not to unreasonably interfere with the
operation, maintenance, repair and use of the Building or the transaction of
business in the Building; (ii) comply with such reasonable rules and regulations
applicable to all work being performed in the Building or in any other portion
of the Building as may be promulgated from time to time by Licensor, (iii)
maintain such insurance and bonds in full force and effect as may be reasonably
requested by Licensor and as required by Legal Requirements; and (iv) be
responsible for reaching agreement with Licensor as to the terms and conditions
for all contractor items relating to conducting its work. As a condition
precedent to Licensor's approving the Outside Contractor pursuant hereto,
Licensee and the Outside Contractor shall deliver to Licensor such assurances or
instruments as Licensor may reasonably require to evidence the Outside
Contractor's compliance or agreement to comply with the provisions of clauses
(i), (ii), (iii), and (iv) of this subparagraph (c). Each Outside Contractor
shall not perform and, upon the request of Licensor or any other owner of any
portion of the Building, whether written or oral, each Outside Contractor shall
cease to perform, any activity that is disruptive to the conduct of business
within the Building or other occupants of the Building.
(d) Licensee shall not allow any liens to be filed against the Antenna
Site or the Building in connection with the installation of, or any repair or
alteration work to, the Site Equipment or the Antenna Site performed by Licensee
or an Outside Contractor. If any such liens shall be filed, Licensee shall
cause the same to be released within fifteen (15) days after the filing thereof
by bonding or other method acceptable to Licensor. If Licensee shall fail to
timely cancel or discharge said lien or liens as required above, Licensor at its
sole option may cancel or discharge the same, and Licensee shall pay to Licensor
the actual cost thereof, within thirty (30) days after receipt of an invoice
therefor. Licensee shall indemnify and hold harmless Licensor from all losses,
costs, damages, claims and expenses (including reasonable attorneys' fees and
costs of suit), liabilities or causes of action arising out of or relating to
any alterations, additions or improvements that Licensee or any Outside
Contractor makes to the Site Equipment or the Antenna Site, including any
occasioned by the filing of any mechanic's, materialman's, construction or other
liens or claims (and all costs or expenses associated therewith) asserted, filed
or arising out of any such work. All materialmen, contractors, artisans,
mechanics, laborers and other parties hereafter contracting with Licensee for
the furnishing of any labor, services, materials, supplies or equipment with
respect to any portion of the Site Equipment or the Antenna Site are hereby
charged with notice that they must look solely to Licensee for payment of same
and Licensee's purchase orders, contracts and subcontracts in connection
therewith must clearly state this requirement.
15. Removal of Site Equipment. Prior to the expiration or earlier
-------------------------
termination of this Agreement, Licensee shall be obligated to remove the Site
Equipment (except any transmission lines installed by or on behalf of Licensee
which becomes the property of Licensor automatically upon the expiration or
termination of this Agreement) from the Antenna Site and to restore the Antenna
Site to the condition that existed immediately prior to the installation of the
Site Equipment, normal wear and tear excepted. Upon the expiration or earlier
termination of this
34
<PAGE>
Agreement, Licensor shall have the right to re-enter and resume possession of
the Antenna Site and the remaining Site Equipment. If Licensee fails to so
remove the Site Equipment prior to the expiration or earlier termination of this
Agreement, Licensor may have the same removed and any resulting damage repaired
at Licensee's cost and expense and in such event the Site Equipment will become
the property of Licensor automatically and may be disposed of by Licensor in its
sole discretion, without any right of reimbursement therefor to Licensee.
16. Casualty. In the event of a fire or other casualty in or on the
--------
Antenna Site, Licensee promptly shall give written notice thereof to Licensor
upon Licensee's becoming aware thereof. If the Antenna Site is totally
destroyed by fire or other casualty, or if the Building is damaged by a fire or
casualty so that in Licensor's reasonable opinion, the Antenna Site can no
longer be practically used by Licensee, and Licensor (acting in its sole
discretion) does not agree to provide Licensee with an alternate site for
Licensee's Site Equipment, then either party shall have the right to terminate
this Agreement by giving notice of such election to terminal to the other party
within sixty (60) days from the date of such casualty, which termination shall
be effective as the date such notice is furnished to the other party. Nothing
herein shall be construed to require Licensor to rebuild the Antenna Site.
