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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ABOVENET COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4813 77-0424796
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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50 W. SAN FERNANDO STREET, SUITE #1010
SAN JOSE, CALIFORNIA 95113
(408) 367-6666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SHERMAN TUAN
CHIEF EXECUTIVE OFFICER
50 W. SAN FERNANDO STREET, SUITE #1010
SAN JOSE, CALIFORNIA 95113
(408) 367-6666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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CARLA S. NEWELL, ESQ. JORGE A. DEL CALVO, ESQ.
BENNETT L. YEE, ESQ. BLAIR W. WHITE, ESQ.
ALLISON W. TAKAHASHI, ESQ. GABRIELLA A. LOMBARDI, ESQ.
GUNDERSON DETTMER STOUGH PILLSBURY MADISON & SUTRO LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 2550 HANOVER STREET
155 CONSTITUTION DRIVE PALO ALTO, CA 94035
MENLO PARK, CA 94025 (650) 233-4500
(650) 321-2400
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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, as amended, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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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. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value.................. $57,500,000 $17,425
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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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 SEPTEMBER 10, 1998
SHARES
[ABOVENET LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being sold by AboveNet
Communications Inc. ("AboveNet" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $ and
$ per share. See "Underwriting" for determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ABOV."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share.............................. $ $ $
Total(3)............................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to additional shares of Common
Stock at the Price to Public per share, less the Underwriting Discount, for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ respectively. See "Underwriting."
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The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of certificates representing the shares
will be made against payment on or about , 1998 at the offices of
CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial Center, New
York, New York 10281.
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CIBC OPPENHEIMER VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1998
<PAGE> 3
[ARTWORK TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise indicated
herein, all information in this Prospectus assumes (i) the Underwriters'
over-allotment option is not exercised, (ii) the reincorporation of the Company
in the State of Delaware and the associated exchange of one share of Common
Stock and one share of Preferred Stock of the Company for every two and one-half
shares of Common Stock and Preferred Stock, respectively, of the Company's
California predecessor prior to this offering, (iii) the exercise prior to the
closing of this offering of warrants to purchase 197,978 shares of Series B
Preferred Stock and (iv) the conversion of all outstanding shares of Preferred
Stock into Common Stock immediately prior to the closing of this offering.
THE COMPANY
AboveNet is a leading provider of high performance, managed co-location and
Internet connectivity solutions for electronic commerce and other
mission-critical Internet operations. AboveNet has developed a network
architecture based upon two strategically located, fault-tolerant facilities
that combine content co-location services with direct ISP access to create
Internet Service Exchanges ("ISXs"). As of August 31, 1998, the Company had
approximately 160 public and private data exchange connections, known as peering
arrangements, including relationships with top-tier network providers. The
Company's network architecture and extensive peering relationships are designed
to reduce the number of network connections or "hops" for data travelling across
the Internet. Furthermore, the convergence of content providers and ISPs at
AboveNet's ISXs enables these ISPs to provide their users with "one hop"
connectivity, through AboveNet's local area network, to the co-located content
site. As of August 31, 1998, the Company had approximately 300 customers
including a wide range of Internet content providers, Web hosting companies and
ISPs.
The Internet has experienced tremendous growth and is emerging as a global
medium for communications and commerce. Internet-based businesses and other
enterprises need non-stop, non-congested, fault-tolerant and scalable Internet
operations to allow them to perform mission-critical digital communication and
electronic commerce transactions globally over the Internet. However, many
businesses that are seeking to establish these sophisticated Internet operations
lack the resources and expertise to cost-effectively develop, maintain and
enhance the necessary facilities and network systems. As a result, many
enterprises are seeking outsourcing arrangements to enhance Web site reliability
and performance, provide continuous operation of their Internet solutions and
reduce related operating expenses. Forrester Research, Inc. estimates that by
2002, approximately 40% of complex Web sites will be outsourced and that
Internet hosting revenues for complex sites will increase from approximately
$200 million in 1997 to approximately $8.0 billion by 2002.
AboveNet's solutions are designed to be highly scalable and flexible to
meet the needs of its customers as their Internet operations expand. AboveNet
charges its customers based on space and bandwidth utilization, providing
customers a flexible, cost-effective path to increasing their Internet
operations. The Company's services are designed to enhance performance through
redundant and high speed network design and 24x7 monitoring, notification and
diagnosis. AboveNet's proprietary ASAP software monitors all of the Company's
direct and indirect network connections for latency and packet loss, allowing
its network engineers to enhance performance by dynamically rerouting traffic to
avoid congested points. The Company also provides its customers with
sophisticated monitoring, reporting and management tools that can be remotely
accessed by the customer to control its Internet operations. By providing a
means to reduce the number of "hops" in the transmission of data, the Company
believes that its network design can provide significant benefits to ISPs as
they seek to gain fast, reliable access to content.
The Company's objective is to become the leading global Internet Service
Exchange for business enterprises and ISPs that require high-bandwidth,
mission-critical Internet operations. To achieve this objective, the Company
intends to: (i) increase awareness of the AboveNet name on a global basis; (ii)
expand its customer base through increased sales and marketing efforts; (iii)
expand its global ISX network by connecting centralized facilities in key
domestic and international locations; (iv) leverage its ISX
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model to increase its customer base and generate recurring revenues; and (v)
address the emerging requirements of Internet technologies such as audio and
video streaming and voice over IP.
The Company's customers include CNET Download.com, Dacom America,
Electronic Arts Inc. Got.Net, IntelliChoice, Inc., iXL Holdings, Inc., Liquid
Audio, Inc., RealNetworks, Inc. and The Web Zone, Inc. The Company intends to
expand its customer base by substantially expanding its sales organization, as
well as establishing and expanding relationships with potential channel partners
including hardware vendors, value added resellers, system integrators and Web
hosting companies, to leverage their sales organizations. The Company also plans
to invest in building the AboveNet brand through an integrated marketing plan,
including traditional and online advertising in business and trade publications,
trade show participation, direct mail and public relations campaigns.
The Company was incorporated in California in March 1996 and will
reincorporate in Delaware prior to this offering. The Company's principal
executive offices are located at 50 W. Fernando Street, Suite #1010, San Jose,
California 95113, and its telephone number is (408) 367-6666.
EtherValve is a registered trademark of the Company. Cabriolet and MRTG are
trademarks of the Company. The Company has applied for federal trademark
registration for the following names: APS, ASAP, As-Ur-Here, Internet Service
Exchange and ISX. All other trademarks, servicemarks or tradenames referred to
in this Prospectus are the property of their respective owners.
4
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THE OFFERING
Common Stock offered by the Company....... shares
Common Stock to be outstanding after the
Offering(1)............................... shares
Use of Proceeds........................... For increased sales and marketing,
capital expenditures, potential
strategic investments and working
capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... ABOV
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND CUSTOMER DATA)
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PERIOD FROM
MARCH 8, 1996 YEAR ENDED JUNE 30,
(INCEPTION) TO --------------------
JUNE 30, 1996 1997 1998
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STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 79 $ 552 $ 3,436
Loss from operations........................................ (78) (1,804) (5,327)
Net loss.................................................... $ (78) $(1,803) $(5,425)
====== ======= =======
Basic and diluted loss per share(2)......................... $(0.39) $ (5.73) $(12.93)
====== ======= =======
Shares used in basic and diluted loss per share(2).......... 200 315 420
OTHER OPERATING DATA:
EBITDA(3)................................................... $ (26) $(1,671) $(3,575)
Capital expenditures(4)..................................... $ 101 $ 850 $ 4,145
Number of customers at period end........................... 10 110 278
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<CAPTION>
JUNE 30, 1998
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PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
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BALANCE SHEET DATA:
Cash and equivalents........................................ $ 8,141 $15,234 $
Working capital............................................. 5,061 12,154
Total assets................................................ 13,693 20,786
Long-term obligations, net of current portion............... 9,325 1,325
Total stockholders' equity.................................. 661 15,754
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(1) Based on shares outstanding as of , 1998. Excludes, as of
, 1998, (i) shares of Common Stock issuable upon exercise of
options outstanding under the Company's 1996 and 1997 Stock Option Plans and
non-plan options at a weighted average exercise price of $ per share and
shares of Common Stock reserved for issuance prior to this offering
under the 1997 Stock Option Plan, (ii) shares of Common Stock issuable
upon exercise of outstanding warrants at a weighted average exercise price
of $ per share and (iii) an aggregate of 2,750,000 shares of Common Stock
reserved for issuance after this offering under the Company's 1998 Stock
Incentive Plan and 1998 Employee Stock Purchase Plan. See "Management --
Stock Incentive Plan" and "-- Employee Stock Purchase Plan" and Note 6 of
Notes to Financial Statements.
(2) See Notes 1 and 7 of Notes to Financial Statements for the determination of
shares used in computing basic and diluted loss per share.
(3) EBITDA represents earnings (loss) before interest income and expense, income
taxes, depreciation and amortization expense (including amortization of
stock-based compensation); whereas, cash provided by (used in) operating
activities represents income or loss from operations plus depreciation and
amortization and other adjustments for non-cash amounts such as stock-based
compensation expense, as well as changes in operating assets and
liabilities. EBITDA does not represent cash flows as defined by generally
accepted accounting principles and does not necessarily indicate that cash
flows are sufficient to fund all the Company's cash needs. EBITDA should not
be considered in isolation or as a substitute for net income (loss), cash
flows from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles.
(4) Capital expenditures represent purchases of property and equipment,
including non-cash transactions such as the acquisition of equipment under
capital lease.
(5) Reflects the following transactions which occurred after June 30, 1998: (i)
the conversion of notes and advances in an aggregate amount of $8.0 million
into Series D Preferred Stock and the additional sale of $3.0 million of
Series D Preferred Stock; (ii) the sale of approximately $4.1 million of
Series E Preferred Stock; (iii) the exercise of warrants to acquire 197,978
shares of Series B Preferred Stock and (iv) the conversion of all
outstanding shares of Preferred Stock into Common Stock.
(6) Adjusted to reflect the sale of shares of Common Stock by the Company
at the assumed initial public offering price of $
per share (after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company).
5
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RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains
certain forward-looking statements based on current expectations that involve
risks and uncertainties. Any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. For example,
the words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. The Company's
actual results and the timing of certain events may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a discrepancy include, but are not limited to, those discussed below
and elsewhere in this Prospectus.
Limited Operating History; History of Losses; Expected Continued
Losses. The Company was incorporated in March 1996 and has experienced operating
losses in each quarterly and annual period since inception. The Company
experienced net losses of $1.8 million and $5.4 million in fiscal years 1997 and
1998, respectively, and, as of June 30, 1998, had an accumulated deficit of
approximately $7.3 million. The Company began offering its co-location and
Internet connectivity services to content providers in July 1996, and introduced
its co-location and Internet connectivity services to ISPs in August 1997. The
Company recently began operating its second ISX facility in Vienna, Virginia in
July 1998. 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. 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 co-location and Internet
connectivity services. The Company expects to continue making significant
investments to (i) substantially increase its sales and marketing activities and
(ii) establish a new ISX facility of approximately 100,000 square feet,
including approximately 50,000 square feet of co-location space, in San Jose,
California. The Company believes that it will continue to experience net losses
on a quarterly and annual basis for the foreseeable future, and such losses are
expected to increase significantly from current levels. To achieve or sustain
profitability, among other things, the Company must substantially grow its
customer base, including maintaining existing customer relationships, expand
domestically and internationally, provide scalable, reliable and cost-effective
services, continue to grow its infrastructure to accommodate expanded and new
facilities, additional customers and increased bandwidth use of its network,
expand its channels of distribution, effectively establish its brand name,
retain and motivate qualified personnel and continue to respond to competitive
developments. Failure of the Company's services to achieve widespread 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 is necessarily 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, if achieved, will sustain
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Need to Grow and Retain Customer Base; Lengthy Sales Cycle. The Company's
success is substantially dependent on the continued growth of its customer base
and the retention of its customers. The Company's ability to attract new
customers will depend on a variety of factors, including the willingness of
businesses to outsource their mission-critical Internet operations, the
reliability and cost-effectiveness of the Company's services and the Company's
ability to effectively market such services. A majority of the Company's
customer contracts are cancelable on 30 days' notice. In the past, the Company
has lost customers to other service providers for various reasons, including as
a result of lower prices and other incentives offered by competitors and not
matched by the Company. Accordingly, there can be no assurance that the
Company's customers will maintain or renew their commitments to use the
Company's services. The Company intends to develop alternative distribution and
lead generation relationships with potential channel partners including hardware
providers, system integrators, value added resellers and Web hosting companies.
Any failure by the Company to develop these relationships could materially and
adversely impact the ability of the Company to generate increased revenues,
which would have a material adverse effect on the Company's business, results of
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operations and financial condition. In addition, the Company typically
experiences a lengthy sales cycle for its services, particularly given the
importance to customers of securing Internet connectivity for mission-critical
operations and the need to educate certain customers regarding the benefits of
co-location and Internet connectivity services. Changes in the rate of growth in
the Company's customer base, customer renewal rates and the sales cycle for the
Company's services, have caused, and are expected in the future to cause,
significant fluctuations in the Company's results of operations on a quarterly
and an annual basis. In addition, the Company intends to significantly increase
its sales and marketing expenditures. Due to the typically lengthy sales cycle
for the Company's services, the Company's expenses will occur prior to customer
commitments for the Company's services. There can be no assurance that the
increase in the Company's sales and marketing efforts will result in increased
sales of the Company's services. See "-- Potential Fluctuations in Results of
Operations" and "Business-- Customers."
Potential Fluctuations in Results of Operations. The Company has
experienced significant fluctuations in its results of operations on a quarterly
and 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; capacity utilization
of its ISX facilities; fluctuations in data communications and
telecommunications costs; reliable continuity of service and network
availability; customer retention; the timing and success of marketing efforts by
the Company; the timing and magnitude of capital expenditures, including costs
relating to the expansion of operations; the timely expansion of existing
facilities and completion of new facilities; the ability to increase bandwidth
as necessary; fluctuations in bandwidth used by customers; the timing and
magnitude of expenditures for sales and marketing; introductions of new services
or enhancements by the Company and its competitors; the timing of customer
installations and related payments; the ability to maintain or increase peering
relationships; provisions for customer discounts and credits; the introduction
by third parties of new Internet services; increased competition in the
Company's markets; growth of Internet use and establishment of Internet
operations by mainstream enterprises; changes in the pricing policies of the
Company and its competitors; changes in regulatory laws and policies; economic
conditions specific to the Internet industry; and general economic factors. In
addition, a relatively large portion of the Company's expenses are fixed in the
short-term, particularly with respect to data communications and
telecommunications costs, depreciation, real estate, interest and personnel, and
therefore the Company's future results of operations will be particularly
sensitive to fluctuations in revenues. In addition, the Company expects to incur
compensation costs related to certain option grants and warrants, including a
significant charge in the quarter that this offering is consummated.
Furthermore, although the Company has not encountered significant difficulties
in collecting its 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. The Company also
expects that its sales may be affected by seasonality trends with decreased
revenues during the summer months. Due to all of the foregoing factors, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. Furthermore, as a result of the foregoing and other factors,
the Company's results of operations in future periods may fall below the
expectations of securities analysts and investors. In such event, the trading
price of the Company's Common Stock will likely be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Risks Associated with Recent and Planned Business Expansion. The Company
recently opened its second ISX facility in Vienna, Virginia and is planning to
develop an approximately 100,000 square foot ISX facility, including
approximately 50,000 square feet of co-location space, in San Jose, California,
which is targeted to open by the fall of 1999. The Company intends to use a
significant portion of the net proceeds of this offering to construct the new
San Jose ISX facility. The Company will need to accomplish a number of
objectives in order to successfully complete the development of the planned ISX
facility, on a timely basis or at all, including entering into a real estate
lease, obtaining necessary permits and approvals, passing required inspections,
and hiring necessary contractors, builders, electricians, architects and
designers. In addition, the development of this new facility could place a
significant strain on the Company's management resources and could result in the
diversion of management attention from the day-to-day operation of the Company's
business. The successful development of the facility will require careful
management of various risks
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associated with significant construction projects, including construction delay,
cost estimation errors or overruns, equipment and material delays or shortages,
inability to obtain necessary permits on a timely basis and other factors, many
of which are beyond the Company's control. There can be no assurance with
respect to the cost, timing or extent of any expansion or that the Company will
be successful in expanding its operations, or developing the ISX facility
planned for San Jose, California, as well as any new ISX facilities that the
Company may want to establish in the future, on a timely basis, or at all. The
Company's inability to establish its planned facility or to effectively manage
its expansion would have a material adverse effect upon the Company's business,
results of operations and financial condition. Furthermore, the Vienna, Virginia
ISX facility and, if completed, the new San Jose ISX facility, will result in
substantial new fixed and operating expenses, including expenses associated with
hiring, training and managing new employees, purchasing new equipment,
implementing power and redundancy systems, implementing multiple data
communication and telecommunication connections, leasing additional real estate
and depreciation. In addition, the Company will need to continue to implement
and improve its operational and financial systems. If revenue levels do not
increase sufficiently to offset these new expenses, the Company's operating
results will be materially adversely impacted in future periods. There can be no
assurance that the Company will accurately anticipate the customer demand for
new facilities or that the Company will attract a sufficient number of
customers.
The Company also intends to make strategic minority investments in joint
ventures and foreign companies that develop ISX facilities in Europe and Asia
and to license its trademarks and technology to such entities. If the Company
makes such investments, the Company will be dependent on these joint ventures
and foreign companies to establish and operate ISX facilities. The ability of
these joint ventures and foreign companies to successfully establish and operate
ISX facilities is subject to a number of risks over which the Company will have
little or no control, as a result of its anticipated minority ownership in such
entities. There can be no assurance that these entities will be able to obtain
the necessary data communications and telecommunications infrastructure in a
cost-effective manner or compete effectively in international markets. In
addition, there can be no assurance that any of these investments, if made, will
result in the establishment of ISX facilities, or that such investment
relationships will not be disrupted. Furthermore, to the extent that such
entities use the AboveNet brand name and do not provide the same level of
performance and service as the Company, their operations could have a material
adverse effect on the Company's reputation and brand equity. Furthermore,
certain foreign governments have enforced laws and regulations related to
content distributed over the Internet that are more restrictive 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
global ISX strategy, business, results of operations and financial condition.
Intense Competition. The market served by the Company is intensely
competitive. There are few substantial barriers to entering the co-location
service business, and the Company expects that it will face additional
competition from existing competitors and new market entrants in the future. The
Company believes that participants in this market must grow rapidly and achieve
a significant presence in the market in order to compete effectively. 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 co-location services, such as Exodus
Communications, Inc., GlobalCenter, Inc., which was recently acquired by
Frontier Corporation, and Hiway Technologies, Inc. which recently entered into
an agreement to be acquired by Verio Inc.; (ii) national and regional ISPs, such
as Concentric Network Corporation, PSINet, Inc., UUNET Technologies, a
subsidiary of WorldCom, Inc. ("WorldCom/ UUNET"), and certain subsidiaries of
GTE Corporation; (iii) global, regional and local telecommunications companies,
including MCI Communications Corporation ("MCI"), Sprint Corporation ("Sprint"),
WorldCom/UUNET, and regional bell operating companies, some of whom supply
capacity to the Company; and (iv) large IT outsourcing firms, such as
International Business Machines Corporation and Electronic Data Systems. In
addition, many of the Company's current and potential 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 acquisitions and other opportunities more readily, devote greater resources
to the marketing and
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sale of their services and adopt more aggressive pricing policies than can the
Company. In an effort to gain market share, certain of the Company's competitors
have offered co-location services similar to those of the Company at lower
prices than those of the Company or with incentives not matched by the Company,
including free start-up and domain name registration, periods of free service
and low-priced Internet access. As a result of these policies, the Company may
encounter increasing pricing pressure which could result in loss of customers
and have a material adverse effect on its business, results of operations and
financial condition.
In addition, certain of the Company's competitors have entered and will
likely continue to enter into joint ventures, consortiums or consolidations to
provide additional services competitive with those provided by the Company. As a
result, such competitors may be able to provide customers with additional
benefits in connection with their co-location and network management solutions,
including reduced communications costs, which could reduce the overall costs of
their services relative to the Company's services. There can be no assurance
that the Company will be able to offset the effects of any such price
reductions. In addition, the Company expects competition to intensify as the
Company's current and potential competitors incorporate a broader range of
bandwidth, connectivity, and Internet networking services and tools into their
service offerings. The Company believes that companies seeking co-location and
Internet connectivity providers for their mission-critical Internet operations
may use more than one company to provide this service. As a result, these
customers would be able to more easily shift the amount of service and bandwidth
usage from one provider to another. The Company may also face competition from
its suppliers. The Company's agreements with its suppliers do not limit or
restrict those parties from offering similar services to the Company's
customers, thereby enabling such parties to compete against the Company. See
"Business --Competition."
Management of Growth; Dependence on Key Personnel. The Company has recently
experienced a period of rapid growth with respect to the expansion of its ISX
facilities and its customer base. The Company's ability to manage effectively
its recent growth and any future growth 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 is currently upgrading
its financial and management information systems. There can be no assurance that
the Company will be able to implement such new systems successfully or on a
timely basis. The Company also is dependent upon its ability to increase
substantially the size of its sales and marketing organization. The market for
highly qualified sales and marketing personnel is very competitive. There can be
no assurance that the Company will be successful in meeting its hiring goals or
that any new employees will be successful in expanding the Company's customer
base. The Company's growth has placed, and if it continues, will place, a
significant strain on the Company's financial, management, operational and other
resources. If the Company's management is unable to effectively manage any
further growth that may occur, the Company's business, results of operations and
financial condition would be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company has recently hired many key employees and officers, including
its President and Chief Operating Officer, its Senior Vice President of Sales
and Marketing, its Vice President of International-Europe, its Vice President of
Sales, and its Vice President of Construction and Real Estate and, as a result,
the Company's management team has worked together for only a brief time. The
Company's ability to effectively execute its strategies will depend in part upon
its ability to integrate these and future managers into its operations. The
Company also has plans to hire additional executive management personnel,
including a Chief Financial Officer and a Vice President of Marketing. 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. The Company's success also depends in significant part upon
the continued services of its senior management and key technical and sales
personnel, including the Company's Chief Executive Officer, Sherman Tuan,
President and Chief Operating Officer, Warren J. Kaplan, Chief Technical
Officer, David Rand, and Senior Vice President of Sales and Marketing, David
Dembitz. Any officer or employee of the Company can terminate his or her
relationship with the Company at any time. In addition, all options to purchase
Common Stock held by Mr. Kaplan will vest on the consummation of this offering.
The loss of the services of one or more of the Company's key employees or the
Company's failure to attract additional
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qualified personnel could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Employees" and "Management -- Employment Agreements."
Risk of System Failure. The Company's operations are dependent upon its
ability to prevent system interruption and 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. The Company's existing and planned ISX facility in
San Jose, California is in an area that is subject to earthquakes and, as a
result, is subject to greater risk of system interruption. Despite precautions
taken, and planned to be taken, by the Company the occurrence of a natural
disaster or other unanticipated problems such as human interference or mistake,
unannounced or unexpected changes in transmission protocols or other technology,
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 data communication and telecommunication providers, such as
WorldCom/UUNET, Sprint, Pacific Bell, Teleport Communications Group, a
subsidiary of AT&T, and WinStar Communications, Inc., to provide the data
communication and/or telecommunication 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 may be subject to legal claims by
its customers for disruption of service or damage to customer equipment. While
the Company's customer contracts generally purport to eliminate the Company's
liability for consequential or punitive damages or for damage to customer
equipment not caused by the Company's gross negligence or willful acts, there
can be no assurance that the Company would not be held liable for such damages.
See "-- Year 2000 Risks" and "Business-- Network Architecture."
Risks Associated with Emerging Market for Network Management Services;
Uncertainty of Acceptance of Services. The market for co-location and Internet
connectivity services 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 growth of the Internet as a
global communication and commerce medium, the growth of mission-critical
Internet operations, the willingness of enterprises to co-locate and outsource
Internet connectivity for their mission-critical Internet operations and the
Company's ability to successfully and cost-effectively market its services 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 significantly
increase use of 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 widespread 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 and brand name recognition. There can be no assurance that the
Company will be successful in differentiating itself or achieving widespread
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. In addition, there can be no assurance that the
Company's business model of establishing centralized ISX facilities will be
widely adopted over the model established by other outsource providers who have
developed and are continuing to develop numerous geographically disbursed
facilities. In addition, if the Company incurs increased costs or is unable, for
technical or other reasons, to develop and introduce new services or
enhancements of existing services in a timely manner, or if these or other new
services do not achieve widespread market acceptance, the Company's business,
results of operations and financial condition would be materially adversely
affected.
Risks Associated with 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. 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
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at high transmission speeds is as yet unknown, and the Company faces risks
related to the network's ability to be scaled up to significantly greater
customer levels while maintaining a high level of performance. To the extent
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 when 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 data transmission capacity.
The Company's failure to achieve or maintain high data transmission capacity
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 may encounter 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, on a timely basis and at a commercially reasonable cost,
or at all. See "Business --Network Architecture"
Need to Maintain and Increase Peering Relationships. The Internet is
comprised of several network providers who operate their own networks and
interconnect their networks at various public and private peering points,
through "peering arrangements" with one another. The Company's establishment and
maintenance of peering relationships is necessary in order to effectively
exchange traffic with ISPs without having to pay the higher costs of transit
services and in order to maintain high network performance levels. These
arrangements are not subject to regulation and are subject to revision in terms,
conditions or costs over time. There is no assurance that ISPs will maintain
peering relationships with the Company. In addition, increasing requirements or
costs may be imposed on the Company in order to maintain peering relationships
with ISPs, particularly national ISPs. Failure to maintain peering relationships
would adversely affect the level of connectivity available to the Company's
customers or cause the Company to incur additional operating expenditures by
paying for transit, either of which could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
if these network providers were to increase the pricing associated with
utilizing their networks, the Company may be required to identify alternative
methods through which it can distribute its customers' content. If the Company
were unable to access on a cost-effective basis alternative networks to
distribute its customers' content or pass through any additional costs of
utilizing these networks to its customers, the Company's business, results of
operations and financial condition would be materially adversely affected.
Dependence upon Third Party Suppliers. The Company's success will depend
upon third party network infrastructure providers, including the capacity leased
from its telecommunications network suppliers. In particular, the Company is
dependent on Sprint, WorldCom/UUNET, MCI and certain other data communication
and telecommunication providers for its backbone capacity and is therefore
dependent on such companies to maintain the operational integrity of its
backbone. In addition, any significant increase in data communication or
telecommunication costs could have a material adverse effect on the Company's
business, results of operations and financial condition. Certain of these
providers are potential competitors of the Company. Furthermore, the Company
relies on a number of public and private peering interconnections to deliver its
services. If the carriers that operate the Internet exchange points were to
discontinue their support of the peering points and no alternative providers
emerged, or such alternative providers increased the cost of utilizing the
Internet exchange points, the distribution of content through the Internet
exchange points, including content distributed by the Company, would be
significantly constrained. Furthermore, as traffic through the Internet exchange
points increases, if commensurate increases in bandwidth are not added, the
Company's ability to distribute content rapidly and reliably through these
networks will be materially adversely affected.
The Company relies on other companies to supply certain key components of
its network infrastructure, including networking equipment which, in the
quantities and quality demanded by the Company, are available only from limited
sources. Currently, the Company orders all of its routers from Cisco Systems,
Inc. Although the Company believes that it could procure alternative sources to
supply routers in the event routers from
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Cisco Systems, Inc. were unavailable, the Company would need to train its
personnel in the use of alternative routers, which could cause delay or
interruption in its services. See "Business --Network Architecture."
Risks Associated with Potential Future Acquisitions. The Company may in the
future pursue acquisitions of technologies or businesses. Future acquisitions by
the Company may result in the use of significant amounts of cash, potentially
dilutive issuances of equity securities, incurrence of debt, or amortization
expenses related to goodwill and other intangible assets, any of which could
materially adversely affect the Company's business, results of operations or
financial condition. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies, products and
personnel of the acquired company, the diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
or limited direct prior experience, and the potential loss of key employees of
the acquired company. In the event that any such acquisitions occur, there can
be no assurance that the Company's business, results of operations and financial
condition would not be materially adversely affected.
Dependence on Growth of Internet Use 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, which in turn will depend
on a variety of factors including security, reliability, cost, ease of access,
quality of service and necessary increases in bandwidth availability. 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 for and market acceptance of the Internet are subject to a
high level of uncertainty and are dependent on a number of factors, including
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.
Rapid Technological Change; Evolving Industry Standards. The Company's
future success will depend, in part, on its ability to offer services that
address the increasingly sophisticated and varied needs of its current and
prospective customers and to respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis.
Mission-critical Internet operations are complex and are 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, that the Company will be able to
incorporate such advances on a cost-effective or timely basis into its business
or that such advances will not make the Company's services unnecessary or less
cost-effective than using the new technology. 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. Although the Company currently intends to support emerging standards,
there can be no assurance that industry standards will be established or, that
if they become established, the Company will be able to conform to these new
standards in a timely fashion and maintain a competitive position in the market.
The failure of the Company to conform to prevailing standards,
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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,
unnecessary or obsolete.
Security Risks. Customer operations at the Company's facilities 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 access
to 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 implements security
procedures and systems, such procedures and systems have been circumvented in
the past, and there can be no assurance that unauthorized access, accidental or
intentional actions and other disruptions will not occur in the future. The
costs required to minimize 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 Architecture and
- -- Legal Proceedings."
Government Regulations and Legal Uncertainties. 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 international, 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. Moreover,
a number of laws and regulations have been proposed and are currently being
considered by federal, state and foreign legislatures with respect to such
issues. The nature of any new laws and regulations and the manner in which
existing and new laws and regulations may be interpreted and enforced cannot be
fully determined. For example, 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. Legislation
similar to the CDA could subject the Company and/or its customers to potential
liability, which in turn could have a material adverse effect on the Company's
business, results of operations and financial condition. The adoption of any
future laws or regulations might decrease the growth of the Internet, decrease
demand for the services of the Company, impose taxes or other costly technical
requirements or otherwise increase the cost of doing business or in some other
manner have a material adverse effect on the Company or its customers, each of
which could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the marketplace
which could reduce demand for the services of the Company or increase the cost
of doing business as a result of costs of litigation or increased service
delivery costs, or could in some other manner have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, as the Company's services are available over the Internet in multiple
states and foreign countries, and as the Company facilitates sales by its
customers to end users located in such states and foreign countries, such
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in each such state or foreign country. Any such new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws may 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.
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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, co-location 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. 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 the nature and
content of the materials disseminated through the Company's 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
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 general 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. In addition, there can
be no assurance that content distributed by certain of the Company's current or
future customers will not be regulated or banned, which could reduce the
Company's customer base. 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. There can be no assurance
certain ISPs and other online services companies would not deny network access
to the Company if undesired content or spamming were to be transmitted from
servers hosted by the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Limited Protection of Proprietary Technology; Risk of Infringement. 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 services. The Company has no patented technology that
would preclude or inhibit competitors from entering the Company's market. The
Company has generally entered into confidentiality and invention assignment
agreements with its employees in order to limit access to and disclosure of
certain 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 services or intellectual property rights to the same extent as do the
laws of the U.S. The Company also relies on certain technologies that it
licenses from third parties. Two key technologies offered by the Company, MRTG
and EtherValve, are licensed from David Rand, the Company's Chief Technical
Officer. To date, the Company has not been notified that the Company infringes
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 technologies 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
service 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.
Uncertain Need and Availability of Additional Funding. The Company expects
to incur significant expenditures as part of its planned expansion, including
increases in sales and marketing expenses and expenditures for new and expanded
co-location facilities. Although the Company believes that, following this
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offering, its cash reserves and available borrowings will be adequate to fund
the Company's operations for at least the next 12 months, there can be no
assurance that such sources will be adequate or that additional funds will not
be required either during or after such 12 month period. No assurance can be
given that additional financing will be available or that, if available, it will
be available on terms favorable to the Company or its stockholders. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the then current stockholders of the Company could be
significantly diluted and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. If
adequate funds are not available to satisfy either short or long-term capital
requirements, the Company may be required to limit its operations and expansion
plans significantly, sell assets, or seek to refinance outstanding obligations,
any of which 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 -- Liquidity and
Capital Resources."
Year 2000 Risks. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to distinguish 21st century dates from 20th
century dates. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company is in the process of establishing procedures for
evaluating and managing the risks and costs associated with this problem and
believes that its computer systems on a stand-alone basis are currently Year
2000 compliant. There can be no assurance, however, that the Company's computer
systems are Year 2000 compliant. In addition, many of the Company's customers'
and suppliers' Internet operations may be impacted by Year 2000 complications.
The failure of the Company's customers or suppliers to ensure that their systems
are Year 2000 compliant could have a material adverse effect on the Company's
customers and suppliers resulting in decreased Internet usage or the delay or
inability to obtain necessary data communication and telecommunication capacity,
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."
Substantial Influence by Principal Stockholders, Executive Officers and
Directors. Upon completion of this offering, the Company's executive officers,
directors and greater than 5% stockholders (and their affiliates) will, in the
aggregate, own approximately % of the Company's outstanding Common Stock. As a
result, such persons, acting together, will have the ability to substantially
influence 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, impeding a merger, consolidation, takeover or other
business combination involving the Company or discouraging 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 value of the Company.
See "Principal Stockholders."
No Prior Trading Market for the Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company and the representatives of the
Underwriters and may not be indicative of the price that will prevail in the
open market. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering 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, new services introduced by the
Company or its competitors, changes in financial estimates by security analysts,
conditions and trends in the Internet, general market conditions and other
factors. Furthermore, the stock markets, and in particular the Nasdaq National
Market, have experienced extreme price and volume fluctuations that have
particularly affected the market
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prices of equity securities of many technology companies and that often have
been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies' stocks are at or
near historical highs and reflect price to earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and price
to earnings ratios will be sustained. These broad market factors may adversely
affect the market price of the Company's Common Stock. These market
fluctuations, as well as general economic, political and market conditions such
as recessions, interest rate changes 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, 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.
Antitakeover Effects of Certain Charter Provisions, Bylaws and Delaware
Law. Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Pursuant to the terms of the Company's Certificate of Incorporation
which will be effective upon the consummation of this offering, the Board of
Directors has 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 Company's 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 (including, but not limited to,
preferences of the Preferred Stock with respect to the payment of dividends and
upon liquidation, dissolution or winding up). The issuance of Preferred Stock,
while providing desirable 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 present plans to issue shares of Preferred Stock. In
addition, certain provisions of the Company's Certificate of Incorporation
eliminate the right of stockholders to act by written consent without a meeting.
Furthermore, upon the closing of the offering, the Company will institute a
classified Board of Directors such that approximately only one-third of the
members of the Board of Directors are elected at each annual meeting of
stockholders. Classified Boards may have the effect of delaying, deferring or
discouraging changes in control of the Company. Further, certain provisions of
Delaware law could delay or make difficult a merger, tender offer or proxy
contest involving the Company. Section 203 of the General Corporation Law of the
State of Delaware, which is applicable to the Company, prohibits certain
business combinations with certain stockholders for a period of three years
after they acquire 15% or more of the outstanding voting stock of a corporation.
See "Description of Capital Stock -- Preferred Stock" and "-- Antitakeover
Effects of Provisions of Certain Charter Provisions, Bylaws and Delaware Law."
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-related securities in the future at a
time and price that the Company deems appropriate. In addition to the
shares of Common Stock offered hereby (assuming no exercise of the
Underwriters' over-allotment option), as of the date of this Prospectus, there
will be 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,
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 , 1998, there were
outstanding options and warrants to purchase Common
Stock (of which warrants for shares are expected to be exercised on or
before the closing of this offering). CIBC Oppenheimer Corp. 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
Restricted Shares, options and warrants to purchase
shares of Common Stock of the Company are entitled to certain
rights with respect to registration of such shares for sale in the public
16
<PAGE> 18
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. See
"Shares Eligible for Future Sale."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the book value per share of the outstanding Common
Stock. As a result, investors purchasing Common Stock in this offering will
incur immediate and substantial dilution of $ per share. In addition, the
Company has issued options and warrants to acquire Common Stock at prices
significantly below the initial public offering price. To the extent such
outstanding options and warrants are exercised, there will be further dilution.
See "Dilution" and "Shares Eligible for Future Sale."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby will be approximately $ (approximately
$ if the Underwriter's over-allotment option is exercised in full)
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The net proceeds from the offering will be used for the following purposes:
(i) significant increases in sales and marketing activities, (ii) capital
expenditures associated with the development of the Company's planned second ISX
in Northern California, (iii) potential strategic investments in companies
developing ISX facilities in Europe and Asia, and (iv) working capital and
general corporate purposes. The Company may use a portion of the net proceeds of
this offering for acquisitions of, or strategic investments in, complementary
businesses and technologies, although the Company currently has no commitments
or agreements with respect to any such acquisitions or investments. Pending use
of the net proceeds for the above purposes, the Company plans to invest the net
proceeds of the offering in short-term, investment grade, interest-bearing
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. The Company's debt facilities contain
restrictive covenants that limit the Company's ability to pay cash dividends
without the prior written consent of the lender.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998: (i) on an actual basis; (ii) on a pro forma basis to reflect (a) the
filing of an amendment to the Company's Restated Certificate of Incorporation to
provide for authorized capital stock of 60,000,000 shares of Common Stock and
5,000,000 shares of undesignated Preferred Stock, (b) the conversion of notes
payable and advances in an aggregate amount of $8.0 million into Series D
Preferred Stock and the additional sale of $3.0 million of Series D Preferred
Stock, (c) the sale of approximately $4.1 million of Series E Preferred Stock,
(d) the issuance of 197,978 shares of Series B Preferred Stock upon the exercise
of outstanding warrants; and (e) the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock immediately prior to the closing of
this offering; and (iii) on a pro forma basis as adjusted to reflect the sale by
the Company of shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The capitalization information set forth in the table below is
qualified by and should be read in conjunction with the more detailed Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term obligations, less current portion............. $ 1,325 $ 1,325 $1,325
------- ------- ------
Convertible notes payable and advances.................. 8,000 -- --
------- ------- ------
Stockholders' equity(1):
Preferred stock, $0.001 par value; 8,000,000 shares
authorized; 7,455,847 shares issued and
outstanding, actual; 5,000,000 shares authorized,
no shares issued and outstanding, pro forma and pro
forma as adjusted.................................. 6,606 -- --
Common stock, $0.001 par value; 12,000,000 shares
authorized, 582,957 shares issued and outstanding,
actual; 60,000,000 shares authorized, 12,275,435
shares issued and outstanding, pro forma;
60,000,000 shares authorized, shares
issued and outstanding, pro forma as adjusted...... 39 21,738
Common stock options.................................. 1,861 1,861 1,861
Deferred stock compensation........................... (540) (540) (540)
Accumulated deficit................................... (7,305) (7,305)
------- ------- ------
Total stockholders' equity......................... 661 15,754
------- ------- ------
Total capitalization.................................... $ 9,986 $17,079 $
======= ======= ======
</TABLE>
- ---------------
(1) Excludes as of June 30, 1998: (i) 1,566,266 shares of Common Stock issuable
upon exercise of options outstanding under the Company's 1996 and 1997 Stock
Option Plans and non-plan options at a weighted average exercise price of
$0.42 per share and 1,190,854 shares of Common Stock reserved for future
issuance thereunder and (ii) 53,750 shares of Common Stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$2.61 per share. From July 1, 1998 to September 4, 1998, options to purchase
1,160,638 shares of Common Stock have been issued at a weighted average
exercise price of $3.93 per share. Does not include an aggregate of
2,750,000 shares of Common Stock reserved for future issuance after this
offering under the Company's 1998 Stock Incentive Plan and 1998 Employee
Stock Purchase Plan. See "Management -- Stock Incentive Plan" and "--
Employee Stock Purchase Plan" and Note 6 of Notes to Financial Statements.
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1998, giving effect to (i) the conversion of notes payable and advances
in the aggregate amount of $8.0 million into Series D Preferred Stock and the
additional sale of $3.0 million of Series D Preferred Stock, (ii) the sale of
approximately $4.1 million of Series E Preferred Stock, (iii) the issuance of
197,978 shares of Series B Preferred Stock upon the exercise of outstanding
warrants and (iv) the conversion of all outstanding shares of Preferred Stock
into Common Stock immediately prior to the closing of this offering was
$ , or approximately $ per share. "Pro forma net tangible book value"
per share represents the amount of total tangible assets of the Company less
total liabilities, divided by the number of shares of Common Stock outstanding
on an as-converted basis. The pro forma net tangible book value of the Company
as of June 30, 1998 would have been approximately $ , or $ per
share after giving effect to the sale of shares of Common Stock offered
by the Company in this offering at an assumed initial public offering price of
$ per share and the application of the estimated net proceeds therefrom.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to investors purchasing shares of Common Stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1998................................................... $
Increase per share attributable to new investors..........
-------
Adjusted pro forma net tangible book value per share after
offering..................................................
--------
Net tangible book value dilution per share to new
investors................................................. $
========
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the difference between 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 existing stockholders and by new investors purchasing shares in
this offering before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company at the
assumed initial offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... % $ % $
New investors..........................
-------- ----- -------- -----
Total........................ 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
- ---------------
(1) Excludes as of June 30, 1998: (i) 1,566,266 shares of Common Stock issuable
upon exercise of options outstanding under the Company's 1996 and 1997 Stock
Option Plans and under non-plan options at a weighted average exercise price
of $0.42 per share and 1,190,854 shares of Common Stock reserved for future
issuance thereunder and (ii) 53,750 shares of Common Stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$2.61 per share. From July 1, 1998 to September 4, 1998, options to purchase
1,160,638 shares of Common Stock have been issued at a weighted average
exercise price of $3.93 per share. Does not include an aggregate of
2,750,000 shares of Common Stock reserved for future issuance after this
offering under the Company's 1998 Stock Incentive Plan and 1998 Employee
Stock Purchase Plan. See "Management -- Stock Incentive Plan" and "--
Employee Stock Purchase Plan" and Note 6 of Notes to Financial Statements.
20
<PAGE> 22
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data as of June 30, 1997 and 1998 and for
the period from March 8, 1996 to June 30, 1996 and for each of the two years in
the period ended June 30, 1998 are derived from the Financial Statements of the
Company which have been audited by Deloitte & Touche LLP, independent auditors,
and are included elsewhere in this Prospectus. The selected balance sheet data
as of June 30, 1996 are derived from the Company's unaudited financial
statements not included herein, and include, in the opinion of the Company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of that date. The
financial data are qualified by reference to and should be read in conjunction
with the Company's Financial Statements, related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 8, 1996 YEAR ENDED JUNE 30,
(INCEPTION) TO ------------------------------
JUNE 30, 1996 1997 1998
------------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND CUSTOMER DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 79 $ 552 $ 3,436
------ ------- -------
Costs and expenses:
Cost of revenues.......................................... 71 1,086 4,203
Sales and marketing....................................... 19 383 1,618
General and administrative................................ 67 456 1,666
Stock-based compensation expense.......................... -- -- 1,276
Joint venture termination fee............................. -- 431 --
------ ------- -------
Total costs and expenses........................... 157 2,356 8,763
------ ------- -------
Loss from operations........................................ (78) (1,804) (5,327)
Interest expense............................................ -- (7) (161)
Interest income............................................. -- 8 63
------ ------- -------
Net loss.................................................... $ (78) $(1,803) $(5,425)
====== ======= =======
Basic and diluted loss per share(1)......................... $(0.39) $ (5.73) $(12.93)
====== ======= =======
Shares used in basic and diluted loss per share(1).......... 200 315 420
OTHER OPERATING DATA:
EBITDA(2)................................................... $ (26) $(1,671) $(3,575)
Capital expenditures(3)..................................... $ 101 $ 850 $ 4,145
Number of customers at period end........................... 10 110 278
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1996 1997 1998
----- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents........................................ $ 89 $ 331 $ 8,141
Working capital (deficit)................................... 88 (946) 5,061
Total assets................................................ 151 1,171 13,693
Long-term obligations, net of current portion............... 210 116 9,325
Total stockholders' equity (deficiency)..................... (73) (262) 661
</TABLE>
- ---------------
(1) See Notes 1 and 7 of Notes to Financial Statements for the determination of
shares used in computing basic and diluted loss per share.
(2) EBITDA represents earnings before interest income and expense, income taxes,
depreciation and amortization expense (including amortization of stock-based
compensation); whereas, cash provided by (used in) operating activities
represents income or loss from operations plus depreciation and amortization
and also other adjustments for non-cash amounts such as stock-based
compensation expense as well as changes in operating assets and liabilities.
EBITDA does not represent cash flows as defined by generally accepted
accounting principles and does not necessarily indicate that cash flows are
sufficient to fund all the Company's cash needs. EBITDA should not be
considered in isolation or as a substitute for net income (loss), cash flows
from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles.
(3) Capital expenditures represent purchases of property and equipment,
including non-cash transactions such as the acquisition of equipment under
capital lease.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following description of the Company's financial condition and results
of operations should be read in conjunction with the Financial Statements and
the Notes thereto included elsewhere in this Prospectus. This discussion
contains forward-looking statements based upon current expectations that involve
risks and uncertainties. Any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. For example,
the words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. The Company's
actual results and the timing of certain events may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a discrepancy include, but are not limited to, those discussed in
"Risk Factors," "Business" and elsewhere in this Prospectus. The Company's
fiscal year ends on June 30. The fiscal year ended June 30, 1997 is referred to
as fiscal 1997 and the fiscal year ended June 30, 1998 is referred to as fiscal
1998.
OVERVIEW
AboveNet is a leading provider of high performance, managed co-location and
Internet connectivity solutions for electronic commerce and other
mission-critical Internet operations. The Company was founded in March 1996 and,
in July 1996, it began providing co-location and Internet connectivity services
to content providers at its San Jose, California facility. In August 1997, the
Company expanded its service offerings to provide co-location and Internet
connectivity services to ISPs, enabling the development of the Company's ISX
model. In July 1998, the Company opened its second ISX facility in Vienna,
Virginia and completed the expansion of its San Jose ISX facility with the
addition of approximately 7,000 square feet.
The Company derives most of its revenues from bandwidth charges, with
additional revenues generated from shelf space rental charges and one-time
installation fees. Bandwidth and shelf space charges are billed on a monthly
basis. The Company charges its customers for a set amount of bandwidth
availability and charges incremental fees if the customer uses additional
bandwidth. The Company's contracts range from month to month to multiple year
commitments, a majority of which are cancelable on 30 days' notice. Revenues
relating to bandwidth usage and shelf space rental are generally recognized in
the period in which the services are performed. Installation fees are recognized
in the period of installation. Approximately 85% of the Company's revenues for
the quarter ended June 30, 1998 were generated from customers that were
customers in the prior quarter. However, there can be no assurance that the
Company will be able to retain the same percentage in any future period. See
"Risk Factors -- Need to Grow and Retain Customer Base; Lengthy Sales Cycle."
The most significant component of the Company's cost of revenues is costs
related to data communications and telecommunications. Data communications costs
consist primarily of payments to network providers, such as WorldCom/UUNET and
Sprint. Telecommunications charges consist of one time fees for circuit
installation and variable recurring circuit charges. Monthly circuit charges
vary based upon circuit type, the distance the circuit spans and/or the circuit
usage, as well as the term of the contract.
The Company intends to develop an approximately 100,000 square foot ISX
facility, including approximately 50,000 square feet of co-location space, in
San Jose, California by the fall of 1999. The development and equipping of this
facility will significantly increase the Company's fixed and operating expenses,
including expenses associated with hiring, training and managing new employees,
purchasing new equipment, implementing power and redundancy systems,
implementing multiple data communication and telecommunication connections,
leasing additional real estate and depreciation. The Company's ability to
complete this expansion, on a timely basis and within the cost anticipated, is
dependent on a number of factors. In addition there can be no assurance that the
Company has accurately anticipated the customer demand for such new facilities
or that the Company will be able to attract a sufficient number of customers to
offset the additional expenses. See "Risk Factors -- Risks Associated with
Recent and Planned Business Expansion."
A key aspect of the Company's strategy is to significantly increase its
sales and marketing activities through the expansion of its sales force,
increased focus on developing reseller channels and increased marketing efforts
to build the AboveNet brand. In April 1998, the Company hired its Senior Vice
President of Sales and Marketing
22
<PAGE> 24
and engaged an outside public relations firm. Prior to that time, the Company
had undertaken no significant marketing activities. As a result, the Company
expects sales and marketing expenses to increase substantially in future
periods. See "Risk Factors -- Need to Grow and Retain Customer Base; Lengthy
Sales Cycle."
The Company has recently hired many of its key employees and officers. The
Company's President and Chief Operating Officer joined the Company in November
1997. The Company's Senior Vice President of Sales and Marketing joined the
Company in April 1998. The Company's Vice President of Sales, Vice President of
Construction and Real Estate and Vice President of International -- Europe all
joined the Company in August 1998. See "Risk Factors -- Management of Growth;
Dependence on Key Personnel."
During late fiscal 1997 and 1998, the Company granted stock options and
warrants to strategic business partners and non-employees. Additionally, during
fiscal 1998 and the first quarter of fiscal 1999, the Company granted a key
executive stock options at an exercise price below market. As a result, the
Company recognized stock-based compensation expense of approximately $1.3
million in fiscal 1998 and expects to recognize approximately $325,000 in
stock-based compensation expense in the first quarter of fiscal 1999. In
addition, as a result of the acceleration of the vesting of certain options upon
the closing of the offering, the Company expects to recognize an additional
approximately $444,000 in stock-based compensation expense in the quarter in
which the offering closes.
Since its inception in March 1996, the Company has experienced operating
losses and negative cash flows from operations in each quarterly and annual
period. As of June 30, 1998, the Company had an accumulated deficit of
approximately $7.3 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. In addition,
although the Company has experienced significant growth in revenues in recent
periods, the Company does not believe that this growth rate is necessarily
indicative of future operating results. There can be no assurance that the
Company will ever achieve profitability on a quarterly or an annual basis or, if
achieved, will sustain profitability. See "Risk Factors -- Limited Operating
History; History of Losses; Expected Continued Losses."
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of revenues for the period from March 8, 1996 (Inception) to June 30,
1996 and for the years ended June 30, 1997 and 1998. This information should be
read in conjunction with the Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
MARCH 8, 1996 JUNE 30,
(INCEPTION) ----------------
TO JUNE 30, 1996 1997 1998
---------------- ------ ------
<S> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0%
----- ------ ------
Costs and expenses:
Cost of revenues................................. 90.3 196.8 122.3
Sales and marketing.............................. 24.3 69.4 47.1
General and administrative....................... 84.1 82.7 48.5
Stock-based compensation expense................. -- -- 37.1
Joint venture termination fee.................... -- 78.1 --
----- ------ ------
Total costs and expenses................. 198.7 427.0 255.0
----- ------ ------
Loss from operations............................... (98.7) (327.0) (155.0)
Interest income (expense), net..................... -- 0.2 (2.9)
----- ------ ------
Net loss........................................... (98.7)% (326.8)% (157.9)%
===== ====== ======
</TABLE>
23
<PAGE> 25
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1998
Revenues. The Company derives most of its revenues from monthly bandwidth
charges, with additional revenues from shelf space rental charges and one-time
installation fees. The Company's revenues increased 523% from $552,000 in fiscal
1997 to $3.4 million in fiscal 1998. This growth in revenues resulted primarily
from an increase in the number of customers, from 110 customers at June 30, 1997
to 278 customers at June 30, 1998. One customer, Supernews, Inc., accounted for
12% of revenues in fiscal 1997 and 14% of revenues in fiscal 1998.
Cost of Revenues. The Company's cost of revenues consists primarily of
costs related to data communications and telecommunications expenses, salaries
and benefits of operations and engineering personnel, depreciation and
amortization expenses and facilities rent. The Company's cost of revenues
increased 287% from $1.1 million in fiscal 1997 to $4.2 million in fiscal 1998.
Cost of revenues as a percentage of revenues decreased from 197% in fiscal 1997
to 122% in fiscal 1998. The increase in absolute dollars in cost of revenues was
primarily the result of increases in the Company's data communications and
telecommunications expenses due to the growth in the Company's customer base and
usage of additional bandwidth, as well as the hiring of additional operations
and engineering personnel and the costs associated therewith. The Company
expects that its cost of revenues will continue to increase in absolute dollars
as the Company continues to expand its network infrastructure and experiences
higher depreciation and amortization related to its planned new ISX facility in
San Jose, California.
Sales and Marketing. The Company's sales and marketing expenses are
comprised primarily of salaries, commissions and benefits related to the
Company's sales and marketing personnel, the cost of the Company's marketing and
promotional efforts, including advertising, printing and trade show costs, as
well as related consultants' fees and travel and entertainment expenses. Sales
and marketing expenses increased 323% from $383,000 in fiscal 1997 to $1.6
million in fiscal 1998. Sales and marketing expenses as a percentage of total
revenues decreased from 69% in fiscal 1997 to 47% in fiscal 1998. The increase
in absolute dollars was primarily the result of hiring additional sales and
marketing personnel, as well as increased advertising and marketing program
expenses. The decrease as a percentage of revenue in fiscal 1998 was primarily
due to increased revenues associated with higher bandwidth utilization among the
existing customer base, which had lower associated sales and marketing expenses.
The Company expects that sales and marketing expenses will increase
significantly in future periods as the Company continues to expand its sales
force and its brand-building activities.
General and Administrative. The Company's general and administrative
expenses are comprised primarily of salaries and benefits for the Company's
management and administrative personnel, as well as fees paid for professional
services and corporate overhead. General and administrative expenses increased
265% from $456,000 in fiscal 1997 to $1.7 million in fiscal 1998. General and
administrative expenses as a percentage of revenues decreased from 83% in fiscal
1997 to 49% in fiscal 1998 due to the increase in revenues. General and
administrative expenses have increased primarily as a result of the salaries and
related benefits associated with additional personnel in management, finance and
administration, and the costs associated with supporting the Company's
expansion. The Company expects that general and administrative expenses will
continue to increase in absolute dollars as the Company expands its operations
and incurs the higher costs associated with being a publicly-traded company.
Stock-Based Compensation. During fiscal 1998, the Company granted a key
executive stock options at an exercise price below market. Additionally, during
late fiscal 1997 and 1998, the Company granted stock options and warrants to
strategic business partners and non-employees. Stock-based compensation expense
during fiscal 1997 and fiscal 1998 was zero and $1.3 million, respectively.
Stock-based compensation in fiscal 1998 related to services rendered during
fiscal 1998 and the acceleration of the vesting during the fourth quarter of
1998 of certain non-employee stock option and warrant grants. As of June 30,
1998, the Company has $540,000 in deferred stock compensation, which will
continue to be amortized through fiscal 2000; however, as the vesting of certain
of these options accelerates upon the closing of this offering, any unamortized
deferred compensation relating to these options ($414,000 at June 30, 1998) will
be recognized in the quarter this offering closes.
24
<PAGE> 26
Joint Venture Termination Fee. In fiscal 1996, the Company entered into a
joint venture agreement (the "DSK Agreement") with DSK, Inc. ("DSK") to
cooperatively market and develop the Company's services. The Company paid
$33,700 to DSK during the year ended June 30, 1997 related to the DSK Agreement.
In the fourth quarter of fiscal 1997, the Company terminated the DSK Agreement
and hired the majority shareholders of DSK as employees or consultants by
issuing 800,000 fully vested shares of Series B Preferred Stock with a fair
value of $0.75 per share, or $600,000, for the outstanding shares of common
stock of DSK. The Company recorded the transaction by allocating the value of
the shares issued to property and equipment (at DSK's net book value of
$169,000, which approximated fair market value), with the balance of $431,000
reflected as a joint venture termination fee.
Interest Income (Expense), Net. Interest income (expense), net decreased
from $1,000 in fiscal 1997 to ($98,000) in fiscal 1998. The decrease was
primarily the result of higher interest expense related to the issuance of stock
purchase warrants in conjunction with the issuance of the Company's convertible
debt during the first half of fiscal 1998 as well as increased borrowings to
finance equipment purchases and improvements to its San Jose, California ISX
facility and construction of its Vienna, Virginia ISX facility. The Company
expects that interest expense will continue to increase in absolute dollars as
the Company enters into additional equipment leases and borrowing facilities to
finance expansion, including the development of its planned second ISX facility
in San Jose, California.