17. Damages from Certain Causes. Licensor or its agents shall not be
---------------------------
liable or responsible to Licensee for any loss or damage to any property or
person occasioned by theft, fire, vandalism, act of God, public enemy,
injunction, riot, strike, inability to procure materials, insurrection, war,
court, order, requisition or other order of governmental body or authority, or
for any other causes beyond Licensor's reasonable control, or for any damage or
inconvenience which may arise through repair or alteration of any part of the
Building or the Building, except to the extent such damage is caused by the
gross negligence or willful misconduct of Licensor or Licensor's agents.
18. Indemnity. Licensee agrees to protect, defend, indemnify and hold
---------
harmless Licensor, Licensor's affiliates and partners, and the partners,
shareholders, officers, directors, employees and agents of Licensor, its
affiliates and partners (any and all of the foregoing sometimes referred to as
"indemnified party" from and against any and all claims of third parties
- ------------------
(including those relating to hazardous substances or the negligence of Licensor
and/or an indemnified party) and all costs, expenses and liabilities (including
reasonable attorneys' fees and costs of suit) incurred in connection with this
Agreement or the License, or Licensee's exercise of its rights hereunder,
including any action or proceeding arising from or in connection with this
Agreement or the License, or Licensee's exercise of its rights hereunder, except
to the extent that such claims arise by reason of the willful misconduct, fraud,
bad faith or gross negligence of Licensor and/or an indemnified party. In the
event that a claim is partly the result of the willful misconduct, fraud, bad
faith, or gross negligence by Licensor and/or an indemnified party described in
the preceding sentence, and also partly the result of the act or omission of
Licensee and/or a third party, the foregoing exception shall apply only to that
portion of the loss or damage attributable to such willful misconduct, fraud,
bad faith, or gross negligence by Licensor and/or an indemnified party. As to
any matter to which an indemnified party is indemnified by Licensee, Licensee
also releases each indemnified party from any cause of action or claim by
Licensee against such indemnified party with respect thereto.
35
<PAGE>
Promptly after receipt by an indemnified party of notice of any claim or
commencement of any action as to which such indemnified party may seek
indemnification, Licensor or such indemnified party shall notify Licensee in
writing of such claim or of the commencement of such action. If any such action
shall be brought against any indemnified party, and Licensor or such indemnified
party shall notify Licensee of the commencement thereof, Licensee shall assume
the defense thereof at its expense. If Licensee admits in writing that its
indemnity covers such claim or action, then Licensee may direct such defense and
Licensor and the indemnified party may participate in any action at its own
expense. If Licensee fails to assume or diligently direct the defense of such
claim or action and such failure continues for twenty (20) days after written
notice from the indemnified party to Licensee, then the indemnified party's
participation shall be at Licensee's expense. Licensee shall be entitled to
settle such claim or action without the consent of the indemnified party, if
such is done at no cost or expense of the indemnified party and the indemnified
party shall be fully released by all parties (including Licensee) as part of
such settlement and the indemnified party has no further liability on account of
such claim or action. The indemnified party shall be entitled to settle such
claim or action at Licensee's cost and expense without the consent of Licensee
if Licensee fails to perform its obligations under this Paragraph 18. In all
other cases, the consent of the other party shall be required with respect to
any settlement by either the indemnified party or Licensee. The provisions of
this Paragraph 18 shall not be limited by the term of this Agreement and shall
survive the expiration or termination of this Agreement for any reason for a
claim which is made or a cost, expense or liability which is incurred prior to
four (4) years following such termination or expiration.
Licensor and Licensee agree: (i) an indemnified party shall seek recovery
on the indemnity contained in this Paragraph 18 only to the extent the claim,
cost, expense or liability is not paid by the insurance, (ii) the fact that
Licensee makes a payment to an indemnified party shall not prevent Licensee from
having the benefit of any applicable insurance coverage, and (iii) nothing shall
prevent Licensee from seeking to recover any sums payable by it under this
Paragraph 18 from a third party other than an indemnified party.
19. Default by Licensee. The occurrence of any of the following events
-------------------
and the expiration of any grace periods hereafter described shall constitute an
"Event of Default" under this Agreement on the part of Licensee:
----------------
(a) Licensee shall fail to pay any sum to be paid by Licensee under
this Agreement, and such failure shall continue for five (5) days after
Licensee's receipt of written notice from Licensor (provided that Licensor shall
only be obligated to give Licensee written notice of any monetary default twice
in any twelve (12) month period, and thereafter Licensee shall be deemed in
default within five (5) days after failure to make such payment without
requirement of notice from Licensor);
(b) Licensee shall assign its interest in this Agreement or sublicense
any portion of the Antenna Site or otherwise breach the provisions of Paragraph
12(a);
36
<PAGE>
(c) a breach shall be made in the performance of any of the other
covenants or conditions which Licensee is required to observe and to perform
(other than those referred to in subparagraphs (a) and (b) above), and such
breach shall continue for thirty (30) days after notice from Licensor of such
breach (unless with respect to any default which cannot be cured within thirty
(30) days due to causes beyond Licensee's reasonable control, Licensee, in good
faith, alter receiving such notice, shall have commenced to cure such default
within such 30-day period and thereafter shall continue diligently to perform
all action necessary to cure such default); or
(d) a default shall occur under the Sublease and shall continue after
the expiration of any grace periods permitted under the Sublease for such
default.
If an Event of Default on the part of Licensee shall have occurred under
this Agreement, then or at any time thereafter while such Event of Default
continues, Licensor, at Licensor's option, shall have all rights and remedies
provided at law or in equity, including without limitation, the right to
terminate this Agreement by providing Licensee with written notice of such
termination, which termination shall be effective upon Licensee's receipt of
such notice.
20. Licensee's Remedies. Licensee specifically agrees to look solely to
-------------------
Licensor's (or its successors') interest in the Building for the recovery of any
judgment from Licensor, it being agreed that Licensor (and if Licensor is a
partnership, its partners [direct or indirect, general or limited], or if
Licensor is a corporation, its directors, officers or any successors in
interest) shall never be personally liable for any such judgment.
21. Partial Invalidity. If any term or provision of this Agreement, or
------------------
the application thereof to any person or circumstance, to any extent shall be
held invalid or unenforceable, as finally determined by a court of competent
jurisdiction, the remainder of this Agreement or the application of such term or
provision to persons or circumstances other than those as to which it is invalid
or unenforceable; shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the extent permitted by law.
22. Attorneys' Fees. If Licensee or Licensor fails to perform any of the
---------------
terms, covenants, agreements or conditions contained in this Agreement and the
other party places the enforcement of this Agreement, or any part thereof, or
the collection of any sums due, or to become due hereunder, in the hands of any
attorney who files suit upon the same, the non-prevailing party agrees to pay
the prevailing party's reasonable attorneys' fees.
23. No Waiver. Failure of Licensor or Licensee to insist on strict
---------
performance of any of the conditions, covenants, terms or provisions of this
Agreement or to exercise any of its rights hereunder shall not be deemed a
waiver of such rights, but Licensor or Licensee shall have the right to enforce
such rights at any time and take such action as might be lawful or authorized
hereunder, either in law or in equity. The receipt of any sum paid by Licensee
to Licensor after a breach of this Agreement shall not be deemed a waiver of
such breach unless expressly set forth in writing.
24. Amendments. This Agreement may not be altered, changed, or amended,
----------
except by an instrument in writing signed by both parties hereto.
37
<PAGE>
25. No Public Dedication. No provision contained in this Agreement shall
--------------------
be construed to grant any gift, dedication or any irrevocable rights to the
general public or for any quasi-public purpose whatsoever, of, in, or to, any
portion of the Building; it being the intention of the parties hereto that this
Agreement shall be strictly limited to, or for, the purposes herein expressed.
26. No Third Party Beneficiary. No rights, privileges or immunities of
--------------------------
any party hereto shall inure to the benefit of any tenant, customer, employee,
or invitee of the Building or any other third party; nor shall any tenant,
customer, employee or invitee of the Building or any other third party be deemed
to be a third party beneficiary of any of the provisions contained herein.
27. Miscellaneous.
-------------
(a) This Agreement shall be binding upon and inure to the benefit of
Licensor, its successors and assigns, and shall be binding upon and inure to
the benefit of Licensee, its successors, and, to the extent assignment may be
approved by Licensor hereunder, Licensee's assigns.
(b) All rights and remedies of Licensor under this Agreement shall be
cumulative and none shall exclude any other rights or remedies allowed by law;
and this Agreement is declared to be a California contract, and all of the terms
thereof shall be construed according to the laws of the State of California.