INCEPTION THROUGH JUNE 30, 1996
The Company generated $79,000 in revenues in the period from inception to
June 30, 1996, primarily as a result of consulting services provided as the
Company was developing its tools and preparing to commence its current
co-location and Internet connectivity operations. The Company's costs and
expenses during this period consisted primarily of salaries, depreciation and
amortization expenses and consulting services. Given the stage of the Company's
business and the shortness of the period, the Company does not believe that the
results of operations for this period are comparable to fiscal 1997.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for the eight quarters ended June 30, 1998, as well as the percentage of
the Company's revenues represented by each item. This data has been derived from
unaudited interim financial statements prepared on the same basis as the audited
Financial Statements contained herein and, in the opinion of management, include
all adjustments consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation of such information when
read in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The operating results for any quarter should not
be considered indicative of results of any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 22.4 $ 100.2 $ 183.7 $ 245.3 $ 430.9 $ 674.6 $ 963.3 $ 1,367.6
------- ------- ------- --------- -------- -------- --------- ---------
Costs and expenses:
Cost of revenues................ 37.9 144.5 394.2 509.2 532.0 706.2 1,134.4 1,830.2
Sales and marketing............. 41.3 78.5 103.9 158.9 258.6 216.4 433.4 710.3
General and administrative...... 55.5 59.8 138.7 201.9 207.1 285.7 495.1 677.9
Stock-based compensation
expense....................... -- -- -- -- 14.3 35.1 459.6 767.4
Joint venture termination fee... -- -- -- 431.1 -- -- -- --
------- ------- ------- --------- -------- -------- --------- ---------
Total costs and
expenses................ 134.7 282.8 636.8 1,301.1 1,012.0 1,243.4 2,522.5 3,985.8
------- ------- ------- --------- -------- -------- --------- ---------
Loss from operations.............. (112.3) (182.6) (453.1) (1,055.8) (581.1) (568.8) (1,559.2) (2,618.2)
Interest expense.................. -- -- -- (7.4) (58.8) (67.0) (2.6) (32.4)
Interest income................... 4.2 0.8 1.7 1.7 1.9 7.4 22.0 31.8
------- ------- ------- --------- -------- -------- --------- ---------
Net loss.......................... $(108.1) $(181.8) $(451.4) $(1,061.5) $ (638.0) $ (628.4) $(1,539.8) $(2,618.8)
======= ======= ======= ========= ======== ======== ========= =========
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- --------- -------- -------- --------- ---------
Costs and expenses:
Cost of revenues................ 169.2 144.2 214.6 207.6 123.5 104.7 117.8 133.8
Sales and marketing............. 184.4 78.3 56.6 64.8 60.0 32.1 45.0 51.9
General and administrative...... 247.7 59.7 75.4 82.3 48.1 42.3 51.4 49.6
Stock-based compensation
expense....................... -- -- -- -- 3.3 5.2 47.7 56.1
Joint venture termination fee... -- -- -- 175.7 -- -- -- --
------- ------- ------- --------- -------- -------- --------- ---------
Total costs and
expenses................ 601.3 282.2 346.6 530.4 234.9 184.3 261.9 291.4
------- ------- ------- --------- -------- -------- --------- ---------
Loss from operations.............. (501.3) (182.2) (246.6) (430.4) (134.9) (84.3) (161.9) (191.4)
Interest expense.................. -- -- -- (3.0) (13.6) (10.0) (0.3) (2.4)
Interest income................... 18.7 0.8 0.9 0.7 0.4 1.1 2.3 2.3
------- ------- ------- --------- -------- -------- --------- ---------
Net loss.......................... (482.6)% (181.4)% (245.7)% (432.7)% (148.1)% (93.2)% (159.9)% (191.5)%
======= ======= ======= ========= ======== ======== ========= =========
</TABLE>
FACTORS AFFECTING OPERATING RESULTS
The Company has experienced significant fluctuations in its results of
operations on a quarterly and 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; capacity utilization of its ISX facilities; fluctuations in data
communications and telecommunications costs; reliable continuity of service and
network availability; customer retention; the timing and success of marketing
efforts by the Company; the timing and magnitude of capital expenditures,
including costs relating to the expansion of operations; the timely expansion of
existing facilities and completion of new facilities; the ability to increase
bandwidth as necessary; fluctuations in bandwidth used by customers; the timing
and magnitude of expenditures for sales and marketing; introductions of new
services or enhancements by the Company and its competitors; the timing of
customer installations and related payments; the ability to maintain or increase
peering relationships; provisions for customer discounts and credits; the
introduction by third parties of new Internet services; increased competition in
the Company's markets; growth of Internet use and establishment of Internet
operations by mainstream enterprises; changes in the pricing policies of the
Company and its competitors; changes in regulatory laws and policies; economic
conditions specific to the Internet industry; and general economic factors. In
addition, a relatively large portion of the Company's expenses are fixed in the
short-term, particularly with respect to data communications and
telecommunications costs, depreciation, real estate, interest expenses and
personnel, and therefore the Company's future results of operations will be
particularly sensitive to fluctuations in revenues. In addition, the Company
expects to incur compensation costs related to certain option grants and
warrants. Furthermore, although the Company has not encountered significant
difficulties in collecting its 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. The Company
also expects that its sales may be affected by seasonality trends with decreased
revenues during the summer months. Due to all of the foregoing factors, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. See "Risk Factors -- Need to Grow and Retain Customer Base;
Lengthy Sales Cycle," "-- Potential Fluctuations in Results of Operations,"
"-- Risks Associated with Recent and Planned Business Expansion," "-- Intense
Competition," and "-- Management of Growth; Dependence on Key Personnel."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to distinguish 21st century dates from 20th century dates. This could
result in system failures or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar
26
<PAGE> 28
normal business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements. The Company is in the process of establishing procedures for
evaluating and managing the risks and costs associated with this problem and
believes that its computer systems on a stand-alone basis are currently Year
2000 compliant. There can be no assurance, however, that the Company's computer
systems are Year 2000 compliant. In addition, many of the Company's customers'
and suppliers' Internet operations may be impacted by Year 2000 complications.
The failure of the Company's customers and suppliers to ensure that their
systems are Year 2000 compliant could have a material adverse effect on the
Company's customers and suppliers' resulting in decreased Internet usage, which
in turn could have a material adverse effect on the Company's business, results
of operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally from the private sale
of equity securities and, to a lesser extent, lease financing. As of June 30,
1998, the Company had cash and cash equivalents of approximately $8.1 million.
Net cash used in operating activities was $777,000 in fiscal 1997
consisting primarily of the Company's net loss, offset in part by depreciation
and amortization, the joint venture termination fee and increases in accounts
payable and accrued liabilities. Net cash used in operating activities was $1.8
million in fiscal 1998, primarily resulting from the Company's net loss,
partially offset by depreciation and amortization, stock-based compensation
expense and increases in accounts payable and accrued liabilities.
Net cash used by investing activities was $475,000 and $3.7 million in
fiscal years 1997 and 1998, respectively, consisting of purchases of property
and equipment, including costs associated with the establishment of the
Company's ISX facility in Vienna, Virginia and the expansion of the Company's
ISX facility in San Jose, California.
Net cash provided by financing activities was $1.5 million in fiscal 1997,
resulting primarily from the sale of notes and convertible preferred stock, and
$13.3 million in fiscal 1998, resulting primarily from the sale of notes and
advances, partially offset by debt and capital lease repayments.
As of June 30, 1998, the Company had working capital of $5.1 million and
cash and equivalents of $8.1 million. In addition, the Company has a $6.0
million equipment financing facility from a financing company, $1.3 million of
which had been borrowed upon at June 30, 1998. Borrowings outstanding under this
facility are payable in 42 monthly installments and bear interest at 14.7%. The
Company also has a $2.0 million equipment lease facility, $550,000 of which was
used at June 30, 1998. Finally, the Company has a $750,000 line of credit
facility with a bank, none of which was outstanding at June 30, 1998. Borrowings
under the line of credit facility bear interest at the bank's prime rate plus 1%
(9.5% at June 30, 1998) and expires in May 1999.
The Company believes that the net proceeds from this offering, together
with existing cash balances and financing agreements, will provide the Company
with sufficient funds to finance its operations through at least the next twelve
months. Thereafter, the Company may require additional funds to support its
working capital requirements or for other uses and may seek to raise additional
funds through public or private equity or debt financings or other sources. No
assurance can be given that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to the Company
or its stockholders. See "Risk Factors -- Uncertain Need and Availability of
Additional Funding" and "Use of Proceeds."
27
<PAGE> 29
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements based upon current
expectations that involve risks and uncertainties. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. The Company's actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
GENERAL
AboveNet is a leading provider of high performance, managed co-location and
Internet connectivity solutions for electronic commerce and other
mission-critical Internet operations. AboveNet has developed a network
architecture based upon two strategically located, fault-tolerant facilities
that combine content co-location services with direct ISP access to create
Internet Service Exchanges ("ISXs"). As of August 31, 1998, the Company had
approximately 160 direct public and private data exchange connections, known as
peering arrangements, including relationships with all top-tier network
providers. The Company's network architecture and extensive peering
relationships are designed to reduce the number of network connections or "hops"
for data travelling across the Internet. Furthermore, the convergence of content
providers and ISPs at AboveNet's ISXs enables AboveNet's ISP customers to
provide their users with "one hop" connectivity, through AboveNet's local area
network, to the co-located content provider's site. As of August 31, 1998, the
Company had approximately 300 customers, including a wide range of Internet
content providers, Web hosting companies and ISPs.
INDUSTRY BACKGROUND
The Growth of the Internet
The Internet has experienced tremendous growth and is emerging as a global
medium for communications and commerce. According to International Data
Corporation ("IDC"), the number of Internet users worldwide will grow from 69
million at the end of 1997 to 320 million by 2002 and, according to Forrester
Research, Inc. ("Forrester"), the number of Internet sites worldwide is expected
to grow from less than 500,000 in 1997 to approximately 4 million in 2002. The
growth of the Internet is being driven by a number of factors, including the
large and growing installed base of 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 Internet access. The future growth in Internet usage is also projected
to be fueled by increased use of high speed access devices such as cable modems
and ADSL lines and satellite Internet connectivity as such devices become more
widely available and affordable. Forrester projects that the penetration of
broadband Internet access through cable, ADSL and other high-speed access
devices will grow from approximately 200,000 households in 1997 to approximately
5.5 million households in 2000 and approximately 17.6 million households in
2002. The increase in the availability of high-speed access devices is also
expected to increase the demand for emerging high bandwidth technologies such as
audio and video streaming and voice over IP applications.
The Expansion of Electronic Commerce
The functionality and accessibility of the Internet and commercial online
services have created an increasingly attractive commercial medium by providing
features that historically have been unavailable through traditional channels.
In the last several years, many enterprises that focus solely on delivering
services over the Internet have emerged and many businesses have implemented Web
sites and electronic commerce applications. Internet-based businesses have
developed Internet products and services in areas such as finance, banking,
entertainment, education and advertising, while other businesses are using the
Internet for an expanding variety of applications, ranging from corporate
publicity and advertising to sales, customer service,
28
<PAGE> 30
employee training and communication with business partners. The ability to offer
these kinds of products and services requires high bandwidth Internet sites and
operations. In addition, due to advances in on-line security and payment
mechanisms, the number of businesses establishing commerce-enabled Web sites is
expected to increase dramatically. IDC estimates that the number of consumers
buying goods and services on the Internet will grow from 17.6 million in 1997 to
128.4 million in 2002, and that the total value of goods and services purchased
over the Internet will increase from approximately $12 billion in 1997 to
approximately $425 billion by 2002.
The Internet Infrastructure
The Internet is a worldwide network of private and public computer networks
that link businesses, individuals, government agencies, universities and other
users having disparate computer systems and networks. A multi-tiered system of
local, regional and national ISPs has evolved to provide connectivity among
Internet users. Data travelling across the Internet is broken down into multiple
packets. ISPs exchange these packets of IP data generated by their users through
either direct or indirect connections with other ISPs. Large ISPs often have
multiple direct data exchange connections with other ISPs, known as peering
relationships, either through private line connections between their routers or
through a public peering arrangement where multiple ISPs can be connected
through a single interface. However, significant peering relationships are
generally unavailable to many small and mid-sized ISPs and, even if available,
the associated telecommunication costs could be prohibitive. As a result, these
ISPs typically need to purchase indirect connection services, known as
"transit," from a third party ISP.
To address the needs of ISPs to exchange data at centralized points, a
series of Internet exchanges were established by Internet backbone providers.
Although there are numerous exchanges, the Company believes the two principal
exchanges in the United States, based upon traffic volume, are MAE West in San
Jose, California and MAE East in Vienna, Virginia. Despite the relatively
centralized nature of these exchange points, data travelling across the
dispersed Internet architecture often must make multiple connections or "hops"
through a variety of local, regional and national ISPs as it moves from the
originating site to the Internet backbone and back to its destination site. The
diagram below shows the potential path that a data packet could follow as a
typical Internet user attempts to access a Web site hosted either across the
country or simply across town.
[Diagram to come]
29
<PAGE> 31
The Trend Toward Outsourcing of Internet Operations
Internet operations are increasingly becoming mission-critical to an
enterprise's commercial and communication operations. Internet-based businesses
and other enterprises need non-stop, non-congested, fault-tolerant and scalable
Internet operations to allow them to perform sophisticated digital
communications and commerce transactions globally over the Internet. However,
many businesses that are seeking to establish these sophisticated Internet
operations lack the resources and expertise to cost-effectively develop,
maintain and continually enhance the necessary facilities and network systems.
In addition, individuals with the expertise to establish and maintain a
sophisticated Internet service are scarce and their services are costly.
Furthermore, businesses often find it difficult to keep up with new technology
introductions and to integrate new technologies into their own IT
infrastructure. Finally, many businesses are currently being forced to deploy
their limited IT resources to address the impending Year 2000 issues. As a
result of these and other factors, many enterprises are seeking outsourcing
arrangements to enhance Web site reliability and performance, provide continuous
operation of their Internet solutions and reduce related operating expenses. By
outsourcing these services, businesses, particularly non Internet-centric
enterprises, can focus on their core competencies rather than utilizing their
resources to support their Internet operations. Forrester estimates that by
2002, approximately 40% of Internet Web sites will be outsourced and that
Internet hosting revenues for complex sites will increase from approximately
$200 million in 1997 to almost $8 billion by 2002.
The Emergence of Co-Location Services
A variety of companies including Web hosting companies and ISPs have begun
to focus on providing Internet co-location services. These co-location companies
typically build networks of numerous geographically dispersed data centers in
order to be physically close to their customers. As a result of this dispersed
geographic network, data moving from one customer to another is subject to
increased risks of latency and data loss, as data travels across multiple
network connections or "hops." These problems are compounded by the lack of
available tools to monitor all of the various connection points on the Internet
in order to identify and avoid the congested links which can cause latency and
data loss. While these problems existed to some extent with early, less data
intensive applications, such as e-mail, they are becoming increasingly acute
with the growth of bandwidth intensive applications such as audio and video
streaming. In addition, many co-location providers do not have the flexibility
or capacity to quickly scale their services to meet the sharp growth and high
bandwidth requirements of mission-critical Internet operations.
Internet co-location companies also typically fail to address the
increasing need of local and regional ISPs to provide enhanced connectivity to
compelling content for their customers. Without the ability to maintain
extensive peering relationships with large ISPs, the cost of providing
redundant, reliable and scalable connectivity is often prohibitive for these
local and regional ISPs. As a result, they face increasing congestion as
emerging applications consume more bandwidth. International ISPs are also
seeking a means to obtain fast, reliable access to the large concentration of
U.S.-based content. While many of these problems could be addressed if these
ISPs co-located their facilities with content providers, many of the Web hosting
and co-location companies also compete with ISPs for sales of Internet access
and, therefore, ISPs are often reluctant to co-locate in their facilities.
THE ABOVENET SOLUTION
AboveNet provides high performance, managed co-location and Internet
connectivity services to a wide range of Internet content providers, Web hosting
companies and ISPs. The Company's Internet Service Exchange facilities ("ISXs")
provide high performance, reliable and scalable solutions for electronic
commerce and other mission-critical applications. AboveNet operates two ISXs,
located near MAE West and MAE East, utilizing the Company's suite of
sophisticated network management and remote monitoring tools. The Company
believes that its centralized network architecture provides enhanced
connectivity while eliminating the need to build numerous geographically
dispersed data centers. The Company's ISX model offers customers the benefits of
combining content co-location services with direct ISP access. The convergence
of content providers and ISPs at AboveNet's ISXs enables these ISPs to provide
their users with "one hop" connectivity, through AboveNet's local area network,
to the co-located content site. This direct
30
<PAGE> 32
connectivity minimizes the risk of delays and data loss often encountered in the
transmission of data over the disperse Internet infrastructure.
The AboveNet solution provides the following key advantages to its
customers:
Scalability and Flexibility. The Company's services are designed to be
highly scalable and flexible in order to meet the needs of its customers as
their Internet operations expand. The Company's network is designed to enable it
to quickly scale bandwidth to meet its customer's needs. In addition, since the
Company charges its customers based on the amount of space and bandwidth it
provides, customers are afforded a flexible, cost-effective path to increasing
their Internet operations. The Company also provides flexibility for its
customers by supporting most leading Internet hardware and software systems
vendor platforms.
High Performance and Enhanced Connectivity. The Company's services are
designed to enhance Internet performance through redundant and high speed
network design and 24x7 monitoring, notification and diagnosis. The Company is
able to address the high bandwidth needs and rapid growth of its customers'
mission-critical operations by maintaining an extensive number of direct public
and private network peering interconnections, including peering relationships
with top-tier network providers. To ensure that its customers have sufficient
available and uncongested bandwidth during network traffic spikes, the Company
has a policy of maintaining significant excess network capacity.
Enhanced Access for ISPs. By connecting within the Company's ISX, ISPs have
"one hop" connectivity to content providers co-located in the same facility. The
Company believes that by providing a means to reduce the number of "hops" in the
transmission of data, its network design offers significant benefits to
international ISPs as they seek to gain fast, reliable access to U.S.-based
content. In addition, ISPs that participate in the ISX are able to take
advantage of peering relationships generally available only to top-tier network
providers.
Sophisticated Network Management Services and Tools. By leveraging the
knowledge gained from supporting many leading-edge Internet operations, the
Company provides sophisticated network management and monitoring services on a
24x7 basis. The Company's proprietary ASAP software monitors all of the
Company's direct and indirect network connections for latency and packet loss,
allowing the Company's network engineers to dynamically reroute traffic to avoid
congested points. By utilizing ASAP, the Company is able to identify and resolve
many potential problems before they impact an Internet site's availability or
performance.
Remote Management Capabilities. The Company provides its customers with
sophisticated monitoring, reporting and management tools that can be accessed by
the customer to control its Internet hardware, software and application
environments. The Company's monitoring system probes each customer's equipment
every five minutes and provides the customer with notice of potential problems.
The Company believes that these tools, combined with its trained 24x7 support
staff, provide customers with a highly effective means of monitoring, responding
to and resolving problems, significantly reducing customers' needs for on-site
access to their equipment.
Fault Tolerant Facilities. The Company has built fault tolerant facilities
designed to enable the uninterrupted operations necessary for mission-critical
Internet operations. Each of the Company's facilities is equipped with an
uninterruptible DC or AC power supply and back-up generators for power
redundancy, multi-tiered fire suppression systems, seismically braced racks,
separate and redundant cooling zones and security systems.
STRATEGY
The Company's objective is to become the leading global Internet Service
Exchange for business enterprises and ISPs that require high-bandwidth,
mission-critical Internet operations. To achieve this objective, the Company's
strategy includes the following key elements:
Build Brand Name. The Company intends to increase awareness of the AboveNet
brand name among Internet content providers, Web hosting companies and ISPs on a
global basis. The Company believes that
31
<PAGE> 33
associating the AboveNet brand with the highest quality and most technologically
advanced network and services for outsourcing mission-critical Internet
operations is key to the expansion of its customer base. Through June 1998, the
Company focused on building its infrastructure and developing its tools and, as
a result, has engaged in minimal marketing efforts. Going forward, the Company
plans to aggressively invest in building the AboveNet brand through an
integrated marketing plan, including traditional and online advertising in
business and trade publications, trade show participation, direct mail and
public relations campaigns. The Company also intends to conduct a series of
seminar programs to increase awareness of the Company's services among potential
customers.
Expand Customer Base. The Company intends to expand its base of
approximately 300 customers by significantly increasing its sales and marketing
efforts. The Company's direct sales force consisted of 23 persons as of August
31, 1998 who are organized into groups to target leading Internet content
providers, Web hosting companies and ISPs. In addition, the Company has
personnel responsible for addressing the development of customers in the Asian
and European markets. The Company's sales force is supported in their sales
efforts by a sales engineer and, in many instances, by the Company's senior
management. The Company intends to significantly expand its direct sales force
and sales engineers, as well as hire experienced channel managers. The Company
seeks to establish and expand relationships with potential channel partners
including hardware vendors, value added resellers, system integrators and Web
hosting companies in order to leverage their sales organizations. The Company
also plans to develop seminar programs and other cooperative sales programs to
further develop these relationships.
Extend ISX Network. AboveNet seeks to create a global ISX network by
connecting centralized facilities in key domestic and international locations.
The Company currently has ISXs in San Jose, California (near MAE West) and
Vienna, Virginia (near MAE East) and plans to build an approximately 100,000
square foot San Jose facility, including approximately 50,000 square feet of
co-location space, near its San Jose facility in the fall of 1999. The Company
also intends to expand its network internationally, primarily through strategic
investments in joint ventures and foreign companies that can develop ISX
facilities in Europe and Asia.
Leverage ISX Model. The Company intends to leverage its ISX model to
increase its customer base and generate recurring revenue. The Company believes
that as its customer base expands the benefits to both content providers and
ISPs of its "one hop" solution will increase, creating greater incentives for
new customers to use the Company's services. Since the Company charges these
customers monthly based upon space and bandwidth usage, the Company is generally
able to increase revenue as its customers' Internet usage grows. In the quarter
ended June 30, 1998, approximately 85% of the Company's revenues were generated
from customers that had been customers in the prior quarter. In addition, since
the Company's service fees are based upon bandwidth usage, the Company believes
that it is well positioned to capitalize on the requirements of high bandwidth
applications.
Address Emerging Internet Technology Markets. The Company believes that its
centralized ISX network will enable it to address the needs of emerging Internet
technologies such as audio and video streaming and voice over IP. Since these
applications require a solution that provides low latency and packet loss, the
Company believes that its high bandwidth, centralized network and enhanced
connectivity capabilities will enable it to offer significant advantages to
customers utilizing these emerging technologies.
THE ABOVENET INTERNET SERVICE EXCHANGE
The Company's ISX provides co-location services, Internet connectivity
services and network management services and tools. The Company's co-location
services are designed to provide enterprises with the high performance,
scalability, connectivity, security, reliability and expertise they need to
enhance their mission-critical Internet applications. The Company creates
solutions for its customers based on their specific business and technical
requirements, modifying the services as customers' needs evolve. The services
are delivered from centralized, state-of-the-art facilities located near MAE
West and MAE East. The Company's management services and tools enable the
Company and its customers to continuously manage customers' Internet operations
jointly, proactively and remotely.
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<PAGE> 34
Co-Location Services
The Company provides co-location services designed to meet the demands of
sophisticated, multi-vendor mission-critical Internet operations. The Company
supports most leading Internet hardware and software system vendor platforms,
including those from Ascend Communications, Inc., Bay Networks, Cisco Systems,
Inc., Compaq Computer Corporation, Dell Computer Corporation, EMC Corporation,
Hewlett-Packard Company, International Business Machines Corporation, Lucent
Technologies Inc., Microsoft Corporation, Apple Computer, Inc., Network
Appliance, Inc., Silicon Graphics Inc., Sun Microsystems Inc. and 3COM. This
multi-vendor capability enables the customer to retain control over its choice
of technical solution and enables the customer to integrate its Internet
operations into its existing IT architecture. Because mission-critical Internet
operations are dynamic and often require timely hardware and software upgrades
to maintain targeted service levels, customers have 24x7 physical and remote
access to the ISX facilities. Additional space and electrical power can be added
as needed in order to provide the customer access to additional server
co-location services.
The Company's co-location facilities include dedicated electrical power
circuits to ensure that each customer's electrical power requirements are met.
Each ISX facility is constructed to address the requirements of mission-critical
network operations with an uninterruptible DC or AC power supply and back-up
generators, FM-200 Fire Suppression with pre-action backup, HVAC, separate
cooling zones, seismically braced racks, 24x7 operations, and high levels of
physical security. 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. See
"Risk Factors -- Risk of System Failure."
Customers can select from shared rack facilities, secure cabinets, or
enclosed cage facilities, based upon their business and technical requirements.
These facilities have the following features:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
TYPE OF SPACE SIZE FEATURES
- ---------------------------------------------------------------------------------------------------
Open Rack Single shelf, 1/4, 1/2, or Entry-level service providing a
full 9' or 6' racks cost-effective solution for customers that
do not need dedicated environments. Secured
environment that is shared by multiple
customers.
- ---------------------------------------------------------------------------------------------------
Cabriolet 9' or 6' stainless steel Dedicated, locked cabinet. Provides a single
enclosed, secure cabinet, rack with the security of a dedicated
1/4, 1/2, or full rack environment.
- ---------------------------------------------------------------------------------------------------
Cage 8' x 6', 8' x 8' or customized Dedicated, locked cage. Provides flexibility
to order in designing and configuring Internet
servers, including space for multiple racks
and other equipment.
- ---------------------------------------------------------------------------------------------------
</TABLE>
Internet Connectivity
The Company's Internet connectivity services are designed to meet the
requirements of high bandwidth, mission-critical Internet operations by
providing highly reliable, scaleable, non-stop and uncongested operations. On
August 31, 1998, the Company had public and private peering relationships with
120 and 40 network providers, respectively. Any failure by the Company to
maintain and increase peering relationships would have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Risk Factors -- Need to Maintain and Increase Peering Relationships."
The Company's network is designed to minimize the likelihood of failure.
Each ISX has multiple physical fiber paths into the facility. The Company
maintains multiple network links from multiple vendors and regularly checks that
its fiber backbone traverses physically separated paths. This network
architecture enhances the availability of a customer's site, even in the event
of a link failure. In addition, since enterprises' Internet operations often
experience network traffic spikes due to promotions or events, the Company has a
policy of maintaining significant excess capacity. There can be no assurance
that the Company will be able to
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<PAGE> 35
expand or adapt its telecommunications infrastructure to meet additional demand
or its customers' changing requirements, on a timely basis and at a commercially
reasonable cost, or at all. See "Risk Factors -- Risks Associated with Network
Scalability."
The Company's Internet connectivity services are also designed to reduce
latency and to enhance network performance. The Company's engineering personnel
continuously monitor traffic patterns and congestion points throughout the
Internet and dynamically reroute traffic flows to improve end-user response
times. The Company also enhances network performance by maintaining what it
believes is among the largest number of direct public and private network
peering interconnections in the industry. For customers seeking a direct
communications link to the site of another customer that is located at the same
ISX, the Company offers highly secure, fast, and efficient cross-connections.
The Company's connectivity services utilize its proprietary ASAP technology
to enhance Internet connectivity by monitoring all of the Company's direct and
indirect network connections for congestion.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
TOOL DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
ASAP -- Asymmetric ASAP automatically monitors If packet loss and congestion is detected on
Allocation of all of the Company's major any of the links that directly affect
Packets providers' and peers' direct customers' performance, the Company's
and indirect connections on a network engineers are able to dynamically
real-time 24-hour basis to reroute traffic temporarily away from the
identify congestion. problem link. The functionality is
particularly important for emerging
applications such as audio and video
streaming and voice over IP.
- ---------------------------------------------------------------------------------------------------
</TABLE>
Management Services and Tools
The Company's management services and tools 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 network management services and
tools, customers are able to remotely manage their mission-critical Internet
operations housed at the Company's ISX facilities. 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
management services and tools enable the Company to identify and resolve
hardware, software, network, and application problems, often before the customer
is aware that a problem exists.
Customers may access their co-located equipment by visiting the ISX
facility or by using the Company's software tools and services for remote
access. Using the Company's remote access tools, customers can perform emergency
tasks, control power functions and monitor their own system usage. These remote
access tools alleviate the need for the Company to build numerous geographically
dispersed ISX facilities. In the event of a system problem, the Company notifies
the customer who can then attempt to resolve the issue remotely. The Company
intends to continue to enhance its software tools in order to meet the needs of
mission-critical Internet operations. See "Risk Factors -- Rapid Technological
Change; Evolving Industry Standards."
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<PAGE> 36
The Company offers the tools/services summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
TOOLS/SERVICES DESCRIPTION BENEFITS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
MRTG MRTG is a widely used tool MRTG shows customers the amount of
licensed by the Company that bandwidth being used and,
provides real-time monitoring and therefore, the actual cost of that
management of bandwidth. Currently business expense. Through a
used by most major backbone graphical interface, users can
providers, MRTG generates HTML view, in real-time, the actual
pages containing GIF images which amount of bandwidth flowing
provide a real-time visual through their servers and/or
representation of this traffic. networking equipment. MRTG also
MRTG can also be used to display allows the Company and its
historical statistical data in customers to view the Company's
graphic form. connections and bandwidth usage
with each of its backbone
providers.
- ----------------------------------------------------------------------------------------------
EtherValve EtherValve is a tool licensed by EtherValve allows AboveNet to
the Company that regulates the provide each customer a clear
actual flow of bandwidth from a channel of the bandwidth
customer's server through a 10 purchased. This assures customers
Mbps or 100 Mbps Ethernet segment. that they will have the bandwidth
they have purchased available to
them at any given time. EtherValve
also allows the customer's
bandwidth to be scaled up
immediately, in increments as
small as 8 bps (0.008 Kbps).
- ----------------------------------------------------------------------------------------------
APS -- Automatic APS is a suite of proprietary APS provides real-time information
Pro-Active tools developed to continually about a customer's remote
Services monitor the performance of equipment. APS automatically
customer equipment. Three levels notifies the customer and the
of predetermined escalation Company's technical personnel of
procedures include automatic system malfunctions. Predetermined
notification by e-mail, escalation procedures customized
notification by pager and for each AboveNet customer are
automatic power cycle. then carried out by the Company's
personnel. Automatic rebooting and
other predetermined procedures
often serve to correct problems
before the customer is aware of
the problem.
- ----------------------------------------------------------------------------------------------
As-Ur-Here Service As-Ur-Here provides various As-Ur-Here allows customers to
service aspects including maintain access and control over
automatic remote power cycle and their equipment and perform
remote services terminal server effective equipment maintenance
access. and problem solving while they
outsource their servers and/or
networking equipment.
- ----------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 37
CUSTOMERS
The Company has established a diversified base of customers including
Internet content providers, Web hosting companies and ISPs. As of August 31,
1998, the Company had approximately 300 customers. One customer, Supernews,
Inc., accounted for 12% and 14% of the Company's revenues in fiscal 1997 and
1998, respectively. No other customer accounted for more than 10% of revenues in
either fiscal 1997 or 1998. The Company's success is substantially dependent on
the continued growth of its customer base and the retention of its customers.
See "Risk Factors -- Need to Grow and Retain Customer Base; Lengthy Sales
Cycle."
The following is a representative list of customers as of August 31, 1998:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
INTERNET CONTENT
PROVIDERS WEB HOSTING COMPANIES ISPS
- ------------------------------------------------------------------------------------------------------------
Supernews, Inc. Galaxy-NET Telecom Hurricane Electric
Electronic Arts Inc. iXL Holdings, Inc. LinkAGE Online Limited
Visual Dynamics LLC Astra Labs Internet Gateway Corp.
RealNetworks, Inc. VirtuaLynx Internet, LLC BigBiz Internet Services
IntelliChoice, Inc. WebPresence, Inc. Action Systems, Inc.
Creative Labs, Inc. The Web Zone, Inc. Innetix
Image Lock ProHosting PH Communications
MPX Data Systems, Inc. Bay Area Gold, Inc. Direct Network Access, Ltd.
IQ.commerce Corporation Trakprops, Inc. Got.Net Corporation
Liquid Audio, Inc. CNET Download.com Dacom America
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The following examples illustrate how the Company's customers use its
services:
INTERNET CONTENT PROVIDERS
RealNetworks, Inc.
RealNetworks is a leading developer of software products and services
designed to enable users of personal computers and other consumer electronic
devices to send and receive audio, video and other multimedia services using the
World Wide Web. RealNetworks uses the Company's facilities to host its Web site
for users to download its client and server software. RealNetworks selected
AboveNet because of the speed and high performance of the Company's network
(enabling fast, reliable downloading of its products), the Company's ability to
rapidly scale the amount of bandwidth and the Company's extensive peering
relationships. Since becoming a customer in February 1998, RealNetworks has
co-located an increasing portion of its downloading operations with the Company.
Electronic Arts Inc.
Electronic Arts is an interactive entertainment software company that
develops, publishes and distributes products for personal computers and other
entertainment systems. Electronic Arts' IT department decided to outsource its
Web site because of the network congestion it encountered with its internal
solution and chose AboveNet because of its reliability, redundancy and
connectivity. Electronic Arts' usage has expanded significantly since 1996 and
it currently uses AboveNet to host the Web sites of multiple divisions.
Electronic Arts, one of the Company's first customers, has expanded its
co-location space over time from a 1/4 rack to a full cage.
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<PAGE> 38
WEB HOSTING COMPANIES
iXL Holdings, Inc.
iXL is an interactive media company that provides complete Web design and
hosting solutions. iXL offers the Company's co-location and connectivity
services to its customers as part of its bundled solution. iXL has relied upon
the scalability of AboveNet's solution as it has grown through a series of
acquisitions. iXL currently occupies two cages in the Company's San Jose
facility and a rack in its Vienna, Virginia facility. iXL uses AboveNet to
provide its customers with high performance and highly reliable Internet
connectivity.
CNET Download.com
CNET is an Internet media company that operates a network of sites on the
Web. Download.com, a division of CNET, is a leading site for downloading
software titles. CNET Download.com recently selected AboveNet to provide
co-location and connectivity services for its ftp servers due to the high
performance of AboveNet's network and peering relationships with major ISPs and
other large companies, including America Online, Inc. AboveNet's scalable
bandwidth also allows CNET Download.com the flexibility necessary to accommodate
traffic surges accompanying new software releases.
ISPS
Internet Gateway Corp.
Internet Gateway is a Canadian ISP that provides its customers access,
hosting, e-mail, and support services. Internet Gateway recently chose AboveNet
to provide co-location and Internet connectivity services. Internet Gateway uses
AboveNet's management tools, including APS and MRTG, to enable it to remotely
manage the status of its equipment and bandwidth utilization on a 24x7 basis.
Dacom America
Dacom America is a subsidiary of Dacom Corporation, a large Korean ISP.
Dacom America recently chose AboveNet to be one of its primary providers of
Internet connectivity in the United States. Dacom America purchases transit
services from AboveNet, which provides Dacom America with high performance
connectivity to U.S.-based content sites. Through this connection, Dacom America
is able to use AboveNet as its U.S. gateway, providing Dacom America with high
performance Internet connectivity. Dacom also benefits from access to AboveNet's
extensive peering relationships, reducing the need to negotiate separate peering
arrangements with other ISPs.
SALES AND MARKETING
The Company's sales and marketing objective is to achieve broad market
penetration and increase brand name recognition among Internet content
providers, Web hosting companies and ISPs on a global basis through investments
in the expansion of its sales organization and extensive marketing activities.
As of August 31, 1998, the Company employed 28 persons in sales and marketing.
The Company has developed a two-tiered sales strategy to target leading Internet
content providers, Web hosting companies and ISPs through direct sales and
channel relationships. See "Risk Factors -- Management of Growth; Dependence on
Key Personnel."
Direct Sales Force
The Company maintains a direct sales force of highly trained individuals in
San Jose, California and Vienna, Virginia. As of August 31, 1998, the Company
had 24 persons in direct sales targeting Internet content providers, Web hosting
companies and ISPs. The Company also has personnel responsible for addressing
the development of customers in Asia and Europe. The Company is actively seeking
to expand its direct sales force and sales engineers. Substantially all of the
Company's sales are currently generated by the Company's direct sales force. The
Company's sales force is supported in their sales efforts by its sales engineer
and, in many instances, by the Company's senior management. The Company believes
that the integration of
37
<PAGE> 39
its sales engineers with its sales account managers assists in both the
establishment of customer relationships as well as the migration of customers to
increased use of the Company's services. The Company has developed programs to
attract and retain high quality, motivated sales representatives that have the
necessary technical skills, consultative sales experience and knowledge of their
local markets. These programs include technical and sales process training and
instruction in consultative selling techniques. The Company has also developed
sales compensation plans which provide for significant incentives for exceeding
performance targets.
Channel Relationships
The Company is seeking to establish and expand relationships with potential
channel partners including hardware vendors, value-added resellers, system
integrators and Web hosting companies in order to leverage their sales
organizations. The Company believes that by leveraging the sales forces of these
companies, it can attract customers for its services in a cost-effective manner,
as well as provide co-branded Internet service offerings for its channel
partners. For example, certain of the Company's Web hosting customers market the
Company's service as part of their overall bundled offering and the Company has
been involved in joint marketing and sales efforts with such customers. The
Company is actively seeking to hire experienced channel managers to focus
exclusively on developing these relationships. The Company also plans to develop
seminar programs and other cooperative sales programs to further develop these
relationships.
Marketing
The Company's strategy is to significantly expand its marketing efforts to
stimulate increased demand for the Company's services and build the AboveNet
brand. The Company plans to aggressively invest in building the AboveNet brand
through an integrated marketing plan including traditional and online
advertising in business and trade publications, trade show participation, direct
mail and public relations campaigns to increase customer awareness. The Company
is also developing customer focus groups to encourage business relationships
among its customers.
NETWORK ARCHITECTURE
The Company's high performance network is designed to provide enhanced
connectivity to its customers. The Company's two ISX facilities are connected to
one another with high speed SONET circuits, and connected to the Internet
through public and private peering arrangements.
The Company's ISX facilities are located near MAE West and MAE East and are
connected to local Internet exchange points by multiple high-speed backbone
connections, provided by Worldcom/UUNET, Teleport Communications Group, a
division of AT&T, MCI and Sprint. These links to the local exchange points,
combined with private exchanges with ISPs, connect the customers' traffic to the
Internet. The Company has engineered its peering with a geographically diverse
fiber path to provide high reliability, even in the event of a link failure. The
Company has developed dynamic rerouting and load balancing technologies to
enhance Internet operations.
The Company has determined that as voice, video, and other services are
carried across the Internet, the need for ATM in network infrastructures is
reduced. The Company has built their network using DS-3 and OC-3 clear channel
circuits. By using clear channel circuits, the Company is able to make highly
efficient use of these connections, lowering infrastructure costs, and providing
high performance connectivity. Inside of each ISX facility, the Company has
multiple LANs, each connected to the outside network through redundant routers
and network connections. These routers are configured such that in case of
failure of a single connection, or piece of equipment, alternative equipment or
network paths are automatically utilized, without human intervention, or
performance degradation. See "Risk Factors -- Dependence on Third Party
Suppliers."
The Company utilizes a combination of public and private peering in order
to provide a high level of network performance. On August 31, 1998, the Company
had private peering relationships with 40 network providers and 120 public
peering relationships, including peering relationships with all of the largest
providers, and is connected to all of the major U.S. Internet exchange points.
The combination of public and private
38
<PAGE> 40
peering sessions allows the Company to provide high levels of performance and
reliability to their customers. To ensure that this connectivity is not
degraded, the Company has a policy of providing significant excess capacity on
all LAN, WAN and Internet exchange point connections in its network. The
Company's failure to maintain and increase peering relationships would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors -- Need to Maintain and Increase Peering
Relationships."
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 problem at one or more of the Company's ISX facilities could
result in interruptions to the services provided by the Company. Such an event
could significantly impact the ability of suppliers to provide the data
communications capacity required by the Company and could result in
interruptions in the Company's services. See "Risk Factors -- Risk of System
Failure" and "-- Dependence Upon Third Party Suppliers" and "-- Security Risks."
CUSTOMER SERVICE AND QUALITY ASSURANCE
The Company offers a high level of customer service and quality assurance
by understanding the technical requirements and business objectives of its
customers and addressing their needs proactively on an individual basis. By
working closely with its customers, the Company is able to enhance 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 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. The Company received its ISO 9002 certification in April 1998.
As of August 31, 1998, the Company had 21 employees dedicated to customer
service and quality assurance.
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. After installation, the customer's equipment is overviewed by the
Company's Network Operation Center in San Jose, California, which is operated
24x7 by engineers who answer customer calls, monitor site and network operations
and activate teams to solve problems that arise. The Company's customer service
personnel are also available to assist customers whose operations require
specialized procedures.
The Company believes that its quality assurance programs are key to
building its brand name. The objectives of AboveNet's quality assurance system
are to comply with International Standard ISO 9002:1994 Quality Systems; to
achieve and maintain a level of quality that enhances the Company's reputation
with its customers; to ensure compliance with relevant safety and environmental
requirements; and to endeavor to deliver high quality services to customers in
an environment centered on adherence to high legal and ethical standards.
COMPETITION
The market served by the Company is intensely competitive. There are few
substantial barriers to entering the co-location service business, and the
Company expects that it will face additional competition from existing
competitors and new market entrants in the future. The Company believes that
participants in this market must grow rapidly and achieve a significant presence
in the market in order to compete effectively. The Company believes that the
principal competitive factors in its market are uncongested connectivity,
quality of facilities, level of customer service, price, the financial stability
and credibility of the provider, brand name and the availability of network
management tools. 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
co-location services, such as Exodus Communications, Inc., GlobalCenter, Inc.,
which was recently acquired by Frontier Corporation, and Hiway Technologies,
Inc. which recently entered into an agreement
39
<PAGE> 41
to be acquired by Verio Inc.; (ii) national and regional ISPs, such as
Concentric Network Corporation, PSINet, Inc., WorldCom/UUNET and certain
subsidiaries of GTE Corporation; (iii) global, regional and local
telecommunications companies, such as MCI, Sprint, WorldCom/UUNET and regional
bell operating companies, some of whom supply capacity to the Company; and (iv)
large IT outsourcing firms, such as International Business Machines Corporation
and Electronic Data Systems. Certain of these companies operate in one or more
of these markets. In addition, many of the Company's current and potential
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 acquisitions and other opportunities more readily, devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than can the Company. In an effort to gain market share,
certain of the Company's competitors have offered co-location services similar
to those of the Company at lower prices than those of the Company or with
incentives not matched by the Company, including free start-up and domain name
registration, periods of free service and low-priced Internet access. As a
result of these policies, the Company may encounter increasing pricing pressure
which could have a material adverse effect on its business, results of
operations and financial condition.
In addition, these competitors have entered and will likely continue to
enter into joint ventures, consortiums or consolidations to provide additional
services competitive with those provided by the Company. As a result, such
competitors may be able to provide customers with additional benefits in
connection with their co-location and network management solutions, including
reduced communications costs, which could reduce the overall costs of their
services relative to the Company's services. There can be no assurance that the
Company will be able to offset the effects of any such price reductions. In
addition, the Company expects competition to intensify as the Company's current
and potential competitors incorporate a broader range of bandwidth,
connectivity, and Internet networking services and tools into their service
offerings. The Company believes that companies seeking co-location and Internet
connectivity providers for their mission-critical Internet operations may use
more than one company to provide this service. As a result, these customers
would be able to shift the amount of service and bandwidth usage from one
provider to another. The Company may also face competition from its suppliers.
The Company's agreements with its suppliers and other partners do not limit or
restrict those parties from offering similar services to the Company's
customers, thereby enabling such parties to compete against the Company.
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 services. The Company has no patented
technology that would preclude or inhibit competitors from entering the
Company's market. The Company has generally entered into confidentiality and
invention assignment agreements with its employees in order to limit access to
and disclosure of certain 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 services or intellectual property rights to the
same extent as do the laws of the U.S. The Company also relies on certain
technologies that it licenses from third parties. Two key technologies offered
by the Company, MRTG and EtherValve, are licensed from David Rand, the Company's
Chief Technical Officer. To date, the Company has not been notified that the
Company infringes the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement by the Company. The
Company expects that participants in its markets will be increasingly subject to
infringement claims as the number of technologies 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 service 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.
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<PAGE> 42
GOVERNMENT REGULATION
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 international, 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. Moreover, a number of laws and regulations have been
proposed and are currently being considered by federal, state and foreign
legislatures with respect to such issues. The nature of any new laws and
regulations and the manner in which existing and new laws and regulations may be
interpreted and enforced cannot be fully determined. For example, 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. 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 future laws or regulations might decrease the growth of the
Internet, decrease demand for the services of the Company, impose taxes or other
costly technical requirements or otherwise increase the cost of doing business
or in some other manner have a material adverse effect on the Company or its
customers, each of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain. The vast majority of such laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Changes to such laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace which could reduce demand for the services of the Company or
increase the cost of doing business as a result of costs of litigation or
increased service delivery costs, or could in some other manner have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, as the Company's services are available over the
Internet in multiple states and foreign countries, and as the Company
facilitates sales by its customers to end users located in such states and
foreign countries, such jurisdictions may claim that the Company is required to
qualify to do business as a foreign corporation in each such state or foreign
country. Any such new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws may 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.
EMPLOYEES
As of August 31, 1998, the Company had 71 employees, including 28 people in
sales and marketing, 30 people in Customer Service, Network and Backbone
Engineering and Product Development; and 13 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 successful in attracting such personnel. See "Risk
Factors -- Risks Associated with Recent and Planned Business Expansion,"
"-- Management of Growth; Dependence on Key Personnel."
FACILITIES
The principal executive and administrative offices of the Company are
located in San Jose, California and consist of approximately 15,000 square feet
that are leased until 2008, with an option by the Company to expand to 20,000
square feet and to extend to 2018. The Company leases its ISX facilities in San
Jose, California and Vienna, Virginia (in the Washington, D.C. area). The San
Jose, California facility consists of approximately 10,000 square feet and is
leased until 2008 with an option for the Company to extend to 2018, and the
Vienna, Virginia, facility which consists of approximately 17,000 square feet
and is leased until 2007, with an option for the Company to extend to 2012.
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<PAGE> 43
The Company is planning to build an approximately 100,000 square feet
facility near its San Jose, California facility to be completed in the fall of
1999. There can be no assurance that such facility will be completed in a timely
manner, or at all. See "Risk Factors -- Risks Associated with Recent and Planned
Business Expansion."
LEGAL PROCEEDINGS
The Company has a pending dispute with one of its customers involving one
of the customer's consultants. The consultant misrepresented his identity to the
Company to gain access to the customer's servers in order to delete files. The
customer has demanded that the Company pay damages and has threatened legal
action in which it claims it would seek additional damages. The Company intends
to vigorously defend against any claims that are brought. See "Risk
Factors -- Security Risks."
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company, and
their ages as of August 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sherman Tuan................. 45 Chairman of the Board and Chief Executive Officer
Peter C. Chen, Ph.D.(1)...... 56 Vice Chairman of the Board
Warren J. Kaplan............. 56 President, Chief Operating Officer and Director
David Rand................... 35 Chief Technology Officer
Executive Vice President, Chief Financial Officer and
Stephen P. Belomy............ 40 Secretary
David Dembitz................ 45 Senior Vice President of Sales and Marketing
Lori Barth................... 45 Vice President of Sales
Kevin Hourigan............... 33 Vice President of Finance and Controller
Jeffrey Monroe............... 31 Vice President of Construction and Real Estate
Wayne Sanders................ 55 Vice President of Corporate Development
Paul Steiner, Ph.D........... 42 Vice President of International -- Europe
Frank R. Kline(1)............ 48 Director
James Sha(2)................. 48 Director
Tom Shao, Ph.D.(2)........... 63 Director
Kimball W. Small(1)(2)....... 63 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Mr. Tuan, founder of AboveNet, has served as Chief Executive Officer and a
Director since 1996, and President until January 1998. Mr. Tuan has served as
Chairman of the Board since August 1998. Mr. Tuan was President of InterNex
Information Services, Inc., an Internet infrastructure provider, from November
1994 to October 1995 and from February 1994 to November 1995 was President of
Tiara Computer, Inc., a network equipment manufacturer, which merged with
InterNex Information Services, Inc. in November 1994. From January 1992 to June
1993, Mr. Tuan was Vice President of Worldwide Sales and Marketing of Primus
Technologies, Inc., a provider of problem resolution and knowledge management
software, and President of Celerite Graphics, Inc., its wholly owned subsidiary
that manufactured video chips. Mr. Tuan received an Electronic Engineering
degree from Feng-Chia University in Taiwan.
Dr. Chen has served as Vice Chairman of AboveNet's Board of Directors since
August 1998. Dr. Chen served as Chairman of the Board of Directors from December
1996 to August 1998, and has been a Director of the Company since March 1996.
Dr. Chen is the Founder and Chairman of Crosslink Technology Partners, an
investment firm specializing in funding and developing early stage
semiconductor, healthcare and Internet related technology ventures, where he has
been employed since August 1992. From September 1983 to May 1992, Dr. Chen was
Founder, General Manager and Chief Executive Officer of Mosel Corporation, a
semiconductor manufacturer in Taiwan. Dr. Chen received a B.S. in Engineering
from National Taiwan University and a Ph.D. in Engineering from Cornell
University.
Mr. Kaplan has served as AboveNet's President, Chief Operating Officer and
a Director since January 1998, and as Acting President and Chief Operating
Officer from November 1997 to January 1998. From March 1996 to November 1997,
Mr. Kaplan was an investor and consultant to various Internet software start-up
companies. Mr. Kaplan served as Chief Executive Officer and a director of Simply
Interactive, Inc., a software company, from June 1996 to December 1996 and was
President and Chief Executive Officer from April 1996 to June 1996. Until
February 1996, Mr. Kaplan served (i) as a Managing Director -- International at
NETCOM On-Line Communication Services, Inc. ("NETCOM"), an ISP and Web hosting
company, from August 1995, (ii) as its Executive Vice President from February
1994, (iii) as its Secretary from
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<PAGE> 45
October 1994; and (iv) as a Director since April 1994. Mr. Kaplan also served as
NETCOM's Chief Financial Officer from February 1994 through September 1995. From
September 1989 to December 1993, Mr. Kaplan was Vice President of Operations of
Gefinor (USA) Inc., a merchant banking business, and also served as Senior Vice
President and Chief Financial Officer and Interim Chief Executive Officer of its
majority-owned subsidiary, Sheaffer Pen Company, from September 1989 to August
1991 and September 1989 to August 1990, respectively. Mr. Kaplan received a B.S.
in Accounting from New York University and an M.B.A. in Taxation from Long
Island University.
Mr. Rand has served as AboveNet's Chief Technology Officer since March
1996, initially as a consultant, and since May 1998 as an employee. Mr. Rand has
served as a member of the Internet Engineering Task Force for the past seven
years. Mr. Rand authored rfc 1962 and rfc 1663, developed the EtherValve
technology and developed ASAP and APS, as well as co-developed MRTG. From
September 1995 to May 1998, Mr. Rand was an engineer at Cisco Systems, Inc., a
router manufacturer. From October 1993 to February 1994, Mr. Rand was a software
engineer at Novell, Inc., a network server company.
Mr. Belomy has served as Executive Vice President and Chief Financial
Officer since January 1998 and as AboveNet's Director of Operations from January
1997 to January 1998. From August 1985 to December 1996, Mr. Belomy served as
Vice President of Kimball Small Properties, a commercial real estate developer
in San Jose, California. Mr. Belomy has a B.S. in Engineering from the
University of California at Los Angeles.
Mr. Dembitz has served as AboveNet's Senior Vice President of Sales and
Marketing since April 1998. From February 1996 to April 1997, Mr. Dembitz was
Vice President of Sales and Marketing of ISDNet, a start-up company that
provided remote access solutions, which was acquired in 1997. From June 1993 to
December 1995, Mr. Dembitz was an independent consultant providing networking
consulting services. From January 1990 to June 1993, Mr. Dembitz held various
sales positions, including Senior Manager of Major Account Programs and Channel
Programs, as well as the Senior Manager of Sales Operations for SynOptics
Communications, which was acquired by Bay Networks, a provider of routers,
switches and hubs. Mr. Dembitz received a B.S. in Management and a B.S. in
Economics, as well as an M.B.A. with a minor in Marketing, from the University
of Utah.
Ms. Barth has served as AboveNet's Vice President of Sales since August
1998. From June 1997 to August 1998, Ms. Barth was a principal at Corporate
Performance Concepts, a skills development company, and from June 1992 to June
1997, Ms. Barth was a Vice President at Holden Corporation, a sales and
marketing consulting firm. Ms. Barth received her B.S. in Business
Administration and Computer Science from Central Michigan University.
Mr. Hourigan was promoted to AboveNet's Vice President of Finance in August
1998, and has served as Controller since February 1998. Mr. Hourigan served as a
consulting associate with Deloitte & Touche LLP from October 1997 to February
1998. From August 1993 to April 1997, Mr. Hourigan served in the following
capacities at NETCOM: Controller (1993-1995) and Director of Internal Audit,
Budgeting and Analysis (1995-1997). From August 1991 to August 1993, Mr.
Hourigan served as Financial Analyst for Hewlett-Packard Company, a computer
manufacturer. Mr. Hourigan received a B.A. in Business Economics and a B.A. in
Law & Society from University of California Santa Barbara and an M.B.A. from
Santa Clara University.
Mr. Monroe has served as AboveNet's Vice President of Construction and Real
Estate since August 1998. Mr. Monroe was a Project Manager for Cupertino
Electric, an electrical contractor, from February 1998 to August 1998. Prior to
that, Mr. Monroe was a Project Manager from April 1992 to January 1998, an
Assistant Manager from 1990 to 1992 and an Estimator from 1989 to 1990 for
Truland Systems Corporation, an electrical engineering and contracting company.
Mr. Monroe completed a four year IBEN Electrical apprenticeship program and is a
licensed electrician in the State of Virginia and Washington, D.C.
Dr. Steiner has served as AboveNet's Vice President of
International -- Europe since August 1998. From August 1995 until August 1998,
Dr. Steiner was the Managing Director of Europe, Africa, Middle East and India,
and from February 1995 until August 1995, Dr. Steiner was a consultant for
NETCOM. From January 1994 to December 1994, Dr. Steiner was an independent
consultant in Palo Alto, California. From April 1986
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<PAGE> 46
to December 1993, Dr. Steiner served as a Managing Director and Partner for HOT
Engineering Ltd., a petroleum engineering software and consulting company in
Leoben, Austria. Dr. Steiner received a B.S. and M.S. in Petroleum Engineering,
and a Ph.D. in Reservoir Engineering from Leoben Mining University in Leoben,
Austria, and an M.B.A. from the University of Michigan.
Mr. Sanders has served as AboveNet's Vice President of Corporate
Development since August 1998. Mr. Sanders served as AboveNet's Director of
Sales from May 1996 to August 1998. From April 1994 to April 1996 Mr. Sanders
was the Director of Sales for InterNex Communications, Inc., an Internet
infrastructure provider. Prior thereto, Mr. Sanders was the Founder of
InterSell, a computer peripheral manufacturer and distributor company, which
incorporated into three companies, from July 1976 to January 1993. The three
companies were: Integrated Marketing, a manufacturing representative firm where
he held the position of Chief Executive Officer and President; Paragon Sales, a
distributor of computer peripherals where he held the position of Chief
Executive Officer; and Intek Manufacturing, a manufacturer of intelligent
printers and smart switch boxes where he held the position of Chief Executive
Officer. Mr. Sanders attended Olympic College in Bremerton, Washington.
Mr. Kline has served as a Director of the Company since August 1998. Mr.
Kline has served as a Managing Partner of Kline Hawkes California, L.P./Kline
Hawkes California SBIC, L.P., a private equity firm, since 1994. From June 1984
to June 1994, Mr. Kline served as a private equity manager of Lambda Fund
Management, Inc., a venture capital firm. Mr. Kline currently serves as a
director of four companies, including: CampusLink Communications Systems, Inc.,
EOS Corporation, SuperShuttle International, Inc. and TranSoft Networks, Inc.
Mr. Kline also serves on the Board of Governors of the National Association of
Small Business Investment Companies. Mr. Kline received a B.S. in Commerce from
Rider College and an M.S. from the University of Massachusetts at Amherst.
Mr. Sha has served as a Director since August 1998. Since January 1998, Mr.
Sha has served as Senior Vice President, Commerce Solutions at Netscape
Communications ("Netscape"), a provider of software and Internet services for
businesses. From April 1996 to December 1997, Mr. Sha was the President and
Chief Executive Officer of Actra Business Systems ("Actra"), a developer of
high-end Internet commerce applications. Actra, a joint venture between Netscape
and GE Information Services, was acquired by Netscape in December 1997. Mr. Sha
served as Vice President and General Manager of integrated application at
Netscape from August 1994 to April 1996. From June 1990 to August 1994, Mr. Sha
was the Vice President of the Unix Product Division at Oracle Corporation, a
software company. Mr. Sha received an M.S. Electrical Engineering from the
University of California at Berkley, an M.B.A. from Santa Clara University and a
B.S. in Electrical Engineering from Taiwan University.
Dr. Shao has served as a member of AboveNet's Board of Directors since
January 1998. Since September 1997, Dr. Shao has served as Managing Director of
Technology Associates Management Co., Ltd., a venture fund manager. Dr. Shao
served as a senior consultant for Technology Associates Corporation of Taiwan, a
venture investment firm, from September 1995 to September 1997. From September
1985 to September 1995, Dr. Shao served as Senior Vice President of DynaTech
Development Corporation, a management consulting and venture investment firm.
Since August 1992, Dr. Shao has served as President of TSS Enterprises, a
privately held high technology management consulting, investing and trading
company. Dr. Shao received a Ph.D. in Applied Mathematics/Computer Science, a
M.S. in Engineering from the University of Illinois, and a B.S. in Engineering
from National Taiwan University.
Mr. Small has served as a member of AboveNet's Board of Directors since
March 1997. Mr. Small is the Founder and President of Kimball Small Properties,
a San Jose, California commercial real estate development company incorporated
in 1978. Mr. Small received a B.S. from the University of California at Los
Angeles.
Classified Board
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of the Company's Board of Directors
will be elected each year. To implement the classified structure, prior to the
consummation
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<PAGE> 47
of the offering, two of the nominees to the Board will be elected to one-year
terms, two will be elected to two-year terms, and three will be elected to
three-year terms. Thereafter, directors will be elected for three-year terms.
Tom Shao and Frank R. Kline have been designated Class I directors whose term
expires at the 1999 annual meeting of stockholders. Peter C. Chen and Warren J.
Kaplan have been designated Class II directors whose term expires at the 2000
annual meeting of stockholders. Kimball W. Small, and Sherman Tuan and James Sha
have been designated Class III directors whose term expires at the 2001 annual
meeting of stockholders. See "Description of Capital Stock -- Antitakeover
Effects of Provisions of Certain Charter Provisions, Bylaws and Delaware Law."
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
Compensation Committee
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding all forms of compensation provided to the
executive officers and directors of the Company and its subsidiaries including
stock compensation and loans. In addition, the Compensation Committee reviews
and makes recommendations on bonus and stock compensation arrangements for all
employees of the Company. As part of the foregoing, the Compensation Committee
also administers the Company's 1996 and 1997 Stock Option Plans, 1998 Stock
Incentive Plan and 1998 Employee Stock Purchase Plan. The current members of the
Compensation Committee are Messrs. Chen, Kline and Small.
Audit Committee
The Audit Committee of the Board of Directors reviews and monitors the
corporate financial reporting and the internal and external audits of the
Company, including, among other things, the Company's internal audit and control
functions, the results and scope of the annual audit and other services provided
by the Company's independent auditors and the Company's compliance with legal
matters that have a significant impact on the Company's financial reports. The
Audit Committee also consults with the Company's management and the Company's
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of the
Company's financial affairs. In addition, the Audit Committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, the Company's independent auditors. The current members of
the Audit Committee are Messrs. Sha, Shao and Small.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Directors of the Company who are not employees receive cash payments of
$2,000 per Board meeting and Committee meeting. From time to time, certain
directors who are not employees of the Company have received grants of options
to purchase shares of the Company's Common Stock. Following this offering,
directors will receive automatic option grants under the Company's 1998 Stock
Incentive Plan. See "-- Stock Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Chen, Kline and Small. No interlocking relationship exists between any
member of the Company's Board of Directors or the Company's Compensation
Committee and any member of the board of directors or compensation committee of
any other company, and no such interlocking relationship has existed in the
past.
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<PAGE> 48
ADVISORY BOARD
The Company has an Advisory Board whose members advise management of the
Company with respect to strategic issues and other business matters. The
Company's Advisory Board currently consists of the following persons:
Robert Berger is an Internet bandwidth development consultant. Mr. Berger
founded InterNex Information Services, Inc. ("InterNex") in 1993 and held
various executive management positions with InterNex until March 1997.
Gregg Carse has worked with CWA International since 1980, during which time
he founded CWA Communications Products, a designer and manufacturer of
telecommunications equipment.
Michael Conley is General Manager of Perspecta, Inc. Prior to that, he
served as a Managing Director of Spyglass Incorporated. Mr. Conley has had
various positions with NetFrame Systems Incorporated from 1989 to 1996 with the
most recent being Vice President and General Manager, Asia Pacific.
Daniel Gatti has been President and Chief Executive Officer of Mayan
Networks, a multiservice carrier class access switch company, since June 1998.
Prior to joining Mayan Networks, Mr. Gatti served as Vice President and General
Manager of 3COM's Network Service Provider Division.
Glenn Kohner is President of ISO-Online Inc. Prior to 1996, Mr. Kohner was
a consultant and business owner.
James Lee is Director of Strategy at the Singapore National IT Research
Institute, Kent Ridge Digital Labs.
Frank McGrath has been Vice President of WorldCom, Inc. since 1988. From
1980 to 1988, Mr. McGrath was Vice President of ITT World Communications.
Greg Moyer is Chief Executive Officer and Creative Director of Flying
Beyond, Inc. Mr. Moyer, from 1989 to 1993, was Creative Director and Lead
Producer of National Meeting Company.
Richard Steranka has held several positions at Cisco Systems, Inc. since
1992. Mr. Steranka is presently Director, Small-Medium Business Channel
Marketing.
Bruce Weber has been President of QMS Quality Management System, Inc. since
1995 and a Senior Executive of Boca Corporate Resources, a successor of Martin,
Randolph and Barnes since 1992, a firm specializing in corporate acquisitions,
restructuring and leveraged buyouts.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during the fiscal
year ended June 30, 1998, by the Company's Chief Executive Officer and the
Company's three other most highly compensated executive officers (collectively,
the "Named Executive Officers"), for services rendered in all capacities to the
Company for that fiscal year.
SUMMARY COMPENSATION TABLE FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
----------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS(#)
--------------------------- --------- -------- ---------------------
<S> <C> <C> <C>
Sherman Tuan
Chief Executive Officer......................... 132,500(1) --(2) 108,000(3)
Warren J. Kaplan
President, Chief Operating Officer.............. 71,635(4) --(5) 324,000(6)
Stephen P. Belomy
Executive Vice President and Chief Financial
Officer......................................... 112,500 -- 68,000
David Rand
Chief Technology Officer........................ 103,333(7)(8) -- 48,000(9)
</TABLE>
- ---------------
(1) Upon the closing of this offering, Mr. Tuan's annual base salary will
increase to $225,000 with a minimum annual increase of 10% each year
thereafter. See "-- Employment Agreements."
(2) Upon the closing of the offering, Mr. Tuan will receive a minimum annual
bonus of $50,000 per year (such bonus not to exceed the amount of Mr. Tuan's
then current salary), with a minimum bonus increase of 10% each year
thereafter. See "-- Employment Agreements."
(3) On August 18, 1998, Mr. Tuan received an option to purchase 210,400 shares
of Common Stock at an exercise price of $7.50 per share which will vest in
equal installments over 48 months.
(4) Upon the closing of the offering, Mr. Kaplan's annual base salary will
increase to $225,000 with a minimum annual increase of 10% each year
thereafter. See "-- Employment Agreements."
(5) Upon the closing of the offering, Mr. Kaplan will receive a minimum annual
bonus of $50,000 per year (such bonus not to exceed the amount of Mr.
Kaplan's then current salary), with a minimum annual bonus increase of 10%
each year thereafter. See "-- Employment Agreements."
(6) Includes an option to purchase 44,000 shares granted for services rendered
as a consultant, of which the option to purchase 14,667 shares has been
cancelled. Mr. Kaplan's option for 280,000 shares contains an antidilution
clause which provides that, prior to any underwritten initial public
offering of the Company's securities, the number of option shares under the
Option Grant will always be equal to 5% of the Company's outstanding common
stock minus 44,000 shares (the "Anti-Dilution Clause"). Under the terms of
the Anti-Dilution Clause, Mr. Kaplan received an additional 423,780 option
shares with an exercise price of $0.25 per share on July 31, 1998 and an
additional 48,177 option shares with an exercise price of $0.25 per share on
September 4, 1998. See "-- Employment Agreements."
(7) Mr. Rand's employment started on May 1, 1998 at an annual salary of
$140,000.
(8) Includes $80,000 earned as a consultant.
(9) On August 18, 1998, Mr. Rand received an option to purchase 162,000 shares
of Common Stock at an exercise price of $7.50 per share.
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<PAGE> 50
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended June 30, 1998 to each of the Named Executive Officers. No
stock appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------------ ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM($)(9)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(6) ($/SHARE)(7) DATE(8) 5% 10%
---- ---------- ---------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sherman Tuan.......... 100,000(1) 11.18 0.25 12/09/07 15,722 39,844
8,000(2) * 0.75 1/26/08 3,773 9,562
Warren J. Kaplan...... 44,000(3) 4.92 0.13 11/09/07 3,597 9,116
280,000(4) 31.30 0.25 11/09/07 44,023 111,562
Stephen P. Belomy..... 60,000(5) 6.71 0.25 12/09/07 9,433 23,906
8,000(2) * 0.75 1/26/08 3,773 9,562
David Rand............ 40,000(5) 4.47 0.25 12/09/07 6,289 15,937
8,000(2) * 0.75 1/26/08 3,773 9,562
</TABLE>
- ---------------
* Less than one percent.
(1) 6.25% of the shares vest 3 months after the vesting commencement date with a
further 6.25% vesting every 3 months thereafter until the first anniversary
of the vesting commencement date and 1/36 of the remaining shares vesting
each month thereafter. Under the terms of Mr. Tuan's employment agreement,
all of the shares subject to this option will accelerate and become fully
vested in the event that either Mr. Tuan's employment with the Company is
terminated without cause or there is a material breach by the Company of his
employment agreement. See "-- Employment Agreements."
(2) Each of the options granted to Messrs. Tuan, Belomy and Rand on January 27,
1998 were fully vested at the time of grant.
(3) 1/3 of the shares vested on December 10, 1997, 1/3 of the shares vested on
January 10, 1998 and 1/3 of the shares vested on February 9, 1998. The
option was cancelled with respect to 14,667 shares when Mr. Kaplan joined
the Company as President and Chief Operating Officer.
(4) With respect to Mr. Kaplan's option granted on November 10, 1997 at $0.25
per share, 1/5 of the shares were immediately exercisable and 1/36 of the
remaining shares become exercisable each month thereafter. This option
contains an anti-dilution clause which provides that, prior to any
underwritten initial public offering of the Company's securities, the number
of option shares under the Option Grant will always be equal to 5% of the
Company's outstanding Common Stock less 29,333 shares (the "Anti-Dilution
Clause"). Under the terms of the Anti-Dilution Clause, Mr. Kaplan received
an additional 423,780 option shares with an exercise price of $0.25 per
share on July 31, 1998 and an additional 48,177 option shares with an
exercise price of $0.25 per share on September 4, 1998. All of the shares
subject to this option will accelerate and become fully vested upon the
closing of the offering. See "-- Employment Agreements."
(5) 6.25% of the shares vest 3 months after the vesting commencement date with a
further 6.25% vesting every 3 months thereafter until the first anniversary
of the vesting commencement date and 1/36 of the remaining shares vesting
each month thereafter.
(6) Based on an aggregate of 894,600 options granted to employees of the Company
under the 1997 Stock Option Plan and the option granted to Mr. Kaplan on
November 10, 1997 with an exercise price of $0.25 per share. See
"-- Employment Agreements."
(7) The exercise price is equal to the deemed fair market value of the Company's
Common Stock as estimated by the Board of Directors on the date of grant
with the exception of the November 10, 1997 option granted to Mr. Kaplan to
purchase 280,000 shares of Common Stock at an exercise price of $0.25 per
share, which was deemed to be above the fair market value on the date of
grant.
(8) Each of the options has a ten-year term, subject to earlier termination in
the event of the optionee's earlier cessation of service with the Company.
(9) The assumed 5% and 10% rates of stock price appreciation are provided in
accordance with rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the future Common Stock
price. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period. Unless the
market price of the Common Stock appreciates over the option term, no value
will be realized from the option grants made to the Named Executive
Officers.
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<PAGE> 51
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the options exercised
by the Named Executive Officers in fiscal year 1998 and the year-end number and
value of unexercised options with respect to each of the Named Executive
Officers. No stock appreciation rights were exercised by the Named Executive
Officers in fiscal year 1998 or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)(3)
ACQUIRED ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sherman Tuan.......... -- -- 248,000 140,000 771,500 451,500
Warren J. Kaplan...... 105,333 64,833 23,555 180,444 70,665 541,332
Stephen P. Belomy..... 12,083 37,708 89,250 -- 270,000 --
David Rand............ -- -- 138,000 100,000 427,250 317,500
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock on the date of
exercise, less the exercise price payable for such shares.
(2) Certain of the options are immediately exercisable for all the option shares
as of the date of grant but any shares purchased thereunder are subject to
repurchase by the Company at the original exercise price paid per share upon
the optionee's cessation of service to the Company prior to vesting in such
shares.
(3) Based on the fair market value of the Company's Common Stock at fiscal year
end of $3.25 per share less the exercise price payable for such shares.
STOCK INCENTIVE PLAN
In August 1998, the Company's Board of Directors adopted the Company's 1998
Stock Incentive Plan (the "Stock Incentive Plan"). It replaces the Company's
1996 Stock Option Plan and its 1997 Stock Plan (the "Prior Plans"). The Prior
Plans will be terminated effective upon the adoption of the Stock Incentive
Plan. No further grants will be made under the Prior Plans following this
offering, although they will continue to govern all outstanding awards made
thereunder. All awards after this offering will be made under the Stock
Incentive Plan.
The number of shares of Common Stock that are reserved for issuance under
the Stock Incentive Plan pursuant to the direct award or sale of shares or the
exercise of options is equal to 2,500,000. If any options granted under the
Stock Incentive Plan are forfeited or terminate for any other reason without
having been exercised in full, then the unpurchased shares subject to those
options will become available for additional grants of stock options or shares
under the Stock Incentive Plan. If shares granted or purchased under the Stock
Incentive Plan are forfeited, then those shares will also become available for
additional grants under the Stock Incentive Plan. The number of shares reserved
for issuance under the Stock Incentive Plan will be increased automatically on
July 1 of each year by a number equal to the lesser of (i) 500,000 shares or
(ii) 4% of the shares of Common Stock outstanding at that time. Options granted
to any optionee in a single fiscal year shall not cover more than 500,000 shares
except that options granted to a new employee in the fiscal year in which his or
her service as an employee first commences shall not cover more than 1,000,000
shares.
Under the Stock Incentive Plan, directors of the Company and employees of
and consultants and advisors to the Company, or a subsidiary or affiliate of the
Company, are eligible to purchase shares of Common Stock and to receive awards
of shares or grants of nonstatutory options (collectively, the "Awards").
Employees are also eligible to receive grants of incentive stock options
("ISOs") intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The Stock Incentive Plan is administered by the
Compensation Committee of the Board of Directors, which selects the persons to
whom shares will be sold or awarded or options will be granted, determines the
type, number, vesting requirements and other features and conditions of each
sale, award or grant, interprets the Plan and makes all other decisions relating
to the operation of the Plan.
The exercise price under any nonstatutory stock options ("NSOs") generally
must be at least 85% of the fair market value of the Common Stock on the date of
grant, and the exercise price may vary in accordance with a predetermined
formula while the NSO is outstanding. The exercise price under ISOs cannot be
lower
50
<PAGE> 52
than 100% of the fair market value of the Common Stock on the date of grant and,
in the case of ISOs granted to holders of more than 10% of the voting power of
the Company, not less than 110% of such fair market value. The term of an ISO
cannot exceed 10 years, and the term of an ISO granted to a holder of more than
10% of the voting power of the Company cannot exceed five years.
The exercise price of Common Stock issued upon exercise of options is
payable in cash equivalents at the time when such shares of Common Stock are
purchased, except that the Stock Option Agreement for an ISO, and with respect
to an NSO, the Committee at any time, may specify that payment may be made in
any of the following forms: (i) by surrendering, or attesting to the ownership
of, shares of Common Stock that are already owned by the optionee; (ii) by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the shares
being purchased under the Stock Incentive Plan and to deliver all or part of the
sales proceeds to the Company; (iii) by delivering (on a form prescribed by the
Company) an irrevocable direction to pledge all or part of the shares being
purchased under the Stock Incentive Plan to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company; (iv) by delivering (on a form prescribed by
the Company) a full-recourse promissory note (however, the par value of the
shares being purchased under the Stock Incentive Plan, if newly issued, shall be
paid in cash or cash equivalents); or (v) any other form that is consistent with
applicable laws, regulations and rules.
Beginning after this offering, each new non-employee director who is
elected to the Company's Board of Directors will automatically be granted as of
the date of election an NSO to purchase 15,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. The shares subject to these options will vest in 36 equal installments at
monthly intervals over the three-year period commencing on the date of grant. In
addition, each non-employee director who will continue to serve following any
annual meeting of stockholders will automatically be granted an option as of the
date of such meeting to purchase 5,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
These options will vest on the first anniversary of grant. These options will
expire on the earliest of (i) the 10th anniversary of grant, (ii) 3 months after
termination of service for any reason other than death or total and permanent
disability or (iii) 12 months after termination of service due to death or
disability. No director will receive the 15,000-share grant and a 5,000-share
grant in the same fiscal year.
The Compensation Committee (in its sole discretion) may permit or require
an optionee to have shares that otherwise would be delivered to such optionee as
a result of the exercise of an option converted into amounts credited to a
deferred compensation account established for such optionee as an entry on the
Company's books. In addition to options, shares may be sold or awarded under the
Plan for such consideration as the Compensation Committee may determine,
including (without limitation) cash, cash equivalents, full-recourse promissory
notes, past services and future services. To the extent that an award consists
of newly issued shares, the recipient must furnish consideration with a value
not less than the par value of such Shares in the form of cash, cash equivalents
or past services rendered to the Company (or a parent or subsidiary), as the
Committee may determine. The holders of shares awarded under the Plan shall have
the same voting, dividend and other rights as the Company's other stockholders
except that the award agreement may require that the holders of shares invest
any cash dividends received in additional shares. Such additional shares are
subject to the same conditions and restrictions as the award with respect to
which the dividends were paid.
Immediately prior to the effective date of a Change in Control, an Award
will become fully exercisable as to all shares subject to such Award, except
that (i) in the case of an ISO, the acceleration of exercisability shall not
occur without the Optionee's written consent; and (ii) if the Company and the
other party to the transaction constituting a Change in Control agree that such
transactions is to be treated as a "pooling of interest" for financial reporting
purposes, and if such transaction in fact is so treated, then the acceleration
of exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately determine
in good faith that such acceleration would preclude the use of "pooling of
interest" accounting. In addition, all options granted to non-employee directors
will become fully exercisable in the event of the termination of the director's
service because of death, total and permanent disability or retirement at or
after age 70.
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<PAGE> 53
The Board may amend or terminate the Plan at any time. The Plan shall
remain in effect until it is terminated except that no ISOs shall be granted on
or after the 10th anniversary of the later of (i) the date when the Board
adopted the Plan or (ii) the date when the Board adopted the most recent
increase in the number of Common Shares available under the Plan which was
approved by the Company's stockholders. Amendments may be subject to stockholder
approval to the extent required by applicable laws.
EMPLOYEE STOCK PURCHASE PLAN
In August 1998, the Board of Directors adopted the Company's Employee Stock
Purchase Plan (the "ESPP") to provide employees of the Company with an
opportunity to purchase Common Stock through payroll deductions. Under the ESPP,
250,000 shares of Common Stock have been reserved for issuance. As of July 1 of
each year, the number of shares reserved for issuance under the ESPP will be
increased automatically by the number of shares necessary to cause the number of
shares then available for purchase to be restored to 250,000. The ESPP is
expected to become effective at the time of this Offering. All employees whose
customary employment is for more than five months per calendar year and for more
than 20 hours per week will be eligible to participate in the ESPP commencing
with the effective date of this offering.
Eligible employees may contribute up to 15% of their total cash
compensation to the ESPP. Amounts withheld are applied at the end of every
six-month accumulation period to purchase shares of Common Stock, but not more
than 5,000 shares per accumulation period. The value of the Common Stock
(determined as of the beginning of the offering period) that may be purchased by
any participant in a calendar year is limited to $25,000. Participants may
withdraw their contributions at any time before stock is purchased.
The purchase price is equal to 85% of the lower of (i) the market price of
Common Stock immediately before the beginning of the applicable offering period
or (ii) the market price of Common Stock at the time of the purchase. In
general, each offering period is 24 months long, but a new offering period
begins every six months. Thus up to four overlapping offering periods may be in
effect at the same time. An offering period continues to apply to a participant
for the full 24 months, unless the market price of Common Stock is lower when a
subsequent offering period begins. In that event, the subsequent offering period
automatically becomes the applicable period for purposes of determining the
purchase price. The first accumulation and offering periods are expected to
commence on the effective date of this offering and will end on April 30, 1999,
and October 31, 2000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement (the "Tuan Agreement")
with Sherman Tuan dated as of February 1, 1998. Under the Tuan Agreement, Mr.
Tuan receives certain compensation and benefits including, but not limited to,
an annual base salary of $150,000, bonus, and stock options. Under the Tuan
Agreement, Mr. Tuan's base salary increases upon consummation of this offering
to a minimum of $225,000 and his bonus to a minimum of $50,000. The bonus cannot
exceed the amount of Mr. Tuan's then current salary. In addition, following this
offering, Mr. Tuan is guaranteed a minimum annual salary and bonus increase of
10% each year thereafter. In addition, the Tuan Agreement provides for Mr. Tuan
to receive his base salary for twelve months and for the immediate, full
acceleration of vesting of Mr. Tuan's option shares following either a
termination without Cause or a Material Breach of the Tuan Agreement by the
Company prior to December 31, 1999. For the purposes of the Tuan Agreement,
"Cause" means (i) Mr. Tuan's conviction of, guilty or "no contest" plea to or
confession of guilt of a felony, (ii) a willful act by Mr. Tuan which
constitutes gross misconduct and which is materially injurious to the Company or
(iii) violation by Mr. Tuan of the Company's Proprietary Information and
Inventions Agreement without the prior written consent of the Company. For the
purposes of the Tuan Agreement, "Material Breach" means (a) the failure of the
Company to pay base salary or additional compensation in accordance with the
Tuan Agreement, (b) the assignment to Mr. Tuan without Mr. Tuan's consent of
duties substantially inconsistent with his duties as set forth in the Tuan
Agreement, (c) the relocation of the Company's principal offices to a geographic
location other than Northern California, or (d) a failure to reelect Mr. Tuan as
a member of the Board.
The Company has entered into an Employment Agreement (the "Kaplan
Agreement") with Warren J. Kaplan dated as of November 10, 1997. Under the
Kaplan Agreement, Mr. Kaplan receives certain compensation and benefits
including, but not limited to an annual base salary of $150,000, bonus (not to
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<PAGE> 54
exceed his then current salary), and stock options. The Kaplan Agreement
provides that the Company shall continue to pay Mr. Kaplan his base salary for
twelve months following a termination without cause during the term of the
Kaplan Agreement. Under the Kaplan Agreement, Mr. Kaplan's base salary increases
upon consummation of this offering to a minimum of $225,000 and his bonus to a
minimum of $50,000. The bonus cannot exceed the amount of Mr. Kaplan's then
current salary. In addition, following this offering, Mr. Kaplan is guaranteed a
minimum annual salary and bonus increase of 10% each year thereafter.
Under the terms of the Kaplan Agreement, Mr. Kaplan received an option to
purchase shares of the Company's common stock (the "Option"). The initial Option
was for 280,000 shares. However, the Option contains an anti-dilution clause
which guarantees that, prior to any underwritten initial public offering of the
Company's securities, the number of option shares under the Option will always
be equal to 5% of the Company's outstanding Common Stock less 29,333 shares (the
"Anti-Dilution Clause"). Under the terms of the Anti-Dilution Clause, Mr. Kaplan
received an additional 423,780 shares on July 31, 1998 and an additional 48,177
shares on September 4, 1998. The Option is immediately exercisable with respect
to 20% of the option shares and the balance becomes exercisable in equal monthly
installments over the next 36 months of employment with the Company measured
from November 10, 1997, the date of the Kaplan Agreement. The exercise price is
$0.25 per share which was above the fair market value of the Company's Common
Stock on November 10, 1997. All outstanding options will accelerate and all
shares that remain subject to the Company's right of repurchase will become
fully vested and no longer subject to the Company's right of repurchase in the
event of: (i) a Corporate Transaction; (ii) Mr. Kaplan's employment with the
Company being terminated without cause; or (iii) a material breach by the
Company of the terms of the Kaplan Agreement.
For the purposes of the Kaplan Agreement, "Corporate Transaction" means one
of the following events: (a) Sherman Tuan ceases to be the Company's Chief
Executive Officer and is succeeded in such position by any person other than Mr.
Kaplan; (b) an underwritten initial public offering of the Company's securities;
(c) the consummation of a merger or consolidation of the Company with or into
another entity or any other corporate reorganization, if more than 50% of the
combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were not shareholders of the Company immediately prior
to such merger, consolidation or other reorganization; (d) the sale, transfer or
other disposition of all or substantially all of the Company's assets; (e) the
liquidation or dissolution of the Company; or (f) any transaction as a result of
which any person becomes the beneficial owner of securities of the Company
representing at least 50% of the total voting power represented by the Company's
then outstanding voting securities, provided that person is not either a
shareholder of the Company on November 10, 1997 or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or of a parent
or subsidiary of the Company. A transaction shall not constitute a Corporate
Transaction if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately before such transaction. As a result, at the closing of this
offering, Mr. Kaplan will be fully vested in the Option.
The Company has entered into an Employment Agreement (the "Rand Agreement")
with David Rand effective as of May 1, 1998. Under the Rand Agreement, Mr. Rand
is appointed to the position of Chief Technology Officer of the Company and will
receive an annual base salary of $140,000. The Rand Agreement provides for six
months' severance in the event of termination without cause.
See "Risk Factors -- Management of Growth; Dependence on Key Personnel."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent not prohibited by Delaware law. Delaware law
provides that a corporation's certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock
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<PAGE> 55
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its
directors, officers and employee benefit plan fiduciaries, and may indemnify its
employees and agents to the fullest extent permitted by law. The Company
believes that indemnification under its Bylaws covers at least negligence and
gross negligence on the part of indemnified parties. The Company's Bylaws also
permit the Company to advance expenses incurred by an indemnified director or
officer in connection with the defense of any action or proceeding arising out
of such director's or officer's status or service as a director or officer of
the Company upon any undertaking by such director or officer to repay such
advances if it is ultimately determined that such director or officer is not
entitled to such indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and officers for certain expenses (including attorneys' fees and associated
legal expenses), judgments, fines and amounts paid in settlement amounts if such
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld, actually and reasonably incurred by any such person in
any action, suit, proceeding or alternative dispute resolution mechanism arising
out of such person's services as a director or officer of the Company, any
subsidiary of the Company or any other company or enterprise to which the person
provides services at the request of the Company. The Company believes that those
provisions and agreements are necessary to attract and retain qualified
directors and officers.
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<PAGE> 56
CERTAIN TRANSACTIONS
Since the Company's inception in March 1996, there has not been any
transaction or series of similar transactions to which the Company was or is a
party in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of any class of the
Company's voting securities or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest, other
than the transactions described below.
EQUITY FINANCINGS
Since its inception, the Company has financed its growth primarily through
the sale of Preferred Stock, resulting in the issuance of an aggregate of
1,640,000 shares of Series A Preferred Stock at purchase price of $0.25 per
share; 1,811,047 shares of Series B Preferred Stock at a weighted-average
purchase price of $0.89 per share; 3,204,800 shares of Series C Preferred Stock
at a weighted-average purchase price of $1.21 per share; and 3,384,613 shares of
Series D Preferred Stock at a purchase price of $3.25 per share; and 654,040
shares of Series E Preferred Stock at a purchase price of $6.25 per share. The
purchasers of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock and Series E Preferred Stock of the
Company include the following directors, executive officers and 5% or greater
stockholders of the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PREFERRED STOCK
-----------------------------------------------------------
NAME SERIES A SERIES B SERIES C SERIES D SERIES E
---- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Hui-Tzu Hu(1)................ -- 240,022 800,000 307,692 --
Kline Hawkes California SBIC,
L.P.(1)(2)................. -- -- -- 1,230,769 64,000
Techgains Corp. and
Technology Associates
Management Co.,
Ltd.(1)(3)................. -- -- 884,000 307,692 --
Primus Technology Fund(1).... -- -- -- 615,384 179,200
Peter C. Chen(1)(4).......... 440,000 273,726 -- -- --
Warren J. Kaplan(5).......... -- -- 20,000 -- 4,000
Kimball Small(6)............. -- 520,000 -- -- --
Spring Creek
Investments(7)............. -- -- -- 153,846 --
</TABLE>
- ---------------
(1) Holds 5% or more of the Company's outstanding capital stock. Includes all
shares held by affiliated entities.
(2) Frank R. Kline, a director of the Company, is a private equity manager of
Kline Hawkes California SBIC, L.P.
(3) Tom Shao, a director of the Company, is a Managing Director of Technology
Associates Management Co., Ltd.
(4) Peter C. Chen is a director of the Company.
(5) Includes shares held by Mr. Kaplan and his wife. Warren J. Kaplan is the
President, Chief Operating Officer and a director of the Company.
(6) Kimball Small is a director of the Company.
(7) James Sha, a director of the Company, is a principal of Spring Creek
Investments.
CONSULTING WARRANTS
The Company issued a warrant to Primus Technology Fund, a holder of more
than 5% of the Company's capital stock, to purchase 14,000 shares of the
Company's Common Stock at a per share exercise price of $3.25 in connection with
services provided by Primus in assisting the Company in establishing operations
in Asia.
In December 1996, the Company granted options to purchase an aggregate of
166,666 shares of Common Stock of the Company at an exercise price of $0.075 per
share to Stephen Belomy, the Company's Executive Vice President, Chief Financial
Officer and Secretary, and Kimball Small, a member of the Company's Board of
Directors (the "Real Estate Consulting Options"), in consideration of their
providing real estate consulting services to the Company. In June 1998, the
Board of Directors of the Company fully accelerated the vesting of the
outstanding Real Estate Consulting Options.
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<PAGE> 57
REAL PROPERTY AGREEMENTS
Kimball Small Properties co-manages the building in which the Company's San
Jose, California office and ISX facility is located, and has an ownership
interest in the building. Kimball Small, President of Kimball Small Properties,
is a holder of more than 5% of the Company's capital stock and is a director of
the Company.
The Company is currently negotiating a lease for an approximately 100,000
square foot ISX facility in San Jose, California. Kimball Small Properties
co-manages the building in which the new facility is being located and has an
ownership interest in the building. See "Risk Factors -- Risks Associates with
Recent and Planned Business Expansion."
WARRANTS
In connection with the exchange of outstanding notes and warrants for the
Company's Series B Preferred Stock, the Company issued a warrant to the Peter
and Pat Chen Living Trust, owned as community property by Peter C. Chen, a
holder of more than 5% of the Company's capital stock and Vice Chairman of the
Board of Directors, to purchase 43,156 shares of the Company's Common Stock at a
per share exercise price of $1.25.
In connection with the exchange of outstanding notes and warrants for the
Company's Series B Preferred Stock, the Company issued a warrant to Hui-Tzu Hu,
a holder of more than 5% of the Company's capital stock, to purchase 47,000
shares of the Company's Common Stock at a per share exercise price of $1.25.
TECHNOLOGY AGREEMENT
David Rand, the Company's Chief Technology Officer, has granted to the
Company perpetual, non-royalty bearing licenses to the EtherValve and MRTG
technologies and assigned the APS and ASAP technology to the Company.
AMPLIFY.NET, INC.
The Company entered into an Agreement for the Purchase of Shares and
Shareholder's Representations Concerning Common Stock with Amplify.net, Inc.
dated July 1, 1997 and its accompanying Memorandum of Understanding dated May
18, 1997. Pursuant to the agreements, the Company received 500,000 shares of
Amplify.net, Inc. common stock and an option to purchase 250,000 shares of
common stock (which was converted to a warrant to purchase Series A Preferred
Stock in November 1997) in exchange for allowing David Rand to license the core
technology of EtherValve to a third party, for providing co-location services
for two years to Amplify.net, Inc., and for participating in certain joint
marketing with Amplify.net, Inc. David Rand, the Company's Chief Technology
Officer, has a financial interest in Amplify.net, Inc.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Warren J.
Kaplan, the Company's President and Chief Operating Officer and a member of the
Company's Board of Directors, Sherman Tuan, the Company's Chief Executive
Officer and Chairman of the Company's Board of Directors, and David Rand, the
Company's Chief Technology Officer. See "Risk Factors -- Management of Growth;
Dependence on Key Personnel" and "Management -- Employment Agreements."
INDEMNIFICATION PROVISIONS
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
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<PAGE> 58
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has also entered into indemnification agreements with its
officers and directors containing provisions that may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising form willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. See
"Management -- Limitation of Liability and Indemnification Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between the
Company and its officers, directors, principal stockholders and their
affiliates, will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors on the Board
of Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of it's Common Stock (assuming conversion of
all outstanding Preferred Stock) as of September 4, 1998, and as adjusted to
reflect the sale by the Company of shares of Common Stock by (i) each
person or entity who is known by the Company to own beneficially 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 executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1)(2) OFFERING(1)(2)
-------------------- -------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT NUMBER PERCENT
-------------------------------- ---------- ------- --------- -------
<S> <C> <C> <C> <C>
Peter C. Chen(3)......................................... 756,882 6.1%
Warren J. Kaplan(4)...................................... 374,333 2.9%
Frank R. Kline(5)........................................ 1,294,769 10.4%
James Sha(6)............................................. 153,846 1.2%
Tom Shao(7).............................................. 1,191,692 9.5%
Kimball Small(8)......................................... 653,333 5.2%
Sherman Tuan(9).......................................... 680,900 5.3%
Stephen P. Belomy(10).................................... 209,333 1.7%
David Rand(11)........................................... 300,000 2.3%
All directors and officers as a group (15 persons)(12)... 5,839,088 42.3%
5% STOCKHOLDERS
- ---------------------------------------------------------
Hui-Tzu Hu(13)........................................... 1,394,714 11.2%
Kline Hawkes California SBIC, L.P.(14)................... 1,294,769 10.4%
Techgains Corp. and Technology Associates................ 1,191,692 9.5%
Management Co., Ltd.(15)
Primus Technology Fund(16)............................... 808,584 6.5%
</TABLE>
- ---------------
(1) Applicable percentage ownership is based on 12,495,818 shares of Common
Stock and Preferred Stock (on an as converted to Common Stock basis)
outstanding as of September 4, 1998 and shares immediately
following the completion of this offering (assuming no exercise of the
Underwriters' over-allotment option). Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of September 4, 1998 are deemed 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
purposes of computing the percentage ownership of any other person. Unless
otherwise indicated, the address of the Company's 5% stockholders is c/o
AboveNet Communications Inc., 50 W. Fernando Street, Suite #1010, San Jose,
California 95113.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 43,156 shares issuable pursuant to a warrant to purchase Series B
Preferred Stock. Includes all shares owned as community property with Pat
Chen and all shares owned by the Peter Cheng-Yu and Pat Te-Hui Living
Trust. Mr. Chen is a director of the Company. Mr. Chen's address is 1619
Mariani Drive, Sunnyvale, California 94087.
(4) Includes 218,201 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. Includes 20,000 shares of
Common Stock and 4,000 shares of Series E Preferred Stock owned by Judith
A. Kaplan, Mr. Kaplan's wife. Excludes shares of Common Stock owned by Mr.
Kaplan's adult children. Note also, however, that 417,756 shares of Common
Stock issuable pursuant to options currently subject to vesting after 60
days from September 4, 1998 shall become immediately exercisable upon the
closing of this offering which will result in Mr. Kaplan beneficially
owning 792,089 shares, representing 5% of the Company's outstanding Common
Stock. Mr. Kaplan is a director and an officer of the Company.
(5) Includes 1,294,769 shares held by Kline Hawkes California SBIC, L.P. and
its affiliates. Mr. Kline, a director of the Company and a private equity
manager of Kline Hawkes California L.P./Kline Hawkes California SBIC, L.P.,
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest.
(6) Includes 153,846 shares held by Spring Creek Investments. Mr. Sha, a
director of the Company, is a principal of Spring Creek Investments.
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<PAGE> 60
(7) Includes 1,191,692 shares held by Techgains Corp. and Technology Associates
Management Co., Ltd. (collectively, "TAMC"). Mr. Shao is a Managing
Director of TAMC. Mr. Shao, a director of the Company, disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(8) Includes 133,333 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. Includes all shares held
in community property with Martha Small. Mr. Small is a director of the
Company.
(9) Includes 353,400 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. Mr. Tuan is a director and
an officer of the Company.
(10) Includes 89,250 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. Mr. Belomy is an officer
of the Company.
(11) Includes 300,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. Mr. Rand is an officer of
the Company.
(12) Includes 1,298,184 shares of Common Stock issuable pursuant to options
exercisable within 60 days of September 4, 1998. See also footnotes 3 and
5.
(13) Includes 47,000 shares issuable pursuant to a warrant to purchase Series B
Preferred Stock which will expire on the closing of this offering. Ms. Hu's
address is c/o D-Link Corporation, 2F No. 233-2 Pao-Chiao Road, Hsin-Tien,
Taipei, Taiwan R.O.C.
(14) Kline Hawkes California SBIC, L.P.'s address is 11726 San Vicente Blvd.,
Suite 300, Los Angeles, California 90049.
(15) Includes all shares held by TAMC. Mr. Shao is a Managing Director of TAMC.
Mr. Shao, a director of the Company, disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. TAMC's
address is 2378 W. 239th Street, Torrance, CA 90501.
(16) Includes 14,000 shares issuable pursuant to a warrant to purchase Common
Stock of the Company. In addition, includes all shares owned by Primus
Holdings (BVI) Inc., an affiliated fund. Primus Technology Fund's address
is 16th Floor, 35, Sec. 3, Min Chuan E. Road, Taipei, Taiwan R.O.C.
59
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 60,000,000 shares of Common Stock, $0.001 par value, and 5,000,000 shares
of undesignated Preferred Stock, $0.001 par value. Immediately after the
completion of this offering and assuming no exercise of the Underwriters' over-
allotment option, there will be an aggregate of shares of Common
Stock outstanding, shares of Common Stock will be issuable upon
exercise of outstanding options and warrants and no shares of Preferred Stock
will be issued and outstanding.
The following description of the Company's capital stock and certain
provisions of the Company's Certificate of Incorporation and Bylaws does not
purport to be complete and is subject to and qualified in its entirety by the
Company's Certificate of Incorporation and Bylaws, which are included as
exhibits to the Registration Statement of which this Prospectus forms a part,
and by applicable provisions of Delaware law.
COMMON STOCK
As of September 4, 1998, there were 12,495,818 shares of Common Stock
outstanding that were held of record by 81 stockholders. There will be
shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of options and warrants then
outstanding) after giving effect to the sale of Common Stock offered to the
public hereby. The holders of Common Stock are entitled to one vote per share
held of record in all matters submitted to a vote of stockholders. Holders of
Common Stock do not have cumulative voting rights, and, therefore, holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or paid
cash dividends on its capital stock, expects to retain future earnings, if any,
for use in the operation and expansion of its business, and does not anticipate
paying cash dividends in the foreseeable future. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of holders of Preferred Stock then outstanding, if any.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the market price of, and the
voting and other rights of, the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no current plans to issue any shares of
Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
The Company's Certificate of Incorporation provides that all stockholder
actions must be effected at a duly called annual or special meeting and may not
be effected by written consent. In addition, the Company has a classified Board
of Directors such that approximately one-third of the members of the Board of
Directors
60
<PAGE> 62
are elected at each annual meeting of the stockholders. The Company's Bylaws
provide that, except as otherwise required by law, special meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors, or by the president of the Company, or by the
Chairman of the Board or at the request of stockholders holding at least a
majority of the Company's outstanding stock. In addition, the Bylaws establish
an advance notice procedure for stockholder proposals to be brought before an
annual meeting of stockholders, including proposed nominations of persons for
election to the Board. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a stockholder
who was a stockholder of record on the record date for the meeting, who is
entitled to vote at the meeting and who has delivered timely written notice in
proper form to the Company's Secretary of the stockholder's intention to bring
such business before the meeting. The Certificate of Incorporation provides that
the affirmative vote of holders of at least a majority of the total votes
eligible to be cast in the election of directors (the "Voting Stock") is
required to amend, alter, change or appeal certain of its provisions. The Bylaws
provide that the affirmative vote of the holders of at least 80 percent of the
Voting Stock is required to amend, alter or repeal any of its provisions.
The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions which may
involve an actual or threatened change of control of the Company. Such
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions are also intended to discourage certain tactics that
may be used in proxy fights but could, however, have the effect of discouraging
others from making tender offers for the Company's shares and, consequently, may
also inhibit fluctuations in the market price of the Company's shares that could
result from actual or rumored takeover attempts. These provisions may also have
the effect of preventing changes in the management of the Company. See "Risk
Factors -- Antitakeover Effects of Certain Charter Provisions, Bylaws and
Delaware Law."
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which 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 for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by the employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and an interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition of 10% or
more of the assets or stock of the corporation involving an interested
stockholder; (iii) subject to certain exceptions, any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to an interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of any
class or series, or convertible into the stock of any class or series, of the
corporation which is owned by an interested stockholder; or (v) the receipt by
an interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as
61
<PAGE> 63
any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation or any entity or person affiliated with or controlling
or controlled by such entity or person. See "Risk Factors -- Antitakeover
Effects of Certain Charter Provisions, Bylaws and Delaware Law."
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this offering, the holders of shares of Common Stock
will be entitled upon expiration of the lock-up agreements with the Underwriters
to certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of the agreement between the Company and the
holders of such registrable securities, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other securities holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to include
shares of such Common Stock therein. Holders of registration rights may also
require the Company to file a registration statement under the Securities Act at
the Company's expense with respect to their shares of Common Stock, and the
Company is required to use its best efforts to effect such registration.
Further, holders may require the Company to file registration statements on Form
S-3 at the Company's expense when such form becomes available for use by the
Company. All such registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares to be included in such registration. In addition, Warren J.
Kaplan, the Company's President and Chief Operating Officer, has the right to
require the Company to register any shares issued or issuable pursuant to
options granted to him on Form S-8.
WARRANTS
Upon this offering, warrants to purchase 71,750 shares of Common Stock of
the Company at a weighted average exercise price of $2.77 will be outstanding.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
L.P. Its address is 150 Royall Street, Canton, Massachusetts, and its telephone
number at this location is (781) 575-3010.
62
<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding. Of this amount, the shares offered hereby will be
available for immediate sale in the public market as of the date of this
Prospectus. Approximately additional shares will be available for sale in
the public market following the expiration of 180-day lockup agreements with the
Representatives of the Underwriters or the Company, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
------------------ ------------------------ -------
<S> <C> <C>
Upon Freely tradable shares sold in offering and shares salable
Effectiveness..... under Rule 144(k) that are not subject to 180-day lockup
180 days............ Lockup released; shares salable under Rule 144, 144(k) or
701
Thereafter.......... Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately
shares immediately after this offering) or (ii) the average weekly
trading volume during the four calendar weeks preceding such sale, subject to
the filing of a Form 144 with respect to such sale. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above. Persons deemed to be affiliates must always sell pursuant to Rule 144,
even after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of CIBC Oppenheimer Corp. for a period of 180
days from the date of this Prospectus (the "180-day Lockup Period"), except that
the Company may, without such consent, grant options and sell shares pursuant to
the Company's stock plans.
Any employee or consultant to the Company who purchased his or her shares
under the 1992 plan or pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions, in each case commencing 90
days after the date of this Prospectus. As of the date of this Prospectus, the
holders of options exercisable into approximately shares of Common
Stock will be eligible to sell their shares upon the expiration of the 180-day
Lockup Period, or subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issued or reserved
for issuance under the Company's stock plans within 180 days after the date of
this Prospectus, thus permitting the resale of such shares by nonaffiliates in
the public market without restriction under the Securities Act. The Company
intends to register these shares on Form S-8, along with options that have not
been issued under the Company's stock plans as of the date of this Prospectus.
In addition, after this offering, the holders of approximately
shares of Common Stock will be entitled to certain rights with
respect to registration of such shares under the Securities Act. Registration of
such shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock -- Registration Rights."
63
<PAGE> 65
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom CIBC Oppenheimer Corp. and Volpe Brown Whelan & Company, LLC, are acting as
the representatives (the "Representatives"), has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
CIBC Oppenheimer Corp. .....................................
Volpe Brown Whelan & Company, LLC...........................
---------
Total.............................................
=========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and at such price less a concession of not in excess of $
per share to certain securities dealers, of which a concession not in excess of
$ per share may be reallowed to certain other securities dealers. After this
offering, the public offering price, allowances, concessions and other selling
terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Stock are subject to certain conditions,
including that if any of the Common Stock is purchased by the Underwriters
pursuant to the Underwriting Agreement, all such shares must be so purchased
(other than those covered by the over-allotment option described below).
The Company has granted to the Underwriters an option, exercisable for up
to 30 days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such 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 bears to the
shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the over-allotment option granted to the Underwriters, to sell
Common Stock to the Underwriters to the extent that such over-allotment option
is exercised.
Each officer and director who holds shares of the Company, each holder
(including such officers and directors) of shares of Common Stock and
all warrantholders of the Company and optionholders of the Company holding
options exercisable within the 180-day Lockup Period have agreed, for the 180
day Lockup Period, subject to certain exceptions, not to offer to sell, contract
to sell, or otherwise sell (including without limitation in a short sale),
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock, or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock owned as of the date of this Prospectus directly by such holders or
with respect to which they have the power of disposition, without the prior
written consent of CIBC Oppenheimer Corp. However, CIBC Oppenheimer Corp. may,
in its sole discretion and at any time or from time to time without notice,
release all or any portion of the securities subject to lock-up agreements.
There are no agreements between the Representatives and any of the
64
<PAGE> 66
Company's stockholders providing consent by the Representatives to the sale of
shares prior to the expiration of the 180-day Lockup Period.
In addition, the Company has agreed that during the 180-day Lockup Period,
the Company will not, without the prior written consent of CIBC Oppenheimer
Corp., subject to certain exceptions, issue, offer to sell, sell, contract to
sell (including without limitation in a short sale), dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options, and the Company's issuance of options and
shares under existing employee stock option and stock purchase plans. See
"Shares Eligible for Future Sale."
The Company has agreed to indemnify the Representatives and the several
Underwriters against certain liabilities, including, without limitation,
liabilities under the Securities Act, and to contribute, under certain
circumstances, to certain payments that the Underwriters may be required to make
in respect thereof.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors considered in determining the initial
public offering price, in addition to prevailing market conditions, will be the
history of and the prospects for the industry in which the Company competes, the
historical results of operations of the Company, the Company's capital
structure, estimates of the business potential and earnings prospects of the
Company, an overall assessment 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 businesses. There can be no assurance that an
active trading market will develop for the Common Stock or as to the price at
which the Common Stock may trade in the public market from time to time
subsequent to this offering made hereby.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo
Park, California. An investment partnership comprised of members of that firm
beneficially owns a warrant to purchase 4,000 shares of the Company's Common
Stock at an exercise price of $3.25 per share. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Pillsbury Madison & Sutro LLP, Palo Alto, California. Pillsbury Madison & Sutro
LLP has acted and continues to act as counsel to the Company in connection with
certain legal matters.
65
<PAGE> 67
EXPERTS
The financial statements of the Company as of June 30, 1997 and 1998 and
for the period from March 8, 1996 (inception) to June 30, 1996 and each of the
years in the two-year period ended June 30, 1998 included in this Prospectus and
the related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In April 1998, the Company appointed Deloitte & Touche LLP to replace the
former accountants as its principal accountants. There were no disagreements
with the former accountants during the period from inception to April 30, 1998
or during any subsequent interim period preceding their replacement on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the former
accountants' satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their reports. The former
accountants issued an unqualified opinion on the financial statements as of and
for the year ended June 30, 1997 and the period from inception to June 30, 1997.
The Company did not consult with Deloitte & Touche LLP on any accounting or
financial reporting matters in the periods prior to their appointment. The
change in accountants was approved by the Board of Directors.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and such Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
66
<PAGE> 68
ABOVENET COMMUNICATIONS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of June 30, 1997 and 1998................. F-3
Statements of Operations for the Period from March 8, 1996
(Inception) to June 30, 1996 and Years Ended June 30, 1997
and 1998.................................................. F-4
Statements of Stockholders' Equity (Deficiency) for the
Period from March 8, 1996 (Inception) to June 30, 1996 and
Years Ended June 30, 1997 and 1998........................ F-5
Statements of Cash Flows for the Period from March 8, 1996
(Inception) to June 30, 1996 and Years Ended June 30, 1997
and 1998.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AboveNet Communications Inc.:
We have audited the accompanying balance sheets of AboveNet Communications
Inc. as of June 30, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the period from March 8,
1996 (inception) to June 30, 1996 and for each of the two years in the period
ended June 30, 1998. 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, such financial statements present fairly, in all material
respects, the financial position of AboveNet Communications Inc. as of June 30,
1997 and 1998, and the results of its operations and its cash flows for the
period from March 8, 1996 (inception) to June 30, 1996 and for each of the two
years in the period ended June 30, 1998, in conformity with generally accepted
accounting principles.
San Jose, California
August 7, 1998
( , 1998 as to Note 12)
------------------------
To the Board of Directors and Stockholders of
AboveNet Communications, Inc.:
The financial statements included herein reflect the approval by the
Company's stockholders to the reincorporation of the Company in the State of
Delaware and the associated exchange of one share of common stock and preferred
stock of the Company for every two and one-half shares of common stock and
preferred stock, as the case may be, of the Company's California predecessor
entity as described in Note 12 to the financial statements. The above report is
in the form that will be signed by Deloitte & Touche LLP upon the effectiveness
of such events assuming that from August 7, 1998 to the effective date of such
events, no other events shall have occurred that would affect the accompanying
financial statements or notes thereto.
Deloitte & Touche LLP
San Jose, California
September 8, 1998
F-2
<PAGE> 70
ABOVENET COMMUNICATIONS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
------------------------- JUNE 30,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
(NOTE 1)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and equivalents................................ $ 331,100 $ 8,141,200 $15,233,700
Accounts receivable, net of reserve for doubtful
accounts of $15,000, $60,000 and $60,000,
respectively..................................... 41,100 357,000 357,000
Prepaid expenses and other current assets........... -- 269,600 269,600
----------- ----------- -----------
Total current assets........................ 372,200 8,767,800 15,860,300
Property and equipment, net........................... 766,400 4,436,100 4,436,100
Restricted cash....................................... -- 300,000 300,000
Deposits and other assets............................. 32,700 189,400 189,400
----------- ----------- -----------
Total....................................... $ 1,171,300 $13,693,300 $20,785,800
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................... $ 312,000 $ 2,301,300 $ 2,301,300
Accrued liabilities................................. 109,700 619,900 619,900
Customer deposits................................... 85,000 309,400 309,400
Advances............................................ 739,900 -- --
Current portion of long-term obligations............ 71,500 476,000 476,000
----------- ----------- -----------
Total current liabilities................... 1,318,100 3,706,600 3,706,600
----------- ----------- -----------
Convertible notes payable and advances................ -- 8,000,000 --
----------- ----------- -----------
Other long-term obligations........................... 115,500 1,325,300 1,325,300
----------- ----------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity (deficiency):
Preferred stock, $0.001 par value, 14,000,000 shares
authorized:
Series A convertible preferred stock; 1,640,000
shares designated, issued and outstanding (none
pro forma)..................................... 410,000 410,000 --
Series B convertible preferred stock; 2,840,000
shares designated; 1,600,000 and 2,611,047
issued and outstanding in 1997 and 1998,
respectively (none pro forma).................. 1,200,000 2,323,100 --
Series C convertible preferred stock; 3,240,000
shares designated; none and 3,204,800 issued
and outstanding in 1997 and 1998, respectively
(none pro forma)............................... -- 3,873,400 --
Common stock, $0.001 par value, 20,000,000 shares
authorized; 325,000, 582,957 and 12,275,435
common shares issued and outstanding in 1997,
1998 and pro forma, respectively................. 8,100 38,900 21,737,900
Common stock options................................ -- 1,861,500 1,861,500
Deferred stock compensation......................... -- (540,100) (540,100)
Accumulated deficit................................. (1,880,400) (7,305,400) (7,305,400)
----------- ----------- -----------
Total stockholders' equity (deficiency)..... (262,300) 661,400 15,753,900
----------- ----------- -----------
Total....................................... $ 1,171,300 $13,693,300 $20,785,800
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 71
ABOVENET COMMUNICATIONS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 8, 1996
(INCEPTION) YEAR ENDED JUNE 30,
TO --------------------------
JUNE 30, 1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................ $ 78,600 $ 551,600 $ 3,436,400
-------- ----------- -----------
Costs and expenses:
Cost of revenues.................................. 71,000 1,085,800 4,202,800
Sales and marketing............................... 19,100 382,600 1,618,700
General and administrative........................ 66,100 455,900 1,665,800
Stock-based compensation expense.................. -- -- 1,276,400
Joint venture termination fee..................... -- 431,100 --
-------- ----------- -----------
Total costs and expenses.................. 156,200 2,355,400 8,763,700
-------- ----------- -----------
Loss from operations................................ (77,600) (1,803,800) (5,327,300)
Interest expense.................................... -- (7,400) (160,800)
Interest income..................................... -- 8,400 63,100
-------- ----------- -----------
Net loss............................................ $(77,600) $(1,802,800) $(5,425,000)
======== =========== ===========
Basic and diluted loss per share.................... $ (0.39) $ (5.73) $ (12.93)
======== =========== ===========
Shares used in basic and diluted loss per share..... 200,000 314,589 419,687
======== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 72
ABOVENET COMMUNICATIONS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK COMMON DEFERRED STOCKHOLDERS'
---------------------- ----------------- STOCK STOCK ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT OPTIONS COMPENSATION DEFICIT (DEFICIENCY)
--------- ---------- ------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, March 8, 1996
(inception).............. -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock... -- -- 200,000 5,000 -- -- -- 5,000
Net loss................... -- -- -- -- -- -- (77,600) (77,600)
--------- ---------- ------- ------- ---------- ----------- ----------- -----------
Balances, June 30, 1996.... -- -- 200,000 5,000 -- -- (77,600) (72,600)
Issuance of common stock... -- -- 100,000 2,500 -- -- -- 2,500
Issuance of Series A
convertible preferred
stock.................... 1,640,000 410,000 -- -- -- -- -- 410,000
Exercise of common stock
options.................. -- -- 25,000 600 -- -- -- 600
Issuance of Series B
convertible preferred
stock.................... 800,000 600,000 -- -- -- -- -- 600,000
Issuance of Series B
convertible preferred
stock in conjunction with
acquisition of DSK, Inc.
(Note 8)................. 800,000 600,000 -- -- -- -- -- 600,000
Net loss................... -- -- -- -- -- -- (1,802,800) (1,802,800)
--------- ---------- ------- ------- ---------- ----------- ----------- -----------
Balances, June 30, 1997.... 3,240,000 1,610,000 325,000 8,100 -- -- (1,880,400) (262,300)
Exercise of common stock
options.................. -- -- 257,957 30,800 -- -- -- 30,800
Issuance of warrants in
connection with issuance
of debt.................. -- 112,000 -- -- 45,000 -- -- 157,000
Issuance of Series B
convertible preferred
stock.................... 1,011,047 1,011,100 -- -- -- -- -- 1,011,100
Issuance of Series C
convertible preferred
stock.................... 3,204,800 3,873,400 -- -- -- -- -- 3,873,400
Compensatory stock
arrangements............. -- -- -- -- 1,816,500 (1,816,500) -- --
Amortization of deferred
stock compensation....... -- -- -- -- -- 1,276,400 -- 1,276,400
Net loss................... -- -- -- -- -- -- (5,425,000) (5,425,000)
--------- ---------- ------- ------- ---------- ----------- ----------- -----------
Balances, June 30, 1998.... 7,455,847 $6,606,500 582,957 $38,900 $1,861,500 $ (540,100) $(7,305,400) $ 661,400
========= ========== ======= ======= ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 73
ABOVENET COMMUNICATIONS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 8, 1996
(INCEPTION) YEAR ENDED JUNE 30,
TO --------------------------
JUNE 30, 1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (77,600) $(1,802,800) $(5,425,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 51,600 132,700 475,500
Stock-based compensation expense............... -- -- 1,276,400
Noncash interest expense....................... -- -- 133,200
Joint venture termination fee.................. -- 431,100 --
Changes in assets and liabilities:
Accounts receivable.......................... (12,000) (29,100) (315,900)
Prepaid expenses and other current assets.... -- -- (269,600)
Restricted cash.............................. -- -- (300,000)
Deposits and other assets.................... -- (32,700) (156,700)
Accounts payable............................. 13,100 298,900 1,989,300
Accrued liabilities.......................... -- 109,700 510,200
Customer deposits............................ -- 85,000 224,400
Deferred rent................................ -- 30,400 18,200
--------- ----------- -----------
Net cash used in operating activities..... (24,900) (776,800) (1,840,000)
--------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment................ (101,100) (474,500) (3,666,000)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and advances.......... 210,000 739,900 13,440,000
Payments on debt.................................. -- -- (70,000)
Principal payments on capital leases.............. -- (49,600) (84,700)
Proceeds from issuance of common stock............ 5,000 3,100 30,800
Proceeds from issuance of convertible preferred
stock.......................................... -- 800,000 --
--------- ----------- -----------
Net cash provided by financing
activities.............................. 215,000 1,493,400 13,316,100
--------- ----------- -----------
Net increase in cash and equivalents................ 89,000 242,100 7,810,100
Cash and equivalents, beginning of period........... -- 89,000 331,100
--------- ----------- -----------
Cash and equivalents, end of period................. $ 89,000 $ 331,100 $ 8,141,200
========= =========== ===========
Supplemental cash flow information -- Cash paid for
interest.......................................... $ -- $ 7,400 $ 27,600
========= =========== ===========
Noncash investing and financing activities:
Acquisition of equipment under capital lease...... $ -- $ 206,200 $ 479,200
========= =========== ===========
Acquisition of leasehold improvements in
conjunction with DSK, Inc. acquisition......... $ -- $ 168,900 $ --
========= =========== ===========
Exchange of notes, advances, accrued interest and
warrants for convertible preferred stock....... $ -- $ 210,000 $ 4,884,500
========= =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 74
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- AboveNet Communications Inc. (the Company), a California
corporation, was formed on March 8, 1996 (inception). The Company provides
managed co-location and Internet connectivity solutions for mission critical
Internet operations.
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.
Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to concentration of credit risk consist of trade
receivables. However, the Company's credit risk is mitigated by the Company's
credit evaluation process and the reasonably short collection terms. The Company
does not require collateral or other security to support accounts receivable and
maintains reserves for potential credit losses. To date, such losses have not
been significant.
Cash and Equivalents -- The Company considers all highly liquid investments
with an original maturity of ninety days or less to be cash equivalents.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years. Leasehold improvements and assets acquired
under capital lease are amortized over the shorter of the lease term or the
useful lives of the improvement.
Restricted Cash -- Restricted cash consists of certificates of deposit
which are restricted from use pursuant to certain capital lease agreements.
Revenue Recognition -- Revenue consists primarily of service revenue for
which revenue is recognized in the period in which the services are provided. In
addition, the Company receives installation fees which are recognized as revenue
in the period of installation. Advance customer deposits received are deferred
until the period in which the services are rendered.
Cost of Revenues -- Cost of revenues primarily consists of costs related to
data communications and telecommunication expenses, salaries and benefits of
operations and engineering personnel, depreciation and amortization expenses and
facilities rent.
Income Taxes -- Deferred tax liabilities are recognized for future taxable
amounts, and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
Stock-Based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees."
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
F-7
<PAGE> 75
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
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 Income (Loss) per Share -- Basic income (loss) per share excludes
dilution and is computed by dividing net income (loss) by the weighted-average
number of common shares outstanding, less shares subject to repurchase by the
Company, for the period. Diluted income (loss) per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Common shares equivalents are
excluded from the computation in loss periods as their effect would be
antidilutive.
Unaudited Pro Forma Information -- In July 1998, the Company issued
3,384,613 shares of Series D preferred stock in exchange for the $8,000,000 of
convertible notes and advances outstanding at June 30, 1998 and additional cash
of $3,000,000 (see Note 12). On September 4, 1998, the Company sold 654,040
shares of Series E preferred stock for net proceeds of approximately $3,845,000
(see Note 12). Also, upon the closing of the initial public offering
contemplated by this Prospectus, each of the outstanding shares of preferred
stock will convert into one share of common stock and the Series B convertible
preferred stock warrants must be exercised or expire (see Note 6). The pro forma
balance sheet presents the Company's balance sheet as if these transactions
(including the exercise and subsequent conversion of warrants to acquire 197,978
shares of Series B preferred stock) had occurred at June 30, 1998.