(c) Nothing contained in this Agreement shall be construed to make the
parties hereto partners or joint venturers, or to render any said parties liable
for the debts or obligations of the other, except as expressly provided in this
Agreement.
(d) Article headings, captions and other similar designations are for
convenience and reference only, and in no way define or limit the scope and
content of this Agreement, or in any way affect its provisions.
(e) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and all such counterparts shall together
constitute one and the same instrument.
(f) The terms and provisions of Exhibits A through B, inclusive,
---------- -
attached hereto, are hereby made a part hereof for all purposes.
(g) Time is of the essence in this Agreement.
38
<PAGE>
IN TESTIMONY WHEREOF, the parties hereto have executed this Agreement as of
the date aforesaid.
LICENSOR
--------
AMDAHL CORPORATION,
a Delaware corporation
By: /s/ Edward S. Hartford
----------------------
Name: Edward S. Hartford
------------------
Title: Vice President, Corporate Facilities
------------------------------------
LICENSEE
--------
EXODUS COMMUNICATIONS, INC.
By: /s/ Richard Stoltz
------------------
Name: Dick Stoltz
-----------
Title: COO & CFO
---------
EXHIBITS:
- --------
A - Antenna Site
B - Site Equipment
39
<PAGE>
EXHIBIT A
---------
to Antenna Site License Agreement
Antenna site to be determined by Licensee subject to reasonable approval of
Licensor.
40
<PAGE>
EXHIBIT D
---------
SUBLESSOR'S WORK
----------------
SubLessor shall perform the following work at SubLessor's sole expense:
(i) replace the existing floor tile in the compute room area of the Sublet
Space, (ii) create a mutually acceptable demised floor plan in order to separate
existing tenants from one another, and (iii) re-configure the cafeteria area
shown on Schedule 1 attached hereto into open landscape office.
----------
41
<PAGE>
SCHEDULE 1
----------
PLAN OF BUILDING 07 (FIRST FLOOR)
42
<PAGE>
EXHIBIT 10.24
EXODUS COMMUNICATIONS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
---------
of the Date of Grant set forth below (the "Date of Grant") by and between Exodus
-------------
Communications, Inc., a California corporation (the "Company"), and the Optionee
-------
named below ("Optionee").
--------
Optionee: K.B. Chandrasekhar
Social Security Number: ###-##-####
Address: 21591 Regnart Road
Cupertino, CA 95016
Total Option Shares: 500,000
Exercise Price Per Share: $3.00
Date of Grant: January 27, 1998
Vesting Date: January 27, 2001
Expiration Date: January 27, 2008
1. Grant of Option. The Company hereby grants to Optionee an
---------------
option (this "Option") to purchase the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (the "Shares") at the
------
Exercise Price Per Share set forth above (the "Exercise Price"), subject to all
--------------
of the terms and conditions of this Agreement. This Option is intended to be a
"nonqualified stock option."
2. Vesting and Exercise Periods
----------------------------
2.1 Vesting and Exercise Periods of Option. This Option will
--------------------------------------
vest as to all of the Shares on the Vesting Date, provided Optionee is
--------
continuously in the service of the Company from the Date of Grant through the
Vesting Date. For purposes of this Option, Optionee will be deemed in service of
the Company for so long as Optionee renders services as a full time employee of
the Company or any Subsidiary or Parent of the Company. Notwithstanding the
foregoing, all of the Shares shall vest upon the occurrence of any of the
following events: (the closing of the merger of the Company with and into an
unaffiliated corporation; (ii) the sale of all or substantially all of the
assets of the Company; or (iii) the involuntary Termination (as defined in
Section 3, below) of Optionee for any reason other than Cause. For purposes of
the foregoing, in the event of an involuntary Termination of Optionee, the
Company's Board of Directors shall determine in good faith whether Optionee has
been Terminated for Cause.
<PAGE>
2.2 Expiration. This Option shall expire on the Expiration
----------
Date set forth above and must be exercised, if at all, on or before the
Expiration Date.
3. Termination. The following provisions shall govern the exercise
-----------
of this Option in the event the Optionee is Terminated. For purposes of the
foregoing, Optionee shall be deemed Terminated when Optionee ceases to be in the
service of the Company as defined above.