Reclassifications -- Certain prior year amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect
on stockholders equity (deficiency) or net loss.
Recently Issued Accounting Standards -- In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," which requires an
enterprise to report, by major components and as a single total, the change in
its net assets during the period from nonowner sources; and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas
and major customers. The Company will adopt both statements in fiscal 1999. The
Company has not yet identified its SFAS No. 131 reporting segments. Adoption of
these statements will not impact the Company's financial position, results of
operations or cash flows.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance for an enterprise on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for the
Company in fiscal 2000. The Company anticipates that accounting for transactions
under SOP 98-1 will not have a material impact on the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in fiscal
2000. Although the Company has not fully assessed the implications of SFAS No.
133, the Company does not believe adoption of this statement will have a
material impact on the Company's financial position or results of operations.
F-8
<PAGE> 76
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
2. PROPERTY AND EQUIPMENT, NET
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1998
--------- ----------
<S> <C> <C>
Property and equipment, at cost:
Telecommunication equipment............................... $ 774,300 $2,295,300
Leasehold improvements.................................... 168,900 224,700
Office equipment.......................................... 7,500 186,500
Construction in progress.................................. -- 2,389,400
--------- ----------
Total............................................. 950,700 5,095,900
Less accumulated depreciation and amortization.............. (184,300) (659,800)
--------- ----------
Property and equipment, net................................. $ 766,400 $4,436,100
========= ==========
</TABLE>
Construction in progress primarily relates to costs incurred during the
expansion of the Company's facilities.
3. CONVERTIBLE NOTES PAYABLE AND ADVANCES
In June 1997, the Company received $739,900 in cash advances from certain
individuals, including stockholders and employees. In July and August 1997, the
Company received an additional $250,000 in cash advances. In August 1997, the
advances were converted into notes payable of $989,900 and warrants to acquire
791,926 shares of Series B convertible preferred stock at $1.25 per share. The
notes generally bore an annual interest rate of 10%. The related warrants were
valued at $112,000 and were recorded as a noncash interest charge in 1998.
On December 31, 1997, the Company entered into exchange agreements with the
note holders. Pursuant to the exchange agreements, the above notes, accrued
interest of $21,200 and the related warrants were exchanged for (i) 1,011,047
shares of Series B convertible preferred stock and (ii) warrants to acquire
197,978 shares of Series B convertible preferred stock at $1.25 per share.
On June 30, 1998, in anticipation of the Company's pending sale of
preferred stock, the Company received $8 million in cash, of which $1 million
represented a noninterest bearing cash advance and $7 million represented
convertible notes payable. The notes bore interest at 6%, were due on July 15,
1998 and were convertible into Series D convertible preferred stock at $3.25 per
share. On July 15, 1998, the convertible notes and advance were converted into
Series D convertible preferred stock (see Note 12).
4. OTHER LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Credit facility............................................. $ -- $1,201,600
Capital lease facility...................................... 156,600 551,100
Deferred rent............................................... 30,400 48,600
-------- ----------
Total obligations........................................... 187,000 1,801,300
Current portion of long-term obligations.................... (71,500) (476,000)
-------- ----------
Long-term obligations............................. $115,500 $1,325,300
======== ==========
</TABLE>
F-9
<PAGE> 77
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
CREDIT FACILITY
At June 30, 1998, the Company had a $6 million credit facility (the "Credit
Facility"), $1,271,600 of which had been drawn as of June 30, 1998. Proceeds
from borrowings on the Credit Facility may be used solely for the purpose of
acquiring network operating center equipment, office equipment and leasehold
improvements. Borrowings outstanding under the Credit Facility are payable in 42
monthly installments, bear interest at 14.7% and are collateralized by the
equipment and improvements purchased with the proceeds of the borrowing. The
ability to borrow on the Credit Facility expires June 30, 1999. At June 30,
1998, the outstanding borrowings on the Credit Facility are due as follows:
fiscal 1999, $252,000; fiscal 2000, $301,800; fiscal 2001, $349,300 and fiscal
2002, $298,500.
CAPITAL LEASE FACILITY
At June 30, 1998, the Company had $1.45 million available on a $2 million
capital lease facility for which the Company leases certain equipment under
noncancelable capital leases. Leases outstanding at June 30, 1998 expire on
various dates through 2001 (see Note 9).
LINE OF CREDIT
The Company has a revolving line of credit from a bank which provides for
borrowings up to $750,000 through May 1999. Borrowings under the line bear
interest at the bank's prime rate plus 1% per annum (9.5% at June 30, 1998) and
are collateralized by substantially all of the Company's assets. As of June 30,
1998, the Company had no borrowings outstanding on the line of credit. The line
of credit agreement limits the Company's ability to pay cash dividends without
the bank's consent and requires, among other things, that the Company satisfy
certain financial covenants. As of June 30, 1998, the Company was not in
compliance with the profitability covenant of its revolving line of credit
agreement. The Company has obtained a waiver with respect to this covenant from
the bank as of that date and is in the process of renegotiating the covenant
terms with the bank. In connection with the line of credit agreement, the
Company issued to the bank a warrant to purchase 2,000 shares of the Company's
Series D preferred stock at $2.50 per share.
5. INCOME TAXES
The Company's deferred income tax assets are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards.......................... $516,900 $1,975,900
Stock compensation expense on nonqualified stock
options................................................ -- 512,300
Accruals deductible in different periods.................. 57,000 121,100
Depreciation and amortization............................. (14,800) (68,800)
-------- ----------
559,100 2,540,500
Valuation allowance......................................... (559,100) (2,540,500)
-------- ----------
Total............................................. $ -- $ --
======== ==========
</TABLE>
The Company has no income tax provision due to its history of operating
losses. Due to the uncertainty surrounding the realization of the benefits of
its favorable tax attributes in future tax returns, the Company has fully
reserved its net deferred tax assets as of June 30, 1997 and 1998.
F-10
<PAGE> 78
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $4.9 million for federal and state income tax purposes. These
carryforwards begin to expire in 2003 for state and 2010 for federal purposes.
Additionally, Section 382 of the Internal Revenue Code and the applicable
California law impose annual limitations on the use of net operating loss
carryforwards if there is a change in ownership, as defined, within any
three-year period. The utilization of certain net operating loss carryforwards
may be limited due to the Company's capital stock transactions.
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At June 30, 1998, the Company has reserved the following shares of common
stock for issuance in connection with:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 1,640,000
Conversion of Series B preferred stock...................... 2,611,047
Conversion of Series C preferred stock...................... 3,204,800
Warrants issued and outstanding............................. 251,728
Options issued and outstanding.............................. 1,566,266
Options available under the 1996 and 1997 Plans............. 1,190,854
----------
Total............................................. 10,464,695
==========
</TABLE>
CONVERTIBLE PREFERRED STOCK
Significant terms of the Series A, B, C, D and E convertible preferred
stock are as follows (see Note 12):
- At the option of the holder, each share of preferred stock is convertible
at any time into one share of common stock, subject to adjustment for
certain dilutive issuances. Shares automatically convert into common
stock upon the completion of a public offering with aggregate proceeds
greater than $20,000,000 and at a price per share of not less than $7.50.
- Series A, B, C, D and E convertible preferred stock have no preference as
to dividends but have a noncumulative right to participate in and receive
the same dividends as may be declared for common stockholders.
- In the event of a liquidation, dissolution or winding up of the Company
(which includes the acquisition of the Company by another entity), the
holders of Series A, B, C, D and E convertible preferred stock have a
liquidation preference over common stock of $0.25, $0.75, $1.25, $3.25
and $7.50 per share, respectively. Upon payment of the liquidation
preference (aggregating $6,374,292 for Series A, B and C outstanding at
June 30, 1998), the remaining proceeds will be allocated to the preferred
and common stockholders on an as converted basis.
- Each share of preferred stock has voting rights equivalent to the number
of shares of common stock into which it is convertible.
CONVERTIBLE PREFERRED STOCK WARRANTS
As discussed in Note 3, pursuant to certain exchange agreements entered
into on December 31, 1997, the Company issued warrants to acquire 197,978 shares
of Series B convertible preferred stock at $1.25 per share. These warrants
expire on the earlier of (i) January 1, 2002, (ii) an underwritten public
offering or (iii) a change in control. Also, as discussed in Note 4, warrants to
purchase 2,000 shares of Series D convertible preferred stock at $2.50 per share
were outstanding at June 30, 1998.
F-11
<PAGE> 79
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
COMMON STOCK SUBJECT TO REPURCHASE
In fiscal 1998, upon the exercise of an option the Company sold 20,000
shares of common stock at $0.25 per share to an employee subject to repurchase
whereby the Company has the right to repurchase such shares at their original
purchase price. This right lapses over four years. At June 30, 1998, 20,000
shares were subject to such repurchase rights.
1996 STOCK OPTION PLAN
In March 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). As of June 30, 1998, there were 809,417 options authorized for issuance
under the 1996 Plan. The 1996 Plan is administered by the Board of Directors and
encompasses nonstatutory and incentive stock options. Nonstatutory stock options
may be granted to employees and consultants, whereas incentive stock options may
only be granted to employees.
The 1996 Plan provides for the granting of incentive stock options at not
less than 100% of the fair market value of the underlying stock at the grant
date. Nonstatutory options may be granted at not less than 85% of the fair
market value of the underlying stock at the date of grant. Options under the
1996 Plan generally vest over four years and expire ten years from the date of
grant.
1997 STOCK OPTION PLAN
In fiscal 1998, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"), authorizing 1,799,078 shares of common stock to be issued as options.
Upon a change in control, all shares granted under the 1997 Plan shall
immediately vest. Other provisions of the 1997 Plan are generally the same as
the 1996 Plan.
NONPLAN OPTION GRANT
In connection with its hiring of the Company's President and Chief
Operating Officer in November 1997, the Company granted to this officer options
to purchase 280,000 shares of common stock with an exercise price of $0.25 per
share. The option is immediately exercisable with respect to 20% of the option
shares and the balance becomes exercisable in equal monthly installments over
the next 36 months of employment with the Company measured from November 1997.
However, vesting accelerates upon the closing of an underwritten public
offering. In addition, the option grant contains an antidilution clause which
guarantees that, prior to any underwritten initial public offering of the
Company's common stock, the number of shares under the option grant will always
be equal to 5% of the Company's outstanding common stock on a fully diluted
basis less 29,333 shares. As a result of various sales of equity securities and
option grants since the initial grant in November 1997, the officer was issued
options to acquire an additional 423,780 shares of common stock at an exercise
price of $0.25 per share on July 31, 1998. In connection with this award, which
was made pursuant to the above agreement, the Company recognized $362,100 in
stock-based compensation expense during fiscal 1998.
OPTIONS AND WARRANTS GRANTED TO NONEMPLOYEES
The Company has granted options and warrants to nonemployees for services
performed and to be performed after the date of grant. In connection with these
awards, the Company recognized $310,100 in stock-based compensation expense
during fiscal 1998. At June 30, 1998, all services relating to these awards has
been rendered and the options and warrants were fully exercisable.
F-12
<PAGE> 80
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
In connection with the Credit Facility (see Note 4), the Company issued
warrants to acquire 36,000 shares of common stock at a weighted-average exercise
price of $2.88 per share. The fair value of these warrants are being recognized
as interest expense through June 30, 1999.
At June 30, 1998, warrants to acquire 51,750 shares of common stock at a
weighted-average exercise price of $2.62 per share were outstanding; such
warrants expire in 2003.
DEFERRED STOCK COMPENSATION
At June 30, 1998, the Company had $540,100 in deferred stock compensation
related to options granted to employees. This amount will be amortized to
stock-based compensation expense through fiscal 2000; however, as the vesting of
the options granted under the Nonplan Option Grant discussed above accelerates
upon the closing of an initial public offering, any unamortized deferred
compensation relating to this grant ($414,000 at June 30, 1998) will be
recognized in the period the offering closes.
Stock option activity under the Plans and the Nonplan Option Grant are
summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance, March 8, 1996 (inception)....................... -- $ --
Granted.................................................. 912,000 0.03
---------
Balance, June 30, 1996 (110,000 shares vested at an
average of $0.03 per share)............................ 912,000 0.03
Granted.................................................. 360,000 0.08
Exercised................................................ (25,000) 0.03
Canceled................................................. (311,000) 0.03
---------
Balance, June 30, 1997 (175,500 shares vested at an
average of $0.03 per share)............................ 936,000 0.04
Granted.................................................. 914,091 0.73
Exercised................................................ (257,957) 0.12
Canceled................................................. (25,868) 0.39
---------
Balance, June 30, 1998................................... 1,566,266 $0.42
=========
</TABLE>
The following table summarizes information as of June 30, 1998 concerning
currently outstanding and vested options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
----------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
- ------------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.03 - $0.13 839,018 8.0 $0.05 453,167 $0.05
0.25 434,000 9.4 0.25 40,000 0.25
0.75 127,448 9.6 0.75 76,250 0.75
2.50 165,800 9.9 2.50 18,000 2.50
- ------------- --------- --- ----- ------- -----
$0.03 - $2.50 1,566,266 8.7 $0.42 587,417 $0.23
============= ========= === ===== ======= =====
</TABLE>
At June 30, 1998, none and 1,190,854 shares were available for future grant
under the 1996 and 1997 Plans, respectively.
F-13
<PAGE> 81
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and its related interpretations.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) and earnings (loss) per share had the
Company adopted the fair value method since the Company's inception. Under SFAS
No. 123, the fair value of stock-based awards to employees is calculated through
the use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the
calculated values.
The Company's calculations for employee grants were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, one year following vest; no stock volatility; risk
free interest rate of 6%; and no dividends during the expected term. The
Company's calculations are based on a multiple award valuation approach, and
forfeitures are recognized as they occur. If the computed minimum values of the
Company's stock-based awards to employees had been amortized to expense over the
vesting period of the awards as specified under SFAS No. 123, net loss would
have been $78,000 ($0.39 per basic and diluted share), $1,803,800 ($5.73 per
basic and diluted share), and $5,111,000 ($12.18 per basic and diluted share)
for the period from inception to June 30, 1996 and for the years ended June 30,
1997 and 1998, respectively. The estimated weighted-average minimum value per
option as of the grant date for the awards granted for the period from inception
to June 30, 1996 and for the years ended June 30, 1997 and 1998 were $0.01,
$0.02 and $0.12, respectively.
7. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share.
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED JUNE 30,
TO JUNE 30, --------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss (numerator), basic and diluted....... $(77,600) $(1,802,800) $(5,425,000)
======== =========== ===========
Shares (denominator):
Weighted average common shares
outstanding.............................. 200,000 314,589 424,180
Weighted average common shares outstanding
subject to repurchase.................... -- -- (4,493)
-------- ----------- -----------
Shares used in computation, basic and
diluted..................................... 200,000 314,589 419,687
-------- ----------- -----------
Net loss per share, basic and diluted......... $ (0.39) $ (5.73) $ (12.93)
======== =========== ===========
</TABLE>
For the period from inception to June 30, 1996 and for the years ended June
30, 1997 and 1998, the Company had securities outstanding which could
potentially dilute basic earnings per share in the future, but were excluded in
the computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive. Such outstanding securities consist of the
following at June 30, 1998: 7,455,847 shares of convertible preferred stock,
warrants to purchase 199,978 shares of convertible preferred stock, 20,000
outstanding shares of common stock subject to repurchase, and options and
warrants to purchase 1,618,016 shares of common stock.
F-14
<PAGE> 82
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
8. JOINT VENTURE TERMINATION FEE
In fiscal 1996, the Company entered into a joint venture agreement (the
"Agreement") with DSK, Inc. ("DSK") to cooperatively market and develop the
Company's services. The Company paid $33,700 to DSK during the year ended June
30, 1997 related to the Agreement.
In April 1997, the Company terminated the Agreement and hired the majority
stockholders of DSK as either employees or consultants by issuing 800,000 fully
vested shares of the Series B preferred stock with a fair value of $0.75 per
share, or $600,000, for the outstanding shares of common stock of DSK. The
Company recorded the transaction by allocating the value of the shares issued to
property and equipment (at DSK's net book value of $168,900, which approximated
fair market value), with the balance of $431,100 reflected as a joint venture
termination fee.
Additionally, in April 1997, the Company granted to certain of the former
owners of DSK options to acquire a total of 200,000 shares of the Company's
common stock at $0.08 per share for real estate consulting services to be
performed. In June 1998, the Company accelerated the vesting of all the DSK
options awarded. In conjunction with this award, the Company recognized $604,200
of stock-based compensation expense during fiscal 1998.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities under noncancelable operating leases.
These leases expire on various dates through 2002. Minimum future lease payments
under noncancelable operating and capital leases as of June 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- --------- -----------
<S> <C> <C>
1999....................................................... $ 248,300 $ 968,800
2000....................................................... 196,900 1,055,000
2001....................................................... 180,400 1,099,700
2002....................................................... -- 1,132,500
2003....................................................... -- 1,185,700
Thereafter................................................. -- 5,002,900
--------- -----------
Total minimum lease payments............................... 625,600 $10,444,600
===========
Less amount representing interest.......................... (74,500)
---------
Present value of minimum lease payments.................... 551,100
Less current portion....................................... (224,000)
---------
Long term portion.......................................... $ 327,100
=========
</TABLE>
Rent expense under the operating leases for the period from March 8, 1996
(inception) to June 30, 1996 and for the years ended June 30, 1997 and 1998 was
approximately none, $61,500, and $444,905, respectively.
PURCHASE COMMITMENTS
In fiscal 1998, the Company entered into noncancelable commitments to
purchase property and equipment related to the expansion of its operations
facilities. As of June 30, 1998, approximately $1.7 million was committed for
fiscal 1999 purchases under these agreements.
F-15
<PAGE> 83
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
TELECOMMUNICATIONS AND PEERING ARRANGEMENTS
The Company has guaranteed to pay certain monthly usage levels or fees with
various communications or interconnect providers. Minimum payments under these
agreements at June 30, 1998 are as follows: $3.9 million in fiscal 1999 and $1.3
million in fiscal 2000.
The Company is a party to numerous peering agreements with other internet
providers to allow for the exchange of internet traffic. These agreements do not
have fee commitments and generally have a one year term with automatic renewals.
LEGAL MATTERS
The Company is involved in various claims and legal actions arising out of
the normal course of business. Management does not expect that the outcome of
these cases will have a material effect on the Company's financial position or
results of operations.
10. RELATED PARTY TRANSACTIONS
A member of the Board of Directors is the President of an entity which is
the co-manager of the Company's primary facilities. Rent expense in fiscal 1996,
1997 and 1998 for these facilities was none, $16,400 and $265,200, respectively.
The Company believes that its lease arrangements were at an arm's length basis.
11. MAJOR CUSTOMERS
Two customers accounted for 32% and 25% of net revenues in fiscal 1996,
while another customer accounted for 12% and 14% of net revenues in fiscal 1997
and 1998, respectively.
At June 30, 1998, two customers accounted for approximately 22% and 13% of
trade receivables, while four other customers accounted for 13%, 13%, 11% and
10% of trade receivables at June 30, 1997.
12. SUBSEQUENT EVENTS
Subsequent to June 30, 1998, the Company changed the authorized number of
shares of the Common and Preferred Stock to 20,000,000 and 14,000,000
respectively. Additionally, the Company designated 3,400,000 and 2,800,000
shares of preferred stock as Series D and E, respectively. In July 1998, the
Company issued 3,384,613 shares of Series D convertible preferred stock in
exchange for the conversion of the $8,000,000 notes payable and advances
outstanding at June 30, 1998 and additional cash of $3,000,000. On September 4,
1998, the Company sold 654,040 shares of Series E convertible preferred stock at
$6.25 per share for proceeds of approximately $3,845,000, net of expenses.
On August 27, 1998, the Board of Directors adopted, subject to stockholder
approval, the 1998 Stock Incentive Plan (the "1998 Stock Plan"). The 1998 Stock
Plan will serve as the successor equity incentive program to the Company's
existing 1997 Plan effective upon the execution of an underwriting agreement to
sell shares in an initial public offering. A total of 2.5 million shares of
Common Stock have been reserved for issuance under the 1998 Stock Plan.
Additionally, on August 27, 1998, the Board of Directors adopted, subject
to stockholder approval, the 1998 Employee Stock Purchase Plan (the "1998
Purchase Plan"). Under the 1998 Purchase Plan, eligible employees are allowed to
have salary withholdings of up to 10% of their base compensation to purchase
shares of common stock at a price equal to 85% of the lower of the market value
of the stock at the beginning or end of defined purchase periods. The initial
purchase period commences upon the execution and final pricing of
F-16
<PAGE> 84
ABOVENET COMMUNICATIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM MARCH 8, 1996 (INCEPTION) TO JUNE 30, 1996
AND THE YEARS ENDED JUNE 30, 1997 AND 1998
the underwriting agreement for the initial public offering of the Company's
common stock. The Company has reserved 250,000 shares of common stock for
issuance under this plan.
On August 27, 1998, the Board of Directors approved, subject to stockholder
approval, a change in the authorized number of shares of the common and
preferred stock upon the closing of the initial public offering to 60,000,000
and 5,000,000, respectively.
On September 3, 1998, the Board of Directors approved, subject to
stockholder approval, the reincorporation of the Company in the State of
Delaware and the associated exchange of one share of common stock and preferred
stock of the Company for every two and one-half shares of common stock and
preferred stock, as the case may be, of the Company's California predecessor
entity. Such reincorporation and stock exchange became effective on
, 1998. All share and per share amounts in these financial
statements have been adjusted to give effect to the reincorporation and
associated one for two and one-half stock exchange.
F-17
<PAGE> 85
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT 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, OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT, AS OF ANY DATE SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 17
Dividend Policy........................... 17
Capitalization............................ 18
Dilution.................................. 19
Selected Financial and Operating Data..... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 21
Business.................................. 28
Management................................ 43
Certain Transactions...................... 55
Principal Stockholders.................... 58
Description of Capital Stock.............. 60
Shares Eligible for Future Sale........... 63
Underwriting.............................. 64
Legal Matters............................. 65
Experts................................... 66
Change in Accountants..................... 66
Additional Information.................... 66
Index to Financial Statements............. F-1
</TABLE>
---------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[ABOVENET LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
CIBC OPPENHEIMER
VOLPE BROWN WHELAN & COMPANY
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC registration fee........................................ *
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Printing and shipping fees.................................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Directors and officers liability insurance.................. *
Blue Sky qualification fees and expenses.................... *
Transfer agent and registrar fees........................... *
Miscellaneous fees.......................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts of omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.1 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is made to Section 7 of the Underwriting Agreement to
be filed as Exhibit 1.1 hereto, indemnifying officers and directors of the
Registrant against certain liabilities.
II-1
<PAGE> 87
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 8, 1996, the Registrant's predecessor company has issued and
sold the following securities (which numbers do not reflect the one for two and
one-half exchange effected in connection with the Company's reincorporation into
Delaware).
(1) August 28, 1996, Registrant sold and issued an aggregate of 4,100,000
shares of Series A Preferred Stock, at a purchase price of $0.10 per
share, for cash in the aggregate amount of $410,000 to a group of
investors pursuant to a Series A Preferred Stock Purchase Agreement.
(2) On March 14, 1997, Registrant sold and issued an aggregate of
2,000,000 shares of Series B Preferred Stock, at a purchase price of
$0.30 per share, for cash in the aggregate of $600,000 to a group of
investors pursuant to a Series B Preferred Stock Purchase Agreement.
(3) On April 30, 1997, Registrant terminated a joint venture agreement
with DSK, Inc. by issuing 2,000,000 shares of Series B Preferred
Stock.
(4) On August 7, 1997, Registrant issued promissory notes in the principal
amount of $989,000 and warrants to acquire 1,979,804 shares of Series
B Preferred Stock at $0.50 per share. On December 31, 1997, Registrant
entered into exchange agreements with the noteholders. Pursuant to the
exchange agreements, the above notes, accrued interest of $21,200 and
the related warrants were exchanged for (i) 2,527,640 shares of Series
B Preferred Stock and (ii) warrants to acquire 494,951 shares of
Series B Preferred Stock at $0.50 per share.
(5) On May 11, 1998, Registrant sold and issued an aggregate of 8,012,000
shares of Series C Preferred Stock, at a weighted-average purchase
price of $0.48 per share, for cash in the aggregate amount of
$3,882,400 to a group of investors pursuant to a Series C Preferred
Stock Purchase Agreement.
(6) On June 30, 1998, Registrant issued promissory notes, in the principal
amount of $7,000,000, convertible into Series D Preferred Stock (the
"Series D Notes") to a group of investors pursuant to a Note Purchase
Agreement. On July 15, 1998, Registrant sold and issued an aggregate
of 8,461,538 shares of Series D Preferred Stock, at a purchase price
of $1.30 per share, for cash and cancellation of indebtedness in the
aggregate amount of $10,999,999.40 to a group of investors pursuant to
a Series D Preferred Stock Purchase Agreement. All of the Series D
Notes were converted into shares of Series D Preferred Stock on July
15, 1998.
(7) On September 4, 1998, Registrant sold and issued an aggregate of
1,628,000 shares of Series E Preferred Stock, at a purchase price of
$2.50 per share, for cash in the aggregate amount of $4,070,000 to a
group of investors pursuant to a Series E Preferred Stock Purchase
Agreement. In addition, the Registrant issued 7,100 shares of Series E
Preferred in consideration for placement agent services.
(8) The Registrant has sold and issued 1,258,357 shares of its Common
Stock for an aggregate purchase price of $63,300 to employees,
directors and consultants pursuant to direct issuances and to
exercises of options under its 1996 and 1997 Stock Option Plans and
non-plan options.
(9) During May 1998, Registrant issued warrants for 15,000 shares of
Common Stock, with an exercise price of $.50 per share, to Jerry
Weissman at Power Presentations for services to the Company. During
the same time period, Registrant issued warrants for 24,375 shares of
Common Stock, with an exercise price of $1.00 per share, to DEF Public
Relations, Heidrich & Struggles and Greg Moyer at Flying Beyond for
services to the Company.
(10) During May 1998, Registrant issued warrants, in connection with a bank
financing, to purchase 90,000 shares of Common Stock, with a
weighted-average exercise price of $1.15 per share to Transamerica and
5,000 warrants of Series D Preferred Stock, with an exercise price of
$1.00 per share to Silicon Valley Bank.
(11) In July 1998, Registrant sold and issued warrants for 35,000 shares of
its Common Stock, at an exercise price of $1.30 per share, to Primus
Technology for services in connection with developing
II-2
<PAGE> 88
Registrant's Asian business opportunities. During the same time
period, Registrant issued warrants for 10,000 shares of Common Stock,
at a purchase price of $1.30 per share, for cash in the aggregate
amount of $500 to Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions pursuant to compensation benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and now with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Registrant and
AboveNet Communications Inc., a California corporation.
3.1 Certificate of Incorporation of Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation to
be filed prior to completion of the offering.
3.3 Form of Second Amended and Restated Certificate of
Incorporation to be filed upon completion of offering.
3.4 Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.2,
10.3, 10.4 and 10.5.
4.2* Form of Registrant's Common Stock Certificate.
4.3 Amended and Restated Investors' Rights Agreement dated
September 4, 1998.
4.4 Warrants to purchase shares of Common Stock of Registrant
issued to Transamerica Business Credit Corporation.
4.5 Warrants to purchase shares of Series D Preferred Stock of
Registrant issued to Silicon Valley Bank.
4.6 Form of Warrant to purchase shares of Common Stock of
Registrant.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP ("Gunderson Dettmer").
10.1 Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2 1996 Stock Option Plan.
10.3 1997 Stock Option Plan.
10.4 1998 Stock Incentive Plan.
10.5 1998 Employee Stock Purchase Plan.
10.6 Employment Agreement between Registrant and Warren J.
Kaplan.
10.7 Employment Agreement between Registrant and Sherman Tuan.
10.8 Employment Agreement between Registrant and David Rand.
10.9 Stock Option Agreement between Registrant and Warren J.
Kaplan.
</TABLE>
II-3
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.10 Technology Agreement between Registrant and David Rand.
10.11* License Equipment Agreement between Registrant and Cisco
Systems Capital Corporation.
10.12 Loan and Security Agreement between Registrant and Silicon
Valley Bank.
10.13 Loan and Security Agreements between Registrant and
Transamerica Business Credit Corporation.
10.14 Promissory Note by Registrant to Transamerica Business
Credit Corporation.
10.15 Office Lease between 50 West San Fernando Associates and
Registrant dated May 15, 1996 (San Jose Office, 10th Floor).
10.16 First Amendment to Lease Agreement between 50 West San
Fernando Associates and Registrant, dated December 12, 1996
(San Jose Office, 10th Floor).
10.17 Second Amendment to Lease between 50 West San Fernando
Associates and Registrant, dated February 23, 1998 (San Jose
Office, 10th Floor).
10.18 Office Lease between 50 West San Fernando Associates and
Registrant, dated May 15, 1996 (San Jose Office, 18th
Floor).
10.19 First Amendment to Lease Agreement between 50 West San
Fernando Associates and Registrant, dated December 12, 1996
(San Jose Office, 18th Floor).
10.20 Second Amendment to Lease between 50 West San Fernando
Associates and Registrant, dated February 24, 1998 (San Jose
Office, 18th Floor).
10.21 Consent of Landlord between Registrant and Halcyon Software
California Inc., dated March 31, 1998 (San Jose Office,
Suite 1012).
10.22 Consent of Landlord between 50 West San Fernando Associates
and KPMG Peat Marwick LLP, dated April 6, 1998 and April 12,
1998 (Registrant sublease from KPMG Peat Marwick LLP, San
Jose Office, 10th Floor).
10.23 Sublease between KPMG Peat Marwick (USA) LLP and Registrant,
dated March 13, 1998 (Registrant sublease from KPMG Peat
Marwick LLP (USA), San Jose Office, 10th Floor).
10.24 Deed of Lease between Gosnell Properties, Inc. and
Registrant dated September 3, 1997 (Suite B-290, Vienna,
VA/"D.C.").
10.25 Deed of Lease between Gosnell Properties, Inc. and
Registrant dated January 30, 1998 (Suite 110, Vienna,
VA/"D.C.").
16.1 Letter Regarding Change in Certifying Accountants.
23.1* Consent of Gunderson Dettmer (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP, Independent Accountants.
23.3 Independent Auditors' Report on Schedule.
27.1 Financial data schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedule
(i) Schedule II. Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.
II-4
<PAGE> 90
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 Delaware General Corporation Law, the Registrant's
Restated Certificate of Incorporation, the Registrant's Bylaws, and Registrant's
indemnification agreements 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 hereunder, 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.
(4) 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-5
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 9th day of September, 1998.
ABOVENET COMMUNICATIONS INC.
By: /s/ SHERMAN TUAN
------------------------------------
Sherman Tuan
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Warren J. Kaplan,
Sherman Tuan and Stephen P. Belomy, and each of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
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
others documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ SHERMAN TUAN Chairman of the Board and September 9, 1998
- ----------------------------------------------------- Chief Executive Officer
Sherman Tuan (Principal Executive Officer
) and Director
/s/ STEPHEN P. BELOMY Executive Vice President, September 9, 1998
- ----------------------------------------------------- Chief Financial Officer and
Stephen P. Belomy Secretary (Principal
Financial Officer)
/s/ KEVIN HOURIGAN Vice President Finance (Chief September 9, 1998
- ----------------------------------------------------- Accounting Officer)
Kevin Hourigan
/s/ PETER C. CHEN, PH.D. Vice Chairman of the Board September 9, 1998
- -----------------------------------------------------
Peter C. Chen, Ph.D.
/s/ WARREN J. KAPLAN President, Chief Operating September 9, 1998
- ----------------------------------------------------- Officer and Director
Warren J. Kaplan
</TABLE>
II-6
<PAGE> 92
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ FRANK R. KLINE Director September 9, 1998
- -----------------------------------------------------
Frank R. Kline
/s/ JAMES SHA Director September 9, 1998
- -----------------------------------------------------
James Sha
/s/ TOM SHAO, PH.D. Director September 9, 1998
- -----------------------------------------------------
Tom Shao, Ph.D.
/s/ KIMBALL W. SMALL Director September 9, 1998
- -----------------------------------------------------
Kimball W. Small
</TABLE>
II-7
<PAGE> 93
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND DEDUCTIONS/ END OF
PERIOD EXPENSES WRITE - OFF PERIOD
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
PERIOD FROM MARCH 8, 1996 (INCEPTION) TO
JUNE 30, 1996
Accounts receivable allowance........... $ -- $ -- $ -- $ --
YEAR ENDED JUNE 30, 1997
Accounts receivable allowance........... $ -- $ 15,000 $ -- $ 15,000
YEAR ENDED JUNE 30, 1998
Accounts receivable allowance........... $ 15,000 $ 58,787 $13,787 $ 60,000
</TABLE>
S-1
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Registrant and
AboveNet Communications Inc., a California corporation.
3.1 Certificate of Incorporation of Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation
to be filed prior to completion of the offering.
3.3 Form of Second Amended and Restated Certificate of
Incorporation to be filed upon completion of offering.
3.4 Bylaws of Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 10.2,
10.3, 10.4 and 10.5.
4.2* Form of Registrant's Common Stock Certificate.
4.3 Amended and Restated Investors' Rights Agreement dated
September 4, 1998.
4.4 Warrants to purchase shares of Common Stock of the
Registrant issued to Transamerica Business Credit
Corporation.
4.5 Warrants to purchase shares of Series D Preferred Stock of
the Registrant issued to Silicon Valley Bank.
4.6 Form of Warrant to purchase shares of Common Stock of the
Registrant.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP ("Gunderson Dettmer").
10.1 Form of Indemnification Agreement entered into by
Registrant with each of its directors and executive
officers.
10.2 1996 Stock Option Plan.
10.3 1997 Stock Option Plan.
10.4 1998 Stock Incentive Plan.
10.5 1998 Employee Stock Purchase Plan.
10.6 Employment Agreement between the Registrant and Warren J.
Kaplan.
10.7 Employment Agreement between the Registrant and Sherman
Tuan.
10.8 Employment Agreement between the Registrant and David Rand.
10.9 Stock Option Agreement between the Registrant and Warren J.
Kaplan.
10.10 Technology Agreement between the Registrant and David Rand.
10.11* License Equipment Agreement between Registrant and Cisco
Systems Capital Corporation.
10.12 Loan and Security Agreement between the Registrant and
Silicon Valley Bank.
10.13 Loan and Security Agreements between the Registrant and
Transamerica Business Credit Corporation.
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.14 Promissory Note by Registrant to Transamerica Business
Credit Corporation.
10.15 Office Lease between 50 West San Fernando Associates and
Registrant dated May 15, 1996 (San Jose Office, 10th
Floor).
10.16 First Amendment to Lease Agreement between 50 West San
Fernando Associates and Registrant, dated December 12, 1996
(San Jose Office, 10th Floor).
10.17 Second Amendment to Lease between 50 West San Fernando
Associates and Registrant, dated February 23, 1998 (San
Jose Office, 10th Floor).
10.18 Office Lease between 50 West San Fernando Associates and
Registrant, dated May 15, 1996 (San Jose Office, 18th
Floor).
10.19 First Amendment to Lease Agreement between 50 West San
Fernando Associates and Registrant, dated December 12, 1996
(San Jose Office, 18th Floor).
10.20 Second Amendment to Lease between 50 West San Fernando
Associates and Registrant, dated February 24, 1998 (San
Jose Office, 18th Floor).
10.21 Consent of Landlord between Registrant and Halcyon Software
California Inc., dated March 31, 1998 (San Jose Office,
Suite 1012).
10.22 Consent of Landlord between 50 West San Fernando Associates
and KPMG Peat Marwick LLP, dated April 6, 1998 and April
12, 1998 (Registrant sublease from KPMG Peat Marwick LLP,
San Jose Office, 10th Floor).
10.23 Sublease between KPMG Peat Marwick (USA) LLP and
Registrant, dated March 13, 1998 (Registrant sublease from
KPMG Peat Marwick LLP (USA), San Jose Office, 10th Floor).
10.24 Deed of Lease between Gosnell Properties, Inc. and
Registrant dated September 3, 1997 (Suite B-290, Vienna,
VA/"D.C.").
10.25 Deed of Lease between Gosnell Properties, Inc. and
Registrant dated January 30, 1998 (Suite 110, Vienna,
VA/"D.C.").
16.1 Letter Regarding Change in Certifying Accountants.
23.1* Consent of Gunderson Dettmer (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP, Independent Accountants.
23.3 Independent Auditors' Report on Schedule.
27.1 Financial data schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF ABOVENET COMMUNICATIONS INC.,
A DELAWARE CORPORATION
AND
ABOVENET COMMUNICATIONS INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of September __, 1998, (the
"Agreement"), is between AboveNet Communications Inc., a Delaware corporation
("AboveNet Communications Inc.-Delaware") and AboveNet Communications Inc., a
California corporation ("AboveNet Communications Inc.-California"). AboveNet
Communications Inc.-Delaware and AboveNet Communications Inc.-California are
sometimes referred to herein as the "Constituent Corporations."
R E C I T A L S
A. AboveNet Communications Inc.-Delaware is a corporation duly
organized and existing under the laws of the State of Delaware. As of [RECORD
DATE], 1998, and as of the date of this Agreement, 1,000 shares of Common Stock
of AboveNet Communications Inc.-Delaware are issued and outstanding, all of
which are held by AboveNet Communications Inc.-California. No shares of
Preferred Stock are issued and outstanding.
B. AboveNet Communications Inc.-California is a corporation duly
organized and existing under the laws of the State of California and has an
authorized capital stock of 85,000,000 shares, 50,000,000 of which are
designated "Common Stock," and 35,000,000 of which are designated "Preferred
Stock." Of such authorized shares of Preferred Stock, 4,100,000 shares are
designated as Series A Preferred Stock, 7,100,000 shares are designated as
Series B Preferred Stock, 8,100,000 are designated as Series C Preferred Stock,
8,500,000 shares are designated Series D Preferred Stock, and 7,000,000 shares
are designated Series E Preferred Stock. As of [RECORD DATE], 1998, 4,085,268
shares of Common Stock, 2,040,000 shares of Series A Preferred Stock, 2,333,334
shares of Series B Preferred Stock, 1,176,471 shares of Series C Preferred
Stock, 939,927 shares of Series D Preferred Stock and __________ shares of
Series E Preferred Stock were issued and outstanding.
C. The Board of Directors of AboveNet Communications Inc.-California
has determined that, for the purpose of effecting the reincorporation of
AboveNet Communications Inc.-California in the State of Delaware, it is
advisable and in the best interests of AboveNet Communications Inc.-California
that AboveNet Communications Inc.-California merge with and into AboveNet
Communications Inc.-Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of AboveNet Communications
Inc.-Delaware and AboveNet Communications Inc.-California have approved this
Agreement and have directed that this Agreement be submitted to a vote of their
respective sole stockholder and shareholders, and executed by the undersigned
officers.
<PAGE> 2
E. AboveNet Communications Inc.-Delaware is a wholly owned subsidiary
of AboveNet Communications Inc.-California.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, AboveNet Communications Inc.-Delaware and AboveNet
Communications Inc.-California hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California Corporations Code, AboveNet
Communications Inc.-California shall be merged with and into AboveNet
Communications Inc.-Delaware (the "Merger"), the separate existence of AboveNet
Communications Inc.-California shall cease and AboveNet Communications
Inc.-Delaware shall be, and is herein sometimes referred to as, the "Surviving
Corporation," and the name of the Surviving Corporation shall be "AboveNet
Communications Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the shareholders of AboveNet Communications Inc.-California and the
sole stockholder of AboveNet Communications Inc.-Delaware in accordance with the
requirements of the Delaware General Corporation Law and the California
Corporations Code;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly waived by
the party entitled to satisfaction thereof; and
(c) An executed Certificate of Ownership and Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware General
Corporation Law shall have been filed with the Secretary of State of the State
of Delaware.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of AboveNet Communications Inc.-California shall cease and
AboveNet Communications Inc.-Delaware, as the Surviving Corporation (i) shall
continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Date of the Merger, (ii) shall be
subject to all actions previously taken by its and AboveNet Communications
Inc.-California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of AboveNet
Communications Inc.-California, including all shares of any subsidiary held by
AboveNet Communications Inc.-California, in the manner more fully set forth in
Section 259 of the Delaware General Corporation Law, (iv) shall continue to be
subject to all of the debts, liabilities and obligations of AboveNet
Communications Inc.-California as constituted immediately prior to the Effective
Date of the
2
<PAGE> 3
Merger, and (v) shall succeed, without other transfer, to all of the debts,
liabilities and obligations of AboveNet Communications Inc.-California in the
same manner as if AboveNet Communications Inc.-Delaware had itself incurred
them, all as more fully provided under the applicable provisions of the Delaware
General Corporation Law and the California Corporations Code.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
AboveNet Communications Inc.-Delaware in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Certificate of Incorporation of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of AboveNet Communications Inc.-Delaware as in
effect immediately prior to the Effective Date of the Merger shall continue in
full force and effect as the Bylaws of the Surviving Corporation until duly
amended in accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of AboveNet
Communications Inc.-Delaware immediately prior to the Effective Date of the
Merger shall be the directors and officers of the Surviving Corporation until
their successors shall have been duly elected and qualified or until as
otherwise provided by law, the Amended and Restated Certificate of Incorporation
of the Surviving Corporation or the Bylaws of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 AboveNet Communications Inc.-California Common Shares. Upon the
Effective Date of the Merger, each share of AboveNet Communications
Inc.-California Common Stock issued and outstanding immediately prior to the
Merger shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such share or any other person, be converted into
and exchanged for 0.4 of a fully paid and nonassessable share of Common Stock,
par value $0.001 per share, of the Surviving Corporation. No fractional share
interests of the Surviving Corporation's Common Stock shall be issued but shall,
instead, be rounded down to the nearest whole share.
3.2 AboveNet Communications Inc.-California Preferred Shares. Upon the
Effective Date of the Merger each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, respectively, of AboveNet Communications Inc.-California issued
and outstanding immediately prior to the Merger shall, by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such share
or any other person, be converted into or exchanged for, as the case may be, 0.4
of a fully paid and nonassessable share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock of the Surviving Corporation, par value $0.001 per share. The
rights, preferences and privileges of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock of the Surviving Corporation are as set forth in the
3
<PAGE> 4
Certificate of Incorporation of the Surviving Corporation. No fractional share
interests of the Surviving Corporation's Preferred Stock shall be issued but
shall, instead, be rounded down to the nearest whole.
3.3 AboveNet Communications Inc.-California 1996 and 1997 Stock Option
Plans, as Amended.
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of AboveNet Communications Inc.-California under
its 1996 and 1997 Stock Option Plans, as amended (the "Plans"). Each outstanding
and unexercised option to purchase one (1) share of Common Stock of AboveNet
Communications Inc.-California (an "Option") under the 1996 and 1997 Plans, and
any options to purchase Common Stock issued and outstanding that were not issued
under either of the Plans, shall be converted into, subject to the provisions in
paragraph (b) of this Section 3.3, an option to purchase 0.4 of a share of the
Surviving Corporation's Common Stock (a "New Option") provided the exercise
price for such options shall be increased to twice the original exercise price
and the aggregate number of shares issuable upon exercise of such New Options
shall be rounded down to the nearest whole number;
(b) Following the Effective Date of the Merger, the number of shares
of the Surviving Corporation's Common Stock to which an Option holder would be
otherwise entitled upon exercise of New Option shall be rounded down to the
nearest whole number. In addition, no "additional benefits" (within the meaning
of Section 424(a)(2) of the Internal Revenue Code of 1986, as amended) shall be
accorded to the optionees pursuant to the assumption of their options.
3.4 Warrant. Upon the effective Date of the Merger, the Surviving
Corporation shall assume the obligations of AboveNet Communications
Inc.-California, under its issued and outstanding warrants to purchase Series D
Preferred Stock, Series B Preferred Stock and Common Stock ("Warrants"). The
number of shares issuable upon exercise of the Warrants shall be adjusted such
that each (1) share of Series D Preferred Stock, Series B Preferred Stock or
Common stock issuable upon exercise of the Warrant, as the case may be, shall be
converted into Warrants to purchase 0.4 of a share of Series D Preferred Stock,
Series B Preferred Stock or Common Stock, as the case may be; provided that the
exercise price for such Warrant shall be increased to twice the original
exercise price and the aggregate number of shares issuable upon exercise of such
Warrants shall be rounded down to the nearest whole number.
3.5 AboveNet Communications Inc.-Delaware Common Stock. Upon the
Effective Date of the Merger, each share of Common Stock, par value $0.001 per
share, of AboveNet Communications Inc.-Delaware issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by AboveNet Communications Inc.-Delaware, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.
3.6 Exchange of Certificates. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of AboveNet
Communications
4
<PAGE> 5
Inc.-California Common Stock or Preferred Stock may be asked to surrender the
same for cancellation to an exchange agent, whose name will be delivered to
holders prior to any requested exchange (the "Exchange Agent"), and each such
holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving Corporation's
Common Stock or Preferred Stock, as the case may be, into which the surrendered
shares were converted as herein provided. Until so surrendered, each outstanding
certificate theretofore representing shares of AboveNet Communications
Inc.-California Common Stock or Preferred Stock shall be deemed for all purposes
to represent the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock, respectively, into which such shares of AboveNet Communications
Inc.-California Common Stock or Preferred Stock, as the case may be, were
converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock or
Preferred Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
AboveNet Communications Inc.-California so converted and given in exchange
therefore, unless otherwise determined by the Board of Directors of the
Surviving Corporation in compliance with applicable laws, or other such
additional legends as agreed upon by the holder and the Surviving Corporation.
If any certificate for shares of AboveNet Communications Inc.-Delaware
stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and comply with applicable securities laws and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of AboveNet Communications Inc.-Delaware that such tax has been
paid or is not payable.
IV. GENERAL
4.1 Covenants of AboveNet Communications Inc.-Delaware. AboveNet
Communications Inc.-Delaware covenants and agrees that it will, on or before the
Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of the California
Corporations Code.
5
<PAGE> 6
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by AboveNet Communications Inc.-Delaware of
all of the franchise tax liabilities of AboveNet Communications Inc.-California.
(c) Take such other actions as may be required by the California
Corporations Code.
4.2 Further Assurances. From time to time, as and when required by
AboveNet Communications Inc.-Delaware or by its successors or assigns, there
shall be executed and delivered on behalf of AboveNet Communications
Inc.-California such deeds and other instruments, and there shall be taken or
caused to be taken by it such further and other actions as shall be appropriate
or necessary in order to vest or perfect in or conform of record or otherwise by
AboveNet Communications Inc.-Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of AboveNet Communications Inc.-California and otherwise to carry
out the purposes of this Agreement, and the officers and directors of AboveNet
Communications Inc.-Delaware are fully authorized in the name and on behalf of
AboveNet Communications Inc.-California or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either AboveNet Communications
Inc.-California or of AboveNet Communications Inc.-Delaware, or of both,
notwithstanding the approval of this Agreement by the shareholders of AboveNet
Communications Inc.-California.
4.4 Amendment. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholders of either Constituent Corporation shall not:
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation, (2)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is 15 East North Street, Dover, Delaware
19901 and Incorporating Services, Inc. is the registered agent of the Surviving
Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Corporation at 50 West San
Fernando, Suite 1010, San Jose, CA 95113, and copies thereof will be furnished
to any stockholder of either Constituent Corporation, upon request and without
cost.
6
<PAGE> 7
4.7 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of California.
4.8 Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of AboveNet Communications Inc.-Delaware
and AboveNet Communications Inc.-California is hereby executed on behalf of each
of such two corporations and attested by their respective officers thereunto
duly authorized.
ABOVENET COMMUNICATIONS INC.,
a Delaware corporation
By:
-------------------------------------
Warren J. Kaplan
President and Chief Operating Officer
ATTEST:
- -------------------------------------
Stephen P. Belomy
Secretary
ABOVENET COMMUNICATIONS INC.,
a California corporation
By:
-------------------------------------
Warren J. Kaplan
President and Chief Operating Officer
ATTEST:
- -------------------------------------
Stephen P. Belomy
Secretary
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ABOVENET COMMUNICATIONS INC.
ARTICLE 1
The name of this Corporation is AboveNet Communications Inc.
ARTICLE 2
A. The address of the Corporation's registered office in the State of
Delaware is 15 E. North Street, in the City of Dover, County of Kent. The name
of the corporation's registered agent at such address is Incorporating Services,
Ltd.
B. The name and mailing address of the incorporator of the
Corporation is:
Michelle Cosgrove
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
ARTICLE 3
The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
ARTICLE 4
This Corporation is authorized to issue one class of stock to be
designated "Common Stock," with a par value of $.0001 per share. The total
number of shares which the Corporation is authorized to issue is One Hundred
(100).
ARTICLE 5
Except as otherwise provided in this Certificate of Incorporation,
in furtherance and not in limitation of the powers conferred by statute, the
board of directors is expressly authorized to make, repeal, alter, amend and
rescind any or all of the Bylaws of the Corporation.
ARTICLE 6
The number of directors of the Corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the board of directors
or by the stockholders.
<PAGE> 2
ARTICLE 7
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE 8
Meeting of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the Bylaws of the Corporation.
ARTICLE 9
A director of the Corporation shall not be personally liable to the
corporation 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 which 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 any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors 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.
Any repeal or modification of the foregoing provisions of this
Article 9 by the stockholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time, or
increase the liability of any director of this Corporation with respect to any
acts or omissions of such director occurring prior to, such repeal or
modification.
ARTICLE 10
To the fullest extent permitted by applicable law, this Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits this
Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
Corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions of
this Article 10 shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
<PAGE> 3
ARTICLE 11
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set her hand this 6th
day of August, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on this 6th day of August, 1998.
-----------------------------
Incorporator
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF ABOVENET COMMUNICATIONS INC.,
a Delaware corporation
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
AboveNet Communications Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law") originally incorporated on August 6,
1998.
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is AboveNet Communications Inc.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing to amend and restate the Certificate of Incorporation of
the Corporation (the "Certificate"), declaring said amendment and restatement to
be advisable and in the best interests of the Corporation and its stockholders
and authorizing the appropriate officer of the Corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation (the
"Certificate") be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is AboveNet Communications Inc..
ARTICLE II
The address of the registered officer of the corporation in the State of
Delaware is 15 East North Street, in the City of Dover, 19901, County of Kent.
The name of the corporation's registered agent is Incorporating Services, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
this corporation are to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number
<PAGE> 2
of shares that this corporation is authorized to issue is thirty-four million
(34,000,000) shares. Twenty million (20,000,000) shares shall be Common Stock
and fourteen million (14,000,000) shares shall be Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by these Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of 1,640,000 shares (the "Series A
Preferred Stock"), the Series B Preferred Stock, which series shall consist of
2,840,000 shares (the "Series B Preferred Stock"), the Series C Preferred Stock,
which series shall consist of 3,240,000 shares (the "Series C Preferred Stock"),
the Series D Preferred Stock, which series shall consist of 3,400,000 shares
(the "Series D Preferred Stock") and the Series E Preferred Stock, which series
shall consist of 2,800,000 shares (the "Series E Preferred Stock") are as set
forth below in this Article IV(B). The Board of Directors is hereby authorized
to fix or alter the rights, preferences, privileges and restrictions granted to
or imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights that have been or
may be granted to the Preferred Stock or series thereof in Certificates of
Designation or this corporation's Amended and Restated Certificate of
Incorporation ("Protective Provisions"), but notwithstanding any other rights of
the Preferred Stock or any series thereof, the rights, privileges, preferences
and restrictions of any such additional series may be subordinated to, pari
passu with (including, without limitation, inclusion in provisions with respect
to liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present or
future class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock), prior or subsequent to the issue
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions. Subject to the rights of any series of Preferred
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall be entitled to
receive dividends (as determined on a per annum basis and on an as converted
basis for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock), out of
any assets legally available therefor, in an amount equal to that paid on any
other outstanding shares of this corporation, payable when, as, and if declared
by the Board of Directors. Such dividends shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to the rights of series of
Preferred Stock that
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may from time to time come into existence, the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, (i) in the case of
the Series A Preferred Stock, an amount per share equal to the sum of (A) $0.25
for each outstanding share of Series A Preferred Stock (the "Original Series A
Issue Price") and (B) an amount equal to declared but unpaid dividends on such
share, (ii) in the case of the Series B Preferred Stock, an amount per share
equal to the sum of (A) $0.75 for each outstanding share of Series B Preferred
Stock (the "Original Series B Issue Price") and (B) an amount equal to declared
but unpaid dividends on such share, (iii) in the case of the Series C Preferred
Stock, an amount per share equal to the sum of (A) $1.25 for each outstanding
share of Series C Preferred Stock (the "Original Series C Issue Price") and (B)
an amount equal to declared but unpaid dividends on such share, (iv) in the case
of the Series D Preferred Stock, an amount per share equal to the sum of (A)
$3.25 for each outstanding share of Series D Preferred Stock (the "Original
Series D Issue Price") and (B) an amount equal to declared but unpaid dividends
on such share and (v) in the case of the Series E Preferred Stock, an amount per
share equal to the sum of (A) $7.50 for each outstanding share of Series E
Preferred Stock (the "Original Series E Issue Price") and (B) an amount equal to
declared but unpaid dividends on such share. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of this corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive under this
subsection (a).
(b) Upon the completion of the distribution required by subsection (a)
of this Section 2 and any other distribution that may be required with respect
to series of Preferred Stock that may from time to time come into existence, all
of the remaining assets of this corporation available for distribution to
stockholders shall be distributed among the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Common Stock pro rata based on the number of shares
of Common Stock held by each (assuming full conversion of all such Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock).
(c) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include (unless the holders of at least a majority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock (voting together as a single class and not as
separate series and on an as-converted basis) then outstanding shall determine
otherwise), (A) the acquisition of this corporation by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer, directly or indirectly, of the beneficial ownership of fifty percent
(50%) or more of the outstanding voting power of this corporation; or (B) a sale
or
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other disposition (specifically excluding any pledge or other security
interest granted that has not been foreclosed) of all or substantially all of
the assets of this corporation.
(ii) In any of such events, if the consideration received by
this corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) 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 or system over the
thirty (30) day-period ending three (3) days prior to the closing;
(2) 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 (30) day-period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the first
notice referred to in subsection 2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' 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
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describe the material terms and conditions of the impending transaction and the
provisions of this Section 2, and this 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 this corporation has given the
first notice provided for herein or sooner than ten (10) days after this
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 the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (voting
together as a single class and not as separate series and on an as-converted
basis) 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 such Preferred Stock.
3. Redemption. The Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series
E Preferred Stock are not redeemable.
4. Conversion. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of this
corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price for such series by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price per share for shares
of Series A Preferred Stock shall be the Original Series A Issue Price, the
initial Conversion Price per share for shares of Series B Preferred Stock shall
be the Original Series B Issue Price, the initial Conversion Price per share for
shares of Series C Preferred Stock shall be the Original Serie C Issue Price,
the initial Conversion Price per share for shares of Series D Preferred Stock
shall be the Original Series D Issue Price and the initial Conversion Price per
share for shares of Series E Preferred Stock shall be the Original Series E
Issue Price; provided, however, that the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be subject to adjustment as
set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock shall automatically be converted into shares of Common Stock
at the Conversion Price at the time in effect for such series immediately upon
the earlier of (i) this corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public
offering price of which was not less than $7.50 per share (as adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) and
$20,000,000 in the aggregate, or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
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Preferred Stock and Series E Preferred Stock (voting together as a single class
and not as separate series and on an as-converted basis).
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Preferred Stock, and shall give written notice to
this corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the persons entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive
Issuances, Stock Splits and Combinations. The Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) (A) If this corporation shall issue, after the date upon
which any shares of Series E Preferred Stock were first issued (the "Purchase
Date"), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for the Series D
Preferred Stock or Series E Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the price
paid per share for such Additional Stock.
(B) No adjustment of the Conversion Price for the Series
D Preferred Stock or Series E Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments that are not required to
be made by reason of this sentence
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shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three (3) years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
(E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing such Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by
this corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights for the Common Stock covered
thereby.
(2) The shares of Common Stock deliverable upon
conversion of, or in exchange for, any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the
consideration payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible or
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exchangeable securities, including, but not limited to, a change resulting from
the antidilution provisions thereof (unless such options or rights or
convertible or exchangeable securities were merely deemed to be included in the
numerator and denominator for purposes of determining the number of shares of
Common Stock outstanding for purposes of subsection 4(d)(i)(A)), the Conversion
Price of the Series D Preferred Stock or Series E Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series D Preferred Stock or Series E
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities
(unless such options or rights were merely deemed to be included in the
numerator and denominator for purposes of determining the number of shares of
Common Stock outstanding for purposes of subsection 4(d)(i)(A)), shall be
recomputed to reflect the issuance of only the shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this
corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to warrants, a
stock option plan or restricted stock plan approved by the Board of Directors of
this corporation;
(C) shares of Common Stock issued or issuable (I) in a
firm commitment underwritten public offering before or in connection with which
all outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
are converted to Common Stock or (II) upon exercise of warrants or rights
granted to underwriters in connection with such a public offering;
(D) shares of Common Stock issued or issuable upon
conversion of the Preferred Stock;
(E) shares of Common Stock issued or issuable upon
exercise of warrants issued to banks or equipment lessors;
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(F) shares of Common Stock issued or issuable in
connection with business combinations or corporate partnering transactions not
primarily for equity financing purposes approved by the Board of Directors
(which approval of the Board of Directors shall include the consent of the
director elected pursuant to the first sentence of Section 5(b) hereof);
(G) shares of Common Stock issued or issuable to
BancAmerica Robertson Stephens in connection with its role as a placement agent
for this corporation's Series E Preferred Stock; or
(H) shares of Common Stock issued or issuable as a
result of a conversion price adjustment as set forth in subsection 4(l) hereof.
(iii) In the event this corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(d)(iii), then, in each such
case for the purpose of this subsection 4(e), the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this corporation into which their shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock are
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convertible as of the record date fixed for the determination of the holders of
Common Stock of this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 4
or in Section 2) provision shall be made so that the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock the number of shares of stock or other securities or property of this
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Amended and Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock.
In lieu of any fractional shares to which any holder would otherwise be
entitled, this corporation shall pay an amount of cash to such holder equal to
such fraction multiplied by the fair market value of one share of this
corporation's Common Stock as determined by this corporation's Board of
Directors. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred
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Stock, Series D Preferred Stock or Series E Preferred Stock pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, at least twenty (20) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Preferred Stock, this corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to these
Amended and Restated Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock shall be deemed given if
11
<PAGE> 12
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
(l) Additional Adjustment. In the event that prior to December 31, 1998
this corporation shall not have consummated an initial public offering of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 or Form SB-2 under the Securities Act of
1933, as amended, at a pre-money valuation of not less than $100,000,000, with
at least two managing underwriters that are reasonably acceptable to the holders
of a majority of the then outstanding shares of Series D Preferred Stock, the
Conversion Price in effect for each share of Series D Preferred Stock shall be
adjusted to $2.775 per share (the "Adjusted Series D Conversion Price"). The
Adjusted Series D Conversion Price shall be subject to further adjustment
pursuant to Section 4(d) above in the event that this corporation shall have
issued any Additional Stock between the Purchase Date and December 31, 1998 as
if the Series D Conversion Price had at all times been the Adjusted Series D
Conversion Price.
5. Voting Rights.
(a) General Voting Rights. The holders of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall have the right to one vote
for each share of Common Stock into which such Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E 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 stockholders' meeting in accordance with
the bylaws of this corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted
basis (after aggregating all shares into which shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. As long as at least a majority
of the shares of Series D Preferred Stock originally issued remain outstanding,
the holders of such shares of Series D Preferred Stock shall be entitled to
elect one (1) director of this corporation at each annual election of directors.
As long as at least a majority of the shares of Series E Preferred Stock
originally issued remain outstanding, the holders of such shares of Series E
Preferred Stock shall be entitled to elect one (1) director of this corporation
at each annual election of directors. The holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock and Common Stock (voting together as a single class and
not as separate series, and on an as-converted basis) shall be entitled to elect
any remaining directors of this corporation.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by
12
<PAGE> 13
affirmative vote of a majority thereof (or the remaining director so elected if
there be but one, or if there are no such directors remaining, by the
affirmative vote of the holders of a majority of the shares of that class or
series), elect a successor or successors to hold office for the unexpired term
of the director or directors whose place or places shall be vacant. Any director
who shall have been elected by the holders of a class or series of stock or by
any directors so elected as provided in the immediately preceding sentence
hereof may be removed during the aforesaid term of office, either with or
without cause, by, and only by, the affirmative vote of the holders of the
shares of the class or series of stock entitled to elect such director or
directors, given either at a special meeting of such stockholders duly called
for that purpose or pursuant to a written consent of stockholders, and any
vacancy thereby created may be filled by the holders of that class or series of
stock represented at the meeting or pursuant to unanimous written consent.
6. Protective Provisions.
(a) Subject to the rights of series of Preferred Stock that may from
time to time come into existence, so long as at least 1,000,000 shares of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock originally issued
remain outstanding or at least 50% of the Series D Preferred Stock originally
issued remains outstanding, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least a majority of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock (voting together as a single class and not as separate
series, and on an as-converted basis):
(i) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock so as to affect
adversely the shares;
(ii) increase or decrease (other than by conversion) the total
number of authorized shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock;
(iii) sell, convey, or otherwise dispose of 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 this corporation is disposed of; or
(iv) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security or any bonds, debentures, notes or other obligations
convertible into or exchangeable for or having option rights with respect to any
equity security, having a preference over the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock with respect to dividends, liquidation, redemption or voting.
(b) Subject to the rights of Preferred Stock that may from time to time
come into existence, so long as at least 50% of the Series D Preferred Stock
originally issued remains outstanding, this corporation shall not, without first
obtaining approval (by vote or written
13
<PAGE> 14
consent, as provided by law) of the holders of at least a majority of the then
outstanding Series D Preferred Stock, voting on an as-converted basis;
(i) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security or any bonds, debentures, notes or other obligations
convertible into or exchangeable for or having option rights with respect to any
equity security, having a preference over, or being on a parity with, the Series
D Preferred Stock with respect to dividends, liquidation, redemption or voting;
(ii) amend this corporation's Amended and Restated Certificate
of Incorporation or bylaws;
(iii) permit any subsidiary to issue or sell or obligate itself
to issue or sell any stock of such subsidiary, except to this corporation or any
wholly owned subsidiary of this corporation; or
(iv) increase the authorized number of directors of this
corporation to greater than nine (9).
7. Status of Converted Stock. In the event any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be cancelled and shall not be
issuable by this corporation. The Amended and Restated Certificate of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in this
Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote for each such share, and shall be entitled to notice of
any stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law and by this these Amended and Restated Certificate of
Incorporation.
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<PAGE> 15
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a Bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders. A director appointed by the Board of Directors to fill a
vacancy shall serve for the remainder of the term of the vacated directorship he
or she is filling.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide. At all elections of directors, the
stockholders of this corporation shall be entitled to cumulative voting in such
election of directors in accordance with Section 214 of the General Corporation
Law and the Bylaws of this corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
Any action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting.
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation 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 which 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 any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Certificate to authorize corporation action
further eliminating or limiting the personal liability of directors then
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.
15
<PAGE> 16
Any repeal or modification of the foregoing provisions of this Article X
by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits this
corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any foregoing provisions of this Article
XI shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of any
director of this corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
* * * '
16
<PAGE> 17
THIRD: That thereafter said amendment and restatement was duly adopted
in accordance with the provisions of Section 242 and Section 245 of the General
Corporation Law by obtaining a majority vote of the Common Stock, in favor of
said amendment and restatement.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
____ day of ____________, 1998.
---------------------------
Warren J. Kaplan, President
ATTEST:
- ----------------------------
Stephen P. Belomy, Secretary
17
<PAGE> 1
EXHIBIT 3.3
SECOND AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF
ABOVENET COMMUNICATIONS INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
AboveNet Communications Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "General Corporation
Law")
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated on August 6,
1998, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Amended and Restated Certificate of Incorporation of
the Corporation, declaring said amendment and restatement to be advisable and in
the best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation of
the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is AboveNet Communications Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 15 East North Street, in the City of Dover, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of
<PAGE> 2
shares of Common Stock authorized to be issued is Sixty Million (60,000,000),
par value $0.001 per share, and the number of Preferred Stock authorized to be
issued is Five Million (5,000,000), par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Second Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
The Board of Directors shall be and is divided into three classes, Class
I, Class II and Class III. Such classes shall be as nearly equal in number of
directors as possible. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term ending on the annual meeting of stockholders for fiscal year 1999, the
directors first elected to Class II shall serve for a term ending on the annual
meeting of stockholders for fiscal year 2000, and the directors first elected to
Class III shall serve for a term ending on the annual meeting of stockholders
for fiscal year 2001. The foregoing notwithstanding, each director shall serve
until his successor shall have been duly elected and qualified, unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
2
<PAGE> 3
Notwithstanding the rule that the three classes shall be as nearly equal
in number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his prior death, resignation or removal.
If any newly created directorship may, consistently with the rule that the three
classes shall be as nearly equal in number of directors as possible, be
allocated to either class, the Board shall allocate it to that of the available
class whose term of office is due to expire at the earliest date following such
allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Second Amended and Restated
Certificate, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of the
stockholders of the Corporation, and no action required to be taken or that may
be taken at any annual or special meeting of the stockholders of the Corporation
may be taken by written consent.
ARTICLE IX
A director of the Corporation shall, to the fullest extent permitted by
the General Corporation Law as it now exists or as it may hereafter be amended,
not be personally liable to the Corporation 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 General Corporation Law, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law is
amended, after approval by the stockholders of this Article, to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Second Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, by the stockholders of the
Corporation shall not apply to or adversely affect any right or protection of a
director of the Corporation existing at the time of such amendment, repeal,
modification or adoption.
ARTICLE X
In addition to any vote of the holders of any class or series of the
stock of the Corporation required by law or by this Second Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of a majority
of the voting power of all of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the
3
<PAGE> 4
election of directors, voting together as a single class, shall be required to
amend or repeal any provision of this Second Amended and Restated Certificate of
Incorporation not specified in the preceding sentence.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which General Corporation Law
permits the Corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this Certificate this
____ day of September, 1998.
-------------------------------------------
Warren J. Kaplan
President and Chief Operating Officer
ATTEST:
- ----------------------------------
Stephen P. Belomy
Secretary
<PAGE> 1
EXHIBIT 3.4
BYLAWS OF
ABOVENET COMMUNICATIONS INC.,
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICE AND RECORDS.....................................................................................4
Section 1.1 Delaware Office.............................................................................4
Section 1.2 Other Offices...............................................................................4
Section 1.3 Books and Records...........................................................................4
ARTICLE II STOCKHOLDERS 4
Section 2.1 Annual Meeting..............................................................................4
Section 2.2 Special Meeting.............................................................................4
Section 2.3 Place of Meeting............................................................................4
Section 2.4 Notice of Meeting...........................................................................5
Section 2.5 Quorum and Adjournment......................................................................5
Section 2.6 Proxies.....................................................................................5
Section 2.7 Notice of Stockholder Business and Nominations..............................................5
Section 2.8 Procedure for Election of Directors.........................................................8
Section 2.9 Inspectors of Elections; Opening and Closing the Polls......................................8
Section 2.10 Consent of Stockholders in Lieu of Meeting.................................................8
ARTICLE III BOARD OF DIRECTORS...................................................................................9
Section 3.1 General Powers..............................................................................9
Section 3.2 Number, Tenure and Qualifications...........................................................9
Section 3.3 Regular Meetings............................................................................9
Section 3.4 Special Meetings............................................................................9
Section 3.5 Notice......................................................................................9
Section 3.6 Conference Telephone Meetings..............................................................10
Section 3.7 Quorum.....................................................................................10
Section 3.8 Vacancies..................................................................................10
Section 3.9 Committee..................................................................................10
Section 3.10 Removal...................................................................................11
ARTICLE IV OFFICERS 11
Section 4.1 Elected Officers...........................................................................11
Section 4.2 Election and Term of Office................................................................11
Section 4.3 Chairman of the Board......................................................................11
Section 4.4 President and Chief Executive Officer......................................................11
Section 4.5 Secretary..................................................................................11
Section 4.6 Treasurer..................................................................................12
Section 4.7 Removal....................................................................................12
Section 4.8 Vacancies..................................................................................12
ARTICLE V STOCK CERTIFICATES AND TRANSFERS......................................................................12
Section 5.1 Stock Certificates and Transfers...........................................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI INDEMNIFICATION......................................................................................13
Section 6.1 Right to Indemnification...................................................................13
Section 6.2 Prepayment of Expenses.....................................................................13
Section 6.3 Claims.....................................................................................13
Section 6.4 Nonexclusivity of Rights...................................................................14
Section 6.5 Amendment or Repeal........................................................................14
Section 6.6 Other Indemnification and Prepayment of Expenses...........................................14
ARTICLE VII MISCELLANEOUS PROVISIONS............................................................................14
Section 7.1 Fiscal Year................................................................................14
Section 7.2 Dividends..................................................................................14
Section 7.3 Seal.......................................................................................14
Section 7.4 Waiver of Notice...........................................................................14
Section 7.5 Audits.....................................................................................14
Section 7.6 Resignations...............................................................................14
Section 7.7 Contracts..................................................................................15
Section 7.8 Proxies....................................................................................15
ARTICLE VIII AMENDMENTS 15
Section 8.1 Amendments.................................................................................15
</TABLE>
3
<PAGE> 4
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the
Corporation in the State of Delaware shall be located in the City of Dover,
County of Kent.
Section 1.2 Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3 Books and Records. The books and records of the
Corporation may be kept at the Corporation's headquarters in San Jose,
California or at such other locations outside the State of Delaware as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held at such date, place and/or time as may be fixed
by resolution of the Board of Directors.
Section 2.2 Special Meeting.
A.Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
B. Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board"), or at the request in writing of stockholders owning at least
fifty percent (50%) in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Section 2.3 Place of Meeting. The Board of Directors may designate
the place of meeting for any meeting of the stockholders. If no designation is
made by the Board of Directors, the place of meeting shall be the principal
office of the Corporation.
Section 2.4 Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and
<PAGE> 5
delivered by the Corporation not less than ten days nor more than sixty days
before the date of the meeting, either personally, or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, addressed to the stockholder at his address as it
appears on the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law. Meetings may be held without notice if
all stockholders entitled to vote are present (except as otherwise provided by
law), or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed and (unless the Certificate of
Incorporation otherwise provides) any special meeting of the stockholders may be
cancelled, by resolution of the Board of Directors upon public notice given
prior to the time previously scheduled for such meeting of stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting separately as a class or series, the holders of a majority of the voting
power of the shares of such class or series shall constitute a quorum for the
transaction of such business. The chairman of the meeting or a majority of the
shares of Voting Stock so represented may adjourn the meeting from time to time,
whether or not there is such a quorum (or, in the case of specified business to
be voted on by a class or series, the chairman or a majority of the shares of
such class or series so represented may adjourn the meeting with respect to such
specified business). No notice of the time and place of adjourned meetings need
be given except as required by law. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws; (b) by or at the direction of the Chairman of the Board or the
Board of Directors; or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who has complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to a clause (c) of paragraph
(A)(1) of this
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Bylaw, 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 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than seventy days nor more than ninety days 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 advanced by more than twenty
days, or delayed by more than seventy days, from such anniversary date, notice
by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
ten day following the day on which public announcement of the date of such
meeting is first made. 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 in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder, 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 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
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw 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 naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw 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 at the
principal executive offices of the Corporation not later than the close of
business on the tenth 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 meeting pursuant to Section
2.4 of these Bylaws. 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 meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to
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the Secretary of the Corporation. 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 are specified in the
Corporation's Notice of Meeting, if the stockholder's notice as required by
paragraph (A)(2) of this Bylaw shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth 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. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
C. General.
(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw 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 Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation 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 in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "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
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, 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 in this Bylaw. Nothing in this Bylaw 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.
Section 2.8 Procedure for Election of Directors. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and, except as otherwise set forth in the
Certificate of Incorporation with respect to the right of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specified circumstances, a plurality of the votes
cast thereat shall elect directors. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all matters other than the
election of directors submitted to the stockholders at any meeting shall be
decided by the affirmative vote of a majority of the voting power of the
outstanding Voting Stock present in person or represented by proxy at the
meeting and entitled to vote thereon.
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Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
A. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her 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. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
B. The chairman of the meeting shall fix and announce at the
meeting 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.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
A. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Any written consent may be revoked by a writing
received by the Secretary of the Corporation prior to the time that written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary.
B. Notwithstanding the above provisions of this Section 2.10(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of the Corporation may not take action by
written consent without a meeting but must take any such actions at a duly
called annual or special meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by
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the Certificate of Incorporation or by these Bylaws required to be exercised or
done by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock, or any other series or class of
stock as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be seven and
shall be fixed from time to time thereafter by a majority of the Board of
Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Section 8.1 of Article VIII hereof.
A meeting may be held at any time without notice if all the directors are
present (except as otherwise provided by law) or if those not present waive
notice of the meeting in writing, either before or after such meeting.
Section 3.6 Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors 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 such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
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Section 3.8 Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
A.The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors 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 and not
disqualified from voting, whether or not he 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 permitted by law and to the extent provided in the 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 which may require it.
B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors 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 these Bylaws.
Section 3.10 Removal. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers as the Board of Directors from time to time
may deem proper. The Chairman of the Board shall be chosen
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from the directors. All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 4.4 President and Chief Executive Officer. The President and
Chief Executive Officer shall be the general manager of the Corporation, subject
to the control of the Board of Directors, and as such shall preside at all
meetings of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board or the President, or by the
Board of Directors, upon whose request the meeting is called as provided in
these Bylaws. He shall record all the proceedings of the meetings of the Board
of Directors, any committees thereof and the stockholders of the Corporation in
a book to be kept for that purpose, and shall perform such other duties as may
be assigned to him by the Board of Directors, the Chairman of the Board or the
President. He shall have custody of the seal of the Corporation and shall affix
the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the
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financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board of Directors shall
prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors
may be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
A.The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person (an "Indemnitee")
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
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whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the Corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 6.5 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.6 Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of April and end on the thirty-first day of March of each
year.
Section 7.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 Seal. The corporate seal shall have inscribed the name
of the Corporation thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be made
annually.
Section 7.6 Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 7.7 Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
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Section 7.8 Proxies. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added
to, rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required in order for stockholders to alter, amend or repeal any provision of
these Bylaws or to adopt any additional bylaw.
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EXHIBIT 4.3
ABOVENET COMMUNICATIONS INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
SEPTEMBER 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights...................................................... 1
1.1 Definitions...................................................... 1
1.2 Request for Registration......................................... 2
1.3 Company Registration............................................. 4
1.4 Form S-3 Registration............................................ 5
1.5 Obligations of the Company....................................... 6
1.6 Information from Holder.......................................... 7
1.7 Expenses of Registration......................................... 7
1.8 Delay of Registration............................................ 8
1.9 Indemnification.................................................. 8
1.10 Reports Under Securities Exchange Act of 1934.................... 10
1.11 Assignment of Registration Rights................................ 10
1.12 "Market Stand-Off" Agreement..................................... 11
1.13 Termination of Registration Rights............................... 11
2. Covenants of the Company................................................. 11
2.1 Delivery of Financial Statements................................. 11
2.2 Inspection....................................................... 12
2.3 Termination of Information and Inspection Covenants.............. 12
2.4 Right of First Offer............................................. 12
2.5 Directors and Officers Liability Insurance....................... 13
2.6 Board Representation............................................. 13
2.7 Termination of Certain Covenants................................. 13
2.8 Proprietary Information and Inventions Agreement................. 14
2.9 Right to Participate in Initial Public Offering.................. 14
3. Miscellaneous............................................................ 14
3.1 Successors and Assigns........................................... 14
3.2 Governing Law.................................................... 14
3.3 Counterparts..................................................... 14
3.4 Titles and Subtitles............................................. 14
3.5 Notices.......................................................... 14
3.6 Expenses......................................................... 15
3.7 Entire Agreement: Amendments and Waivers......................... 15
3.8 Severability..................................................... 15
3.9 Aggregation of Stock............................................. 15
3.10 Additional Parties............................................... 15
3.11 Prior Agreement.................................................. 15
</TABLE>
Schedule A Schedule of Investors
Schedule B Holders of Common Stock/Common Holders
<PAGE> 3
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
September 4, 1998, by and among AboveNet Communications Inc., a California
corporation (the "Company") the "Investors' Rights Agreement", the investors
listed on Schedule A hereto, each of which is herein referred to individually as
an "Investor" and collectively as the "Investors," and the holders of Common
Stock listed on Schedule B hereto, each of which is herein referred to
individually as a "Common Holder" and collectively as the "Common Holders".
RECITALS
WHEREAS, certain of the Investors (the "Prior Investors") possess certain
rights pursuant to that certain Investors' Rights Agreement (the "Prior
Agreement") dated as of July 15, 1998, by and among the Company, the Common
Holders and the Investors (as defined therein);
WHEREAS, certain of the Investors (the "Series E Investors") are purchasing
from the Company, and the Company is selling to such Investors, shares of the
Company's Series E Preferred Stock (the "Series E Preferred Stock"), pursuant to
the terms and conditions set forth in that certain Series E Preferred Stock
Purchase Agreement of even date herewith (the "Series E Agreement");
WHEREAS, in order to induce the Company to enter into the Series E
Agreement and to induce the Series E Investors to invest funds in the Company
pursuant to the Series E Agreement, the Company, the Prior Investors and the
Common Holders hereby agree to waive their rights under the Prior Agreement, and
the Investors, the Common Holders and the Company hereby agree that this
Agreement shall govern the rights of the Investors and the Common Holders to
cause the Company to register shares of Common Stock issued or issuable to such
persons, and certain other matters or set forth herein;
WHEREAS, the Company is considering an initial underwriting public offering
of it's common stock (the "IPO") and to facilitate such undertaking the
Investors wish to waive all registration rights and notice rights with respect
to the IPO provided the IPO closes by March 31, 1999; and
WHEREAS, the Series E Investors and the Company have agreed, pursuant to
the Series E Agreement, to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree that the Prior Agreement shall be
superseded and replaced in its entirety by this Agreement, and the parties
hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
<PAGE> 4
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof; provided, however, that the Common Holders shall not be
deemed to be Holders for purposes of Section 1.2, 1.4 and 3.7.
(d) The term "Initial Offering" means the Company's first public
offering of its Common Stock under the Act in which all outstanding shares of
the Company's Preferred Stock convert into shares of the Company's Common Stock
pursuant to the Company's Amended and Restated Articles of Incorporation.
(e) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(f) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, (ii) the shares of Common Stock issued to the Common Holders as
of the date hereof and issuable upon the exercise of stock options granted as of
the date hereof or in the future; provided, however, that such shares of Common
Stock shall not be deemed Registrable Securities for the purposes of Section
1.2, 1.4 and 3.7, and (iii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referenced in (i) and (ii) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned.
(h) The number of shares of "Registrable Securities" outstanding
shall be determined by the number of shares of Common Stock outstanding that
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the Company
shall receive at any time after the earlier of (i) November 30, 2002, or (ii)
six (6) months after the effective date of the Initial Offering, a written
request from the Holders of at
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<PAGE> 5
least a majority of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Act covering
the registration of at least fifty-one percent (51%) of the Registrable
Securities then outstanding or a lesser percent if the anticipated aggregate
offering price (net of underwriting discounts and commissions) would be at least
$10,000,000, then the Company shall, within twenty (20) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of this Section 1.2, use all reasonable efforts to effect, as soon
as practicable, the registration under the Act of all Registrable Securities
that the Holders request to be registered in a written request received by the
Company within twenty (20) days of the mailing of the Company's notice pursuant
to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities underwritten (including Registrable Securities), then the Company
shall so advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and may be required under the Act; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 1.2, and such registrations have been declared or
ordered effective; or
(iii) during the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of the filing of,
and ending on a date one hundred eighty (180) days following the effective date
of, a Company-initiated registration subject to Section 1.3 below, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective and provided further
3
<PAGE> 6
that the Company may define the boundaries of such period not more than once in
any twelve (12)-month period; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to a request
made under Section 1.4 hereof; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Company's President stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders, provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12)-month period.
1.3 Company Registration.
(a) Subject to Section 1.3(d) below, if (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the Act in connection with
the public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration relating to corporate reorganization or other transaction under
Rule 145 of the Act, a registration on any form that does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being registered), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.3(c), use all
reasonable efforts to cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
(b) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 1.3 prior to the effectiveness
of such registration, whether or not any Holder has elected to include
securities in such registration. The expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 1.7 hereof.
(c) In connection with any offering involving an underwriting of
shares of the Company's capital stock, the Company shall not be required under
this Section 1.3 to include any of the Holders' securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters) and enter into an underwriting agreement in customary
form with an underwriter or underwriters selected by the Company, and then only
in such quantity as the underwriters determine in their reasonable discretion
will not
4
<PAGE> 7
jeopardize the success of the offering by the Company. Subject to Section 1.3(d)
below, if the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their reasonable discretion is compatible with the success of the offering, then
the Company shall be required to include in the offering only that number of
such securities, including Registrable Securities, that the underwriters
determine in their reasonable discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling Holders according to the total amount of securities entitled to be
included therein owned by each selling Holder or in such other proportions as
shall mutually be agreed to by such selling Holders) but in no event shall (i)
the amount of securities of the selling Holders included in the offering be
reduced below twenty-five percent (25%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be excluded
entirely if the underwriters make the determination described above and no other
shareholder's securities are included, or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership, limited liability company or corporation, the partners, retired
partners, members and shareholders of such Holder, or the estates and family
members of any such partners, retired partners, and members and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"selling Holder," and any pro rata reduction with respect to such "selling
Holder" shall be based upon the aggregate amount of Registrable Securities owned
by all such related entities and individuals. Notwithstanding the foregoing, any
determination made by the underwriters for purposes of this section and in
connection with the Company's initial public offering, shall be made by the
underwriters in their full and complete discretion.
(d) The Investors agree to waive their registration rights and
notice rights contained in this Section 1.3 in connection with any IPO
undertaken by the Company which closes on or before March 31, 1999.
1.4 Form S-3 Registration. In case the Company shall receive from the
Holders of at least a majority of the Registrable Securities then outstanding a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) use all reasonable efforts to effect, as soon as practicable,
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company,
5
<PAGE> 8
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $5,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 120 days after receipt of the request of the Holder or Holders under this
Section 1.4, provided, however, that the Company shall not utilize this right
more than once in any twelve (12) month period;
(iv) if the Company has, within the twelve (12)-month period
preceding the date of such request, already effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
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<PAGE> 9
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
1.6 Information from Holder. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 or Section 1.4 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of
7
<PAGE> 10
the Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be registered in the withdrawn registration), unless, in
the case of a registration requested under Section 1.2, the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.8 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages, or liabilities (or actions in respect
8
<PAGE> 11
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will reimburse
any person intended to be indemnified pursuant to this subsection l.9(b), any
legal or other expenses reasonably incurred by in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection l.9(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld) provided, that, in no
event shall any indemnity under this subsection l.9(b) exceed the net proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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<PAGE> 12
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.12 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
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<PAGE> 13
1.12 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
will not, without the prior written consent of the representatives of the
underwriters, during the period commencing on the date of the final prospectus
relating to the Company's initial public offering and ending on the date
specified by the Company and the representatives of the underwriters (such
period not to exceed one hundred eighty (180) days) (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock that such Holder owns immediately prior to the Company's initial public
offering or any securities convertible into or exercisable or exchangeable for
Common Stock that such Holder owns immediately prior to the Company's initial
public offering or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; provided that all of the Company's officers,
directors and 5% shareholders are similarly bound. The underwriters in
connection with the Company's initial public offering are intended third party
beneficiaries of this Section 1.12 and shall have the right, power and authority
to enforce the provisions hereof as though they were a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.13 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after three (3) years
following the consummation of the Initial Offering or, as to any Holder, such
earlier time at which all Registrable Securities held by such Holder (and any
affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) so long as such Investor holds at least 500,000 shares of
Preferred Stock (either in the form of Series A, Series B, Series C, Series D or
Series E Preferred Stock or Common Stock issued upon conversion thereof, and as
adjusted for subsequent stock
11
<PAGE> 14
splits, recontributions or reclassifications), as soon as practicable, but in
any event within forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company, an unaudited income statement,
statement of cash flows for such fiscal quarter and an unaudited balance sheet
for and as of the end of such fiscal quarter, in reasonable detail; and
(c) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (c) or any other
subsection of Section 2.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
2.2 Inspection. So long as such Investor holds at least 500,000 shares
of Preferred Stock (either in the form of Series A, Series B, Series C, Series D
or Series E Preferred Stock or Common Stock issued upon conversion thereof, and
as adjusted for subsequent stock splits, recontributions or reclassifications),
the Company shall permit each Investor, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The covenants
set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no
further force or effect when the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the offering of
its securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). An Investor shall be entitled to apportion the right
of first offer hereby granted it among itself and its partners, members and
affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any shares of any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, the Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares that equals
12
<PAGE> 15
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock then held, by such Investor bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion, exercise and
exchange of all convertible, exercisable or exchangeable securities).
(c) If all Shares that Investors are entitled to obtain pursuant
to subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of shares of shares of Common Stock (or
options therefor) to employees or directors of or consultants to the Company for
the primary purpose of soliciting or retaining their services, (ii) to or after
consummation of a bona fide public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement on Form S-1 or
SB-2, at an offering price of at least $5,000,000 in the aggregate, (iii) the
issuance of securities pursuant to the conversion, exercise or exchange of
convertible, exercisable or exchangeable securities, (iv) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (v) to the issuance or sale of shares of stock, warrants or
other securities or rights to persons or entities with which the Company has
business relationships, provided such issuances are for other than primarily
equity financing purposes, (vi) the issuance of additional shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, or (vii)
the issuance of Series E Preferred Stock pursuant to the terms of the Series E
Agreement.
2.5 Directors and Officers Liability Insurance. The Company shall
purchase a Directors and Officers liability insurance policy covering the
directors and officers of the Company in the amount of at least $1,000,000 and
will increase such coverage immediately prior to the consummation of the sale of
securities pursuant to a bona fide public offering of shares of its common
stock, registered under the Act, at an offering price of at least $5,000,000 in
the aggregate.
2.6 Board Representation So long as the holders of at least two-thirds
(2/3) of the shares of Series D Preferred Stock originally issued remain
outstanding, the Company shall use its best efforts to cause and maintain the
election to the Board of Directors of one (1) representative of the Series D
Preferred Stock, (the "Series D Representative"). The Series D Representative
shall be entitled to be a member of any compensation committee or executive
committee designated by the Board of Directors.
2.7 Termination of Certain Covenants. The covenants set forth in
Sections 2.4, 2.5, 2.6 and 2.8 shall terminate and be of no further force or
effect immediately
13
<PAGE> 16
prior to the consummation of the sale of securities pursuant to a bona fide
public offering of shares of common stock, registered under the Act, at an
offering price of at least $5,000,000 in the aggregate.
2.8 Proprietary Information and Inventions Agreement. Unless otherwise
approved by the Company's Board of Directors, the Company shall require all
officers and employees to execute and deliver a Proprietary Information and
Inventions Agreement in the form previously approved by the Company's Board of
Directors.
2.9 Right to Participate in Initial Public Offering. In connection
with the Company's initial public offering (the "IPO"), the Company shall use
reasonable efforts to cause its managing underwriter or underwriters to offer
$5,000,000 of the shares (the "IPO Shares") of the Company's Common Stock to be
sold in the Company's initial public offering to Kline Hawkes or its affiliates
on a pro rata basis on the same terms as such shares are being sold to the
public; provided, however, that in no event shall the IPO shares exceed ten
percent (10%) of the shares offered in the IPO and provided further that such
offer shall not be made if in the judgment of the Company's managing underwriter
or underwriters such offer would not be compatible with the success of the IPO.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon delivery by confirmed facsimile or delivery by nationally
recognized overnight courier service or personal delivery to the party to be
notified or deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
14
<PAGE> 17
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement: Amendments and Waivers. This Agreement
constitutes the full and entire understanding and agreement among the parties
with regard to the subjects hereof and thereof. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities; provided, however, that in the event
that such amendment or waiver adversely affects the obligations and/or rights of
the Common Holders in a different manner than the other Holders, such amendment
or waiver shall also require the written consent of the holders of a majority of
the shares of Common Stock held by the Common Holders. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Registrable Securities each future holder of all such Registrable
Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.10 Additional Parties. In the event of a subsequent closing with an
investor as provided for in Section 1.3 of the Series E Agreement, such investor
shall become a party to this Agreement as an "Investor" upon receipt from such
investor of a fully executed signature page hereto.
3.11 Prior Agreement. The Prior Agreement is hereby terminated and
superseded in its entirety and shall be of no further force or effect.
Notwithstanding the foregoing, it is expressly agreed and understood that this
Agreement shall not amend or modify in any respect any provisions of the Kaplan
Agreement (as defined in the Prior Agreement), except as specifically set forth
in the Prior Agreement.
15
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ABOVENET COMMUNICATIONS INC.
By:_________________________________
Sherman Tuan
Chief Executive Officer
Address: 50 W. San Fernando St.
San Jose, California 95133
<PAGE> 19
COMMON HOLDER:
------------------------------------
Sherman Tuan
------------------------------------
Yu-Hua Chang
------------------------------------
Daniel Hsiao
------------------------------------
Pierre Chen
------------------------------------
Jerry Chen
------------------------------------
Warren J. Kaplan
------------------------------------
Judith A. Kaplan
------------------------------------
Stuart S. Kaplan
------------------------------------
Marc A. Kaplan
------------------------------------
Frank McGrath
------------------------------------
Alexis Geranois
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 20
------------------------------------
Doug Williams
------------------------------------
Jimmy Clark
------------------------------------
Belinda Lee
------------------------------------
Kevin Hourigan
------------------------------------
Kevin Schwing
------------------------------------
Stephen P. Belomy
------------------------------------
Paul Belomy
------------------------------------
Lucille Belomy
------------------------------------
David Belomy
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 21
SERIES A PREFERRED STOCK HOLDERS:
------------------------------------
Peter Chen
------------------------------------
Pat Chen
------------------------------------
Eric S. Chen
------------------------------------
Paula S. Chen
------------------------------------
David Peng
------------------------------------
En-Lei Tuan
------------------------------------
Ta-Hui Shyu
------------------------------------
Yi-Ping Cheng
------------------------------------
Belinda Lee
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 22
SERIES B PREFERRED STOCK HOLDERS:
PETER CHEN & PAT TE-HUI LIVING TRUST
------------------------------------
------------------------------------
Eric S. Chen
------------------------------------
Paula S. Chen
------------------------------------
Wendy Te-Hua Wang
------------------------------------
Robert Wang
------------------------------------
Teddy Kiang
------------------------------------
Sylvia Te-Yi Kiang
TU-TING & TE-FANG CHENG LIVING TRUST
------------------------------------
------------------------------------
Jerry Chen
------------------------------------
Grace Sui
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
------------------------------------
Belinda Lee
------------------------------------
Ta-Hui Shyu
------------------------------------
Yi-Ping Cheng
------------------------------------
Wen-Jia Huang
------------------------------------
Koulai Shu
KIMBALL W. & MATHA L. SMALL 1988
LIVING TRUST
-----------------------------------
------------------------------------
Stephen P. Belomy
------------------------------------
David K. Small
------------------------------------
Wayne Sanders
------------------------------------
Gary Filizetti
------------------------------------
Mei-Ya Tseng
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
------------------------------------
Hui-Lien Chuan
------------------------------------
Huang Lai Te Yuan
------------------------------------
Hui-Tzu Hu
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
SERIES C PREFERRED STOCK HOLDERS:
VIRTUOSO ENTERPRISE CORP.
-----------------------------------
------------------------------------
Hui-Tzu Hu
------------------------------------
Ching-Jung Cheng
------------------------------------
Yang-Chao Chen
------------------------------------
Pi-Yun Hsu Chen
------------------------------------
Wan Shao Kuo
PROSPERITY CAPITAL HOLDINGS CORP.
-----------------------------------
TECHNOLOGY ASSOCIATES MANAGEMENT CO.
-----------------------------------
TECH GAINS CORP.
-----------------------------------
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
SCF INVESTMENTS
-----------------------------------
------------------------------------
Ram Paul Gupta
GREENFIELD TECHNOLOGY VENTURES
-----------------------------------
------------------------------------
Barry Gosnell
KG ASSOCIATES
-----------------------------------
------------------------------------
Warren J. Kaplan
------------------------------------
Judith A. Kaplan
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
SERIES D PREFERRED STOCK HOLDERS:
KLINE HAWKES CALIFORNIA SBIC, L.P.
By: Kline Hawkes California SBIC General
Partner, L.P.,
its general partner
By: Kline Hawkes Management SBIC, L.P.,
its general partner
By: __________________________________________
Frank R. Kline
Its: Chairman
Address: 11726 San Vicente Blvd.
Suite 300
Los Angeles, CA 90049
ATTN: Sam Lee
Phone: (310) 442-4700
Facsimile: (310) 442-4707
PRIMUS TECHNOLOGY FUND
By: __________________________________________
Benjamin Chen
Title: Project Manager
Address: 16th Floor, 35, Sec. 3,
Min Chuan E. Road
Taipei, Taiwan, R.O.C.
ATTN: Benjamin Chen
Phone: 886-2-504-4377
Facsimile: 886-2-250-4367
TECHGAINS CORP.
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
By: __________________________________________
Andrew Kang
Title: Managing Director
Address: 3804 Silver Falls Court
Plano, TX 75093
ATTN: Andrew Kang
Phone: (972) 403-8192
Facsimile: (972) 403-7151
SPRING CREEK INVESTMENT L.P.
By: __________________________________________
James Sha
Title: _______________________________________
Address: 18 Valley Oak
Portola Valley, CA 94028
ATTN: James Sha
Phone: (650) 937-2642
Facsimile: (650) 937-5430
KUMMEL INVESTMENTS LIMITED
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
By: __________________________________________
HO Tuen Yee
Title: Director
By: __________________________________________
LI Choi Wan, Alice
Title: Officer
Address: Suite 922C, Europort
Gibraltar
ATTN: Ho Tuen Yee
Phone: (+350) 73440
Facsimile: (+350) 73625
SILICON VALLEY EQUITY FUND LP
Its General Partner
Asia Tech Management LLC
By: __________________________________________
Katherine Jen
Title: Managing Partner
Address: 2041 Mission College Blvd.
Suite 100
Santa Clara, CA 95054
ATTN: Katherine Jen
Phone: (408) 330-9366
Facsimile: (408) 330-9365
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
TECHNOLOGY PARTNERS VENTURE CAPITAL CORP.
By: __________________________________________
Hans Tai
Title: _______________________________________
Address: 2F-2, 130, Szu-Wei Road,
Hsinchu, Taiwan
ATTN: Hans Tai
Phone: 886-3-5257928
Facsimile: 886-3-5257930
HUI-TZU HU
______________________________________________
Address: c/o Ken Kao
D-Link
2F, No. 233-2
Pao-Chiao Road Hsin-Tien
Taipei, Taiwan R.O.C.
ATTN: Hui-Tzu Hu
Phone: 886-2-2916-1600
Facsimile: 886-2-2914-6299
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 31
NORTH AMERICA VENTURE FUND L.P.
Its General Partner
CDC North America Venture Management, L.D.C.
By: __________________________________________
Charles Lau
Title: Senior Director
Address: 3945 Freedom Circle, Suite 270
Santa Clara, CA 95054
ATTN: Scott R. Weaver
Phone: (408) 235-8688
Facsimile: (408) 235-8816
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 32
INVESTORS:
1400 Hill Capital
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 33
William James Bell 1993 Trust
By: ________________________________
William James Bell, Trustee
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 34
Boston Millenia Partners
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 35
E*Trade
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 36
J. & W. Seligman
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 37
Kline Hawkes California SBIC, L.P.
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 38
________________________
Michael Levy
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 39
Lodestone Capital
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 40
NIF Ventures USA, Inc.
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 41
Primus Technology Fund
By: ___________________________
Name: ___________________________
Title: ___________________________
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 42
________________________
Albert Ratner
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 43
________________________
William L. Schrader
Address: ________________________
________________________
Telephone: ________________________
Facsimile: ________________________
SIGNATURE PAGE TO ABOVENET COMMUNICATION, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 44
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<S> <C> <C>
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
---------------- ---------------- ---------------
</TABLE>
<PAGE> 45
SCHEDULE B
HOLDERS OF COMMON STOCK/ COMMON HOLDERS
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PRICE PER SHARE
---- ---------------- ---------------
<S> <C> <C>
Sherman Tuan 500,000 $ 0.01
Yu-Hua Chang 250,000 $ 0.01
Daniel Hsiao 62,500 $ 0.01
Pierre Chen 30,000 $ 0.01
Jerry Chen 140,625 $ 0.01
Warren J. & Judith A. Kaplan 36,667 $ 0.05
Warren J. & Judith A. Kaplan 40,000 $ 0.10
Warren J. Kaplan 36,667 $ 0.05
Warren J. Kaplan 167,000 $ 0.10
Judith A. Kaplan 50,000 $ 0.10
Stuart S. Kaplan 15,000 $ 0.10
Marc A. Kaplan 15,000 $ 0.10
Frank McGrath 2,000 $ 0.10
Alexis Geranois 1,000 $ 0.10
Doug Williams 2,000 $ 0.05
Jimmy Clark 1,732 $ 0.05
Belinda Lee 125,000 $ 0.01
Kevin Hourigan 50,000 $ 0.10
Kevin Schwing 2,000 $ 0.05
Stephen Belomy 208 $ 0.03
Paul Belomy 10,000 $ 0.03
Lucille Belomy 10,000 $ 0.03
David Belomy 625 $ 0.03
David Belomy 9,375 $ 0.10
---------
TOTAL: 1,557,399 ------
</TABLE>
<PAGE> 1
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO. 1
STOCK SUBSCRIPTION WARRANT
TO PURCHASE COMMON STOCK OF
ABOVENET COMMUNICATIONS, INC. (THE "COMPANY")
DATE OF INITIAL ISSUANCE: MAY ___, 1998
THIS CERTIFIES THAT for value received, TRANSAMERICA BUSINESS CREDIT
CORPORATION or its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, Forty Five Thousand (45,000) shares of common stock, $0.01 par value,
of the Company (the "Common Stock"), at the Warrant Price, payable as provided
herein. The exercise of this Warrant shall be subject to the provisions,
limitations and restrictions herein contained, and may be exercised in whole or
in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, $0.01 par value, as constituted at the date hereof.
EXCHANGE ACT - shall mean the Securities Exchange Act of 1934, as
amended from time to time.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on June 1, 2003.
WARRANT PRICE - $1.00 per share, subject to adjustment in accordance
with Section 5 hereof.
WARRANTS - this Warrant and any other Warrant or Warrants issued in
connection with a Commitment Letter dated April 29, 1998 executed by the Company
and Transamerica Business Credit Corporation (the "Commitment Letter") to the
original holder of this Warrant, or any transferees from such original holder or
this Holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
<PAGE> 2
SECTION 2. EXERCISE OF WARRANT.
2.1. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant; (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company, wire transfer of funds
to the Company's account, or evidence of any indebtedness of the Company to the
Holder (or any combination of any of the foregoing) in the amount of the Warrant
Price for each share being purchased, and (iii) this Warrant. Notwithstanding
any provisions herein to the contrary, if the Current Market Price (as defined
in Section 5) is greater than the Warrant Price (at the date of calculation, as
set forth below), in lieu of exercising this Warrant as hereinabove permitted,
the Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in Section 12
hereof, together with the Notice of Exercise, in which event the Company shall
issue to the Holder that number of shares of Common Stock computed using the
following formula (a "Net Exercise"):
WCS x (CMP-WP)
CS = --------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the
date of such calculation)
CMP equals the Current Market Price (at the date of such
calculation)
WP equals the Warrant Price (as adjusted to the date of such
calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date an which the
stock transfer books are open.
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<PAGE> 3
2.2. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption
therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the Company the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company Covenants and agrees that
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof The Company further covenants and agrees that it will pay when
due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. If
and so long as the Common Stock issuable upon the exercise of this Warrant is
listed on any national securities exchange, the Company will, if permitted by
the rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such Common Stock issuable upon exercise of
this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon the exercise hereof shall be increased in
proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of
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<PAGE> 4
shares of Common Stock issuable upon the exercise hereof shall be decreased in
proportion to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than out
of earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock, and of which the denominator shall be such Current
Market Price.
(iv) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported by Nasdaq (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock arc not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (v) are available for the period required hereunder, the Current
Market Price shall be determined in good faith by the Board of Directors of the
Company or, if such determination cannot be made, by a nationally recognized
independent investment banking firm selected by the Board of Directors of the
Company (or if such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules).
(vi) Whenever the Warrant Price shall be adjusted as provided in Section
5, the Company shall prepare a statement showing the facts requiring such
adjustment and the Warrant Price that shall be in effect after such adjustment.
The Company shall cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Holder of this Warrant at its, his or her address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (viii) of this Section 5.
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<PAGE> 5
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above
shall be made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. OWNERSHIP.
6.1. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder arc
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder. Holder will not transfer this Warrant and the rights hereunder except in
compliance with federal and state securities laws.
SECTION 7. MERGERS, CONSOLIDATION, SALES.
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<PAGE> 6
(i) In the case of any proposed reorganization or reclassification of
the capital stock of the Company, then, as a condition of such reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such reorganization
or reclassification) be issued or payable with respect to or in exchange for the
number of shares of such Common Stock purchasable hereunder immediately before
such reorganization or reclassification. In any such case appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof shall thereafter be applicable as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant.
(ii) For the purpose of this Warrant, "Acquisition" means any sale,
license, or other disposition of all or substantially all of the assets of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
(iii) If, on the closing date for any Acquisition, the Current Market
Price of the Warrant Shares (or other securities issuable upon exercise of this
Warrant) is greater than or equal to three (3) times the Warrant Price, then the
successor entity may, at its option, either assume the obligations of the
Company under this Warrant or not assume the obligations of the Company under
this Warrant. If, on the closing date for any Acquisition, the Current Market
Price of the Warrant Shares (or other securities issuable upon exercise of this
Warrant) is less than three (3) times the Warrant Price, then the successor
entity shall assume the obligations of the Company under this Warrant. If the
successor entity assumes the obligations of the Company under this Warrant
(whether voluntarily or involuntarily), then this Warrant shall be exercisable
for the same class and amount of securities, cash, and/or other property as
would be payable for the Warrant Shares issuable upon exercise of this Warrant
as if such Warrant Shares were outstanding on the closing date for the
Acquisition. If the successor entity does not assume the obligations of the
Company under this Warrant, then this Warrant shall be deemed to have been
automatically exercised pursuant to the Net Exercise described in Section 2.1
immediately prior to the closing of the Acquisition and thereafter the Holder
shall participate in the Acquisition as a holder of the Warrant Shares (or other
securities issuable upon exercise of this Warrant) on the same terms as other
holders of the same class of securities of the Company.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any distribution of
the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in
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<PAGE> 7
such dividend or other distribution unless this Warrant is exercised prior to
such record date. The provisions of this Section 9 shall not apply to
distributions made in connection with transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. WILL RESERVE SHARES. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. WILL NOT AMEND CERTIFICATE. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. NOTICES. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at Transamerica Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to the Lender at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department or to such other address as shall have been furnished to the Company
in writing by the Holder. Any notice or other document required or permitted to
be given or delivered to the Company shall be delivered at, or sent by certified
or registered mail to, the Company at 50 W. San Fernando Street #1010, San Jose,
California, 95113, Attention: Controller or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
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<PAGE> 8
SECTION 14. LAW GOVERNING. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 15. "MARKET STAND-OFF" AGREEMENT. The Holder hereby agrees that it will
not, without the prior written consent of the managing underwriter, during the
period commencing on the date of the final prospectus relating to an
underwritten initial public offering of the Company's securities (an "Initial
Offering") and ending on the date specified by the Company and the managing
underwriter (such period not to exceed one hundred eighty (180) days) (i) lend,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
then owned by the Holder or are thereafter acquired), or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
provisions of this Section 15 shall apply only to the Company's Initial
Offering, shall not apply to the sale of any shares to an underwriter pursuant
to an underwriting agreement, and shall only be applicable to the Holder if all
officers and directors and greater than one percent (1%) shareholders of the
Company enter into similar agreements. The underwriters in connection with the
Company's Initial Offering are intended third party beneficiaries of this
Section 15 and shall have the right, power and authority to enforce the
provisions hereof as though they were a party hereto.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period,
SECTION 16. MISCELLANEOUS. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by both
parties (or any respective predecessor in interest thereof). The headings in
this Warrant are for purposes of reference only and shall not affect the meaning
or construction of any of the provisions hereof
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this 28th day of May, 1998.
ABOVENET COMMUNICATIONS, INC.
[CORPORATE SEAL]
By: /s/ STEPHEN BELOMY
---------------------------------------
Title: Executive Vice President and
Chief Financial Officer
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<PAGE> 9
FORM OF NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase shares of Common
Stock which the undersigned is entitled to purchase by the terms of the within
Warrant according to the conditions thereof, and herewith.
(check one]
[ ] makes payment of $_________ therefor; or
[ ] directs the Company to issue ________ shares,
and to withhold ________ shares in lieu of
payment of the Warrant Price, as described in
Section 2.1 of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following
denominations:
______________________________________________
[Type Name of Holder)
By:___________________________________________
Title:________________________________________
Dated:____________________
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<PAGE> 10
FORM OF ASSIGNMENT
(ENTIRE)
[TO BE SIGNED ONLY UPON TRANSFER OF ENTIRE WARRANT)
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers
unto ____________ all rights of the undersigned under and pursuant to the within
Warrant, and the undersigned does hereby irrevocably constitute and appoint
____________ Attorney to transfer the said Warrant on the books of the Company,
with full power of substitution.
______________________________________________
[Type Name of Holder)
By:___________________________________________
Title:________________________________________
Dated:____________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 11
FORM OF ASSIGNMENT
(PARTIAL)
[TO BE SIGNED ONLY UPON PARTIAL TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _____________________________ hereby sells, assigns
and transfers unto ______________________________ (i) the rights of the
undersigned to purchase _______ shares of Common Stock under and pursuant to the
within Warrant, and (ii) on a non-exclusive basis, all other rights of the
undersigned under and pursuant to the within Warrant, it being understood that
the undersigned shall retain, severally (and not jointly) with the transferee(s)
named herein, all rights assigned on such non-exclusive basis. The undersigned
does hereby irrevocably constitute and appoint _____________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
______________________________________________
[Type Name of Holder)
By:___________________________________________
Title:________________________________________
Dated:____________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 1
EXHIBIT 4.5
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Abovenet Communications, Inc.
Number of Shares: 5,000 shares (subject to the conditions provided
below)
Class of Stock: Series D Preferred; provided, however, that if the
Series D round does not close on or before August
31, 1998, the Class of Stock shall be Series C
Preferred.
Initial Exercise Price: Purchase Price of Series D (not to exceed $1.00);
provided, however that if the Series D round does
not close on or before August 31, 1998, the Initial
Exercise Price shall be $1.00.
Issue Date: May 22, 1998.
Expiration Date: 5 years after this Warrant is Exercisable pursuant
to Section 1.1, below.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE I. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased. Notwithstanding the foregoing, this Warrant shall not be
exercisable unless and until the Company fails to comply with the Quick Ratio
covenant set forth in the Loan Agreement. In the event the outstanding
principal balance of the Loan is greater than $100,000.00 at the time such
failure shall occur, the Company agrees to issue additional Warrant Coverage to
Holder (in accordance with the foregoing terms) equal to $25,000.00 at an
Initial Exercise Price equal to the Series D Round Price; provided, however,
that if for any reason the Series D Round does not close on or before August
31, 1998, the Initial Exercise Price shall be that of the Series C Round Price.
For purposes of the foregoing, the "Loan Agreement" is that certain Loan and
Security Agreement dated May 22, 1998, as may be amended, between the Company
and Holder; "Loan" is the Revolving Facility as described in the Loan
Agreement; and "Warrant Coverage" is defined as a number of Shares equal to
$25,000.00 divided by the Initial Exercise Price.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The fair market value of
the Shares shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
<PAGE> 2
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the average closing price
of the Shares (or the closing price of the Company's stock into which the
Shares are convertible) reported for the thirty (30) days immediately before
Holder delivers its Notice of Exercise to the Company. If the Shares are not
traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment. The
foregoing notwithstanding, if Holder advises the Board of Directors in writing
that Holder disagrees with such determination, then the Company and Holder
shall promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1 "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 ASSUMPTION OR NONASSUMPTION OF WARRANT. If, on the
closing date for any Acquisition, the fair market value of the Shares (or other
securities issuable upon exercise of this Warrant) is greater than or equal to
three (3) times the Warrant Price, then the successor entity may, at its
option, either assume the obligations of the Company under this Warrant or not
assume the obligations of the Company under this Warrant. If, on the record
date for any Acquisition, the fair market value of the Shares (or other
securities issuable upon exercise of this Warrant) is less than three (3) times
the Warrant Price, then the successor entity shall assume the obligations of
the Company under this Warrant. If the successor entity assumes the obligations
of the Company under this Warrant (whether voluntarily or involuntarily), then
this Warrant shall be exercisable for the same class and amount of securities,
cash and/or other property as would be payable for the Shares issuable upon
exercise of this Warrant as if such Shares were outstanding on the record date
for the Acquisition. If the successor entity does not assume the obligations of
the Company under this Warrant, then this Warrant shall be deemed to have been
automatically converted pursuant to Section 1.2 and thereafter Holder shall
participate in the Acquisition as a holder of the Shares (or other securities
issuable upon exercise of this Warrant) on the same terms as other holders of
the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock in a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the
Shares are convertible, then upon exercise of this Warrant, for each Share
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned
the Shares of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this
<PAGE> 3
Warrant, the number and kind of securities and property that Holder would have
received for the Shares if this Warrant had been exercised immediately before
such reclassification, exchange, substitution, or other event. Such an event
shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to
the Warrant Price and to the number of securities or property issuable upon
exercise of the new Warrant. The provisions of this Section 2.2 shall similarly
apply to successive reclassifications, exchanges, substitutions, or other
events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
provided to holders of the Company's Series D Preferred Stock.
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions
of this Article 2 and in taking all such action as may be necessary or
appropriate to protect Holder's rights under this Article against impairment.
If the Company takes any action affecting the Shares or its common stock other
than as described above that adversely affects Holder's rights under this
Warrant, the Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such a
manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share
as determined pursuant to Section 1.4, above.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Warrant Price in effect upon the date thereof and the series
of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The Capitalization Overview of the Company provided to
Holder dated March 13, 1998 is true and correct as of the such date.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
<PAGE> 4
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then
within forty-five (45) days after the end of each of the first three quarters
of each fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights provided to holders of the Company's Series D Preferred Stock.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an affiliate of Holder or
if there is no material question as to the availability of current information
as referenced in Rule 144(c), Holder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that it has
complied with Rule 144(f), and the Company is provided with a copy of Holder's
notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or
<PAGE> 5
indirectly, upon conversion of the Shares, if any) at any time to Silicon
Valley Bancshares, The Silicon Valley Bank Foundation, or any other affiliate
of Holder, or, to any other transferree by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who, in the good faith
opinion of the Company's Board of Directors, directly competes with the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when
given personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time. All notices to Holder should be sent to the following address:
Treasury Department
Silicon Valley Bank
3003 Tasman Drive NC821
Santa Clara, CA 95054
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect
to its principles regarding conflicts of law.
"COMPANY"
ABOVENET COMMUNICATIONS, INC.
By: /s/ WARREN J. KAPLAN
---------------------------
Name: Warren J. Kaplan
---------------------------
(Print)
Title: Chairman of the Board, President
or Vice President
By: /s/ STEPHEN BELOMY
---------------------------
Name: Stephen Belomy
---------------------------
(Print)
Title: Exec. V.P., Chief Financial
Officer, Secretary
<PAGE> 6
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series __________ Preferred [strike one) Stock of _________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase pice of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ________________ of the Shares covered
by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
__________________________________________
(Name)
__________________________________________
__________________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________
(Signature)
___________________
(Date)
____________________________________________
____________________________________________
____________________________________________
<PAGE> 7
<TABLE>
<S> <C>
THIS SPACE FOR USE OF FILING OFFICER
0092023002559001
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -----------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -----------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
- -------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): / / LESSOR/LESSEE / / CONSIGNOR/CONSIGNEE / / NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
ABOVENET COMMUNICATIONS INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
50 W. San Fernando St., Ste. 1010 San Jose CA 95113
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. or TAX ID# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D., if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION / / NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 111/HAW
---------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. or TAX ID# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D., if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION / / NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
---------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
SILICON VALLEY BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
3003 Tasman Drive Santa Clara CA 95054
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
REFER TO EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF FOR DESCRIPTION OF COLLATERAL.
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK / / This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida
BOX of the Debtor to perfect a security interest (a) in collateral (check one)
(if applicable) already subject to a security interest in another jurisdiction / / Documentary / / Documentary stamp
when it was brought into this state, or when the debtor's location stamp tax tax not
was changed to this state, or (b) in accordance with other paid applicable
statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. / / This FINANCING STATEMENT is to be filed (for record)
ABOVENET COMMUNICATIONS INC. (or recorded) in the REAL ESTATE RECORDS
Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
/s/ WARREN J. KAPLAN President & COO 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) /x/ All Debtors / / Debtor / / Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1)(TRANS)(REV. 12/18/95) Prepared by Data File Services, Inc.,
P.O. Box 275
Van Nuys, CA 91408-0275
Tel. (818) 909-2200
</TABLE>
<PAGE> 8
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, replacements, substitutions, additions, and improvements to any of
the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificate of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work and similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions to and
proceeds thereof.
<PAGE> 9
<TABLE>
<S> <C>
0092023002654000
PRINT OR TYPE ALL INFORMATION
THE SECURED PARTY DESIRES THIS FINANCING STATEMENT TO BE INDEXED AGAINST THE RECORD OWNER
OF THE REAL ESTATE NO [X] YES [ ] NAME OF RECORD OWNER ___________________________________________________
Filed With: VIRGINIA
STATE CORPORATION COMMISSION
111/HAW (UNIFORM COMMERCIAL CODE DIVISION, BOX 1197, RICHMOND, VIRGINIA 23209)
FORM FOR ORIGINAL FINANCING STATEMENT AND SUBSEQUENT STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------
The Commission stamps the File Number on the Original Financing Statement. The secured
party must place this same number on all subsequent statements.
- -----------------------------------------------------------------------------------------------------------------------
Index numbers of subsequent statements (for office use only)
- -----------------------------------------------------------------------------------------------------------------------
Name & mailing address of all debtors, trade styles, etc. Check the box indicating the kind of statement
No other name will be indexed. Check only one box
ABOVENET COMMUNICATIONS
8100 Boone Blvd. [X] ORIGINAL FINANCING STATEMENT
Vienna, VA 22182
[ ] CONTINUATION-ORIGINAL STILL EFFECTIVE
[ ] AMENDMENT
[ ] ASSIGNMENT
[ ] PARTIAL RELEASE OF COLLATERAL
[ ] TERMINATION
- -----------------------------------------------------------------------------------------------------------------------
Name & address of Secured Party Name & address of Assignee
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
- -----------------------------------------------------------------------------------------------------------------------
Date of maturity if less than five years Check if proceeds of collateral are covered [X]
- -----------------------------------------------------------------------------------------------------------------------
REFER TO EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF FOR DESCRIPTION OF COLLATERAL.
- -----------------------------------------------------------------------------------------------------------------------
Space to record an amendment, assignment, release of collateral or a statement to cover collateral brought into
Virginia from another jurisdiction.