3.1 Termination for Any Reason Except Death or Disability. If
-----------------------------------------------------
Optionee is Terminated for any reason, except death or Disability,
notwithstanding any other provision in this Agreement or in the Plan to the
contrary, this Option, to the extent that it would have been exercisable by
Optionee on the date of Termination pursuant to this Agreement, may be exercised
by Optionee no later than ninety (90) days after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee, this Option, to the
extent that it is exercisable by Optionee on the date of Termination, may be
exercised by Optionee (or Optionee's legal representative) no later than ninety
(90) days after the date of Termination, but in any event no later than the
Expiration Date.
3.3 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
3.4 For purposes of this Section 3, Optionee shall not be
deemed Terminated nor shall a Termination be deemed to have occurred for so long
as Optionee continues to render services as an employee, director or independent
consultant to the Company or any Subsidiary or Parent of the Company.
4. Manner of Exercise
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed document in a form acceptable to the Company (the
"Exercise Agreement"), which shall set forth inter alia Optionee's election to
- ------------------- ----------
exercise this Option and the number of Shares being purchased. If someone other
than Optionee exercises this Option, then such person must submit documentation
reasonably acceptable to the Company that such person has the right to exercise
this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
2
<PAGE>
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by waiver of compensation due or accrued to Optionee for
services rendered;
(c) provided that a public market for the Company's stock exists,
(1) through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer") whereby Optionee
-----------
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company, or
--
(2) through a "margin" commitment from Optionee and a NASD
Dealer whereby Optionee irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(d) by any combination of the foregoing.
4.4 Tax Withholding. In connection with the issuance of the
---------------
Shares upon exercise of this Option, Optionee must pay or provide for any
applicable federal or state withholding obligations of the Company. If the
Committee permits, Optionee may provide for payment of withholding taxes upon
exercise of this Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to Optionee by
deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Upon the exercise of this Option in
------------------
accordance with this Section 4, the Company shall issue the purchased Shares
registered in the name of Optionee, Optionee's authorized assignee, or
Optionee's legal representative, and shall deliver certificates representing the
Shares with the appropriate legends affixed thereto.
5. Compliance with Laws and Regulations. The exercise of this
------------------------------------
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer.
6. Nontransferability of Option. This Option may not be
----------------------------
transferred in any manner other than by will or by the laws of decent and
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, successor and assigns of Optionee.
7. Tax Consequences. Set forth below is a brief summary as of the
----------------
Date of Grant of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS
3
<PAGE>
AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
7.1 Exercise of Nonqualified Stock Option. Optionee will be
-------------------------------------
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price. The Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
7.2 Disposition of Shares. If the Shares are held for more
---------------------
than twelve (12) months but less than eighteen (18) months after the date of the
transfer of the Shares pursuant to the Exercise of this Option, any gain
realized on disposition of the Shares will be treated as mid-term capital gain
for federal income tax purposes. If the Shares are held for more than eighteen
(18) months after the date of the transfer of the Shares pursuant to the
exercise of this Option, any gain realized on this position of the Shares will
be treated as a long-term capital gain for federal income tax purposes.
8. Privileges of Stock Ownership. Optionee shall not have any of
-----------------------------
the rights of a stockholder with respect to any Shares until Optionee exercises
this Option and pays the Exercise Price.
9. S-8 Registration. The Company shall register the Shares
----------------
issuable under this Option on a Form S-8 Registration Statement within ninety
(90) days following the Company's initial public offering of Common Stock
pursuant to an effective registration statement filed under the Securities Act
and shall keep such Registration Statement in effect for the entire period that
this Option thereafter remains outstanding.
10. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersede all prior undertakings and agreements
with respect to the subject matter hereof.
11. Notices. Any notices required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at the Company's principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated above or to such
other address as such party may designate in writing from time to time to the
Company. All notices shall be deemed to have been given or delivered upon;
personal delivery; three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); one (1) business day
after deposit with any return receipt express courier (prepaid); or one (1)
business day after transmission by facsimile.
12. Successor and Assigns. The Company any assign any of its rights
---------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns the Company. Subject to the restrictions
on transfer set forth herein, this Agreement shall be binding upon Optionee and
Optionee's heirs, executors, administrators, legal representatives, successors
and assigns.
4
<PAGE>
13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
14. Acceptance. Optionee hereby acknowledges receipt of this
----------
Agreement. Optionee has read and understands the terms and provisions thereof,
and accepts this Option subject to all the terms and conditions of this
Agreement. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a tax advisor prior to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Optionee has executed this
Agreement in duplicate as of the Date of Grant.