- -----------------------------------------------------------------------------------------------------------------------
Describe Real Estate if applicable:
- -----------------------------------------------------------------------------------------------------------------------
ABOVENET COMMUNICATIONS SILICON VALLEY
/s/ WARREN J. KAPLAN, President & COO [SIG] VP 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Signature of Debtor if applicable (Date) Signature of Secured Party if applicable (Date)
(1) FILING OFFICER COPY
Prepared with UCC Direct for Windows Data File Services, Inc., P.O. Box 275, Van Nuys, CA, 91408-0275 Tel (818) 909-2200
</TABLE>
<PAGE> 10
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All good and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE> 11
<TABLE>
<S> <C>
0092023002654001
PRINT OR TYPE ALL INFORMATION
THE SECURED PARTY DESIRES THIS FINANCING STATEMENT TO BE INDEXED AGAINST THE RECORD OWNER
OF THE REAL ESTATE NO [X] YES [ ] NAME OF RECORD OWNER ___________________________________________________
Filed With: FAIRFAX, VA
STATE CORPORATION COMMISSION
111/HAW (UNIFORM COMMERCIAL CODE DIVISION, BOX 1197, RICHMOND, VIRGINIA 23209)
FORM FOR ORIGINAL FINANCING STATEMENT AND SUBSEQUENT STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------
The Commission stamps the File Number on the Original Financing Statement. The secured
party must place this same number on all subsequent statements.
- -----------------------------------------------------------------------------------------------------------------------
Index numbers of subsequent statements (for office use only)
- -----------------------------------------------------------------------------------------------------------------------
Name & mailing address of all debtors, trade styles, etc. Check the box indicating the kind of statement.
No other name will be indexed. Check only one box.
ABOVENET COMMUNICATIONS
8100 Boone Blvd. [X] ORIGINAL FINANCING STATEMENT
Vienna, VA 22182
[ ] CONTINUATION-ORIGINAL STILL EFFECTIVE
[ ] AMENDMENT
[ ] ASSIGNMENT
[ ] PARTIAL RELEASE OF COLLATERAL
[ ] TERMINATION
- -----------------------------------------------------------------------------------------------------------------------
Name & address of Secured Party Name & address of Assignee
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
- -----------------------------------------------------------------------------------------------------------------------
Date of maturity if less than five years Check if proceeds of collateral are covered [X]
- -----------------------------------------------------------------------------------------------------------------------
REFER TO EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF FOR DESCRIPTION OF COLLATERAL.
- -----------------------------------------------------------------------------------------------------------------------
Space to record an amendment, assignment, release of collateral or a statement to cover collateral brought into
Virginia from another jurisdiction.
- -----------------------------------------------------------------------------------------------------------------------
Describe Real Estate if applicable:
- -----------------------------------------------------------------------------------------------------------------------
ABOVENET COMMUNICATIONS SILICON VALLEY
/s/ WARREN J. KAPLAN President & COO [SIG] VP 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Signature of Debtor if applicable (Date) Signature of Secured Party if applicable (Date)
(1) FILING OFFICER COPY
Prepared with UCC Direct for Windows Data File Services, Inc., P.O. Box 275, Van Nuys, CA, 91408-0275 Tel (818) 909-2200
</TABLE>
<PAGE> 12
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE> 13
INTERCREDITOR AGREEMENT
(COLLATERAL SHARING)
This INTERCREDITOR AGREEMENT is made by and between Silicon Valley Bank
("SVB") and Transamerica Business Credit Corporation ("Creditor").
RECITALS
A. Abovenet Communications, Inc. ("Borrower") has borrowed funds from
SVB under a line of credit (the "Revolving Facility") in the original principal
amount of $750,000, pursuant to a Loan and Security Agreement dated as of May
22, 1998, as may be amended (the "Loan Agreement"). The Revolving Facility is
secured by Borrower's Collateral as referred to in the Loan Agreement. The Loan
Agreement shall be referred to in this Agreement as the "Loan Documents."
B. Borrower has requested Creditor to lend Borrower $6,000,000, which
Borrower proposes to use to purchase equipment. Creditor is willing to make
such loan (the "Creditor Loan"), provided SVB subordinates its security
interest in certain of Borrower's personal property to the security interest of
Creditor. SVB is willing to subordinate its interest in accordance with the
terms of this Agreement.
NOW THEREFORE, the parties agree as follows:
1. Creditor Collateral. As used in this Agreement, "Creditor Collateral"
means the following: all equipment of Borrower financed by Creditor and pledged
as security under a certain Master Loan and Security Agreement dated May 28,
1998 between Creditor and Borrower and all proceeds of the foregoing.
2. SVB Collateral. As used in this Agreement, "SVB Collateral" means all
of the property of Borrower, now owned and hereafter acquired, other than the
Creditor Collateral. ("Collateral" as used in this Agreement shall mean SVB
Collateral or Creditor Collateral, as the case may be.)
3. Subordination.
(a) All security interests now or hereafter acquired by Creditor in
Creditor Collateral shall at all times be prior and superior to any security
interest or other interest or claim now held or hereafter acquired by SVB in
Creditor Collateral. (SVB and Creditor are sometimes referred to herein as the
"Lenders.")
(b) All security interests now or hereafter acquired by SVB in the
SVB Collateral shall at all times be prior and superior to any security
interest, ownership interest, or other interest or claim now held or hereafter
acquired by Creditor in SVB Collateral.
(c) The priorities specified in this Agreement shall be applicable
irrespective of the time or order of attachment or perfection of any security
interest or the time or order of filing of any financing statements or other
documents, or the giving of any notices of purchase money security interests or
other notices, or possession of any Collateral, or any statutes, rules or law,
or court decisions to the contrary.
(d) The subordinations and priorities specified in this Agreement
are expressly conditioned upon the nonavoidability and perfection of the
security interest to which another security interest is subordinated, and if
the security interest to which another security interest is subordinated is not
perfected or is avoidable, for any reason, then the subordinations and relative
priority provided for in this Agreement shall not be effective as to the
particular Collateral which is the subject of the unperfected or avoidable
security interest.
4. Termination Statements.
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<PAGE> 14
(a) SVB agrees to execute and deliver to Creditor, promptly upon
Creditor's request, appropriate UCC termination statements or partial releases
with respect to any Creditor Collateral being sold or otherwise disposed of in
connection with the liquidation of Borrower's assets upon or after the
declaration of a default or an event of default by Creditor under any present
or future instrument or agreement between the Borrower and Creditor. The
proceeds of any Creditor Collateral so sold or disposed of shall be applied,
after the deduction of any and all costs relating to such sale or disposition
(including attorneys' fees, advertising costs and auctioneer's fees) to any and
all outstanding present or future indebtedness, liabilities, guaranties or
other obligations of the Borrower to Creditor (the "Creditor Obligations") in
such order as Creditor may, in its discretion, determine and, only if all
Creditor Obligations have been indefeasibly paid in full, then to all or any
part of the present or future indebtedness, liabilities, guaranties or other
obligations of the Borrower to SVB (the "SVB Obligations") in such order as SVB
may, in its discretion, determine.
(b) Creditor agrees to execute and deliver to SVB, promptly upon
SVB's request, appropriate UCC termination statements or partial releases with
respect to any SVB Collateral being sold or otherwise disposed of in connection
with the liquidation of Borrower's assets upon or after the declaration of
default or any event of default by SVB under any present or future instrument
or agreement between the Borrower and SVB. The proceeds of any SVB Collateral
so sold or disposed of shall be applied, after the deduction of any and all
costs relating to such sale or disposition (including attorney's fees,
advertising costs and auctioneer's fees) to any and all outstanding SVB
Obligations in such order as SVB, in its discretion, may determine, and only if
all SVB Obligations have been indefeasibly paid in full, then to all or any
part of the Creditor Obligations in such order as Creditor, in its discretion,
may determine.
5. Lender's Rights. SVB and Creditor each agree that the other may at
any time, and from time to time, without the consent of the other party and
without notice to the other party, renew, extend or increase any of the
indebtedness, liabilities or obligations owing to it from the Borrower (the
"Secured Obligations") or that of any other person at any time directly or
indirectly liable for the payment of any Secured Obligations, accept partial
payments of the Secured Obligations, settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the Secured
Obligations, make loans or advances to the Borrower secured in whole or in part
by its Collateral or refrain from making any loans or advances to the Borrower,
change, alter or vary the interest charge on, or any other terms or provisions
of the Secured Obligations or any present or future instrument, document or
agreement with the Borrower, and take any other action or omit to take any
other action with respect to its Secured Obligations or its Collateral as it
deems necessary or advisable in its sole discretion. SVB and Creditor each
waive any right to require the other to marshal any Collateral or other assets
in favor of it or against or in payment of any or all of its Secured
Obligations.
6. Remedies. SVB shall not collect, take possession of, foreclose upon,
or exercise any other rights or remedies with respect to Creditor Collateral,
judicially or nonjudicially, or attempt to do any of the foregoing, without the
prior written consent of Creditor, which shall be a matter of Creditor's sole
discretion. Creditor shall not collect, take possession of, foreclose upon, or
exercise any other rights or remedies with respect to SVB Collateral,
judicially or nonjudicially, or attempt to do any of the foregoing, without the
prior written consent of SVB, which shall be a matter of SVB's sole discretion.
7. No Commitment by Lenders. It is understood and agreed that this
Agreement shall in no way be construed as a commitment or agreement by SVB or
Creditor to continue financing arrangements with the Borrower, and that SVB and
Creditor may terminate such arrangement at any time.
8. Insurance. The Lender having a senior security interest or lien in
the Collateral shall, subject to such Lender's rights under its agreements with
Borrower, have the sole and exclusive right, as against the other Lender, to
adjust settlement of such insurance policy in the event of any loss. All
proceeds of such policy shall be paid to the Lender having the senior claim as
set forth in this Agreement. After payment of such senior Lender's claim and
all expenses of collection, including reasonable attorneys' fees and other
costs, fees and expenses, any remaining proceeds shall be promptly remitted to
the other Lender for application to the Secured Obligations owing to it.
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<PAGE> 15
9. BANKRUPTCY FINANCING. In the event of any financing of the Borrower
by SVB or Creditor during any bankruptcy, arrangement, or reorganization of the
Borrower, each Lender agrees that the other's "Secured Obligations" shall
include without limitation all indebtedness, liabilities and obligations
incurred by the Borrower in any such proceeding, and the other's "Collateral"
shall include without limitation all Collateral arising during any such
proceeding, and this Agreement shall continue to apply during any such
proceeding.
10. NOTICES OF DEFAULT; CONSULTATION. Creditor and SVB agree to use
their best efforts to give to the other copies of any written notice of the
occurrence or existence of an event of default sent to Borrower, simultaneously
with the sending of such notice to Borrower, and to consult with each other for
a reasonable period, not to exceed sixty (60) days, as to enforcement of their
respective remedies against Borrower and its property, but the failure to do so
shall not affect the validity of such notice or create a cause of action
against or liability on the part of the party failing to give such notice, nor
shall it create any claim or right on behalf of the other party, the Borrower
or any third party. The sending of such notice shall not give the recipient the
obligation to cure such default or event of default.
11. NO CONTEST. Neither Creditor nor SVB shall contest the validity,
perfection, priority or enforceability of any lien or security interest granted
to the other, and each agrees to cooperate in the defense of any action
contesting the validity, perfection, priority or enforceability of such liens
or security interest at the cost of the party defending such action.
12. FINANCIAL CONDITION OF BORROWER. Creditor and SVB are each
presently informed of the financial condition of the Borrower and of all other
circumstances which a diligent inquiry would reveal and which bear upon the
risk of non-payment of the Secured Obligations owing to them. Creditor and SVB
each waives any right to require the other to disclose to it any information
which the other may now or hereafter acquire concerning the Borrower.
13. Revivor. If, after payment of the Creditor Obligations, the
Borrower thereafter becomes liable to Creditor on account of the Creditor
Obligations, or any payment made on the Creditor Obligations shall for any
reason be required to be returned or refunded by Creditor, this Agreement shall
thereupon in all respects become effective with respect to such subsequent or
reinstated Creditor Obligations, without the necessity of any further act or
agreement between Creditor and SVB. If, after payment of the SVB Obligations,
the Borrower thereafter becomes liable to SVB on account of the SVB
Obligations, or any payment made on the SVB Obligations shall for any reason be
required to be returned or refunded by SVB, this Agreement shall thereupon in
all respects become effective with respect to such subsequent or reinstated SVB
Obligations, without the necessity of any further act or agreement between SVB
and Creditor.
14. WAIVER OF JURY TRIAL. SVB and Creditor each hereby waive the right
to trial by jury in any action or proceeding based upon, arising out of, or in
any way relating to: (i) this Agreement; or (ii) any other present or future
instrument or agreement between SVB and Creditor relating to the Borrower; or
(iii) any conduct, acts or omissions of SVB or Creditor or any of their
directors, officers, employees, agents, attorneys or any other persons
affiliated with SVB or Creditor, relating to Borrower, in each of the foregoing
cases, whether sounding in contract or tort or otherwise.
15. GENERAL. Creditor and SVB are not in any manner to be construed to
be partners or joint venturers or to have any other legal relationship other
than as expressly set forth in written agreements between them. Creditor and
SVB each agrees to execute all such documents and instruments and take all such
actions as the other shall reasonably request in order to carry out the
purposes of this Agreement, including without limitation appropriate amendments
to Financing Statements executed by the Borrower in favor of Creditor or SVB in
order to refer to this Agreement (but this Agreement shall remain fully
effective notwithstanding any failure to execute any additional documents,
instruments, or amendments). Creditor and SVB each represents and warrants to
the other that it has not heretofore transferred to assigned any Financing
Statement naming the Borrower as debtor and it as secured party, and that it
will not do so without first
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<PAGE> 16
notifying the other in writing, and delivering a copy of this Agreement to the
proposed transferee or assignee, and obtaining the acknowledgment of the
proposed transferee or assignee that the transfer or assignment is subject to
all of the terms of this Agreement. This Agreement is solely for the benefit of
SVB and Creditor and their successors and assigns, and neither the Borrower nor
any other person shall have any right, benefit, priority or interest under, or
because of the existence of, this Agreement. This Agreement sets forth in full
the terms of agreement between Creditor and SVB with respect to the subject
matter hereof, and may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by Creditor and SVB. In the
event of any litigation between the parties based upon or arising out of this
Agreement, the prevailing party shall be entitled to recover all of its costs
and expenses (including without limitation attorneys' fees) from the
non-prevailing party. This Agreement shall be binding upon the parties hereto
and their respective successors and assigns, and shall be construed in
accordance with, and governed by, the laws of the State of California. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Intercreditor
Agreement as of May 22, 1998.
"Creditor"
Transamerica Business Credit Corporation
By: /s/ GARY P. MORO
-------------------------------------
Gary P. Moro
Title: Vice President
----------------------------------
"SVB"
SILICON VALLEY BANK
By: [SIG]
-------------------------------------
Title: VP
-----------------------------------
BORROWER'S CONSENT AND AGREEMENT
Borrower consents to the terms of this Intercreditor Agreement and agrees
not to take any actions inconsistent therewith. Borrower shall obtain
satisfactory Lender's Loss Payable Endorsements naming both Creditor and SVB,
as their interests may appear, with respect to policies which insure Collateral
hereunder, or with such other designation as Creditor and SVB may agree.
Borrower agrees to execute all such documents and instruments and take all such
actions as Creditor or SVB shall reasonably request in order to carry out the
purposes of this Agreement, including without limitation appropriate amendments
to financing statements.
"Borrower"
Abovenet Communications, Inc.
By: /s/ STEPHEN BELOMY
-------------------------------------
Title: E.V.P & CFO
----------------------------------
/s/ KEVIN M. HOURIGAN
-------------------------------------
Controller
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<PAGE> 1
EXHIBIT 4.6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
OF
ABOVENET COMMUNICATIONS INC.
VOID AFTER _________, 200_
This Warrant is issued to __________, or its registered
assigns ("Holder") by AboveNet Communications Inc., a California corporation
(the "Company"), on _______________ (the "Warrant Issue Date") for a purchase
price of _______________ ($_______).
1. Warrant Shares. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant at the principal
office of the Company (or at such other place as the Company shall notify the
holder hereof in writing), to purchase from the Company up to ________________
(_______) fully paid and nonassessable shares of Common Stock of the Company, as
constituted on the Warrant Issue Date. The number of shares of Common Stock
issuable pursuant to this Section 1 (the "Shares") shall be subject to
adjustment pursuant to Section 9 hereof.
2. Exercise Price. The exercise price for the Shares shall be $____ per
share, as adjusted from time to time pursuant to Section 9 hereof (the "Exercise
Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. on __________; provided, however, that in the event of (a) the closing
of the Company's sale or transfer of all or substantially all of its assets, or
(b) the closing of the acquisition of the Company by another entity by means of
merger, consolidation or other transaction or series of related transactions,
resulting in the exchange of the outstanding shares of the Company's capital
stock such that the stockholders of the Company prior to such transaction own,
directly or indirectly, less than 50% of the voting power of the surviving
entity, this Warrant shall, on the date of such event, no longer be exercisable
and become null and void. In the event of a proposed transaction of the kind
described above, the Company shall notify the holder of the Warrant at least
fifteen (15) days prior to the consummation of such event or transaction.
<PAGE> 2
4. Automatic Exercise. Notwithstanding the provisions of Section 3, this
Warrant shall automatically be deemed to be exercised in full in the manner set
forth in Section 6, without any further action on behalf of the Holder
immediately prior to: (a) the closing of the Company's sale or transfer of all
or substantially all of its assets, or (b) the closing of the acquisition of the
Company by another entity by means of merger, consolidation or other transaction
or resulting in the exchange of the outstanding shares of the Company's capital
stock such that the stockholders of the Company prior to such transaction own,
directly or indirectly, less than 50% of the voting power of the surviving
entity.
5. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed
copy of the form of Notice of Election attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
6. Net Exercise. In lieu of exercising this Warrant pursuant to Section
5, the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the holder hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be
issued to the Holder pursuant to this net
exercise;
Y = The number of Shares in respect of which the
net issue election is made;
A = The fair market value of one share of the
Common Stock at the time the net issue
election is made;
B = The Exercise Price (as adjusted to the date
of the net issuance).
For purposes of this Section 6, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) 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 (30) day period ending three (3) days prior to the net
exercise election; (ii) if 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 (30) day period ending three (3) days prior to the net exercise; and
(iii) if there is no active public market, the value shall
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<PAGE> 3
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company; provided, that, if the Warrant is being exercised upon
the closing of the IPO, the value will be the initial "Price to Public" of one
share of such Common Stock specified in the final prospectus with respect to
such offering
7. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
8. Issuance of Shares. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
9. Adjustment of Exercise Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Common Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 9(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case
of any reclassification, capital reorganization, or change in the Common Stock
of the Company (other than as a result of a subdivision, combination, or stock
dividend provided for in Section 9(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
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<PAGE> 4
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Warrant Price, the Company shall promptly notify the holder of such
event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
11. No Shareholder Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a shareholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 11 shall limit the right of the Holder to be provided
the notices required under this Warrant.
12. Transfers of Warrant. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable in whole or in part by the Holder to any person or entity upon
written notice to the Company. The transfer shall be recorded on the books of
the Company upon the surrender of this Warrant, properly endorsed, to the
Company at its principal offices, and the payment to the Company of all transfer
taxes and other governmental charges imposed on such transfer. In the event of a
partial transfer, the Company shall issue to the holders one or more appropriate
new warrants.
13. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Holders
hereof and their respective successors and assigns.
14. Amendments and Waivers. Any term of this Warrant may be amended and
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder.
15. Notices. All notices required under this Warrant and shall be deemed
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
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<PAGE> 5
16. Attorneys' Fees. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
17. Captions. The section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
18. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
19. "Market Stand-Off" Agreement. Holder hereby agrees that, during the
period of duration (not to exceed 180 days) specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of the initial underwritten public offering of the Company's
Common Stock, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly, sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration.
IN WITNESS WHEREOF, AboveNet Communications Inc. caused this Warrant to
be executed by an officer thereunto duly authorized.
ABOVENET COMMUNICATIONS INC.
By:_____________________________________
Title: _________________________________
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<PAGE> 6
NOTICE OF EXERCISE
To: ABOVENET COMMUNICATIONS INC.
The undersigned hereby elects to [check applicable
subsection]:
________ (a) Purchase _________________ shares of Common Stock
of _________________, pursuant to the terms of
the attached Warrant and payment of the Exercise
Price per share required under such Warrant
accompanies this notice;
OR
________ (b) Exercise the attached Warrant for [all of the
shares] [________ of the shares] [cross out
inapplicable phrase] purchasable under the
Warrant pursuant to the net exercise provisions
of Section 6 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANTHOLDER:
-----------------------------------------
By:
--------------------------------------
[NAME]
Address:
--------------------------------------
Date:
---------------------
Name in which shares should be registered:
- -------------------------------------------
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
___________, 199__, between ABOVENET COMMUNICATIONS INC., a Delaware corporation
("the Company"), and _____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article VII
of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the
<PAGE> 2
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 1(b) if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
or participant in any Proceeding brought by or in the right of the Company.
Pursuant to this Section 1(b), Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; provided,
however, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1
and 2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), Company shall pay,
in the first instance, the entire amount of any judgment or settlement of such
action, suit or proceeding without requiring Indemnitee to contribute to such
2
<PAGE> 3
payment and Company hereby waives and relinquishes any right of contribution it
may have against Indemnitee. Company shall not enter into any settlement of any
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding) unless such
settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that
3
<PAGE> 4
Indemnitee is not entitled to be indemnified against such Expenses. Any advances
and undertakings to repay pursuant to this Section 5 shall be unsecured and
interest free. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 5 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 13 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper
4
<PAGE> 5
and timely objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated, the Independent Counsel
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person,
5
<PAGE> 6
persons or entity making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the obtaining or
evaluating documentation and/or information relating thereto; and provided,
further, that the foregoing provisions of this Section 6(g) shall not apply if
the determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
6
<PAGE> 7
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
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<PAGE> 8
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer or
director of the Company (or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any Proceeding (or any proceeding commenced under
Section 7 hereof) by reason of his Corporate Status, whether or not he is acting
or serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by
the Board of Directors of the Company, the Company may at any time and from time
to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank
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<PAGE> 9
line of credit, funded trust or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights
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<PAGE> 10
under this Agreement. The Company agrees to pay the reasonable fees of the
Independent Counsel referred to above and to fully indemnify such counsel
against any and all Expenses, claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
15. Modification and Waiver. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by
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hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
50 W. San Fernando St., #1010
San Jose, California 95113
Attention: Warren J. Kaplan
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ABOVENET COMMUNICATIONS INC.
By:____________________________________
Name:_______________________________
Title:______________________________
_______________________________________
Name: ________________________________
Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
<PAGE> 1
EXHIBIT 10.2
ABOVENET COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE
The AboveNet Communications, Inc. 1996 Stock Option Plan (the "Plan")
is intended to provide to officers, directors, key employees and consultants of
the corporation an opportunity to acquire a proprietary interest in the
corporation, to encourage such key individuals to remain in the employ of or to
contract with the corporation, and to attract and retain new employees,
consultants, and directors with outstanding qualifications. Pursuant to the
Plan, the corporation may grant to officers, directors, consultants, and key
employees of the corporation options to purchase shares of common stock of the
corporation upon such terms and conditions as provided herein.
2. DEFINITIONS
(a) "Affiliate" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain, owns
at least 50% of the total voting power of one of the other corporations.
(b) "Board"' shall mean the Board of Directors of the corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee appointed by the Board to
administer the Plan, or if no such committee is appointed, the Board.
(e) "Common Stock" shall mean the voting common stock of the
Corporation.
(f) "Consultant" shall mean any person who, or any employee of any
firm which, is engaged by the Company or any Affiliate to render consulting,
services and is compensated for such consulting services, and any non-employee
director of the Company whether compensated for such services or not.
(g) "Cooperation" shall mean AboveNet Communications, Inc., a
California corporation.
(h) "Director" means a member of the Corporation's Board of
Directors.
(i) "Effective Date" shall mean March 8, 1996.
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(j) "Employee" shall mean any individual who is deployed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or by any Affiliate. For purposes of the Plan and only for purposes
of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive
Stock Options, a Consultant or director of the Corporation or any Affiliate
shall be deemed to be an Employee, and service as a Consultant or director with
the Corporation or any Affiliate shall be deemed to be employment, but no
Incentive Stock Option shall be granted to a Consultant or director who is not
an employee of the Corporation or any Affiliate within the meaning of Section
3401 of the Code and the regulations thereunder. In the case of a non-employee
director or Consultant, the provisions governing when a termination of
employment has occurred for purposes of the Plan shall be set forth in the
written stock option agreement between the Optionee and the corporation, or, if
not so set forth, the Committee shall have the discretion to determine when a
termination of "employment" has occurred for purposes of the Plan.
(k) "Escrow Agent" shall mean the person selected by the
Corporation, if any, to hold the stock certificates representing Shares issued
in the name of an Optionee pursuant to such Optionee's exercise of an Option.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(m) "Exercise Price" shall mean the price per Share at which an
Option may be exercised, as determined by the Committee and as specified in the
Optionee's stock option agreement.
(n) "Fair Market Value" shall mean the value of each Share as
determined by the Board.
(o) "Incentive Stock Option" shall mean an Option of the type
described in Section 422(b) of the Code.
(p) "Joint Escrow Instructions" shall mean joint escrow instructions
entered into between Optionee and the Corporation in such form as may be
approved by the Committee from time to time.
(q) "Nonstatutory Stock Option" shall mean an Option of the type not
described in Section 422(b) or 423(b) of the Code.
(r) "Option" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(s) "Optionee" shall mean any person who holds an Option pursuant to
the Plan.
(t) "Plan" shall mean this stock option plan as it may be amended
from time to time.
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(u) "Purchase Price" shall mean at any particular time the Exercise
Price times the number of Shares for which an Option is being exercised.
(v) "Share" shall mean one share of authorized Common Stock.
3. ADMINISTRATION
(a) The Committee.
(i) The Board may administer the Plan or appoint a Committee to
administer the Plan. The Committee shall consist of not less than two members
who may also be members of the Board. Members of the Board or the Committee who
are either eligible for Options or have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself or herself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Committee and shall
be excluded in determining unanimity of an act in writing, for any action which
is taken with respect to the granting of an Option to such member.
(ii) If the Corporation registers any class of any equity
security pursuant to Section 12 of the Exchange Act from the effective date of
such registration until six months after the termination of such registration,
the Plan shall be administered by a Committee of directors which shall consist
of not less than two members, who during the one year prior to service as an
administrator of the Plan, shall not have been granted or awarded equity
securities pursuant to the Plan or any other plan of the Corporation or any of
its Affiliates except as permitted under Rule 16b-3 under the Exchange Act which
provides that participation in a formula plan meeting the conditions of Rule
16(b)(3)(c)(2)(ii) or in an ongoing securities acquisition plan meeting the
conditions in Rule 16(b)(3)(d)(2)(i) shall not disqualify a member of the
Committee from serving as an administrator of the Plan. In addition, an election
to receive an annual retainer fee in either cash or an equivalent amount of
securities, or partly in cash and partly in securities, shall not disqualify a
member of the Committee from serving as an administrator of the Plan.
The Board may from time to time designate individuals as ineligible to
participate in the Plan for a specified period in order to become eligible to be
a member of the Committee.
(b) Powers of the Committee
Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion and on behalf of the Corporation:
(i) to grant Options;
(ii) to determine the Exercise Price per Share Options to be
granted;
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(iii) to determine the Employees to whom, and the time or times
at which, Options shall be granted and the number of Shares for which an Option
will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and regulations
relating to the Plan;
(vi) to determine the terms and provisions of each Option
granted and, with the consent of the holder thereof, modify or amend each
Option;
(vii) to authorize any person to execute on behalf of the
Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;
(viii) with the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an Option previously granted
by the Committee; and
(ix) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Board's Determination of Fair Market Value.
The Board shall have the authority to determine, upon review of
relevant information, the Fair Market Value of the Common Stock, subject to the
provisions of the Plan and irrespective of whether the Board has appointed a
Committee to administer the Plan. The Board may delegate this authority to the
Committee.
(d) Committee's Interpretation of the Plan.
The interpretation and construction by the Committee of any provision
of the Plan or of any Option granted hereunder shall be final and binding on all
parties claiming an interest in an Option granted under the Plan. No member of
the Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
(e) All Committee Actions to be in Writing.
Any and all actions of the Committee taken in exercise of the powers
granted to it in this Section 3 shall be in writing.
4. PARTICIPATION
(a) Eligibility.
The optionees shall be such persons as the Committee may select from
among the Employees, provided that Consultants are not eligible to receive
Incentive Stock Options.
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(b) Ten Percent Shareholders.
Any Employee who owns Stock possessing more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation or
any Affiliate shall not be eligible to receive an Option unless:
(i) the Exercise Price of the Shares subject to such Option when
granted is at least 110% of the Fair Market Value of such Shares, and
(ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.
(c) Stock Ownership.
For purposes of Paragraph 4(b), in determining stock ownership, an
Employee shall be considered as owning the stock owned, directly or indirectly,
by or for his or her brothers and sisters, spouse, ancestors, and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned proportionately
by or for its shareholders, partners, or beneficiaries, respectively. Stock with
respect to which such Employee or any other person holds an option shall be
disregarded.
(d) Outstanding Stock.
For purposes of Section 4(b), the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
the Option to the Optionee but shall not include any share for which an Option
is exercisable by any person.
5. STOCK
(a) Shares Subject to This Plan.
The aggregate number of Shares which may be issued upon exercise of
Options under the Plan shall not exceed Ten Million (10,000,000), subject to
adjustment pursuant to Section 9 hereof.
(b) Options Not to Exceed Shares Available.
The number of Shares for which an Option is exercisable at any time
shall not exceed the number of Shares remaining available for issuance under the
Plan. If any Option expires or is terminated, the number of Shares for which
such Option was exercisable may be made exercisable pursuant to other Options
under the Plan. If the Corporation reacquires any Shares pursuant to Sections 11
or 12, hereof, such Shares may again be made exercisable pursuant to an Option.
The limitations established by this Section 5(b) shall be subject to adjustment
in the manner provided in Section 9 hereof upon the occurrence of an event
specified therein.
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<PAGE> 6
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreements.
Options shall be evidenced by written stock option agreements between
the Optionee and the Corporation in such form as the Committee shall from time
to time determine. No Option or purported Option shall be a valid and binding
obligation of the Corporation unless so evidenced in writing.
(b) Number of Shares.
Each stock option agreement shall state the number of Shares for which
the Option is exercisable and shall provide for the adjustment thereof in
accordance with Section 9 hereof.
(c) Vesting.
An Optionee may not exercise his or her Option for any Shares until the
Option, in regard to such Shares, has vested. Each stock option agreement shall
include a vesting schedule which shall show when the Option becomes exercisable
provided, each Option shall vest at a rate of at least twenty-five percent (25%)
per year over a period of four (4) years. The vesting schedule shall not impose
upon the Corporation or any Affiliate any obligation to retain the Optionee in
its employ or under contract for any period or otherwise change the
employment-at-will status of an Optionee who is an employee of the Corporation
or any Affiliate. The Committee may elect a shorter vesting period for
non-qualified stock option.
(d) Lapse of Options.
Each stock option agreement shall state the time or times when the
option covered thereby lapses and becomes unexercisable in part or in full. An
Option shall lapse on the earliest of the following events (unless otherwise
determined by the Committee and reflected in an option agreement):
(i) The tenth anniversary of the date of granting the Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date the Optionee ceases to
be an Employee due to total and permanent disability, within the meaning of
Section 22(e)(3) of the Code;
(iv) On the date provided in Section 6(h)(i), unless with
respect to a Nonstatutory Stock Option, the Committee otherwise extends such
period before the applicable expiration date;
(v) On the date provided in Section 9 for a transaction
described in such Section;
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(vi) The date the Optionee files or has filed against him or her
a petition in bankruptcy; or
(vii) The expiration date specified in an Optionee's stock
option agreement.
(e) Exercise Price.
Each stock option agreement shall state the Exercise Price for the
Shares for which the Option is exercisable. Subject to Section 4(b), the
Exercise Price of an Incentive Stock Option and a Nonstatutory Stock Option
shall, when granted, be not less than 100% and 85% of the Fair Market Value of
the Shares for which the Option is exercisable, respectively, and not less than
the par value of the Shares.
(f) Medium and Time Of Payment.
The Purchase Price shall be payable In full in cash upon the exercise
of an Option but the Committee may allow the Optionee to pay the Purchase Price:
(i) by surrendering Shares in good form for transfer, owned by
the Optionee and having a Fair Market Value on the date of exercise equal to the
Purchase Price;
(ii) by delivery of a full recourse promissory note ("Note")
made by the Optionee in the amount of the Purchase Price, bearing interest,
compounded semiannually, at a rate not less than the rate determined under
Section 7872 of the Code to insure that no "foregone interests," as defined in
such section, will accrue, together with the delivery of a duly executed
standard form security agreement securing the Note by a pledge of the Shares
purchased; or
(iii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law as long as the sum of the cash so paid, the Fair
Market Value of the Shares so surrendered, and the amount of any Note equals the
Purchase Price.
The Committee or a stock option agreement may prescribe requirements
with respect to the exercise of Options, including the submission by the
Optionee of such forms and documents as the Committee may require and, the
delivery by the Optionee of cash sufficient to satisfy applicable withholding
requirements. The Committee may vary the exercise requirements and procedures
from time to time to facilitate, for example, the broker-assisted exercise of
Options.
(g) Nontransferability of Options.
During the lifetime of the Optionee, the Option shall be exercisable
only by the Optionee or the Optionee's conservator or legal representative and
shall not be assignable or transferable except pursuant to a qualified domestic
relations order as defined by the Code. In the event of the Optionee's death,
the Option shall not be transferable by the Optionee other than by will or the
laws of descent and distribution.
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(h) Termination of Employment Other than by Death or Disability.
(i) If an Optionee ceases to be an Employee for any reason other
than his or her death or disability, the Optionee shall have the right, subject
to the provisions of titles Section 6, to exercise any option held by the
Optionee at any time within ninety (90) days after his or her termination of
employment, but not beyond the otherwise applicable term of the Option and only
to the extent that on such date of termination of employment the Optionee's
right to exercise such Option had vested.
(ii) For purposes of this Section 6(h), the employment
relationship shall be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the case
of an Incentive Stock option, employment shall be deemed to terminate on the
date the Optionee ceases active employment with the Corporation or any
Affiliate, unless the Optionee's reemployment rights are guaranteed by statute
or contract.
(i) Death of Optionee.
If an Optionee dies while an Employee, or after ceasing to be an
Employee but during the period while he or she could have exercised an Option
under Section 6(h), any Option granted to the Optionee may be exercised, to the
extent it had vested at the time of death and subject to the Plan, at any time
within 12 months after the Optionee's death, by the executors or administrators
of his or her estate or by any person or persons who acquire the option by will
or the laws of descent and distribution, but not beyond the otherwise applicable
term of the Option.
(j) Disability of Optionee.
If an Optionee ceases to be an Employee due to becoming disabled, any
Option granted to the Optionee may be exercised to the extent it had vested at
the time of cessation and, subject to the Plan, at any time within 12 months
after the Optionee's termination of employment, but not beyond the otherwise
applicable term of the option.
(k) Rights as a Shareholder.
An Optionee, or a transferee of an Optionee, shall have no rights as a
shareholder of the Corporation with respect to any Shares for which his or her
Option is exercisable until the date of the issuance of a stock certificate for
such Shares. No adjustment shall be made for dividends, ordinary or
extraordinary or whether in currency, securities, or other property,
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 9 hereof.
(l) Modification, Extension and Renewal of Options.
Within the limitations of the plan, the Committee may modify, extend or
renew outstanding Options or accept the cancellation of outstanding Options for
the granting of new Options in substitution therefor. Notwithstanding the
preceding sentence, no modification of an
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Option shall, without the consent of the Optionee, alter or impair any rights or
obligations under any Option previously granted.
(m) Other Provisions.
The stock option agreements authorized under the Plan may contain such
other provisions which are not inconsistent with the terms of the Plan,
including, without limitation, restrictions upon the exercise of the Option, as
the Committee shall deem advisable.
7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs.
To the extent that the Fair Market Value of Shares (determined for each
Share as of the date of grant of the Option covering such Share) subject to
Options granted under this Plan (or any other plan of the Corporation or any
Affiliate) which are designated as Incentive Stock Options and which become
exercisable by an Optionee for the first time during a single calendar year
exceeds $100,000, the Option(s) (or portion thereof) covering such Shares shall
be recharacterized (to the extent of such excess over $100,000) as a
Nonstatutory Stock Option. In determining which Option(s) shall be treated as
Nonstatutory Stock Options under the preceding sentence, the Options shall be
taken into account in the order granted, with the result that a later granted
Option shall be recharacterized as a Nonstatutory Stock Option prior to such
recharacterization of a previously granted Option.
8. TERM OF PLAN.
Options may be granted pursuant to the Plan until ten years following
the Effective Date, and all Options which are outstanding on such date shall
remain in effect until they are exercised or expire by their terms. The Plan
shall expire for all purposes on the date 20 years following the Effective Date.
9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) Reorganizations.
The number of Shares covered by the Plan, as provided in Section 5
hereof, and the number of Shares for which each Option is exercisable shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from the payment of a Common Stock dividend, a stock split, a
reverse stock split or any other event which results in an increase or decrease
in the number of issued Shares effected without receipt of consideration by the
Corporation, and the Exercise Price shall be proportionately increased in the
event the number of Shares subject to such option are decreased and shall be
proportionately decreased in the event the number of Shares subject to such
Option are increased. For the purposes of this paragraph, conversion of any
convertible securities of the Corporation shall not be deemed to have been
"effected without receipt of consideration." Adjustments shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Corporation
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.
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(b) Liquidation.
In the event of the dissolution or liquidation of the Corporation, each
Option shall terminate immediately prior to the consummation of such action. The
Committee shall notify the Optionee not less than thirty (30) days prior to the
proposed consummation of a pending dissolution or liquidation, and the Option
shall be exercisable as to all Shares which are vested prior to expiration until
immediately prior to the consummation of such action.
(c) Merger.
In the event of (i) a proposed merger of the Corporation with or into
another corporation, as a result of which the Corporation is not the surviving
corporation and (ii) the Option is not assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case each Option shall terminate immediately
prior to the consummation of such transaction. The Committee shall notify the
Optionee not less than fifteen (15) days prior to the proposed consummation of
such transaction, and the Option shall be exercisable as to all Shares which are
vested prior to expiration and until immediately prior to the consummation of
such transaction.
(d) Determination by Committee.
All adjustments described in this Section 9 shall be made by the
Committee, whose determination shall be conclusive and binding on all persons.
(e) Limitation on Rights of Optionee.
Except as expressly provided in this Section 9, no Optionee shall have
any rights by reason of any payment of any stock dividend, stock split or
reverse stock split or any other increase or decrease in the number of shares of
stock of any class, or by reason of any reorganization, consolidation,
dissolution, liquidation, merger, exchange, split-up or reverse split-up, or
spin-off of assets or stock of another corporation. Any issuance by the
Corporation of Shares, Options or securities convertible into Shares or Options
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of the Shares for which an Option is
exercisable. Notwithstanding the foregoing, if the Corporation shall enter into
a transaction affecting the Corporation's capital stock or distributions to the
holders of its capital stock for which a revision in the terms of each Option is
not required pursuant to this Section 9, the Committee shall have the fight, but
not the obligation, to revise the terms of each option in a manner the
Committee, in its sole discretion, deems fair and reasonable given the
transaction involved. If necessary or appropriate in connection with such
transaction, the Committee may declare that any Option shall terminate as of a
date fixed by the Committee and give each Optionee the fight to exercise his
Option in whole or in part, including exercise as to Shares to which the Option
would not otherwise be exercisable.
(f) No Restriction on Rights of Corporation.
The grant of an Option shall not affect or restrict in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital
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or business structure, or to merge or consolidate, or to dissolve, liquidate,
sell, or transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Share shall be issued upon the exercise of any Option unless and
until the Corporation was determined that:
(i) The Corporation and the Optionee have taken all actions
required to exempt the issuance of the Shares from the registration requirements
under the Securities Act of 1933, as amended (the "Act"), or the Corporation and
the Optionee shall determine that the registration requirements of the Act do
not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and
(iii) Any other applicable provision of state or Federal law has
been satisfied.
(b) Restrictions on Transfer: Representations of Optionee: Legends.
Regardless of whether the offering and sale of Shares has been
registered under the Act or has been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge, or other -transfer of such Shares, including the placement of
appropriate legends on stock certificates, if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Act, the securities laws
of any state, or any other law. If the sale of Shares is not registered under
the Act and the Corporation shall determine that the registration requirements
of the Act apply to such sale, but an exemption is available which requires an
investment representation or other representation, the Optionee shall be
required, as a condition to purchasing Shares by exercise of his or her Option,
to represent that such Shares are being acquired for investment, and not with a
view to the sale or distribution thereof, except in compliance with the Act, and
to make such other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired
pursuant to an unregistered transaction to which the Act applies shall bear a
restrictive legend substantially in the following form and such other
restrictive legends as are required or deemed advisable under the Plan or the
provisions of any applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT'), OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF, AND
MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS, OR
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WITHOUT AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT
SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED."
The Corporation shall also place legends on stock certificates
representing its right of repurchase under Section 11 hereof and the right of
first refusal under Section 12 hereof. Any determination by the Corporation and
its counsel in connection with any of the matters set forth in this Section 10
shall be conclusive and binding on all.
(c) Registration or Qualification of Securities.
The Corporation may, but shall not be obligated to, register or qualify
the sale of Shares under the Act or any other applicable law. In connection with
any such registration or qualification, the Corporation shall provide each
Optionee with such information required pursuant to all applicable laws and
regulations.
(d) Exchange of Certificates.
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold hereunder is no longer
required, the Optionee or the holder of such certificate shall be entitled to
exchange such certificate for a certificate representing the same number of
Shares but lacking such legend.
11. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal.
At the Committee's discretion, Shares issued pursuant to the exercise
of an Option may be subject to a requirement that if an Optionee proposes to
sell, pledge, or otherwise transfer any Shares acquired pursuant to exercise of
an Option, or any interest in such Shares, to any person or entity, the
Corporation shall have a right of first refusal (the "Right of First Refusal")
with respect to such Shares. Any Optionee desiring to transfer Shares subject to
the Right of First Refusal shall give a written notice (the "Transfer Notice")
to the Corporation describing fully the proposed transfer, including the number
of Shares proposed to be transferred, the proposed transfer price, and the name
and address of the proposed transferee. The Transfer Notice shall be signed both
by the Optionee and by the proposed transferee and must constitute a binding
commitment of both parties to the transfer of the Shares. The Corporation shall
have the right to purchase the Shares subject to the Transfer Notice on the
terms of the proposal referred to in the Transfer Notice, subject to any change
in such terms permitted under Section 12(a) hereof, by delivery of a notice of
exercise of the Right of First Refusal within 30 days after the date the
Transfer Notice is received by the Corporation. The Corporation's rights under
this Section 12(a) shall be freely assignable, in whole or in part.
(b) Transfer of Shares.
If the Corporation fails to exercise the Right of First Refusal within
30 days after the date on which it receives the Transfer Notice, the Optionee
may, not later than six months following receipt of the Transfer Notice by the
Corporation, consummate a transfer of the Shares subject to the Transfer Notice
on the terms and conditions described in the Transfer Notice. Any
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proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by the Optionee,
shall again be subject to the Right of First Refusal and shall again require
compliance with the procedure described in Section 12(a). If the Corporation
exercises its Right of First Refusal, the Optionee shall immediately endorse and
deliver to the Corporation every stock certificate representing the Shares being
purchased, and the Corporation shall then promptly pay the purchase price in
accordance with the terms set forth in the Transfer Notice.
(c) Repurchase Payment.
The amount payable to an Optionee pursuant to the Corporation's
exercise of the right of First Refusal shall be paid to the Optionee in
accordance with the terms and conditions of the Transfer Notice or may, at the
election of the Corporation, be paid in full in cash.
(d) Binding Effect.
The Corporation's Right of First Refusal shall inure to the benefit of
its successors and assigns and shall be binding upon any transferee of the
Shares, other than a transferee acquiring Shares in a transaction with respect
10 which the Corporation failed to exercise its Right of First Refusal (a "Free
Transferee") or a transferee of a Free Transferee.
(e) Termination of Right of First Refusal.
Notwithstanding any other provision of this Section 12, if the Common
Stock is listed on any United States securities exchange or traded on any formal
over-the-counter market in general use in the United States at the time the
Optionee desires to transfer his or her Shares, the Corporation shall no longer
have the Right of First Refusal, and the Optionee shall have no obligation to
comply with this Section 12.
12. EXERCISE OF UNVESTED OPTIONS.
The Committee may grant any Optionee the right to exercise any Option
prior to the complete vesting of such Option. Without limiting the generality of
the foregoing, the Committee may provide that if an Option is exercised prior to
having completely vested, the Shares issued upon such exercise shall remain
subject to vesting at the same rate as under the Option so exercised and shall
be subject to a right, but not an obligation, of repurchase by the Corporation
with respect to all unvested Shares if the Optionee ceases to be an Employee for
any reason. For the purposes of facilitating the enforcement of any such right
of repurchase, at the request of the Committee, the Optionee shall enter into
the Joint Escrow Instructions with the Corporation and deliver every certificate
for his or her unvested Shares with a stock power executed in blank by the
Optionee and by the optionee's spouse, if required for transfer.
13. AMENDMENT OF THE PLAN.
The Board or the Committee may, from time to time, terminate, suspend
or discontinue the Plan, in whole or in part, or revise or amend it in any
respect whatsoever including, but not limited to, the adoption of any
amendment(s) deemed necessary or advisable to qualify the Options under rules
and regulations promulgated by the Securities and Exchange
13
<PAGE> 14
Commission with respect to Employees who are subject to the provisions of
Section 15 of the Securities Exchange Act of 1934, as amended, or to correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option granted thereunder, without approval of the shareholders of the
Corporation, but without the approval of the Corporation's shareholders, no such
revision or amendment shall:
(i) Increase the number of Shares subject to the Plan, other
than any increase pursuant to Section 9;
(ii) Materially modify the requirements as to eligibility for
participation in the Plan;
(iii) Materially increase the benefits accruing to Optionees
under the Plan;
(iv) Extend the term of the Plan; or
(v) Amend this Section 14 to defeat its purpose.
No amendment, termination or modification of the Plan shall affect any
Option theretofore granted in any material adverse way without the consent of
the Optionee.
14. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general corporate
purposes.
15. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of all classes of the outstanding shares present and
entitled to vote at the first meeting of shareholders of the Corporation
following the adoption of the Plan or by written consent, and in no event later
than one (1) year following the Effective Date. Prior to such approval, Options
may be granted but shall not be exercisable. And amendment described in Section
13 (i) to (iv) shall also be subject to approval by the Corporation's
shareholders.
16. WITHHOLDING OF TAXES.
In the event the Corporation or a Affiliate determines that it is
required to withhold federal, state, or local taxes in connection with the
exercise of an Option or the disposition of Shares issued pursuant to the
exercise of an Option, the Optionee or any person succeeding to the rights of
the Optionee, as a condition to such exercise or disposition, may be required to
make arrangements satisfactory to the Corporation or the Affiliate to enable it
to satisfy such withholding requirements.
14
<PAGE> 15
17. RIGHTS AS AN EMPLOYEE.
Neither the Plan nor any Option granted pursuant thereto shall be
construed to give any person the right to remain in the employ of the
Corporation or any Affiliate, or to affect the right of the Corporation or any
Affiliate to terminate such individual's employment at any time with or without
cause. The grant of an Option shall not entitle the Optionee to, or disqualify
the Optionee from, participation in the grant of any other Option under the Plan
or participation in any other benefit plan maintained by the Corporation or any
Affiliate.
18. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED
RIGHTS.
In adopting and maintaining this Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertakings with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Committee, except as expressly provided herein.
19. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Optionee's Option, and any
other documents and records which an Optionee is entitled by law to inspect
shall be open to inspection by the Optionee and his or her duly authorized
representative at the office of the Committee at any reasonable business hour.
20. INFORMATION TO OPTIONEES.
Each Optionee shall be provided with such information regarding the
Corporation as the Committee from time to time deems necessary or appropriate;
provided however, that each Optionee shall at all times be provided with such
information as is required to be provided from time to time pursuant to
applicable regulatory requirements, including, but not limited, any applicable
requirements of the Securities and Exchange Commission, the California
Department of Corporations and other state securities agencies.
15
<PAGE> 16
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
NONSTATUTORY STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this _______ day
of _______, 1996, pursuant to the AboveNet Communications, Inc. 1996 Stock
Option Plan (the "Plan"). The Committee administering the Plan has selected
_______ ("the Optionee") to receive the following grant of a nonstatutory stock
option ("Stock Option") to purchase shares of the common stock of AboveNet
Communications, Inc. (the "Corporation"), on the terms and conditions set forth
below to which Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option_______________________________________
Date of Grant_________________________________________________________
Vesting Commencement Date_____________________________________________
Exercise Price Per Share______________________________________________
Expiration Date_______________________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire, and
all rights to exercise it shall terminate on the Expiration Date, except that
the Stock Option may expired earlier as provided in the Plan. The number of
shares subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan. This Stock Option is intended by the Corporation and the
Optionee to be a Nonstatutory Stock Option and does not qualify for any special
tax benefits to the Optionee and is not subject to Section 7 of the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan. All shares of
the Corporation's common stock issued pursuant to the exercise of this Stock
Option shall be subject to the Corporation's Right of First Refusal as set forth
in Section 11 of the Plan.
E-1
<PAGE> 17
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock option may not be exercised in when or in part at any
time prior to the end of the first semiannual calendar period ("semiannual
calendar period" shall mean six (6) continuous calendar months) following the
Vesting Commencement Date.
(b) Optionee may exercise the Stock Option as to one eighth (1/8th)
of the Shares at the end of 1st full semiannual calendar period following the
Vesting Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional one
eighth (l/8th) of the Shares at the end of each of the full semiannual calendar
period commencing with the 2nd full semiannual calendar period following the
Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a share, or for any share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and regulations
applicable to the grant and exercise of the Stock Option and the sale or other
disposition of the common stock of the Corporation received pursuant to the
exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until the
shares exercisable under the Stock Option have been qualified under the
California Corporate Securities Law of 1968 pursuant to a permit application
filed with the California Department of Corporations or unless the exercise is
otherwise exempt from the qualification requirements of such law. The Stock
Option is conditioned upon the Optionee's representation, which Optionee hereby
confirms as of the date hereof and which Optionee must confirm as of the date of
any exercise of all or any part of the Stock Option, that:
(a) Optionee understands that both this Stock Option and any shares
purchased upon its exercise are securities, the issuance of which require
compliance with state and federal securities laws;
(b) Optionee understands that the securities have not been
registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
investment intention in acquiring these securities; that Optionee's intention is
to hold these securities for Optionee's own benefit for an indefinite period;
that Optionee has no present intention of selling or transferring any part
thereof (recognizing that the Stock Option is not transferable) and that certain
restrictions may exist on transfer of the shares issued upon exercise of the
Stock Option;
(c) Optionee understands that the shares issued upon exercise of
this Stock Option, in addition to other restrictions on transfer, must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that
E-2
<PAGE> 18
Rule 701 and Rule 144, two exemptions from registration which may be available,
are only available after the satisfaction of certain conditions and require the
presence of a U.S. public market for such shares; that no certainty exists that
a U.S. public market for the shares will exist, and that otherwise Optionee may
have to sell the shares pursuant to another exemption from registration which
exemption may be difficult to satisfy; and
(d) The Corporation shall not be under any obligation to issue any
shares upon the exercise of this Stock Option unless and until the Corporation
has determined that:
(i) it and Optionee have taken all actions required to register
such shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which such shares are listed has been satisfied; and
(iii) all other applicable provisions of state and federal law
have been satisfied.
E-3
<PAGE> 19
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE AboveNet Communications, Inc.
_________________________________ By:_________________________________
(signature) (signature)
Its:________________________________
(Type or Print Name)
Address:
_________________________________
_________________________________
E-4
<PAGE> 20
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made and entered into this _______ day
of _______, 1996, pursuant to the AboveNet Communications, Inc. 1996 Stock
Option Plan (the "Plan"). The Committee administering the Plan has selected
_______ ("the Optionee") to receive the following grant of an incentive stock
option ("Stock Option") to purchase shares of the common stock of AboveNet
Communications, Inc. (the "Corporation"), on the terms and conditions set forth
below to which Optionee accepts and agrees:
1. Stock Options Granted:
No. of Shares Subject to Option_______________________________________
Date of Grant_________________________________________________________
Vesting Commencement Date_____________________________________________
Exercise Price Per Share______________________________________________
Expiration Date_______________________________________________________
2. The Stock Option is granted pursuant to the Plan to purchase the
number of shares of authorized but unissued common stock of the Corporation
specified in Section 1 hereof (the "Shares"). The Stock Option shall expire, and
all rights to exercise it shall terminate on the Expiration Date, except that
the Stock Option may expire earlier as provided in the Plan. The number of
shares, subject to the Stock Option granted hereunder shall be adjusted as
provided in the Plan.
3. The Stock Option shall be exercisable in all respects in accordance
with the terms of the Plan which are incorporated herein by this reference.
Optionee acknowledges having received and read a copy of the Plan. All shares of
the Corporation's common stock issued pursuant to the exercise of this Stock
Option shall be subject to the Corporation's Right of First Refusal as set forth
in Sections 11 of the Plan.
4. Optionee shall have the right to exercise the Stock Option in
accordance with the following schedule:
(a) The Stock Option may not be exercised in whole or in part at any
time prior to the end of the first semiannual calendar period (semiannual
calendar period" shall mean six (6) continuous calendar months) following the
Vesting Commencement Date.
E-5
<PAGE> 21
(b) Optionee may exercise the Stock Option as to one eighth (8th) of
the Shares at the end of 1st full semiannual calendar period following the
Vesting Commencement Date.
(c) Optionee may exercise the Stock Option as to an additional one
eighth (1/8th) of the Shares at the end of each of the full semiannual calendar
period commencing with the 2nd full semiannual calendar period following the
Vesting Commencement Date.
(d) The right to exercise the Stock Option shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
shares which are exercisable under the Stock Option, but in no case may Optionee
exercise the Stock Option with regard to a fraction of a share, or for any share
for which the Stock Option is not exercisable.
5. The Optionee agrees to comply with all laws, rules, and
regulations applicable to the grant and exercise of the Stock Option and the
sale or other disposition of the common stock of the Corporation received
pursuant to the exercise of such Stock Option.
6. The Stock Option shall not become exercisable unless and until
the shares exercisable under the Stock Option have been qualified under the
California Corporate Securities Law of 1968 pursuant to a permit application
filed with the California Department of Corporations or unless the exercise is
otherwise exempt from the qualification requirements of such law. The Stock
Option is conditioned upon the Optionee's representation, which Optionee hereby
confirms as of the date hereof and which Optionee must confirm as of the date of
any exercise of all or any part of the Stock Option, that:
(a) Optionee understands that both this Stock Option and any shares
purchased upon its exercise are securities, the issuance of which require
compliance with state and federal securities laws;
(b) Optionee understands that the securities have not been
registered under the Securities Act of 1933 (the "Act") in reliance upon a
specific exemption contained in the Act which depends upon Optionee's bona fide
investment intention in acquiring these securities; that Optionee's intention is
to hold these securities for Optionee's own benefit for an indefinite period;
that Optionee has no present intention of selling or transferring any part
thereof (recognizing that the Stock Option is not transferable) and that certain
restrictions may exist on transfer of the shares issued upon exercise of the
Stock Option;
(c) Optionee understands that the shares issued upon exercise of
this Stock Option, in addition to other restrictions on transfer, must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from registration is available; that Rule 701 and Rule 144, two
exemptions from registration which may be available, are only available after
the satisfaction of certain conditions and require the presence of a U.S. public
market for such shares; that no certainty exists that a U.S. public market for
the shares will exist, and that otherwise Optionee may have to sell the shares
pursuant to another exemption from registration which exemption may be difficult
to satisfy; and
E-6
<PAGE> 22
(d) The Corporation shall not be under any obligation to issue any
shares upon the exercise of this Stock Option unless and until the Corporation
has determined that:
(i) it and Optionee have taken all actions required to register
such shares under the Securities Act, or to perfect an exemption from the
registration requirements thereof;
(ii) any applicable listing requirement of any F stock exchange
on which such shares are listed has been satisfied; and
(iii) all other applicable provisions of state and federal law
have been satisfied.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock
Option Agreement, in the case of the Corporation by its duly authorized officer,
as of the date and year written above.
OPTIONEE AboveNet Communications, Inc.
_________________________________ By:_________________________________
(signature) (signature)
Its:________________________________
(Type or Print Name)
Address:
_________________________________
_________________________________
E-7
<PAGE> 1
EXHIBIT 10.3
ABOVENET COMMUNICATIONS, INC.
1997 STOCK PLAN
ADOPTED ON SEPTEMBER 22, 1997
AMENDED ON JANUARY 27, 1998, MAY 20, 1998 AND JUNE 19, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE........................................................1
SECTION 2. ADMINISTRATION...................................................................1
(a) Committees of the Board of Directors.................................................1
(b) Authority of the Board of Directors..................................................1
SECTION 3. ELIGIBILITY......................................................................1
(a) General Rule.........................................................................1
(b) Ten-Percent Shareholders.............................................................1
SECTION 4. STOCK SUBJECT TO PLAN............................................................2
(a) Basic Limitation.....................................................................2
(b) Additional Shares....................................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES..........................................2
(a) Stock Purchase Agreement.............................................................2
(b) Duration of Offers and Nontransferability of Rights..................................2
(c) Purchase Price.......................................................................2
(d) Withholding Taxes....................................................................2
(e) Restrictions on Transfer of Shares and Minimum Vesting...............................3
(f) Accelerated Vesting..................................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS..................................................3
(a) Stock Option Agreement...............................................................3
(b) Number of Shares.....................................................................3
(c) Exercise Price.......................................................................3
(d) Withholding Taxes....................................................................3
(e) Exercisability.......................................................................4
(f) Accelerated Exercisability...........................................................4
(g) Basic Term...........................................................................4
(h) Nontransferability...................................................................4
(i) Termination of Service (Except by Death).............................................4
(j) Leaves of Absence....................................................................5
(k) Death of Optionee....................................................................5
(l) No Rights as a Shareholder...........................................................5
(m) Modification, Extension and Assumption of Options....................................5
(n) Restrictions on Transfer of Shares and Minimum Vesting...............................5
(o) Accelerated Vesting..................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 7. PAYMENT FOR SHARES...............................................................6
(a) General Rule.........................................................................6
(b) Surrender of Stock...................................................................6
(c) Services Rendered....................................................................6
(d) Promissory Note......................................................................6
(e) Exercise/Sale........................................................................6
(f) Exercise/Pledge......................................................................6
SECTION 8. ADJUSTMENT OF SHARES.............................................................7
(a) General..............................................................................7
(b) Mergers and Consolidations...........................................................7
(c) Reservation of Rights................................................................7
SECTION 9. SECURITIES LAWS REQUIREMENTS.....................................................7
(a) General..............................................................................7
(b) Financial Reports....................................................................8
SECTION 10. NO RETENTION RIGHTS.............................................................8
SECTION 11. DURATION AND AMENDMENTS.........................................................8
(a) Term of the Plan.....................................................................8
(b) Right to Amend or Terminate the Plan.................................................8
(c) Effect of Amendment or Termination...................................................8
SECTION 12. DEFINITIONS.....................................................................8
SECTION 13. EXECUTION......................................................................11
</TABLE>
<PAGE> 4
ABOVENET COMMUNICATIONS, INC. 1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of two or
more members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for such
functions as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 110% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and
(iii) in the case of an ISO, such ISO by its terms is not exercisable after the
expiration of five years from the date of grant. For purposes of this Subsection
(b), in determining stock ownership, the attribution rules of Section 424(d) of
the Code shall be applied.
1
<PAGE> 5
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 4,497,696 Shares, subject to adjustment pursuant to
Section 8(1). The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated, the
Shares allocable to the unexercised portion of such Option or other right shall
again be available for the purposes of the Plan. In the event that Shares issued
under the Plan are reacquired by the Company pursuant to any forfeiture
provision, right of repurchase or right of first refusal, such Shares shall
again be available for the purposes of the Plan, except that the aggregate
number of Shares which may be issued upon the exercise of ISOs shall in no event
exceed 4,497,696 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under
the Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of such
right was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan shall not be less than 85% of the Fair Market Value of such Shares, and
a higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any
- --------------------------
(1) Reflects increase of (i) 700,000 Shares from 1,297,696 Shares to 1,997,696
Shares approved by Board of Directors on January 27, 1998; (ii) 1,000,000 Shares
approved by the Board of Directors on May 20, 1998; and (iii) 1,500,000 Shares
approved by the Board of Directors on June 19, 1998.
2
<PAGE> 6
federal, state, local or foreign withholding tax obligations that may arise in
connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Purchase Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of a Purchaser who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
at least as rapidly as 20% per year over the five-year period commencing on the
date of the award or sale of the Shares. Any such right may be exercised only
within 90 days after the termination of the Purchaser's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's Service
shall lapse and all of such Shares shall become vested if the Company is subject
to a Change in Control before the Purchaser's Service terminates.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall
not be less than 85% of the Fair Market Value of a Share on the date of grant,
and a higher percentage may be required by Section 3(b). Subject to the
preceding two sentences, the Exercise Price under any Option shall be determined
by the Board of Directors at its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require
3
<PAGE> 7
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with the disposition of Shares acquired
by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. In the
case of an Optionee who is not an officer of the Company, an Outside Director or
a Consultant, an Option shall become exercisable at least as rapidly as 20% per
year over the five-year period commencing on the date of the grant. Subject to
the preceding sentence, the exercisability provisions of any Stock Option
Agreement shall be determined by the Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if the Company is subject to a Change in Control before the
Optionee's Service terminates.
(g) BASIC TERM. The Stock Option Agreement shall specify the term
of the Option. The term shall not exceed 10 years from the date of grant, and a
shorter term may be required by Section 3(b). Subject to the preceding sentence,
the Board of Directors at its sole discretion shall determine when an Option is
to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's
Service terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection
(g) above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability, or such later
date as the Board of Directors may determine; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Disability, or such later date as the
Board of Directors may determine.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
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<PAGE> 8
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for this purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Option Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse at least
as rapidly as 20% per year over the five-year period commencing on the date of
the option grant. Any such repurchase right may be exercised only
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<PAGE> 9
within 90 days after the termination of the Optionee's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if the Company is subject to a
Change in Control before the Optionee's Service terminates.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement
so provides, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. The Shares shall be pledged as security
for payment of the principal amount of the promissory note and interest thereon.
The interest rate payable under the terms of the promissory note shall not be
less than the minimum rate (if any) required to avoid the imputation of
additional interest under the Code. Subject to the foregoing, the Board of
Directors (at its sole discretion) shall specify the term, interest rate,
amortization requirements (if any) and other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan
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proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by
the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent
of options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment
of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
7
<PAGE> 11
(b) FINANCIAL REPORTS. The Company each year shall furnish to
Optionees, Purchasers and shareholders who have received Stock under the Plan
its balance sheet and income statement, unless such Optionees, Purchasers or
shareholders are key Employees whose duties with the Company assure them access
to equivalent information. Such balance sheet and income statement need not be
audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, became effective
when adopted by the Board of Directors on September 22, 1997. The Plan was
approved by the Company's shareholders on December 1, 1997. On January 27, 1998,
the Board of Directors adopted an increase in the number of Shares issuable over
the term of the Plan, from 1,297,696 Shares to 1,997,696 Shares, which was
approved by the Company's shareholders on February 14, 1998. On May 20, 1998,
the Board of Directors adopted an increase in the number of Shares issuable over
the term of the Plan from 1,997,696 Shares to 2,997,696 Shares. On June 19,
1998, the Board of Directors adopted an increase in the number of Shares
issuable over the term of the Plan from 2,997,696 Shares to 4,497,696 Shares.
The Company's shareholders approved both the May 20 and the June 19 increases on
June 25, 1998. The Plan shall terminate automatically 10 years after its
adoption by the Board of Directors and may be terminated on any earlier date
pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's shareholders.
Shareholder approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
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<PAGE> 12
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other reorganization;
or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean AboveNet Communications, Inc., a California
corporation.
(f) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
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(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
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. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(q) "PLAN" shall mean this AboveNet Communications, Inc. 1997 Stock
Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(y) "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. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
10
<PAGE> 14
SECTION 13. EXECUTION.
To record the amendment and restatement of the Plan by the Board of
Directors, the Company has caused its authorized officer to execute the same.
ABOVENET COMMUNICATIONS, INC.
By:
--------------------------------
Title:
-----------------------------
11
<PAGE> 1
EXHIBIT 10.4
ABOVENET COMMUNICATIONS INC.
1998 STOCK INCENTIVE PLAN
(AS ADOPTED EFFECTIVE _______ __, 1998)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. INTRODUCTION..........................................................................................1
ARTICLE 2. ADMINISTRATION........................................................................................1
2.1 Committee Composition...................................................................................1
2.2 Committee Responsibilities..............................................................................1
2.3 Committee for Non-Officer Grants........................................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS...........................................................................2
3.1 Basic Limitation........................................................................................2
3.2 Annual Increase in Shares...............................................................................2
3.3 Additional Shares.......................................................................................2
ARTICLE 4. ELIGIBILITY...........................................................................................2
4.1 Nonstatutory Stock Options and Restricted Shares........................................................2
4.2 Incentive Stock Options.................................................................................2
ARTICLE 5. OPTIONS 2
5.1 Stock Option Agreement..................................................................................2
5.2 Number of Shares........................................................................................3
5.3 Exercise Price..........................................................................................3
5.4 Exercisability and Term.................................................................................3
5.5 Effect of Change in Control.............................................................................3
5.6 Modification or Assumption of Options...................................................................3
5.7 Buyout Provisions.......................................................................................3
ARTICLE 6. PAYMENT FOR OPTION SHARES.............................................................................4
6.1 General Rule............................................................................................4
6.2 Surrender of Stock......................................................................................4
6.3 Exercise/Sale...........................................................................................4
6.4 Exercise/Pledge.........................................................................................4
6.5 Promissory Note.........................................................................................4
6.6 Other Forms of Payment..................................................................................4
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS..........................................................5
7.1 Initial Grants..........................................................................................5
7.2 Annual Grants...........................................................................................5
7.3 Accelerated Exercisability..............................................................................5
7.4 Exercise Price..........................................................................................5
7.5 Term....................................................................................................5
7.6 Affiliates of Outside Directors.........................................................................5
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 8. RESTRICTED SHARES.....................................................................................6
8.1 Restricted Stock Agreement..............................................................................6
8.2 Payment for Awards......................................................................................6
8.3 Vesting Conditions......................................................................................6
8.4 Voting and Dividend Rights..............................................................................6
ARTICLE 9. PROTECTION AGAINST DILUTION...........................................................................6
9.1 Adjustments.............................................................................................6
9.2 Dissolution or Liquidation..............................................................................7
9.3 Reorganizations.........................................................................................7
ARTICLE 10. DEFERRAL OF DELIVERY OF SHARES.......................................................................7
ARTICLE 11. AWARDS UNDER OTHER PLANS.............................................................................7
ARTICLE 12. LIMITATION ON RIGHTS.................................................................................8
12.1 Retention Rights........................................................................................8
12.2 Stockholders' Rights....................................................................................8
12.3 Regulatory Requirements.................................................................................8
ARTICLE 13. WITHHOLDING TAXES....................................................................................8
13.1 General.................................................................................................8
13.2 Share Withholding.......................................................................................8
ARTICLE 14. FUTURE OF THE PLAN...................................................................................8
14.1 Term of the Plan........................................................................................8
14.2 Amendment or Termination................................................................................9
ARTICLE 15. DEFINITIONS..........................................................................................9
ARTICLE 16. EXECUTION...........................................................................................11
</TABLE>
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<PAGE> 4
ABOVENET COMMUNICATIONS INC.
1998 STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective ________ __, 1998. The purpose
of the Plan is to promote the long-term success of the Company and the creation
of stockholder value by (a) encouraging Employees, Outside Directors and
Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares or Options (which may constitute incentive stock options or
nonstatutory stock options).
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards.
<PAGE> 5
Within the limitations of this Section 2.3, any reference in the Plan to the
Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options and Restricted Shares awarded under the Plan shall not exceed (a)
2,500,000 plus (b) the additional Common Shares described in Sections 3.2 and
3.3. The limitations of this Section 3.1 and Section 3.2 shall be subject to
adjustment pursuant to Article 9.
3.2 ANNUAL INCREASE IN SHARES. As of the first day of each fiscal year,
commencing with July 1, 1999, the aggregate number of Options and Restricted
Shares that may be awarded under the Plan shall automatically increase by a
number equal to the lesser of (a) 4% of the total number of Common Shares then
outstanding or (b) 500,000.
3.3 ADDITIONAL SHARES. If Options are forfeited or terminate for any other
reason before being exercised, then the corresponding Common Shares shall again
become available for the grant of Options or Restricted Shares under the Plan.
If Restricted Shares or Common Shares issued upon the exercise of Options are
forfeited, then such Common Shares shall again become available for the grant of
NSOs and Restricted Shares under the Plan. The aggregate number of Common Shares
that may be issued under the Plan upon the exercise of ISOs shall not be
increased when Restricted Shares or other Common Shares are forfeited.
ARTICLE 4. ELIGIBILITY.
4.1 NONSTATUTORY STOCK OPTIONS AND RESTRICTED SHARES. Only Employees,
Outside Directors and Consultants shall be eligible for the grant of NSOs and
Restricted Shares.
4.2 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
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<PAGE> 6
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 9. Options granted to any Optionee in a
single fiscal year of the Company shall not cover more than 500,000 Common
Shares, except that Options granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
cover more than 1,000,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 9.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price under an ISO shall in no event be less
than 100% of the Fair Market Value of a Common Share on the date of grant and
the Exercise Price under an NSO shall in no event be less than 85% of the Fair
Market Value of a Common Share on the date of grant. In the case of an NSO, a
Stock Option Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the
date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service.
5.5 EFFECT OF CHANGE IN CONTROL. Each Option shall become exercisable as
to all or part of the Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company, subject to the following
limitations:
(a) In the case of an ISO, the acceleration of exercisability shall
not occur without the Optionee's written consent.
(b) If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be
treated as a "pooling of interests" for financial reporting purposes, and
if such transaction in fact is so treated, then the acceleration of
exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately
determine in good faith that such acceleration would preclude the use of
"pooling of interests" accounting.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to
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elect to cash out an Option previously granted, in either case at such time and
based upon such terms and conditions as the Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is applicable,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Common Shares that are already owned by the Optionee. Such
Common Shares shall be valued at their Fair Market Value on the date when the
new Common Shares are purchased under the Plan. The Optionee shall not
surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
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ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 INITIAL GRANTS. Each Outside Director who first becomes a member of
the Board after the date of the Company's initial public offering shall receive
a one-time grant of an NSO covering 15,000 Common Shares (subject to adjustment
under Article 9). Such NSO shall be granted on the date when such Outside
Director first joins the Board and shall become exercisable in 36 equal
installments at monthly intervals over the 36-month period commencing on the
date of grant.
7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual meeting of
the Company's stockholders held in the year 1999 or thereafter, each Outside
Director who will continue serving as a member of the Board thereafter shall
receive an NSO covering 5,000 Common Shares (subject to adjustment under Article
9), except that such NSO shall not be granted in the fiscal year in which the
same Outside Director received the NSO described in Section 7.1. NSOs granted
under this Section 7.2 shall become exercisable in full on the first anniversary
of the date of grant.
7.3 ACCELERATED EXERCISABILITY. All NSOs granted to an Outside Director
under this Article 7 shall become exercisable in full in the event of:
(a) The termination of such Outside Director's service because of
death, total and permanent disability or retirement at or after age 70; or
(b) A Change in Control with respect to the Company, except as
provided in the next following sentence. If the Company and the other party
to the transaction constituting a Change in Control agree that such
transaction is to be treated as a "pooling of interests" for financial
reporting purposes, and if such transaction in fact is so treated, then the
acceleration of exercisability shall not occur to the extent that the
Company's independent accountants and such other party's independent
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
7.4 EXERCISE PRICE. The Exercise Price under all NSOs granted to an
Outside Director under this Article 7 shall be equal to 100% of the Fair Market
Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3 and 6.4.
7.5 TERM. All NSOs granted to an Outside Director under this Article 7
shall terminate on the earliest of (a) the 10th anniversary of the date of
grant, (b) the date three months after the termination of such Outside
Director's service for any reason other than death or total and permanent
disability or (c) the date 12 months after the termination of such Outside
Director's service because of death or total and permanent disability.
7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide that the
NSOs that otherwise would be granted to an Outside Director under this Article 7
shall instead be granted to an affiliate of such Outside Director. Such
affiliate shall then be deemed to be an Outside Director for purposes of the
Plan, provided that the service-related vesting and termination
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provisions pertaining to the NSOs shall be applied with regard to the service of
the Outside Director.
ARTICLE 8. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.
8.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. All
Restricted Shares shall become vested in the event that a Change in Control
occurs with respect to the Company, except as provided in the next following
sentence. If the Company and the other party to the transaction constituting a
Change in Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of vesting shall not occur to the extent that
the Company's independent accountants and such other party's independent
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
ARTICLE 9. PROTECTION AGAINST DILUTION.
9.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
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appropriate in one or more of (a) the number of Options and Restricted Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 5.2, (c) the number of NSOs to be granted to Outside Directors under
Article 7; (d) the number of Common Shares covered by each outstanding Option or
(e) the Exercise Price under each outstanding Option. Except as provided in this
Article 9, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
9.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
9.3 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options and Restricted Shares shall be
subject to the agreement of merger or reorganization. Such agreement shall
provide for (a) the continuation of the outstanding Awards by the Company, if
the Company is a surviving corporation, (b) the assumption of the outstanding
Awards by the surviving corporation or its parent or subsidiary, (c) the
substitution by the surviving corporation or its parent or subsidiary of its own
awards for the outstanding Awards, (d) full exercisability or vesting and
accelerated expiration of the outstanding Awards or (e) settlement of the full
value of the outstanding Awards in cash or cash equivalents followed by
cancellation of such Awards.
ARTICLE 10. DEFERRAL OF DELIVERY OF SHARES
The Committee (in its sole discretion) may permit or require an Optionee to
have Common Shares that otherwise would be delivered to such Optionee as a
result of the exercise of an Option converted into amounts credited to a
deferred compensation account established for such Optionee by the Committee as
an entry on the Company's books. Such amounts shall be determined by reference
to the Fair Market Value of such Common Shares as of the date when they
otherwise would have been delivered to such Optionee. A deferred compensation
account established under this Article 10 may be credited with interest or other
forms of investment return, as determined by the Committee. An Optionee for whom
such an account is established shall have no rights other than those of a
general creditor of the Company. Such an account shall represent an unfunded and
unsecured obligation of the Company and shall be subject to the terms and
conditions of the applicable agreement between such Optionee and the Company. If
the conversion of Options is permitted or required, the Committee (in its sole
discretion) may establish rules, procedures and forms pertaining to such
conversion, including (without limitation) the settlement of deferred
compensation accounts established under this Article 10.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Restricted Shares
and shall, when issued, reduce the number of Common Shares available under
Article 3.
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ARTICLE 12. LIMITATION ON RIGHTS.
12.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
12.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, in the case of an Option, the time when he or she
becomes entitled to receive such Common Shares by filing a notice of exercise
and paying the Exercise Price. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to such time, except as
expressly provided in the Plan.
12.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 13. WITHHOLDING TAXES.
13.1 GENERAL. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
13.2 SHARE WITHHOLDING. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 14. FUTURE OF THE PLAN.
14.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on _______ __, 1998. The Plan shall remain in effect until it is
terminated under Section 14.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 which was approved by the
Company's stockholders.
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14.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 15. DEFINITIONS.
15.1 "AFFILIATE" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
15.2 "AWARD" means any award of an Option or a Restricted Share under the
Plan.
15.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
15.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization;
(b) The sale, transfer or other disposition of all or substantially
all of the Company's assets; or
(c) Any transaction as a result of which any person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 50% of the
total voting power represented by the Company's then outstanding voting
securities. For purposes of this Subsection (d), the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
15.5 "CODE" means the Internal Revenue Code of 1986, as amended.
15.6 "COMMITTEE" means a committee of the Board, as described in Article 2.
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15.7 "COMMON SHARE" means one share of the common stock of the Company.
15.8 "COMPANY" means AboveNet Communications Inc., a Delaware corporation.
15.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.
15.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
15.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
15.12 "EXERCISE PRICE" means the amount for which one Common Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
15.13 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
15.14 "ISO" means an incentive stock option described in section 422(b) of
the Code.
15.15 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
15.16 "OPTION" means an ISO or NSO granted under the Plan and entitling the
holder to purchase Common Shares.
15.17 "OPTIONEE" means an individual or estate who holds an Option.
15.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.
15.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
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. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
15.20 "PARTICIPANT" means an individual or estate who holds an Award.
15.21 "PLAN" means this AboveNet Communications Inc. 1998 Stock Incentive
Plan, as amended from time to time.
15.22 "PREDECESSOR PLAN" means the Company's existing 1997 Stock Plan.
15.23 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
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15.24 "RESTRICTED STOCK AGREEMENT" means the agreement between the Company
and the recipient of a Restricted Share that contains the terms, conditions and
restrictions pertaining to such Restricted Share.
15.25 "STOCK OPTION AGREEMENT" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.
15.26 "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. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 16. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to execute this document in the name of the Company.
ABOVENET COMMUNICATIONS INC.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 1
EXHIBIT 10.5
ABOVENET COMMUNICATIONS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE _______ __, 1998)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. PURPOSE OF THE PLAN ................................................................................1
SECTION 2. ADMINISTRATION OF THE PLAN .........................................................................1
(a) Committee Composition....................................................................1
(b) Committee Responsibilities...............................................................1
SECTION 3. ENROLLMENT AND PARTICIPATION........................................................................1
(a) Offering Periods.........................................................................1
(b) Accumulation Periods.....................................................................1
(c) Enrollment ..............................................................................1
(d) Duration of Participation................................................................1
(e) Applicable Offering Period...............................................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS .............................................................................2
(a) Frequency of Payroll Deductions..........................................................2
(b) Amount of Payroll Deductions.............................................................2
(c) Changing Withholding Rate................................................................2
(d) Discontinuing Payroll Deductions.........................................................3
(e) Limit on Number of Elections.............................................................3
SECTION 5. WITHDRAWAL FROM THE PLAN ...........................................................................3
(a) Withdrawal ..............................................................................3
(b) Re-Enrollment After Withdrawal...........................................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS.........................................................................3
(a) Termination of Employment................................................................3
(b) Leave of Absence.........................................................................3
(c) Death ...................................................................................3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES................................................................4
(a) Plan Accounts ...........................................................................4
(b) Purchase Price ..........................................................................4
(c) Number of Shares Purchased...............................................................4
(d) Available Shares Insufficient............................................................4
(e) Issuance of Stock........................................................................4
(f) Unused Cash Balances.....................................................................5
(g) Stockholder Approval.....................................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP......................................................................5
(a) Five Percent Limit.......................................................................5
(b) Dollar Limit ............................................................................5
</TABLE>
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<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE ............................................................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE ..........................................................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER.........................................................................6
SECTION 12. SECURITIES LAW REQUIREMENTS........................................................................6
SECTION 13. STOCK OFFERED UNDER THE PLAN.......................................................................7
(a) Authorized Shares........................................................................7
(b) Anti-Dilution Adjustments................................................................7
(c) Reorganizations .........................................................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE........................................................................7
SECTION 15. DEFINITIONS .......................................................................................7
(a) Accumulation Period......................................................................7
(b) Board ...................................................................................7
(c) Code ....................................................................................7
(d) Committee ...............................................................................7
(e) Company .................................................................................7
(f) Compensation ............................................................................8
(g) Corporate Reorganization.................................................................8
(h) Eligible Employee........................................................................8
(i) Exchange Act ............................................................................8
(j) Fair Market Value........................................................................8
(k) IPO .....................................................................................8
(l) Offering Period .........................................................................9
(m) Participant .............................................................................9
(n) Participating Company....................................................................9
(o) Plan ....................................................................................9
(p) Plan Account ............................................................................9
(q) Purchase Price ..........................................................................9
(r) Stock ...................................................................................9
(s) Subsidiary ..............................................................................9
SECTION 16. EXECUTION .........................................................................................9
</TABLE>
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ABOVENET COMMUNICATIONS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on _______ __, 1998, to be effective
as of the date of the IPO. The purpose of the Plan is to provide Eligible
Employees with an opportunity to increase their proprietary interest in the
success of the Company by purchasing Stock from the Company on favorable terms
and to pay for such purchases through payroll deductions. The Plan is intended
to qualify under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each May 1 and November 1,
except that the first Offering Period shall commence on the date of the IPO and
end on October 31, 2000.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each May 1 and November 1, except
that the first Accumulation Period shall commence on the date of the IPO and end
on April 30, 1999.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than one business
day prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an
Offering Period, such Offering Period shall continue to apply to him or
her until the earliest of (A) the end of such Offering Period, (B) the
end of his or her participation under Subsection (d) above or (C)
re-enrollment for a subsequent Offering Period under Paragraph (ii) or
(iii) below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading
day before the commencement of any subsequent Offering Period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Company (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants shall be
re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant
shall automatically be re-enrolled for the Offering Period that
commences immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as
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<PAGE> 6
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than 2
elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
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SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first
Offering Period under the Plan, 85% of the price at which one share of
Stock is offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 5,000 shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 8(b) and 13(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
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<PAGE> 8
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Company or any parent or
Subsidiary of the Company. For purposes of this Subsection (a), the following
rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that
he or she has a right or option to purchase under this or any other
plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 5,000 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal
to (A) $25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the
Stock that the Participant previously purchased (under this Plan and
all other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the
immediately preceding calendar year.
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(iii) In the case of Stock purchased during an Offering
Period that commenced in the second preceding calendar year, the limit
shall be equal to (A) $75,000 minus (B) the Fair Market Value of the
Stock that the Participant previously purchased (under this Plan and
all other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the two
preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
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SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 250,000 (subject to adjustment pursuant to this
Section 13). On the first day of each fiscal year of the Company, commencing
with July 1, 1999, the aggregate number of shares of Stock available for
purchase during the life of the Plan shall automatically be increased by the
number of shares necessary to cause the number of shares then available for
purchase to be restored to 250,000 (subject to adjustment pursuant to this
Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 5,000-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 13, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
(e) "COMPANY" means AboveNet Communications Inc., a Delaware
corporation.
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(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation
or dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
if his or her customary employment is for more than five months per calendar
year and for more than 20 hours per week. The foregoing notwithstanding, an
individual shall not be considered an Eligible Employee if his or her
participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on
the date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for such
date; or
(iii) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.
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(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this AboveNet Communications Inc. 1998 Employee Stock
Purchase Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "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.
SECTION 16. EXECUTION.
To record the adoption of the Plan by the Board on ________ __, 1998,
the Company has caused its authorized officer to execute the same.
ABOVENET COMMUNICATIONS INC.
By:
-------------------------------
Title:
----------------------------
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 10, 1997, between AboveNet
Communications, Inc., a corporation organized under the laws of the State of
California ("Employer"), and Warren Kaplan ("Executive").
WHEREAS, Executive desires to provide services to Employer and Employer
desires to retain the services of Executive;
WHEREAS, Employer and Executive desire to formalize the terms and
conditions of Executive's employment with Employer.
NOW, THEREFORE, Employer and Executive hereby agree as follows:
1. Employment.
1.1 General. Employer hereby employs Executive in the capacity of
President and Chief Operating Officer, commencing with the Employment Term (as
defined in Section 2.5). Effective as of the Hire Date (as defined in Section
2.5), Employer has elected Executive as a member of the Board of Directors of
Employer (the "Board"). Executive hereby accepts such employment, upon the terms
and subject to the conditions herein contained.
1.2 Duties. During Executive's employment with Employer, Executive
shall report directly to Employer's Chief Executive Officer and shall be
responsible for performing those duties consistent with the position of
President and Chief Operating Officer as may from time to time be reasonably
assigned to or requested of Executive by Employer's Chief Executive Officer.
Executive shall use his reasonable efforts to perform faithfully and effectively
such responsibilities. Executive shall conduct all of his activities in a manner
so as to maintain and promote the business and reputation of Employer.
1.3 Full-Time Position. Executive, during his employment with
Employer, shall devote all of his business time, attention and skills to the
business and affairs of Employer. Notwithstanding the foregoing, it shall not be
a violation of this Agreement if Executive performs consulting services for
NETCOM On-Line Communications Services, Inc. ("NETCOM") prior to September 30,
1998, not to exceed 10 hours per month. Executive may also serve as a director
(but not as an officer, employee, finder or consultant) to other companies that
are not directly competitive with Employer; provided that Executive shall advise
the Board in writing of all compensation of any nature that Executive shall be
entitled to in connection with such other directorships.
1.4 Location of Employment. Executive's principal place of
employment during his employment with Employer shall be in Silicon Valley,
California. In the event that Employer shall change the location of its
principal office from Silicon Valley, California, and Executive does not
terminate his employment pursuant to Section 3.1.5 hereof, Executive shall be
entitled to be reimbursed for reasonable documented relocation expenses,
<PAGE> 2
including moving costs, temporary housing, commuting expenses and other
relocation costs not to exceed $100,000.
2. Compensation and Benefits.
2.1 Salary. Employer shall pay to Executive, and Executive shall
accept, as full compensation for any and all services rendered and to be
rendered by him to Employer in all capacities during the term of his employment
under this Agreement, (a) a base salary at the annual rate of $150,000 for the
first year of employment hereunder and $175,000 for the second through fourth
years of employment hereunder, or at such higher rate as the Board shall
determine in its sole discretion ("Base Salary"), payable in accordance with the
regular payroll practices of Employer, and (b) the additional benefits
hereinafter set forth in this Section 2. Notwithstanding the foregoing, in the
event that a Corporate Transaction (as hereinafter defined) occurs on or before
December 31, 1999, Executive's Base Salary for the balance of the employment
year in which the Corporate Transaction occurs shall be increased to an annual
rate of $225,000 and Executive's Base Salary for each year of employment
following the year of the Corporate Transaction shall be increased by an amount
equal to not less than 10% of the Base Salary for the preceding year of
employment hereunder. The preceding sentence shall not apply if no Corporate
Transaction occurs on or before December 31, 1999.
For all purposes under this Agreement, "Corporate Transaction" means one
of the following events:
(a) Sherman Tuan ceases to be Employer's Chief Executive
Officer and is succeeded in such position by any person other than Executive;
(b) An underwritten initial public offering of Employer's
securities;
(c) The consummation of a merger or consolidation of Employer
with or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not shareholders of Employer
immediately prior to such merger, consolidation or other reorganization;
(d) The sale, transfer or other disposition of all or
substantially all of Employer's assets;
(e) The liquidation or dissolution of Employer; or
(f) Any transaction as a result of which any person becomes
the beneficial owner of securities of Employer representing at least 50% of the
total voting power represented by Employer's then outstanding voting securities.
For purposes of this Subsection (e), the term "person" shall exclude (i) any
person who is a shareholder of Employer on the date of this Agreement or (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
Employer or of a parent or subsidiary of Employer.
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<PAGE> 3
A transaction shall not constitute a "Corporate Transaction" if its sole
purpose is to change the state of Employer's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held Employer's securities immediately before such transaction.
2.2 Additional Compensation. Executive shall be entitled to an
annual bonus of up to the amount of his Base Salary, as determined by the Board
in its sole discretion based upon performance targets established by the Board
at the beginning of each year of employment hereunder. Notwithstanding the
foregoing, in the event that during a fiscal year ending on or before December
31, 1999, a Corporate Transaction occurs or Employer reports earnings before
depreciation and amortization for a fiscal year ending on or before December 31,
1999, the minimum annual bonus hereunder shall be $50,000 for such fiscal year,
and the minimum bonus for each subsequent fiscal year shall be the minimum bonus
for the preceding fiscal year plus an additional 10%. The preceding sentence
shall not apply if no Corporate Transaction occurs in a fiscal year ending on or
before December 31, 1999, and Employer does not report earnings before
depreciation and amortization for a fiscal year ending on or before December 31,
1999.
2.3 Stock Options. As of his first day of employment hereunder,
Executive shall be granted a stock option to purchase 700,000 shares of
Employer's Common Stock. The exercise price per share shall be equal to $0.10.
The option shall be subject to the terms and conditions described in the Stock
Option Agreement attached hereto as Exhibit A. The option shall be exercisable
immediately with respect to 20% of the option shares, and the balance shall
become exercisable in equal monthly installments over the next 36 months of
service (as described in such Stock Option Agreement), except as otherwise
provided in Section 3.2.2. For purposes of determining the number of shares with
respect to which the option is exercisable, Executive's service shall be deemed
to commence on November 10, 1997.
2.4 Executive Benefits.
2.4.1 Expenses. Employer shall reimburse Executive for
expenses he reasonably incurs in connection with the performance of his duties
(including business travel and entertainment expenses), all in accordance with
Employer's policies with respect thereto.
2.4.2 Employer Plans. Executive shall be entitled to
participate in such executive benefit plans and programs as Employer may from
time to time offer or provide to executives of Employer, including, but not
limited to, participation in life insurance, health and accident, medical and
dental, disability and retirement plans and programs.
2.4.3 Vacation. Executive shall be eligible for three weeks'
paid vacation leave.
2.4.4 Car Allowance. Employer shall pay to Executive a car
allowance of $600 per month.
2.4.5 Cellular Telephone. Employer shall purchase a cellular
telephone for Executive's use and shall reimburse Executive for business
telephone calls related
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<PAGE> 4
to Executive's employment made to or from such telephone within 30 days after
receipt of telephone bills for such telephone calls.
2.5 Employment Term. Executive's employment by Employer
pursuant to this Agreement shall commence on the closing date of an equity,
convertible debt or bridge loan investment in the Company by one or more venture
capital funds, financial institutions or individuals in the aggregate amount of
$1 million or more (the "Hire Date"). Except as provided in Section 3.1 hereof,
Executive's employment by Employer pursuant to this Agreement shall continue
until the fourth anniversary of the Hire Date (the "Initial Term"). Thereafter,
this Agreement shall automatically be renewed for successive one-year periods
(the Initial Term, together with any subsequent employment period or periods,
being referred to herein as the "Employment Term"); provided, however, that
either party may elect to terminate this Agreement as of the anniversary of the
Hire Date in 2002 or as of any subsequent anniversary of the Hire Date by
written notice to such effect delivered to the other party at least 120 days
prior to such termination date.
3. Termination of Employment.
3.1 Events of Termination. Executive's employment with Employer
shall terminate upon the occurrence of any one or more of the following events:
3.1.1 Death. In the event of Executive's death, Executive's
employment shall terminate on the date of death.
3.1.2 Disability. In the event of Executive's Disability (as
hereinafter defined), Employer shall have the option to terminate Executive's
employment by giving a notice of termination to Executive. The notice of
termination shall specify the date of termination, which date shall not be
earlier than 30 days after the notice of termination is given. For purposes of
this Agreement, "Disability" means the inability of Executive to substantially
perform his duties hereunder for 180 days out of 365 consecutive days as a
result of a physical or mental illness, all as determined in good faith by the
Board.
3.1.3 Termination by Employer for Cause. Employer may, at its
option, terminate Executive's employment for "Cause," based on objective factors
determined in good faith by a majority of the Board, by giving a notice of
termination to Executive specifying the reasons for termination and, if
Executive shall fail to cure same within 10 days of his receiving the notice of
termination, his Employment shall terminate at the end of such 10-day period;
provided that in the event the Board in good faith determines that the
underlying reasons giving rise to such determination cannot be cured, then said
cure period shall not apply and Executive's employment shall terminate on the
date of Executive's receipt of the notice of termination. "Cause" shall mean (a)
Executive's conviction of, guilty or "no contest" plea to or confession of guilt
of a felony, (b) a willful act by Executive which constitutes gross misconduct
and which is materially injurious to Employer or (c) violation by Executive of
the Inventions Agreement (as defined in Section 4.1 hereof) without the prior
written consent of Employer.
3.1.4 Without Cause by Employer. Employer may, at its option,
terminate Executive's employment for any reason whatsoever (other than for the
reasons set forth
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<PAGE> 5
above in this Section 3.1) by giving written notice of termination to Executive,
and Executive's employment shall terminate on the later of (a) the date the
notice of termination is given or (b) the date set forth in such notice of
termination.
3.1.5 Employer's Material Breach. Executive may, at his
option, terminate Executive's employment upon Employer's Material Breach of this
Agreement by giving Employer written notice of such breach (which notice shall
identify the manner in which Employer has materially breached this Agreement)
and, if such breach is not cured within 30 days of Employer's receiving such
written notice, Executive's employment shall terminate at the end of such 30-day
period. Employer's " Material Breach" of this Agreement shall mean (a) the
failure of Employer to pay Base Salary or additional compensation hereunder in
accordance with this Agreement, including a failure of Employer to commence this
Agreement pursuant to Section 2.5 hereof, (b) the assignment to Executive
without Executive's consent of duties substantially inconsistent with his
duties, as set forth in Section 1.2 hereof, (c) the relocation of Employer's
principal offices to a geographic location other than Northern California, the
New York City metropolitan area or the Boston metropolitan area or (d) a failure
to reelect Executive as a member of the Board.
3.1.6 Without Material Breach by Executive. Executive may
terminate Executive's employment for any reason whatsoever by giving written
notice of termination to Employer. Executive's employment shall terminate on the
earlier of (a) the date, following the date of the notice of termination, upon
which a suitable replacement for Executive is found by the Employer or (b) 10
days after the date of receipt by Employer of the notice of termination.
3.2 Certain Obligations of Employer Following Termination of
Executive's Employment. Following the termination of Executive's employment
under the circumstances described below, Employer shall pay to Executive in
accordance with its regular payroll practices the following compensation and
provide the following benefits in full satisfaction and final settlement of any
and all claims and demands that Executive now has or hereafter may have against
Employer under this Agreement:
3.2.1 Death; Disability. In the event that Executive's
employment is terminated by reason of Executive's death or Disability, Executive
or his estate, as the case may be, shall be entitled to the following payments:
(a) Base Salary through the date Executive's employment is
terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 and reimbursement pursuant to Section 2.4.1 hereof),
prorated to the date of death of Executive or the date of termination due to
Executive's Disability; and
(c) Employer shall pay to Executive or his estate, as the case
may be, the amounts and shall provide all benefits generally available under the
employee benefit plans, policies and practices of Employer, determined in
accordance with the applicable
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terms and provisions of such plans, policies and practices in each case, as
accrued to the date of termination or otherwise payable as a consequence of
Executive's death or Disability.
3.2.2 Without Cause by Employer; Material Breach by Employer.
In the event that Executive's employment is terminated by Employer pursuant to
Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5 hereof, Executive
shall be entitled to the following payments and benefits:
(a) Base Salary through the date Executive's employment is
terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 hereof, reimbursements pursuant to Section 2.4.1 hereof
and benefits pursuant to Section 2.4.2 hereof), prorated to the date Executive's
employment is terminated hereunder;
(c) Continuing payments of Base Salary, payable in accordance
with the regular payroll practices of Employer, for 12 months following the date
of termination of Executive's employment: and
(d) Immediate full vesting of the option shares described in
Section 2.3. This Subsection (d) shall apply only if either (i) Executive's
employment is terminated on or before December 31, 1999, or (ii) a Corporate
Transaction occurs on or before December 31, 1999. This Subsection (d) shall be
inoperative if no Corporate Transaction occurs on or before December 31, 1999,
and Executive's employment is terminated after December 31, 1999.
3.2.3 Termination by Executive Without Material Breach or by
Employer for Cause. In the event Executive's employment is terminated by
Executive pursuant to Section 3.1.6 hereof or by Employer pursuant to Section
3.1.3 hereof, Executive shall be entitled to no further compensation or other
benefits under this Agreement except as to that portion of any unpaid Base
Salary and other benefits accrued and earned by him hereunder, including
compensation pursuant to Section 2.2 hereof, reimbursements pursuant to Section
2.4.1 hereof and benefits pursuant to Section 2.4.2 hereof, up to and including
the effective date of such termination. In addition, Executive shall be entitled
to receive any additional compensation earned but not yet paid with respect only
to any fiscal year prior to the fiscal year of termination.
3.3 Nature of Payments. All amounts to be paid by Employer to
Executive pursuant to this Section 3 are considered by the parties to be
severance payments. In the event such payments are treated as damages, it is
expressly acknowledged by the parties that damages to Executive for termination
of employment would be difficult to ascertain and the above amounts are
reasonable estimates thereof.
3.4 Duties Upon Termination. Upon termination of Executive's
employment with Employer pursuant to Sections 3.1.1 through 3.1.6 hereof or upon
expiration of the Employment Term, Executive shall be released from any duties
and obligations hereunder (except those duties and obligations set forth in
Sections 4, 5.11 and 5.12 hereof). Upon
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termination of Executive's employment with Employer pursuant to Sections 3.1.1
through 3.1.6 hereof, the obligations of Employer to Executive shall be as set
forth in Section 3.2 hereof.
4. Confidentiality; Non-Solicitation; Non-Compete.
4.1 Nondisclosure of Confidential Information. As a condition of his
employment hereunder, Executive shall execute Employer's standard form of
Proprietary Information and Inventions Agreement (the "Inventions Agreement").
4.2 Certain Activities. Executive shall not, while employed by
Employer and for a period of two years thereafter, directly or indirectly hire,
offer to hire, entice away or in any other manner persuade or attempt to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee,
customer, prospective customer, supplier or shareholder or prospective
shareholder of Employer to discontinue or alter his, her or its relationship
with Employer.
4.3 Covenant Not to Compete. During the Executive's employment and
for a period of one year after the termination of Executive's employment, but
only as long as Executive is receiving severance payments pursuant to Section
3.2 hereof, Executive shall not directly or indirectly engage in competition
with Employer by being associated with any competitor of Employer that sells or
offers to sell any products or services which compete with the products or
services offered or sold by Employer or being developed by Employer for sale at
the time of termination of Executive, or induce or attempt to induce, directly
or indirectly, any then potential customer contemplating doing business with
Employer to not commence doing business, or any current customer of Employer to
cease doing business, in whole or in part, with Employer or solicit business of
any such customer for any products or services of any competitor of Employer
which compete with the products or services offered or sold by Employer or being
developed by Employer for sale at the time of termination of Executive.
4.4 Injunctive Relief. Executive acknowledges and agrees that (a)
Employer will be irreparably injured in the event of a breach by Executive of
any of his obligations under this Section 4, (b) monetary damages will not be an
adequate remedy for any such breach, (c) Employer shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach, including, but not limited to, termination of
Executive's employment for Cause and (d) the existence of any claims which
Executive may have against Employer, whether under this Agreement or otherwise,
shall not be a defense to the enforcement by Employer of any of its rights under
this Section 4.
4.5 Non-Exclusivity and Survival. The covenants and obligations of
Executive contained in this Section 4 are in addition to, and not in lieu of,
any covenants and obligations which Executive may have with respect to the
subject matter hereof, whether by contract, as a matter of law or otherwise, and
such covenants and obligations, and their enforceability, shall survive any
termination of Executive's employment by either party and any investigation made
with respect to the breach thereof by Employer at any time.
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5. Miscellaneous Provisions.
5.1 Severability. If in any jurisdiction any term or provision
hereof is determined to be invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
5.2 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this Agreement shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
5.3 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand, or when delivered if mailed by registered or certified mail or private
courier service, postage prepaid, return receipt requested or via facsimile
(with written confirmation of receipt) as follows:
If to Employer, to:
AboveNet Communications, Inc.
50 West San Fernando Street
Suite 1010
San Jose, CA 95113
Telefax No.: (408) 367-6666
Copy to:
Carla Newell, Esq.
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Telefax No.: (650) 321-2800
If to Executive, to:
Warren Kaplan
14690 Stoneridge Drive
Saratoga, CA 95070
and
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68 Yarmouth Road
Wellesley, MA 02181
Copy to:
Irwin M. Heller, Esq.
Managing Partner
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Telefax No.: (617) 542-2241
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
5.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by Employer and Executive.
5.5 Entire Agreement. This Agreement, the Stock Option Agreement,
the Inventions Agreement and the Consulting Agreement between the parties of
even date herewith constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings of the parties hereto, oral or written, with respect to the
subject matter hereof.
5.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be wholly performed therein without regard to its
conflicts or choice-of-law provisions.
5.7 Headings. The headings contained herein are for the sole purpose
of convenience of reference and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
5.8 Binding Effect; Successors and Assigns. Executive may not
delegate his duties or assign his rights hereunder. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
5.9 Waiver, etc. The failure of either of the parties hereto to at
any time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought, and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.
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5.10 Representations and Warranties. Executive and Employer hereby
represent and warrant to the other that: (a) he or it has full power, authority
and capacity to execute and deliver this Agreement and to perform his or its
obligations hereunder, (b) such execution, delivery and performance will not
(and with the giving of notice or lapse of time or both would not) result in the
breach of any agreements or other obligations to which he or it is a party or he
or it is otherwise bound and (c) this Agreement is his or its valid and binding
obligation in accordance with its terms. Executive represents that the
Transition Agreement and Release, dated as of September 1, 1995, is the only
binding agreement between Executive and NETCOM regarding his prior employment by
NETCOM. Employer represents that it will purchase directors' and officers'
liability insurance covering Executive in such amounts as reasonably determined
by the Board and consistent with the amounts purchased for other executive
officers of the Company.
5.11 Enforcement. If any party institutes legal action to enforce or
interpret the terms and conditions of this Agreement, the prevailing party shall
be awarded reasonable attorneys' fees at all trial and appellate levels, and the
expenses and costs incurred by such prevailing party in connection therewith.
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5.12 Arbitration. Except as provided in Section 4 hereof, any
dispute arising out of this Agreement, including but not limited to the
determination by the Board of a termination for Cause pursuant to Section 3.1.3
hereof, or in respect of the breach hereof shall be resolved under the following
procedures. The burden of proof for demonstrating Cause shall be on Employer.
The party claiming to be aggrieved shall furnish to the other party a written
statement of the grievance and the relief requested and proposed. If the other
party does not agree to furnish the relief requested or proposed, or otherwise
does not satisfy the demand of the party claiming to be aggrieved, the parties
shall submit the dispute to non-binding mediation before a mediator to be
jointly selected by the parties. Employer shall pay the cost of the mediation,
including the reasonable attorneys' fees of Executive. If the mediation does not
produce a resolution of the dispute, the parties agree that the dispute shall be
resolved by final and binding arbitration before an arbitrator mutually selected
by the parties or, if no agreement is reached, then under the Expedited Labor
Arbitration Rules of the American Arbitration Association, except that the
arbitrator shall be selected by alternately striking names from a panel of five
neutral labor or employment arbitrators designated by the American Arbitration
Association. The arbitrator shall have the authority to grant any relief
authorized by law. The arbitrator shall not have the authority to modify, change
or refuse to enforce the terms of this Agreement. In addition, the arbitrator
shall not have the authority to require Employer to change any lawful policy or
benefit plan. The hearing shall be transcribed. Employer shall bear the costs of
arbitration if Executive prevails. If Employer prevails, Executive shall pay
half the cost of arbitration or $500, whichever is less. Executive shall pay the
first $10,000 of his attorneys' fees related to the arbitration, and Employer
shall reimburse Executive for his reasonable attorneys' fees related to the
arbitration in excess of $10,000. Employer shall pay all of its attorneys' fees
related to the arbitration. Arbitration shall be the exclusive final remedy for
any dispute between the parties; provided, however, that nothing in this Section
5.12 shall limit the right of Employer to go to court to obtain injunctive
relief for violation of Section 4 hereof. The parties further agree that no
dispute shall be submitted to arbitration where the party claiming to be
aggrieved has not provided the other party with a written statement of the
grievance and first sought mediation. All mediation and arbitration shall be
conducted in California.
5.13 Continuing Effect. Where the context of this Agreement
requires, the respective rights and obligations of the parties shall survive any
termination or expiration of the term of this Agreement.
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5.14 Expenses. Each party to this Agreement agrees to bear his or
its own expenses in connection with the negotiation and execution of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
ABOVENET COMMUNICATIONS, INC.
By:
----------------------------
Name: Sherman Tuan
Title: Chief Executive Officer
ABOVENET COMMUNICATIONS, INC.
By:
----------------------------
Name:
----------------------------
Title: Chairman of the Board
------------------------------
WARREN KAPLAN
President and Chief Operating Officer
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, is effective as of June 1, 1998, between AboveNet
Communications, Inc., a corporation organized under the laws of the State of
California ("Employer"), and Sherman Tuan ("Executive").
WHEREAS, Executive desires to provide services to Employer and Employer
desires to retain the services of Executive;
WHEREAS, Employer and Executive desire to formalize the terms and
conditions of Executive's employment with Employer.
NOW, THEREFORE, Employer and Executive hereby agree as follows:
1. Employment.
1.1 General. Employer hereby employs Executive in the capacity
of Chief Executive Officer. Executive hereby accepts such employment, upon the
terms and subject to the conditions herein contained. Executive currently serves
as a member of the Board of Directors of Employer (the "Board").
1.2 Duties. During Executive's employment with Employer,
Executive shall report directly to the Board and shall be responsible for
performing those duties consistent with the position of Chief Executive Officer
as may from time to time be reasonably assigned to or requested of Executive by
the Board. Executive shall use his reasonable efforts to perform faithfully and
effectively such responsibilities. Executive shall conduct all of his activities
in a manner so as to maintain and promote the business and reputation of
Employer.
1.3 Full-Time Position. Executive, during his employment with
Employer, shall devote all of his business time, attention and skills to the
business and affairs of Employer. Executive may also serve as a director (but
not as an officer, employee, finder or consultant) to other companies that are
not directly competitive with Employer; provided that Executive shall advise the
Board in writing of all compensation of any nature that Executive shall be
entitled to in connection with such other directorships.
1.4 Location of Employment. Executive's principal place of
employment during his employment with Employer shall be in Silicon Valley,
California. In the event that Employer shall change the location of its
principal office from Silicon Valley, California, and Executive does not
terminate his employment pursuant to Section 3.1.5 hereof, Executive shall be
entitled to be reimbursed for reasonable documented relocation expenses,
including moving costs, temporary housing, commuting expenses and other
relocation costs not to exceed $100,000.
<PAGE> 2
2. Compensation and Benefits.
2.1 Salary. Employer shall pay to Executive, and
Executive shall accept, as full compensation for any and all services rendered
and to be rendered by him to Employer in all capacities during the term of his
employment under this Agreement, (a) a base salary at the annual rate of
$150,000 for the first year of employment hereunder and $175,000 for the second
through fourth years of employment hereunder, or at such higher rate as the
Board shall determine in its sole discretion ("Base Salary"), payable in
accordance with the regular payroll practices of Employer, and (b) the
additional benefits hereinafter set forth in this Section 2. Notwithstanding the
foregoing, in the event that a Corporate Transaction (as hereinafter defined)
occurs on or before December 31, 1999, Executive's Base Salary for the balance
of the employment year in which the Corporate Transaction occurs shall be
increased to an annual rate of $225,000 and Executive's Base Salary for each
year of employment following the year of the Corporate Transaction shall be
increased by an amount equal to not less than 10% of the Base Salary for the
preceding year of employment hereunder. The preceding sentence shall not apply
if no Corporate Transaction occurs on or before December 31, 1999.
For all purposes under this Agreement, "Corporate Transaction"
means one of the following events:
(a) An underwritten initial public offering of Employer's
securities;
(b) The consummation of a merger or consolidation of Employer
with or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not shareholders of Employer
immediately prior to such merger, consolidation or other reorganization;
(c) The sale, transfer or other disposition of all or
substantially all of Employer's assets;
(d) Any transaction as a result of which any person becomes the
beneficial owner of securities of Employer representing at least 50% of the
total voting power represented by Employer's then outstanding voting securities.
For purposes of this Subsection (e), the term "person" shall exclude (i) any
person who is a shareholder of Employer on the date of this Agreement or (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
Employer or of a parent or subsidiary of Employer.
A transaction shall not constitute a "Corporate Transaction" if
(i) its sole purpose is to change the state of Employer's incorporation, (ii)
its sole purpose is to create a holding company that will be owned in
substantially the same proportions by the persons who held Employer's securities
immediately before such transaction or (iii) if in a transaction under
subparagraph (b) or (c) above, the consideration payable to the Company or the
shareholders is valued (in the good faith judgment of the Company's Board of
Directors) at less than $1.35 per share (as adjusted for stock splits,
combinations, stock dividends and the like).
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2.2 Additional Compensation. Executive shall be entitled to an annual
bonus of up to the amount of his Base Salary, as determined by the Board in its
sole discretion based upon performance targets established by the Board at the
beginning of each year of employment hereunder. Notwithstanding the foregoing,
in the event that during a fiscal year ending on or before December 31, 1999, a
Corporate Transaction occurs or Employer reports earnings before depreciation
and amortization for a fiscal year ending on or before December 31, 1999, the
minimum annual bonus hereunder shall be $50,000 for such fiscal year, and the
minimum bonus for each subsequent fiscal year shall be the minimum bonus for the
preceding fiscal year plus an additional 10%. The preceding sentence shall not
apply if no Corporate Transaction occurs in a fiscal year ending on or before
December 31, 1999, and Employer does not report earnings before depreciation and
amortization for a fiscal year ending on or before December 31, 1999.
2.3 Stock Options. In January 1998, Executive was granted a stock option
to purchase 250,000 shares of Employer's Common Stock.
2.4 Executive Benefits.
2.4.1 Expenses. Employer shall reimburse Executive for
expenses he reasonably incurs in connection with the performance of his duties
(including business travel and entertainment expenses), all in accordance with
Employer's policies with respect thereto.
2.4.2 Employer Plans. Executive shall be entitled to
participate in such executive benefit plans and programs as Employer may from
time to time offer or provide to executives of Employer, including, but not
limited to, participation in life insurance, health and accident, medical and
dental, disability and retirement plans and programs.
2.4.3 Vacation. Executive shall be eligible for three
weeks' paid vacation leave.
2.4.4 Car Allowance. Employer shall pay to Executive a
car allowance of $600 per month.
2.4.5 Cellular Telephone. Employer shall purchase a
cellular telephone for Executive's use and shall reimburse Executive for
business telephone calls related to Executive's employment made to or from such
telephone within 30 days after receipt of telephone bills for such telephone
calls.
2.5 Employment Term. Executive's employment by Employer pursuant to this
Agreement shall commence on the date hereof (the "Commencement Date"). Except as
provided in Section 3.1 hereof, Executive's employment by Employer pursuant to
this Agreement shall continue until the fourth anniversary of the Commencement
Date (the "Initial Term"). Thereafter, this Agreement shall automatically be
renewed for successive one-year periods (the Initial Term, together with any
subsequent employment period or periods, being referred to herein as the
"Employment Term"); provided, however, that either party may elect to terminate
this Agreement as of the anniversary of the Commencement Date in 2002 or as of
any
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subsequent anniversary of the Commencement Date by written notice to such effect
delivered to the other party at least 120 days prior to such termination date.
2.6 Disability Policy. The Company will maintain an accident and
disability policy for Executive during his employment period. The policy shall
not be for less than 60% of Executive's Base Salary.
3. Termination of Employment.
3.1 Events of Termination. Executive's employment with Employer
shall terminate upon the occurrence of any one or more of the following events:
3.1.1 Death. In the event of Executive's death,
Executive's employment shall terminate on the date of death.
3.1.2 Disability. In the event of Executive's Disability
(as hereinafter defined), Employer shall have the option to terminate
Executive's employment by giving a notice of termination to Executive. The
notice of termination shall specify the date of termination, which date shall
not be earlier than 30 days after the notice of termination is given. For
purposes of this Agreement, "Disability" means the inability of Executive to
substantially perform his duties hereunder for 180 days out of 365 consecutive
days as a result of a physical or mental illness, all as determined in good
faith by the Board.
3.1.3 Termination by Employer for Cause. Employer may,
at its option, terminate Executive's employment for "Cause," based on objective
factors determined in good faith by a majority of the Board, by giving a notice
of termination to Executive specifying the reasons for termination and, if
Executive shall fail to cure same within 10 days of his receiving the notice of
termination, his Employment shall terminate at the end of such 10-day period;
provided that in the event the Board in good faith determines that the
underlying reasons giving rise to such determination cannot be cured, then said
cure period shall not apply and Executive's employment shall terminate on the
date of Executive's receipt of the notice of termination. "Cause" shall mean (a)
Executive's conviction of, guilty or "no contest" plea to or confession of guilt
of a felony, (b) a willful act by Executive which constitutes gross misconduct
and which is materially injurious to Employer or (c) violation by Executive of
the Inventions Agreement (as defined in Section 4.1 hereof) without the prior
written consent of Employer.
3.1.4 Without Cause by Employer. Employer may, at its
option, terminate Executive's employment for any reason whatsoever (other than
for the reasons set forth above in this Section 3.1) by giving written notice of
termination to Executive, and Executive's employment shall terminate on the
later of (a) the date the notice of termination is given or (b) the date set
forth in such notice of termination.
3.1.5 Employer's Material Breach. Executive may, at his
option, terminate Executive's employment upon Employer's Material Breach of this
Agreement by giving Employer written notice of such breach (which notice shall
identify the manner in which Employer has materially breached this Agreement)
and, if such breach is not cured within 30 days of Employer's receiving such
written notice, Executive's employment shall terminate at the end of such 30-day
period. Employer's "Material Breach" of this Agreement shall mean (a) the
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failure of Employer to pay Base Salary or additional compensation hereunder in
accordance with this Agreement, (b) the assignment to Executive without
Executive's consent of duties substantially inconsistent with his duties, as set
forth in Section 1.2 hereof, (c) the relocation of Employer's principal offices
to a geographic location other than Northern California, or (d) a failure to
reelect Executive as a member of the Board.
3.1.6 Without Material Breach by Executive. Executive
may terminate Executive's employment for any reason whatsoever by giving written
notice of termination to Employer. Executive's employment shall terminate on the
earlier of (a) the date, following the date of the notice of termination, upon
which a suitable replacement for Executive is found by Employer or (b) 10 days
after the date of receipt by Employer of the notice of termination.
3.2 Certain Obligations of Employer Following Termination of Executive's
Employment. Following the termination of Executive's employment under the
circumstances described below, Employer shall pay to Executive in accordance
with its regular payroll practices the following compensation and provide the
following benefits in full satisfaction and final settlement of any and all
claims and demands that Executive now has or hereafter may have against Employer
under this Agreement:
3.2.1 Death; Disability. In the event that Executive's
employment is terminated by reason of Executive's death or Disability, Executive
or his estate, as the case may be, shall be entitled to the following payments:
(a) Base Salary through the date Executive's employment
is terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 and reimbursement pursuant to Section 2.4.1 hereof),
prorated to the date of death of Executive or the date of termination due to
Executive's Disability; and
(c) Employer shall pay to Executive or his estate, as
the case may be, the amounts and shall provide all benefits generally available
under the employee benefit plans, policies and practices of Employer, determined
in accordance with the applicable terms and provisions of such plans, policies
and practices in each case, as accrued to the date of termination or otherwise
payable as a consequence of Executive's death or Disability.
3.2.2 Without Cause by Employer; Material Breach by
Employer. In the event that Executive's employment is terminated by Employer
pursuant to Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5
hereof, Executive shall be entitled to the following payments and benefits:
(a) Base Salary through the date Executive's employment
is terminated;
(b) Any additional compensation (including compensation
pursuant to Section 2.2 hereof, reimbursements pursuant to Section 2.4.1 hereof
and benefits
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pursuant to Section 2.4.2 hereof), prorated to the date Executive's
employment is terminated hereunder;
(c) Continuing payments of Base Salary, payable in
accordance with the regular payroll practices of Employer, for 12 months
following the date of termination of Executive's employment; and
(d) Immediate full vesting of the option shares held by
Executive. This Subsection (d) shall apply only if either (i) Executive's
employment is terminated on or before December 31, 1999, or (ii) a Corporate
Transaction occurs on or before December 31, 1999. This Subsection (d) shall be
inoperative if no Corporate Transaction occurs on or before December 31, 1999,
and Executive's employment is terminated after December 31, 1999.