EXODUS COMMUNICATIONS, INC. OPTIONEE
By: /s/ Richard S. Stoltz /s/ K. B. Chandrasekhar
______________________________ ____________________________
(Signature)
Richard S. Stoltz K. B. Chandrasekhar
__________________________________ ____________________________
(Please print name) Please print name)
__________________________________
(Please print name)
5
<PAGE>
EXODUS COMMUNICATIONS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
---------
of the Date of Grant set forth below (the "Date of Grant") by and between Exodus
-------------
Communications, Inc., a California corporation (the "Company"), and the Optionee
-------
named below ("Optionee").
--------
Optionee: K.B. Chandrasekhar
Social Security Number: ###-##-####
Address: 21591 Regnart Road
Cupertino, CA 95016
Total Option Shares: 500,000
Exercise Price Per Share: $6.00
Date of Grant: January 27, 1998
Vesting Date: January 27, 2003
Expiration Date: January 27, 2008
1. Grant of Option. The Company hereby grants to Optionee an
---------------
option (this "Option") to purchase the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (the "Shares") at the
------
Exercise Price Per Share set forth above (the "Exercise Price"), subject to all
--------------
of the terms and conditions of this Agreement. This Option is intended to be a
"nonqualified stock option."
2. Vesting and Exercise Periods
----------------------------
2.1 Vesting and Exercise Periods of Option. This Option will
--------------------------------------
vest as to all of the Shares on the Vesting Date, provided Optionee is
--------
continuously in the service of the Company from the Date of Grant through the
Vesting Date. For purposes of this Option, Optionee will be deemed in service of
the Company for so long as Optionee renders services as a full time employee of
the Company or any Subsidiary or Parent of the Company. Notwithstanding the
foregoing, all of the Shares shall vest upon the occurrence of any of the
following events: (the closing of the merger of the Company with and into an
unaffiliated corporation; (ii) the sale of all or substantially all of the
assets of the Company; or (iii) the involuntary Termination (as defined in
Section 3, below) of Optionee for any reason other than Cause. For purposes of
the foregoing, in the event of an involuntary Termination of Optionee, the
Company's Board of Directors shall determine in good faith whether Optionee has
been Terminated for Cause.
<PAGE>
2.2 Expiration. This Option shall expire on the Expiration
----------
Date set forth above and must be exercised, if at all, on or before the
Expiration Date.
3. Termination. The following provisions shall govern the exercise
-----------
of this Option in the event the Optionee is Terminated. For purposes of the
foregoing, Optionee shall be deemed Terminated when Optionee ceases to be in the
service of the Company as defined above.
3.1 Termination for Any Reason Except Death or Disability. If
-----------------------------------------------------
Optionee is Terminated for any reason, except death or Disability,
notwithstanding any other provision in this Agreement or in the Plan to the
contrary, this Option, to the extent that it would have been exercisable by
Optionee on the date of Termination pursuant to this Agreement, may be exercised
by Optionee no later than ninety (90) days after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee, this Option, to the
extent that it is exercisable by Optionee on the date of Termination, may be
exercised by Optionee (or Optionee's legal representative) no later than ninety
(90) days after the date of Termination, but in any event no later than the
Expiration Date.
3.3 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
3.4 For purposes of this Section 3, Optionee shall not be
deemed Terminated nor shall a Termination be deemed to have occurred for so long
as Optionee continues to render services as an employee, director or independent
consultant to the Company or any Subsidiary or Parent of the Company.
4. Manner of Exercise
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed document in a form acceptable to the Company (the
"Exercise Agreement"), which shall set forth inter alia Optionee's election to
- ------------------- ----------
exercise this Option and the number of Shares being purchased. If someone other
than Optionee exercises this Option, then such person must submit documentation
reasonably acceptable to the Company that such person has the right to exercise
this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
2
<PAGE>
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by waiver of compensation due or accrued to Optionee for
services rendered;
(c) provided that a public market for the Company's stock exists,
(1) through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer") whereby Optionee
-----------
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company, or
--
(2) through a "margin" commitment from Optionee and a NASD
Dealer whereby Optionee irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(d) by any combination of the foregoing.
4.4 Tax Withholding. In connection with the issuance of the
---------------
Shares upon exercise of this Option, Optionee must pay or provide for any
applicable federal or state withholding obligations of the Company. If the
Committee permits, Optionee may provide for payment of withholding taxes upon
exercise of this Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to Optionee by
deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Upon the exercise of this Option in
------------------
accordance with this Section 4, the Company shall issue the purchased Shares
registered in the name of Optionee, Optionee's authorized assignee, or
Optionee's legal representative, and shall deliver certificates representing the
Shares with the appropriate legends affixed thereto.
5. Compliance with Laws and Regulations. The exercise of this
------------------------------------
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer.
6. Nontransferability of Option. This Option may not be
----------------------------
transferred in any manner other than by will or by the laws of decent and
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, successor and assigns of Optionee.
7. Tax Consequences. Set forth below is a brief summary as of the
Date of Grant of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS
3
<PAGE>
AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
7.1 Exercise of Nonqualified Stock Option. Optionee will be
-------------------------------------
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price. The Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
7.2 Disposition of Shares. If the Shares are held for more
---------------------
than twelve (12) months but less than eighteen (18) months after the date of the
transfer of the Shares pursuant to the Exercise of this Option, any gain
realized on disposition of the Shares will be treated as mid-term capital gain
for federal income tax purposes. If the Shares are held for more than eighteen
(18) months after the date of the transfer of the Shares pursuant to the
exercise of this Option, any gain realized on this position of the Shares will
be treated as a long-term capital gain for federal income tax purposes.
8. Privileges of Stock Ownership. Optionee shall not have any of
-----------------------------
the rights of a stockholder with respect to any Shares until Optionee exercises
this Option and pays the Exercise Price.
9. S-8 Registration. The Company shall register the Shares
----------------
issuable under this Option on a Form S-8 Registration Statement within ninety
(90) days following the Company's initial public offering of Common Stock
pursuant to an effective registration statement filed under the Securities Act
and shall keep such Registration Statement in effect for the entire period that
this Option thereafter remains outstanding.
10. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersede all prior undertakings and agreements
with respect to the subject matter hereof.
11. Notices. Any notices required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at the Company's principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated above or to such
other address as such party may designate in writing from time to time to the
Company. All notices shall be deemed to have been given or delivered upon;
personal delivery; three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); one (1) business day
after deposit with any return receipt express courier (prepaid); or one (1)
business day after transmission by facsimile.
12. Successor and Assigns. The Company any assign any of its rights
---------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns the Company. Subject to the restrictions
on transfer set forth herein, this Agreement shall be binding upon Optionee and
Optionee's heirs, executors, administrators, legal representatives, successors
and assigns.
4
<PAGE>
13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
14. Acceptance. Optionee hereby acknowledges receipt of this
----------
Agreement. Optionee has read and understands the terms and provisions thereof,
and accepts this Option subject to all the terms and conditions of this
Agreement. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a tax advisor prior to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Optionee has executed this
Agreement in duplicate as of the Date of Grant.
EXODUS COMMUNICATIONS, INC. OPTIONEE
By: /s/ Richard S. Stoltz /s/ K. B. Chandrasekhar
______________________________ ____________________________
(Signature)
Richard S. Stoltz K. B. Chandrasekhar
__________________________________ ____________________________
(Please print name) (Please print name)
__________________________________
(Please print name)
5
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our form of report included herein and to the
references to our firm under the headings "Experts," "Summary Financial
Information" and "Selected Financial Data" in the Prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
February 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,270
<SECURITIES> 0
<RECEIVABLES> 2,024
<ALLOWANCES> (187)
<INVENTORY> 65
<CURRENT-ASSETS> 13,284
<PP&E> 29,131
<DEPRECIATION> (3,961)
<TOTAL-ASSETS> 40,773
<CURRENT-LIABILITIES> 17,191
<BONDS> 0
39,047
0
<COMMON> 2
<OTHER-SE> (30,602)
<TOTAL-LIABILITY-AND-EQUITY> 40,773
<SALES> 820
<TOTAL-REVENUES> 12,408
<CGS> 640
<TOTAL-COSTS> 16,868
<OTHER-EXPENSES> 20,332
<LOSS-PROVISION> 204
<INTEREST-EXPENSE> 506
<INCOME-PRETAX> (25,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,711)
<EPS-PRIMARY> (13.85)
<EPS-DILUTED> (13.85)
</TABLE>