3.2.3 Termination by Executive Without Material Breach
or by Employer for Cause. In the event Executive's employment is terminated by
Executive pursuant to Section 3.1.6 hereof or by Employer pursuant to Section
3.1.3 hereof, Executive shall be entitled to no further compensation or other
benefits under this Agreement except as to that portion of any unpaid Base
Salary and other benefits accrued and earned by him hereunder, including
compensation pursuant to Section 2.2 hereof, reimbursements pursuant to Section
2.4.1 hereof and benefits pursuant to Section 2.4.2 hereof, up to and including
the effective date of such termination. In addition, Executive shall be entitled
to receive any additional compensation earned but not yet paid with respect only
to any fiscal year prior to the fiscal year of termination.
3.3 Nature of Payments. All amounts to be paid by Employer to Executive
pursuant to this Section 3 are considered by the parties to be severance
payments. In the event such payments are treated as damages, it is expressly
acknowledged by the parties that damages to Executive for termination of
employment would be difficult to ascertain and the above amounts are reasonable
estimates thereof.
3.4 Duties Upon Termination. Upon termination of Executive's employment
with Employer pursuant to Sections 3.1.1 through 3.1.6 hereof or upon expiration
of the Employment Term, Executive shall be released from any duties and
obligations hereunder (except those duties and obligations set forth in Sections
4, 5.11 and 5.12 hereof). Upon termination of Executive's employment with
Employer pursuant to Sections 3.1.1 through 3.1.6 hereof, the obligations of
Employer to Executive shall be as set forth in Section 3.2 hereof.
4. Confidentiality; Non-Solicitation; Non-Compete.
4.1 Nondisclosure of Confidential Information. As a condition of
his employment hereunder, Executive shall have executed Employer's standard form
of Proprietary Information and Inventions Agreement (the "Inventions
Agreement").
4.2 Certain Activities. Executive shall not, while employed by
Employer and for a period of two years thereafter, directly or indirectly hire,
offer to hire, entice away or in any other manner persuade or attempt to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee,
customer, prospective customer, supplier or shareholder or
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prospective shareholder of Employer to discontinue or alter his, her or its
relationship with Employer.
4.3 Covenant Not to Compete. During the Executive's employment
and for a period of one year after the termination of Executive's employment,
but only as long as Executive is receiving severance payments pursuant to
Section 3.2 hereof, Executive shall not directly or indirectly engage in
competition with Employer by being associated with any competitor of Employer
that sells or offers to sell any products or services which compete with the
products or services offered or sold by Employer or being developed by Employer
for sale at the time of termination of Executive, or induce or attempt to
induce, directly or indirectly, any then potential customer contemplating doing
business with Employer to not commence doing business, or any current customer
of Employer to cease doing business, in whole or in part, with Employer or
solicit business of any such customer for any products or services of any
competitor of Employer which compete with the products or services offered or
sold by Employer or being developed by Employer for sale at the time of
termination of Executive.
4.4 Injunctive Relief. Executive acknowledges and agrees that
(a) Employer will be irreparably injured in the event of a breach by Executive
of any of his obligations under this Section 4, (b) monetary damages will not be
an adequate remedy for any such breach, (c) Employer shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach, including, but not limited to, termination of
Executive's employment for Cause and (d the existence of any claims which
Executive may have against Employer, whether under this Agreement or otherwise,
shall not be a defense to the enforcement by Employer of any of its rights under
this Section 4.
4.5 Non-Exclusivity and Survival. The covenants and obligations
of Executive contained in this Section 4 are in addition to, and not in lieu of,
any covenants and obligations which Executive may have with respect to the
subject matter hereof, whether by contract, as a matter of law or otherwise, and
such covenants and obligations, and their enforceability, shall survive any
termination of Executive's employment by either party and any investigation made
with respect to the breach thereof by Employer at any time.
5. Miscellaneous Provisions.
5.1 Severability. If in any jurisdiction any term or provision
hereof is determined to be invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
5.2 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this
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Agreement shall become effective when one or more counterparts has been signed
by each of the parties hereto and delivered to each of the other parties hereto.
5.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested or via
facsimile (with written confirmation of receipt) as follows:
If to Employer, to:
AboveNet Communications, Inc.
50 West San Fernando Street
Suite 1010
San Jose, CA 95113
Telefax No.: (408) 367-6666
Copy to:
Carla Newell, Esq.
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Telefax No.: (650) 321-2800
If to Executive, to:
Sherman Tuan
1927 Wellington Drive
Milpitas, CA 95035
Copies to:
Steve Belomy
Executive Vice President and Chief Financial Officer
c/o AboveNet Communications, Inc.
50 West San Fernando Street
San Jose, CA
Telefax No.: (408) 267-6688
8
<PAGE> 9
Warren J. Kaplan
President and Chief Operating Officer
c/o AboveNet Communications, Inc.
50 West San Fernando Street
San Jose, CA
Telefax No.: (408) 267-6688
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
5.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by Employer and Executive.
5.5 Entire Agreement. This Agreement, the Stock Option Agreement
and the Inventions Agreement between the parties of even date herewith
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings of
the parties hereto, oral or written, with respect to the subject matter hereof.
5.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be wholly performed therein without regard to its
conflicts or choice-of-law provisions.
5.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
5.8 Binding Effect; Successors and Assigns. Executive may not
delegate his duties or assign his rights hereunder. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
5.9 Waiver, etc. The failure of either of the parties hereto to
at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought, and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.
5.10 Representations and Warranties. Executive and Employer
hereby represent and warrant to the other that: (a) he or it has full power,
authority and capacity to execute and deliver this Agreement and to perform his
or its obligations hereunder, (b) such execution, delivery and performance will
not (and with the giving of notice or lapse of time or both would not) result in
the breach of any agreements or other obligations to which he or it is a
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<PAGE> 10
party or he or it is otherwise bound and (c) this Agreement is his or its valid
and binding obligation in accordance with its terms. Employer represents that it
will purchase directors' and officers' liability insurance covering Executive in
such amounts as reasonably determined by the Board and consistent with the
amounts purchased for other executive officers of the Company.
5.11 Enforcement. If any party institutes legal action to
enforce or interpret the terms and conditions of this Agreement, the prevailing
party shall be awarded reasonable attorneys' fees at all trial and appellate
levels, and the expenses and costs incurred by such prevailing party in
connection therewith.
5.12 Arbitration. Except as provided in Section 4 hereof, any
dispute arising out of this Agreement, including but not limited to the
determination by the Board of a termination for Cause pursuant to Section 3.1.3
hereof, or in respect of the breach hereof shall be resolved under the following
procedures. The burden of proof for demonstrating Cause shall be on Employer.
The party claiming to be aggrieved shall furnish to the other party a written
statement of the grievance and the relief requested and proposed. If the other
party does not agree to furnish the relief requested or proposed, or otherwise
does not satisfy the demand of the party claiming to be aggrieved, the parties
shall submit the dispute to non-binding mediation before a mediator to be
jointly selected by the parties. Employer shall pay the cost of the mediation,
including the reasonable attorneys' fees of Executive. If the mediation does not
produce a resolution of the dispute, the parties agree that the dispute shall be
resolved by final and binding arbitration before an arbitrator mutually selected
by the parties or, if no agreement is reached, then under the Expedited Labor
Arbitration Rules of the American Arbitration Association, except that the
arbitrator shall be selected by alternately striking names from a panel of five
neutral labor or employment arbitrators designated by the American Arbitration
Association. The arbitrator shall have the authority to grant any relief
authorized by law. The arbitrator shall not have the authority to modify, change
or refuse to enforce the terms of this Agreement. In addition, the arbitrator
shall not have the authority to require Employer to change any lawful policy or
benefit plan. The hearing shall be transcribed. Employer shall bear the costs of
arbitration if Executive prevails. If Employer prevails, Executive shall pay
half the cost of arbitration or $500, whichever is less. Executive shall pay the
first $10,000 of his attorneys' fees related to the arbitration, and Employer
shall reimburse Executive for his reasonable attorneys' fees related to the
arbitration in excess of $10,000. Employer shall pay all of its attorneys' fees
related to the arbitration. Arbitration shall be the exclusive final remedy for
any dispute between the parties; provided, however, that nothing in this Section
5.12 shall limit the right of Employer to go to court to obtain injunctive
relief for violation of Section 4 hereof. The parties further agree that no
dispute shall be submitted to arbitration where the party claiming to be
aggrieved has not provided the other party with a written statement of the
grievance and first sought mediation. All mediation and arbitration shall be
conducted in California.
5.13 Continuing Effect. Where the context of this Agreement
requires, the respective rights and obligations of the parties shall survive any
termination or expiration of the term of this Agreement.
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5.14 Expenses. Each party to this Agreement agrees to bear his
or its own expenses in connection with the negotiation and execution of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
ABOVENET COMMUNICATIONS, INC.
By:_________________________________
Peter Chen, Chairman of the Board
____________________________________
SHERMAN TUAN
11
<PAGE> 1
EXHIBIT 10.8
Mr. David Rand May 19, 1998
15864 Highland Drive
San Jose, CA 95127-1743
Dear David:
This letter sets forth the basic terms and conditions of your employment
with AboveNet Communications, Inc., a California corporation ("AboveNet")
effective May 1, 1998. By signing this letter, you will be agreeing to these
terms. It is important that you understand clearly both what your benefits are
and what is expected of you by AboveNet.
1. Salary. You will be paid a monthly base salary of $11,667, less regular
payroll deductions, (payable as $5,833.50 semi-monthly), which covers all
hours worked. Generally, your salary will be reviewed annually but AboveNet
reserves the right to change your compensation from time to time on
reasonable notice.
2. Duties. Your job title will be Chief Technology Officer. Your duties
generally will be in the areas of keeping AboveNet current on relevant
technology, hiring and maintaining a staff of appropriate employees in your
areas of responsibility, consistent with AboveNet Human Resource policies
and budgets, making sure AboveNet retains its Tier 1 status, negotiating
peering agreements together with the AboveNet Finance Department, and
working with the AboveNet CEO and President to implement the AboveNet ISX
(Internet Service Exchange) mission and AboveNet's so-called one hop
solution, but you may be assigned other duties as needed and your duties
may change from time to time on reasonable notice, based on the needs of
AboveNet and your skills, as determined by AboveNet.
As an exempt employee, you are required to exercise your specialized
expertise, independent judgment and discretion to provide high-quality
services. You are required to follow office policies and procedures adopted
from time to time by AboveNet and to take such general direction as you may
be given from time to time by your superiors. AboveNet reserves the right
to change these policies and procedures at any time. (Also see Adjustments
and Changes in Employment Status). You are required to devote your full
energies, efforts and abilities to your employment, unless AboveNet
expressly agrees otherwise. You are not permitted to engage in any business
activity that competes with AboveNet.
3. Hours and Place of Work. As an exempt employee, you are expected to work
the number of hours required to get the job done. However, you are
generally expected to be present or available during normal working hours
of AboveNet. Normal working hours will be established by AboveNet and may
be changed as needed to meet the needs of the business. AboveNet agrees
that you may work from your residence located at 15864 Highland Drive, San
Jose, California 95127-1743, provided that you are available to attend
meetings as required by the AboveNet CEO and President and/or Board of
Directors, with appropriate prior notice to you. AboveNet will lend to you
the equipment listed on Attachment A for you to use in connection with your
work for AboveNet and will reimburse out-of-pocket expenses that you incur
in connection with your work for AboveNet, subject to your compliance with
AboveNet's standard employee expense reimbursement policies.
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4. Adjustments and Changes in Employment Status. You understand that the
Company reserves the right to make personnel decisions regarding your
employment, including but not limited to decisions regarding any promotion,
salary adjustment, transfer or disciplinary action, up to and including
termination, consistent with the needs of the business.
5. Proprietary Information Agreement. You will be required to sign and abide
by the terms of the enclosed Employee's Proprietary Information,
Inventions and Related Technology Agreement, which is incorporated into
this agreement by reference as Attachment B.
6. Immigration Documentation. Please be advised that your employment is
contingent on your ability to prove your identity and authorization to work
in the U.S. for AboveNet. You must comply with the Immigration and
Naturalization Service's employment verification requirements.
7. Representation and Warranty of Employee. You represent and warrant to
AboveNet that the performance of your duties will not violate any
agreements with or trade secrets of any other person or entity.
8. Employee Benefits. You will be eligible for paid vacation, sick leave and
holidays as set forth in our employee guidelines. You will be provided with
health insurance benefits and dental insurance benefits, as provided in our
benefit plans. These benefits may change from time to time. You will be
covered by workers' compensation insurance and State Disability Insurance,
as required by state law.
9. Additional Benefits, If Any. You will be provided with the following
additional benefits, which may also change from time to time: No additional
benefits.
10. Term of Employment. Your employment with AboveNet is for a term of three
(3) years, provided, however, that either you or AboveNet can terminate
your employment "at will" at any time for any reason, with or without cause
and with or without notice.
If you are terminated without cause, you will 6 months' notice or 6
months' pay in lieu of notice. Termination for cause requires no notice and
no additional pay.
11. Dispute Resolution Procedure. You and the Company ("the parties") agree
that any dispute, arising out of or related to the employment relationship
between them, including the termination of that relationship and any
allegations of unfair or discriminatory treatment arising under state or
federal law or otherwise, shall be resolved by final and binding
arbitration, except where the law specifically forbids the use of
arbitration as a final and binding remedy. The following dispute resolution
procedure shall apply:
(a) The party claiming to be aggrieved shall furnish to the other party a
written statement of the grievance identifying any witnesses or
documents that support the grievance and the relief requested or
proposed.
(b) The responding party shall furnish a statement of the relief, if any,
that it is willing to provide, and the witnesses or documents that
support its position as to the appropriate action. The parties can
mutually agree to waive this step. If the matter is not resolved at this
step, the parties shall submit the dispute to nonbinding mediation
before a mediator to be jointly selected by the parties. The Company
will pay the cost of mediation.
(c) If the mediation does not produce a resolution of the dispute, the
parties agree that the dispute shall be resolved by final and binding
arbitration. The parties shall attempt to agree to the identity of an
arbitrator, and if they are unable to do so, they will obtain a list
from the Federal Mediation and Conciliation Service and select an
arbitrator by striking names from that list.
The arbitrator shall have the authority to determine whether the
conduct complained of in paragraph (a) of this section violates
the rights of the complaining party and, if so, to
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grant any relief authorized by law; provided, however, the parties
agree, that for violations of the employee's trade secret
obligations, AboveNet retains the right to seek preliminary
injunctive relief in court in order to preserve the status quo or
prevent irreparable injury before the matter can be heard in
arbitration. The arbitrator shall not have the authority to modify,
change or refuse to enforce the terms of any employment agreement
between the parties. In addition, the arbitrator shall not have the
authority to require AboveNet to change any lawful policy or
benefit plan.
The hearing shall be transcribed. AboveNet shall bear the costs of
the arbitration if the employee prevails. If AboveNet prevails, the
employee will pay half the cost of the arbitration or $500,
whichever is less. Each party shall be responsible for paying its
own attorneys fees.
ARBITRATION SHALL BE THE EXCLUSIVE FINAL REMEDY FOR ANY DISPUTE
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO DISPUTES
INVOLVING CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS
UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE
DISCRIMINATION IN EMPLOYMENT ACT), WRONGFUL TERMINATION, BREACH OF
CONTRACT, BREACH OF PUBLIC POLICY, PHYSICAL OR MENTAL HARM OR
DISTRESS OR ANY OTHER DISPUTES, AND THE PARTIES AGREE THAT NO
DISPUTE SHALL BE SUBMITTED TO ARBITRATION WHERE THE PARTY CLAIMING
TO BE AGGRIEVED HAS NOT COMPLIED WITH THE PRELIMINARY STEPS
PROVIDED FOR IN PARAGRAPHS (a) AND (b) ABOVE.
The parties agree that the arbitration award shall be enforceable
in any court having jurisdiction to enforce this Agreement, so long
as the arbitrator's findings of fact are supported by substantial
evidence on the whole and the arbitrator has not made errors of
law; provided, however, that either party may bring an action in a
court of competent jurisdiction regarding or related to matters
involving the Company's proprietary information, or regarding or
relating to inventions that you may claim to have developed prior
to joining the Company or after joining the Company.
(d) AboveNet reserves the right to modify, change or cancel this provision
upon 30 days written notice. However, such cancellation shall not affect
matters which have already been submitted to arbitration.
(e) With respect to any litigation commenced pursuant to subsection (d) above,
the parties consent to the exclusive jurisdiction and venue of the
California state courts located in and serving Santa Clara County,
California.
12. Integrated Agreement. Please note that this Agreement supersedes any prior
agreements, representations or promises of any kind, whether written, oral,
express or implied between the parties hereto with respect to the subject
matters herein. It constitutes the full, complete and exclusive agreement
between you and AboveNet with respect to the subject matters herein. This
agreement cannot be changed unless in writing, signed by you and the Chief
Executive Officer and President.
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13. Severability. If any term of this Agreement is held to be invalid, void or
unenforceable, the remainder of this Agreement shall remain in full force
and effect and shall in no way be affected; and, the parties shall use their
best efforts to find an alternative way to achieve the same result.
We look forward to having you join our organization as an employee.
In order to confirm your agreement with and acceptance of these terms, please
sign one copy of this letter and return it to me. The other copy is for your
records. If there is any matter in this letter which you wish to discuss
further, please do not hesitate to speak to me.
Very truly yours,
AboveNet
By: /s/ SHERMAN TUAN
--------------------------------------
Sherman Tuan
Title: Chief Executive Officer
By: /s/ WARRAN KAPLAN
--------------------------------------
Warran Kaplan
Title: President and Chief Operating Officer
- --------------------------------------------------------------------------------
I agree to the terms of employment set forth in this Agreement.
/s/ DAVID RAND 5/20/98
- ------------------------------- --------------------------------------
Employee -- David Rand Date
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ATTACHMENT A
EQUIPMENT LIST
Equipment that is approved in the Budget and/or approved by the CEO and
President of AboveNet
Page 5
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ATTACHMENT B
EMPLOYEE'S PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
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ATTACHMENT B
EMPLOYEE'S PROPRIETARY INFORMATION,
INVENTIONS AND RELATED TECHNOLOGY AGREEMENT
As an employee of AboveNet Communications, Inc. (the "Company"), I recognize
that the Company is engaged in a continuous program of research, development
and production with respect to its business.
RECITALS:
I understand that:
A. Definitions for certain of the capitalized terms used in this Employee's
Proprietary Information, Inventions and Related Technology Agreement
("Agreement") are contained in Exhibit A attached to this Agreement.
B. My employment creates a relationship of confidence and trust between the
Company and me with respect to any information (i) applicable to the
business of the Company; or (ii) applicable to the business of any customer
of the Company; or (iii) which the Company is under a contractual
obligation to keep confidential which may be made known to me by the
Company or by any customer of the Company, or learned by me during the
period of my employment.
C. The Company possesses and will continue to possess Company Information.
D. In consideration for the compensation received by me from the Company, I
hereby agree as follows with respect to Company Information and Third Party
Information and with respect to the license and assignment of the
Transferred Technology.
1. PROTECTION OF PROPRIETARY INFORMATION.
1.1 COMPANY INFORMATION. All Company Information shall be the sole
property of the Company and its assigns or a third party, as applicable, and
the Company and its assigns or such third party shall be the sole owner of all
patents and other rights in connection with such Company Information. I hereby
assign to the Company any rights I may have or acquire in any or all Company
Information (subject to the ownership rights I retain in the Ethervalve
Technology). During the term of my employment by the Company and at all times
thereafter, I will keep in confidence and trust all Company Information, and I
will not directly or indirectly disclose, sell, use, lecture upon or publish
any Company Information or anything relating to it without the written consent
of the Company, except as may be necessary in the ordinary course of performing
my duties as an employee of the Company. I will obtain the Company's written
approval before publishing or submitting for publication any material that
relates to my work at the Company or incorporates any Company Information.
1.2 THIRD PARTY INFORMATION. I recognize that the Company has received and
in the future will receive Third Party Information subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. I agree, during the term of my employment and
thereafter, to hold all such Third Party Information in the strictest confidence
and not to disclose or use it, except as necessary in carrying out my work for
the Company consistent with the Company's agreement with such third party.
My obligations regarding Company Information and Third Party Information
shall continue until such time as the Proprietary Information is publicly known
without fault on my own part.
2. AVOID CONFLICT OF INTEREST. During the course of my employment, I
shall inform the Company before accepting any employment, consulting or other
relationship with another
<PAGE> 8
person or entity (i) in any field related to the Company's line of business, or
(ii) in a position that requires a significant time commitment. Lack of
objection by the Company regarding any particular outside activity does not in
any way reduce my obligations under this Agreement.
3. RETURN OF MATERIALS. All apparatus, computers, computer files and
media, data, documents, drawings, engineering log books, equipment, inventor
notebooks, programs, prototypes, records, samples, equipment and other
information and physical property, whether or not pertaining to Company
Information, furnished to me by the Company, or produced by myself or others
in connection with my employment, shall be and remain the sole property of the
Company and shall be returned promptly to the Company as and when requested by
the Company. Should the Company not so request, I shall return and deliver all
such property upon termination of my employment for any reason and I will not
take with me any such property or any reproduction of such property upon such
termination. I further agree that any property situated on the Company's
premises and owned by the Company, including computers, computer files, e-mail,
voicemail, disks and other electronic storage media, filing cabinets or other
work areas, is subject to inspection by Company personnel at any time with or
without notice.
4. NON-SOLICITATION. I agree that, during the period of my employment
and for a period of one (1) year following termination of my employment with
the Company for any reason, I will not directly or indirectly (i) solicit or in
any manner encourage employees or consultants of the Company to end their
relationships with the Company; or (ii) other than on behalf of the Company,
call on, solicit or take away, or attempt to do any of the same, the business
of any customer of the Company with whom I became acquainted during the course
of my employment. By signing this Agreement, I acknowledge and agree that the
names, addresses and product specifications of the Company's customers
constitute Company Information and that the sale or unauthorized use or
disclosure of this or any other Company Proprietary Information that I obtained
during the course of this Agreement would constitute unfair competition with the
Company. I promise not to engage in any unfair competition with the Company
either during the term of my employment or at any time thereafter.
5. COMPANY INVENTIONS. I will promptly disclose to the Company, or any
persons designated by it, any and all Company Inventions; such disclosure shall
continue for one (1) year after termination of my employment with respect to
any and all such Company Inventions made, conceived, reduced to practice or
learned during such one (1) year term. If any application for any United States
or foreign patent related to or useful in the business of the Company or any
customer of the Company shall be filed by me or for me during the period of one
(1) year after my employment is terminated, the subject matter covered by such
application shall be presumed to have been a Company Invention conceived during
my employment with the Company.
6. OWNERSHIP AND PROTECTION OF INVENTIONS.
6.1 THE COMPANY OWNS COMPANY INVENTIONS. I agree that any and all Company
Inventions shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents, trademarks,
copyrights and other rights in connection with such Inventions.
6.2 INVENTIONS PROTECTION. I hereby assign to the Company any rights I may
have or acquire in Company Inventions. In addition, to the extent permitted by
federal copyright law, the parties agree that any works resulting from my work
under this Agreement shall be "works for hire" as defined in federal copyright
law. I hereby assign to the Company all of my works of authorship and all rights
of copyright, trademark, patent and other such rights ("Intellectual Property
Rights") in such works to the extent such works result from my work under this
Agreement.
6.3 MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
<PAGE> 9
7. ASSIGNMENT AND LICENSE OF TRANSFERRED TECHNOLOGY.
7.1 ETHERVALVE TECHNOLOGY. I hereby confirm that the license I granted to
Company as of July 10, 1996, was, has always been and currently is, an exclusive
(subject only to the prior non-exclusive license that I granted to Aponet),
perpetual, irrevocable, royalty-free, worldwide license (with the right to grant
sublicenses) to use, copy, modify and fully exploit the product and related
technology known as EtherValve,as described in more detail in Exhibit B to this
Agreement. In addition, I hereby confirm that Company owns all right, title and
interest in and to the mark "EtherValve."
7.2 MRTG TECHNOLOGY. I hereby confirm that I have granted, and Company
holds, a non-exclusive perpetual, irrevocable, royalty-free, worldwide license
(with the right to grant sublicenses) to use, copy, modify and fully exploit the
product and related technology known as MRTG, as described in more detail in
Exhibit B to this Agreement.
7.3 ASSIGNMENT OF ALL RELATED TECHNOLOGY. Effective as of the date of this
Agreement, I hereby assign, convey and transfer to Company all right, title and
interest in and to all Related Technology. I hereby confirm that I do not own
and right, title or interest in or to any of the following marks: AboveNet, APS,
ASAP, As-UR-Here, EtherValve, ISPCondo, ISX, WebCondo Cabriolet and
Remote-Hand-Services.
8. ASSISTANCE AS TO COMPANY INVENTIONS AND TRANSFERRED TECHNOLOGY. I
agree, as to any and all Inventions and Transferred Technology, to assist the
Company in every proper way (but at the Company's expense) to obtain and from
time to time enforce Intellectual Property Rights on Company Inventions and
Transferred Technology in any and all countries. To that end, I will perform any
further acts and execute and deliver all documents for use in applying for and
obtaining such Intellectual Property Rights there-on and enforcing the same, as
the Company may desire, together with any assignments of such protections to the
Company or persons designated by it. My obligation to assist the Company in
obtaining and enforcing Intellectual Property Rights on Company Inventions and
Transferred Technology in any and all countries shall continue beyond the
termination of my employment, but, after such termination, the Company shall
compensate me at a reasonable rate to be negotiated in good faith for time
actually spent by me at the Company's request on such assistance. I acknowledge
that I may be unavailable when the Company needs to secure my signature for
lawful and necessary documents required to apply for or execute any Intellectual
Property Rights with respect to Company Inventions and Transferred Technology
(including renewals, extensions, continuations, divisions or continuations in
part of patent applications). Therefore, I agree to irrevocably designate and
appoint the Company and its duly authorized officers and agents, as my agents
and attorneys-in-fact, to act for and in my behalf and instead of me, to execute
and file any such application(s) and to do all other lawfully permitted acts to
further the prosecution and issuance of patents, copyrights, trademarks and
other protections on Inventions with the same legal force and effect as if
executed by me. The Company shall also have the right to keep any and all
Company Inventions and Transferred Technology as trade secrets. I hereby waive
and quitclaim to the Company any and all claims of any nature whatsoever, which
I now or may hereafter have for infringement of Intellectual Property Rights
assigned hereunder to the Company.
9. EMPLOYEE INVENTIONS. If in the course of my employment with the
Company, I incorporate into a Company product, process or machine an Employee
Invention or any other inventions, technical writings, papers, journal articles,
developments, improvements,and trade secrets, which are owned by me or in which
I have an exclusive interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Employee Invention as part of or in
connection with such product, process or machine. I acknowledge and agree that
the Company and its subsidiaries or affiliates are free to compete or develop
information, inventions and products within the areas and type of the Employee
Inventions.
10. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and that my employment by the
<PAGE> 10
Company does not and will not breach any agreement to keep in confidence
proprietary information acquired by me in confidence or in trust prior to my
employment by the Company. I have not entered into, and I agree I will not
enter into, any agreement either written or oral in conflict with this
Agreement. I also understand that I am not to breach any obligation of
confidentiality I have to others during my employment with the Company.
11. NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS OR OTHERS. As part
of the consideration for the offer of employment by the Company and of my
employment or continued employment by the Company. I have not brought and will
not bring to the Company, or use or disclose in the performance of my
responsibilities any equipment, supplies, facility, electronic media, software,
trade secret or other information or property of any former employer or any
other person or entity which are not generally available to the public, unless
I have obtained their written authorization for its possession and use.
12. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of
the Company, I hereby consent to the notification of my new employer of my
rights and obligations under this Agreement.
13. EQUITABLE RELIEF. I acknowledge that any breach or threatened breach
by me of this Agreement will result in immediate and irreparable harm to the
Company, for which the Company will be entitled to injunctive relief to restrain
me from violating this Agreement or to compel me to cease and desist all
unauthorized use and disclosure of the Proprietary Information, without posting
bond or other security. I will indemnify Company against any costs, including
reasonable legal fees, incurred in obtaining relief against my breach of this
Agreement. Nothing in this section shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach or threatened
breach, including recovery of damages from me.
14. DISPUTE RESOLUTION PROCEDURE. I agree that any dispute arising out of
or related to the employment relationship between me and the Company, including
the termination of that relationship, shall be resolved in accordance with the
dispute resolution procedures set forth in my letter of offer of employment
dated May 19, 1998.
15. MODIFICATIONS. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
16. SEVERABILITY. If any term or provision of the Agreement shall be
declared invalid, illegal or unenforceable, such term or provision shall be
amended to achieve as nearly as possible the same effect of protecting
Proprietary Information as the original term or provision, and all remaining
provisions shall continue in full force and effect.
17. TERM OF EMPLOYMENT. I understand that my employment is for a three
year term, subject to my right and Company's right to terminate my employment
"at will" at any time, for any reason, with or without cause and with or
without notice subject to the requirements of my letter of offer of employment
dated May 19, 1998, but my obligations under this Agreement shall survive such
termination.
18. SECTION 2870 INVENTIONS. Section 6 of this Agreement does not apply
to inventions which qualify fully for protection under section 2870 of the
California Labor Code ("Section 2870"). Currently, Section 2870 applies to
inventions for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely on my own
time, and (i) which does not relate, at the time of conception or reduction to
practice of the invention, to the business of the Company, or to the Company's
actual or demonstrably anticipated research or development, or (ii) which does
not result from any work performed by me for the Company.
19. SURVIVAL OF OBLIGATIONS. This Agreement shall survive termination of
my employment, regardless of the circumstances of such termination.
20. EFFECTIVE DATE. This Agreement shall be effective as of the first day
of my employment by the Company.
21. BINDING EFFECT. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and
<PAGE> 11
shall inure to the benefit of successors and assigns of the Company.
22. INTEGRATED AGREEMENT. This Agreement, together with my letter of offer
of employment dated May 19, 1998, constitutes the full, complete and exclusive
agreement between the Company and me with regard to this Agreement's subject
matter. These Agreements supersede any previous agreements or representations,
whether oral or written, express or implied between the Company and me with
respect to their subject matter. These Agreements shall not be modified unless
in writing, signed by me and the CEO or President of the Company.
23. EXHIBITS. The following Exhibits are made a part of and incorporated
by reference in this agreement:
Exhibit A: Definitions.
Exhibit B: Transferred Technology
24. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
25. ACKNOWLEDGEMENT. I certify and acknowledge that I have carefully read
all of the provisions of this Agreement and that I understand and will fully
and faithfully comply with such provisions.
Dated as of May 19, 1998
EMPLOYEE ACCEPTED AND AGREED TO BY:
ABOVENET COMMUNICATIONS, INC.
By: /s/ DAVID RAND By: [SIG]
---------------------------- ----------------------------
Name: David Rand Name: [ILLEGIBLE]
Title CTO
--------------------------
Social Security No. 571 89 2347
------------
Address 15869 Highland Dr.
------------------------
San Jose, CA 95127-1743
------------------------
<PAGE> 12
EXHIBIT A
1. DEFINITIONS. As used in the foregoing Agreement, the following terms
shall have the meanings as defined below. Where the context so indicates,
a word in the singular form shall include the plural and vice-versa.
1.1. COMPANY INFORMATION shall mean Information that the Company has
created, discovered, developed or acquired. Company Information does
not include any Employee Information. Company Information includes,
but is not limited to, the Transferred Technology and all Company
network, peering and transit agreements.
1.2. COMPANY INVENTION shall mean an Invention that I make, conceive or
reduce to practice or learn, either alone or jointly with others,
that (i) results from tasks assigned me by the Company or directed
by me in the scope of my employment by Company, or (ii) results
from use of premises, equipment or materials owned, leased or
contracted for by the Company. In particular, if the Company sends
to me a "Task Assignment Form" substantially in the form attached
as Exhibit C, and I agree that the task described in such form is
within the scope of my duties for the Company, then I will sign and
return the Task Assignment Form to Company and each invention that
I make in connection with my performance of such task will be a
Company Invention.
1.3. EMPLOYEE INFORMATION shall mean Information that I have created,
discovered, developed or acquired outside the scope of my
employment by Company and not using any premises, equipment, or
materials owned, leased or contracted for by Company.
1.4. THIRD PARTY INFORMATION shall mean Information that Company
receives from a third party that is private, confidential or
proprietary to such third party.
1.5. INFORMATION shall mean all information, whether oral or written,
including but not limited to information pertaining to inventions,
confidential knowledge, trade secrets, ideas, data, programs, works
of authorship, know-how, improvements, discoveries, designs,
techniques, and technical information.
1.6. TRANSFERRED TECHNOLOGY shall mean, collectively, the Ethervalve
Technology, the MRTG Technology and the Related Technology, each as
defined in Exhibit B to this Agreement.
<PAGE> 13
EXHIBIT B
TRANSFERRED TECHNOLOGY
ETHERVALVE TECHNOLOGY LICENSED TO COMPANY:
All right, title and interest (including patent rights, copyrights, trade
secret rights, mask work rights, trademark rights and other rights throughout
the world) relating to any and all inventions (whether or not patentable), works
of authorship, mask works, designs, know-how, ideas and information relating to
bandwidth management software known as "EtherValve").
"MRTG TECHNOLOGY LICENSED TO COMPANY:
All right, title and interest (including patent rights, copyrights, trade
secret rights, mask work rights, trademark rights and other rights throughout
the world) relating to any and all inventions (whether or not patentable), works
of authorship, mask works, designs, know-how, ideas and information relating to
customer monitoring software known as Multi Router Traffic Grapher ("MRTG").
RELATED TECHNOLOGY ASSIGNED TO COMPANY:
All right, title and interest (including patent rights, copyrights, trade
secret rights, mask work rights, trademark rights and other rights throughout
the world) relating to any and all inventions (whether or not patentable), works
of authorship, mask works, designs, know-how, ideas and all related hardware
design, software code (both source code and binary format), methodology and
algorithms for the following software programs:
o Customer monitoring and notification software called "Automated
Pro-Active Services, "APS"); and.
o Customer monitoring software called Asymmetric Allocation of Packets
("ASAP").
<PAGE> 14
EXHIBIT C
TASK ASSIGNMENT FORM
AboveNet Communications, Inc.
Date:
----------------------
AboveNet Task Description:
Requested Deliverables:
Target Completion Date:
The undersigned AboveNet employee agrees to perform the task(s) described in
this Task Assignment Form and agrees that any Deliverables I provide to
AboveNet and inventions that I may make in the course of performing such tasks,
will be Company Inventions as defined in my "Employee's Proprietary
Information, Inventions and Related Technology Agreement."
-----------------------------------
David Rand
Dated:
----------------------------
<PAGE> 1
EXHIBIT 10.9
STOCK OPTION AGREEMENT
AGREEMENT dated as of November 10, 1997 by and between AboveNet
Communications, Inc., a California corporation, with principal offices located
at 50 West San Fernando Street, Suite #1010, San Jose, California 95113 (the
"Company"), and Warren Kaplan (the "Optionee").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company authorized the grant to
the Optionee of an option to purchase 700,000 shares of common stock of the
Company (the "Common Stock"), conditioned upon the Optionee's acceptance thereof
upon the terms and conditions set forth in this Agreement; and
WHEREAS, the Optionee desires to acquire said option on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth, and for other good and valuable consideration,
the parties hereto hereby agrees as follows:
1. Grant of Option. The Company hereby grants to the Optionee, effective
as of the Hire Date, an option to purchase 700,000 shares of Common Stock at an
exercise price of $0.10 per share (the "Exercise Price"), subject to the terms
and conditions set forth herein.
2. Vesting. (a) Subject to Sections 2(b), 4, 7, 9 and 10 hereof, this
option may be exercised to purchase 700,000 shares of Common Stock in accordance
with the following schedule: up to twenty percent (20%) of the shares of Common
Stock underlying this option shall be purchasable as of the Hire Date (as such
term is defined in the Employment Agreement, dated the date hereof, between
Optionee and the Company (the " Employment Agreement")), and, commencing after
the Hire Date, one-thirty-sixth (1/36) of the remaining shares of Common Stock
underlying this option shall become purchasable on the last day of each month
measured from and after the date hereof. This option shall expire and no shares
of Common Stock may be purchased hereunder ten (10) years after the date hereof
and thereafter.
(b) Notwithstanding the provisions of Section 2(a) hereof, this
option shall become 100% immediately exercisable at any time after the Hire Date
(i) upon a Change in Control Date (as defined below) or (ii) if Optionee is
terminated without "Cause" (as such term is defined in the Employment Agreement)
or (iii) there is a "material breach by the Company" (as such term is defined in
the Employment Agreement). For purposes hereof, a Change in Control Date shall
mean the date of a Corporate Transaction (as such term is defined in the
Employment Agreement).
3. Nonqualified Option; Withholding Tax. This option shall not be deemed
an "Incentive Stock Option" under the Internal Revenue Code of 1986, as amended
(the "Code"). Accordingly, the Optionee acknowledges that, under existing laws
and regulations, exercise of
1
<PAGE> 2
this option may be a taxable event under the Code. In such event, the Optionee
will be subject to a withholding tax on the difference between the purchase
price of the shares and their fair market value on the date of exercise. Any
such tax shall be paid to the Company by the Optionee within five (5) business
days of receipt of a notice from the Company containing the amount thereof.
4. Exercise of Option. Subject to the terms and conditions set forth
herein, the Optionee may exercise this option at any time as to all or any of
the shares of Common Stock then purchasable in accordance with Section 2 hereof
by delivering to the Company written notice in the form attached hereto as
Exhibit A. Such notice shall specify:
(a) The number of whole shares of Common Stock to be purchased
together with payment in full of the aggregate option price of such shares,
provided that this option may not be exercised for fewer than one hundred (100)
shares of Common Stock or the number of shares of Common Stock underlying the
option that are exercisable pursuant to Section 2 hereof, whichever is smaller;
(b) The name or names in which the stock certificate or
certificates are to be registered;
(c) The address to which dividends, notices, reports, etc. are
to be sent; and
(d) The Optionee's social security number.
Such notice shall be accompanied by payment of the full purchase price
for the shares of Common Stock underlying the option which are being exercised.
The purchase price of the shares of Common Stock as to which the option is
exercised shall be paid in full in U.S. dollars, in cash, or by certified or
bank cashier's check payable to the order of the Company, free from all
collection charges. The purchase price for the shares of Common Stock covered by
this option may also be paid in shares of Common Stock owned by the Optionee
having a Fair Market Value (as hereinafter defined) on the date preceding
exercise equal to the aggregate purchase price, or in a combination of cash and
Common Stock. In addition, this option also may be exercised by delivery of a
properly executed exercise notice, together with irrevocable instructions to the
Company to withhold from the shares that would otherwise be issued upon exercise
that number of shares of Common Stock having a Fair Market Value equal to the
option exercise price. As is used herein, the "Fair Market Value" of a share of
Common Stock on any day means: (i) if the principal market for the Common Stock
is The New York Stock Exchange, any other national securities exchange or the
Nasdaq National Market, the closing sales price of the Common Stock on such day
as reported by such exchange or market, or on a consolidated tape reflecting
transactions on such exchange or market, or (ii) if the principal market for the
Common Stock is not a national securities exchange or the Nasdaq National Market
and the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the closing bid and the closing
asked prices for the Common Stock on such day as quoted on such system, or (iii)
if the Common Stock is not quoted on the National Association of Securities
Dealers Automated Quotations System, the mean between the highest bid and lowest
asked prices for the Common Stock on such day as reported by the National
Quotation Bureau, Inc.; provided that if clauses (i), (ii) and (iii) of this
2
<PAGE> 3
paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the Fair Market Value of the Common Stock shall be
determined, in good faith, by the Board of Directors of the Company by any
method which it deems to be appropriate. The determination of the Company shall
be conclusive as to the Fair Market Value of the Common Stock. The Optionee
shall not be entitled to any rights as a shareholder of the Company in respect
of any shares of Common Stock underlying this option until such shares of Common
Stock shall have been paid in full and issued to the Optionee.
5. Delivery of Stock Certificate. As soon as practicable after the
Company receives payment for shares of Common Stock covered by this option, it
shall deliver a certificate or certificates representing the shares of Common
Stock so purchased to the Optionee. Only one stock certificate will be issued
unless the Optionee otherwise requests in writing.
6. Nontransferability of Option. This option is personal to the Optionee
and during the Optionee's lifetime may be exercised only by the Optionee. This
option and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any way and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this option or any right or
privilege conferred hereby, contrary to the provisions hereof, or upon the levy
of any attachment or similar process on the rights and privileges conferred
hereby, this option and the rights and privileges conferred hereby shall
immediately become null and void.
7. Effect of Termination of Employment. Subject to any provisions of
Section 3.3.2 of the Employment Agreement to the contrary, in the event that the
Optionee's employment as an employee of the Company and, if applicable, of each
direct or indirect subsidiary corporation (a "Subsidiary") of the Company
(hereinafter the "Optionee's employment") is terminated prior to the time that
this option has been fully exercised, this option shall be exercisable, as to
any remaining shares of Common Stock subject hereto, only to the extent the
option granted hereunder was exercisable pursuant to Section 2 hereof on the
date the Optionee's employment ceased, including under Section 2(b) hereof,
whether for cause, death, disability or any other reason, and the Optionee shall
have no right to exercise this option with respect to any shares of Common Stock
which shall not have vested pursuant to Section 2 hereof, as of the date the
Optionee's employment ceased.
8. No Right of Continued Employment. This option does not confer on the
Optionee any right to continue in the employ of the Company or any Subsidiary or
interfere in any way with the right of the Company or any Subsidiary to
determine the terms of the Optionee's employment.
9. Antidilution; Adjustment. (a) In case the Company shall at any time
after the date hereof and prior to the consummation of the initial public
offering (the "IPO") of the Company's securities registered under the Securities
Act of 1933, as amended (the "Act"), issue or sell any shares of Common Stock or
issue warrants, options or other securities convertible into, or exercisable or
exchangeable for, shares of Common Stock ("Convertible Securities") resulting in
Optionee owning less than 5% of the outstanding Common Stock (after giving
effect to the conversion or exercise of all then outstanding Convertible
Securities, including, but not limited to, outstanding warrants, preferred
stock, options, debt securities convertible into the
3
<PAGE> 4
Company's Common Stock and this option, but excluding the 110,000 shares of
Common Stock issuable to Optionee pursuant to that certain Notice of Stock
Option Grant dated as of the date hereof) (the "Ownership Interest"), then the
Optionee shall be granted the right to purchase a number of shares, at a price
of $0.10 per share, pursuant to the terms of this Agreement such that Optionee
shall be entitled to maintain an interest in the Company equal to Optionee's
then existing ownership interest in the Company. In addition, if, prior to an
IPO, any shares of Common Stock or Convertible Securities are issued or sold for
a consideration, or in the case of the issuance of Convertible Securities, an
exercise price or conversion price, per share less than the Exercise Price in
effect immediately prior to the issuance or sale of such securities, then
forthwith upon such issuance or sale, the Exercise Price shall be reduced to the
price determined by dividing (i) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding (after giving effect to the conversion or
exercise of all Convertible Securities) immediately prior to such issuance or
sale multiplied by the then existing Exercise Price and (b) the aggregate amount
of the consideration, if any, received by the Company upon such issuance or sale
by (ii) the total number of shares of Common Stock outstanding (after giving
effect to the conversion or exercise of all Convertible Securities) immediately
after such issuance or sale. In no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation.
(b) In the event of a reorganization, recapitalization, stock
split, reverse stock split, stock dividend, combination of shares of the
Company, the number of shares covered by any unexercised portion of this option
and the related Exercise Price per share shall be adjusted proportionately.
10. Registration of Shares. (a) If, at any time prior to three years
after the ten-year term of the option granted hereunder and after the time
shares Common Stock of the Company are registered under the Act pursuant to an
underwritten public offering, the Company shall determine to file any
registration statement under the Act, covering any securities of the Company
(other than registration statements on Form S-8 (unless the shares purchasable
upon exercise of the option granted hereunder are eligible to be included in
such Form S-8) or S-4 or any other form not generally available for the
registration of securities for sale to the public) for its own account or for
the account of others, the Company shall advise the Optionee by written notice
at least 30 days prior to any filing, and shall, upon the request of the
Optionee, include in any such registration statement, or any such post-effective
amendment to a registration all of Registrable Securities (as hereinafter
defined) that the Optionee has requested in writing to be registered upon the
same terms and conditions as the securities otherwise being sold in such
registration; provided, however, that if the managing underwriter of such
registration, if any, advises the Company that the inclusion of any or all of
the Registrable Securities requested to be included in such registration would
interfere with the successful marketing (including pricing) of the shares
proposed to be registered by the Company, then the number of shares of Common
Stock proposed to be included in such registration by the Optionee shall be
eliminated or reduced pro rata among the persons requesting registration of
shares of Common Stock underlying options containing substantially similar
registration rights as contained in this Section 10 based upon the number shares
of Common Stock requested to be registered by such persons.
(b) As used herein, Registrable Securities shall mean any
Common Stock issuable upon the exercise of any options granted hereunder. All
costs and expenses of
4
<PAGE> 5
such registration statement shall be borne by the Company, except underwriting
discounts or commissions applicable to any of the securities sold and except the
legal fees and expenses of the Optionee incurred in connection therewith.
(c) Whenever pursuant to Section 10(a) hereof, a
registration statement relating to any of the Registrable Securities is filed
under the Act, amended or supplemented, the Company shall, to the extent
permitted by law, indemnify and hold harmless the Optionee against such losses,
claims, damages, liabilities or actions, joint or several, to which the Optionee
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Optionee and underwriter for any
legal or other expenses reasonably incurred by the Optionee or underwriter in
connection with investigating or defending any such losses, claims, damages,
liabilities or actions; provided, however, that the Company will not be liable
in any such case to the extent that any such losses, claims, damages,
liabilities or actions arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by the Optionee, for use in the preparation thereof.
(d) The Optionee shall indemnify and hold harmless the
Company, each of its directors, each of its officers and each person, if any,
who controls the Company within the meaning of the Act against any losses,
claims, damages, liabilities or actions, to which the Company or any such
director, officer of controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon any untrue or alleged untrue statement in any
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement 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 said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by the Optionee for
use in the preparation thereof, and shall reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such losses, claims, damages, liabilities or actions.
(e) Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party, give the indemnifying party notice of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party otherwise then
under this Section 10.
5
<PAGE> 6
(f) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party, the indemnifying party shall not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection the defense
thereof, other than reasonable costs of investigation.
(g) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under this Section 10 to the extent permitted by law, provided that (i)
no contribution shall be made under circumstances where the indemnifying party
would not have been liable for indemnification under the fault standards set
forth in this Section 10, (ii) no seller of Common Stock guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any seller of Common Stock who was not guilty of
such fraudulent misrepresentation and (iii) contribution by the Optionee shall
be limited in amount to the net amount of proceeds received by him or it from
the sale of the Registrable Securities.
(h) In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the Act, including the Company's IPO, the Optionee shall
not directly or indirectly sell, make any short sale of, loan, hypothecate,
pledge, offer, grant or sell any option or other contract for the purchase of,
purchase any option or other contract for the sale of, or otherwise dispose of
or transfer, or agree to engage in any of the foregoing transactions with
respect to, any Common Stock acquired under this Agreement without the prior
written consent of the Company or its underwriters. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time following the
date of the final prospectus for the offering as may be requested by the Company
or such underwriters. In no event, however, shall such period exceed 180 days.
In the event of the declaration of a stock dividend, a spin-off, a stock split,
an adjustment in conversion ratio, a recapitalization or a similar transaction
affecting the Company's outstanding securities without receipt of consideration,
any new, substituted or additional securities which are by reason of such
transaction distributed with respect to any Common Stock subject to the Market
Stand-Off, or into which such Common Stock thereby become convertible, shall
immediately be subject to the Market Stand-Off. In order to enforce the Market
Stand-Off, the Company may impose stop-transfer instructions with respect to the
Common Stock acquired under this Agreement until the end of the applicable
stand-off period. The Company's underwriters shall be beneficiaries of the
agreement set forth in this Subsection (h). This Subsection (h) shall not apply
to Common Stock registered in the public offering under the Act. This Subsection
(h) shall terminate one (1) year after the Company's IPO.
(i) If the Company shall receive at any time after ninety
(90) days after the IPO, a written request from the Optionee that that the
Company file a registration statement on Form S-8 (including a resale
prospectus) covering the registration of all of the outstanding options then
held by the
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<PAGE> 7
Optionee or any shares of Common Stock then held by the Optionee issued upon
exercise of the option granted hereunder, the Company shall use its best efforts
to effect the registration under the Act of all of such options.
(j) Optionee shall not be entitled to exercise any right
provided for in this Section 10 at such time as all Common Stock acquired under
this Agreement held by Optionee (and any affiliate of Optionee with whom
Optionee must aggregate its sales under Rule 144) can be sold in any three
(3)-month period without registration in compliance with Rule 144 of the Act.
11. Representations and Warranties of the Optionee. The Optionee
represents and warrants to the Company that:
(a) The Optionee is acquiring this option and will acquire
the shares of Common Stock purchasable hereunder for the Optionee's own account
and not with a view towards the distribution, resale, subdivision or
fractionalization thereof, and the Optionee has no present plans to enter into
any contract, undertaking, agreement or arrangement for distribution, resale,
subdivision or fractionalization of the shares of Common Stock purchased on
exercise of this option;
(b) The Optionee (i) has adequate means of providing for his
or her current needs and contingencies, (ii) has no need for liquidity in an
investment in the Common Stock underlying this option, (iii) can bear the
economic risk of losing his entire investment in the shares of Common Stock
underlying this option, (iv) does not have an overall commitment to investments
which are not readily marketable, that is, disproportionate to his or her net
worth, and the Optionee's investment in the Common Stock underlying this option
will not cause such investment to become disproportionate to his or her net
worth, (v) has such knowledge and experience in financial and business matters
that the Optionee is capable of evaluating the risks and merits of an investment
in the Company, and (vi) is not relying on the Company respecting the tax or
other economic considerations of an investment in the Common Stock purchasable
hereunder;
(c) In the Optionee's position with the Company, the
Optionee has had both the opportunity to ask questions and receive answers from
the officers and directors of the Company respecting the Company and an
investment in the shares of Common Stock purchasable hereunder and to obtain any
additional information to the extent the Company possesses or may possess such
information or can acquire it without unreasonable effort or expense; however,
no oral representations have been made or oral information furnished to the
Optionee or his or her representatives respecting an investment in the shares of
Common Stock purchasable hereunder;
(d) Anything in this Agreement to the contrary
notwithstanding, the Optionee hereby agrees that he or she shall not sell,
transfer by any means or otherwise dispose of the shares acquired by the
Optionee without registration under the Act and applicable state securities laws
unless (i) an exemption from the Act and applicable state securities laws is
available, and (ii) the Optionee has furnished the Company with notice of such
proposed transfer and the Company's legal counsel, in its reasonable opinion,
shall deem such proposed transfer to be so exempt;
7
<PAGE> 8
(e) The Optionee is aware that the Company shall place
stop-transfer orders with its transfer agent against the transfer of any shares
of Common Stock purchasable hereunder in the absence of registration under the
Act and applicable state securities laws unless the Optionee complies with the
provisions of Section 11(d) hereof; and
(f) Unless previously registered, the Optionee shall
represent and agree at the time of exercise that the shares of Common Stock
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
12. Right Of First Refusal.
(a) In the event that the Optionee proposes to sell, pledge
or otherwise transfer to a third party any Common Stock acquired under this
Agreement, or any interest in such Common Stock, the Company shall have the
right of first refusal (the "Right of First Refusal") with respect to all (and
not less than all) of such Common Stock. If the Optionee desires to transfer
Common Stock acquired under this Agreement, the Optionee shall give a written
transfer notice (the "Transfer Notice") to the Company describing fully the
proposed transfer, including the number of shares of Common Stock proposed to be
transferred, the proposed transfer price, the name and address of the proposed
transferee (the "Transferee") and proof satisfactory to the Company that the
proposed sale or transfer will not violate any applicable federal or state
securities laws. The Transfer Notice shall be signed both by the Optionee and by
the proposed Transferee and must constitute a binding commitment of both parties
to the transfer of the Common Stock. The Company shall have the right to
purchase all, and not less than all, of the Common Stock on the terms of the
proposal described in the Transfer Notice (subject, however, to any change in
such terms permitted under Subsection (b) below) by delivery of a notice of
exercise of the Right of First Refusal within 30 days after the date when the
Transfer Notice was received by the Company. The Company's rights under this
Subsection (a) shall be freely assignable, in whole or in part.
(b) If the Company fails to exercise its Right of First
Refusal within 30 days after the date when it received the Transfer Notice, the
Optionee may, not later than 90 days following receipt of the Transfer Notice by
the Company, conclude a transfer of the Common Stock subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice, provided
that any such sale is made in compliance with applicable federal and state
securities laws and not in violation of any other contractual restrictions to
which the Optionee is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance with the procedure described in Subsection
(a) above. If the Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Common Stock on the terms set forth in the
Transfer Notice within 60 days after the date when the Company received the
Transfer Notice (or within such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event the Transfer Notice
provided that payment for the Common Stock was to be made in a form other than
cash or cash equivalents paid at the time of transfer, the
8
<PAGE> 9
Company shall have the option of paying for the Common Stock with cash or cash
equivalents equal to the present value of the consideration described in the
Transfer Notice.
(c) In the event of the declaration of a stock dividend, the
declaration of an extraordinary dividend payable in a form other than stock, a
spin-off, a stock split, an adjustment in conversion ratio, a recapitalization
or a similar transaction affecting the Company's outstanding securities without
receipt of consideration, any new, substituted or additional securities or other
property (including money paid other than as an ordinary cash dividend) which
are by reason of such transaction distributed with respect to any Common Stock
subject to this Paragraph 12 or into which such Common Stock thereby become
convertible shall immediately be subject to this Paragraph 12. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number and/or class of the Common Stock subject to this Paragraph
12.
(d) Any other provision of this Paragraph 12
notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Common
Stock, the Company shall have no Right of First Refusal, and the Optionee shall
have no obligation to comply with the procedures prescribed by Subsections (a)
and (b) above.
(e) This Paragraph 12 shall not apply to (i) a transfer by
beneficiary designation, will or intestate succession or (ii) a transfer to the
Optionee's spouse, children or to a trust established by the Optionee for the
benefit of the Optionee or the Optionee's spouse, children or grandchildren,
provided in either case that the Transferee agrees in writing on a form
prescribed by the Company to be bound by all provisions of this Agreement. If
the Optionee transfers any Common Stock acquired under this Agreement, either
under this Subsection (e) or after the Company has failed to exercise the Right
of First Refusal, then this Paragraph 12 shall apply to the Transferee to the
same extent as to the Optionee.
(f) If the Company makes available, at the time and place
and in the amount and form provided in this Agreement, the consideration for the
Common Stock to be purchased in accordance with this Paragraph 12, then after
such time the person from whom such Common Stock are to be purchased shall no
longer have any rights as a holder of such Common Stock (other than the right to
receive payment of such consideration in accordance with this Agreement). Such
Common Stock shall be deemed to have been purchased in accordance with the
applicable provisions hereof, whether or not the certificate(s) therefor have
been delivered as required by this Agreement.
13. (a) Binding Successors. Subject to the provisions of Section
6 hereof, this Agreement shall be binding upon and inure to the benefit of each
party hereto and to the extent not prohibited herein, their respective heirs,
successors, assigns and representatives.
(b) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9
<PAGE> 10
(c) Waiver. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any other or subsequent breach.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and may be modified or amended only by an instrument in writing signed by the
party against whom enforcement is sought.
(e) Notices. Any notice, demand, request or consent to be
given or served in connection herewith shall be in writing and shall be deemed
to have been given and received by the respective parties designated therein on
the day on which delivered by messenger to the receiving party at the address
set forth herein (or at such other address as such party shall specify to the
other parties in writing pursuant to this Section) or, if sent by certified or
registered mail, postage prepaid, return receipt requested, on the second day
after the day on which mailed to such party at such address.
(f) Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such state.
(g) Legends. All certificates evidencing Common Stock
purchased under this Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO
THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED
TRANSFER OF THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON
WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
10
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the date first set forth above.
ABOVENET COMMUNICATIONS, INC.
By:
-----------------------------------
Name: Sherman Tuan
Title: Chief Executive Officer and
Member of the Board of Directors
OPTIONEE
---------------------------------------
Warren Kaplan
Address of Optionee:
14690 Stoneridge Drive
Saratoga, CA 95070
<PAGE> 12
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- --------------------------------
(Date)
AboveNet Communications, Inc.
50 West San Fernando Street, Suite #1010
San Jose, California 95113
Ladies and Gentlemen:
In accordance with the Stock Option Agreement (the "Stock Option
Agreement") dated as of November 10, 1997 between me and AboveNet
Communications, Inc. ("the Company"), I wish to purchase _______ shares of
common stock of the Company.
I hereby certify that the representations I made in the Stock
Option Agreement are true and correct on and as of the date hereof.
As payment for my shares, enclosed is my check payable to
AboveNet Communications, Inc. in the amount of $_______ and/or securities of the
Company having a value of $______ as determined in accordance with the Stock
Option Agreement.
Kindly forward to me a stock certificate issued in my name at
your earliest convenience. I understand that delivery of the shares will take
approximately two weeks.
Very truly yours,
- ----------------------------------
(Signature)
- ----------------------------------
(Print name)
Address:
--------------------------
- ----------------------------------
- ----------------------------------
Social Security No.
---------------
E-1
<PAGE> 1
EXHIBIT 10.10
TECHNOLOGY AGREEMENT
This Agreement is entered as of August 18, 1998 between AboveNet
Communications Inc. ("Company"), and David Rand, an individual ("Developer") to
clarify the existing ownership and license rights of AboveNet in the Technology,
Intellectual Property, EtherValve, and MRTG (as defined herein) and merely
restates the true understanding of the parties.
1. Assignment. Developer has assigned and hereby assigns to Company
exclusively throughout the world all right, title and interest (whether or not
now existing) in (i) the Technology, as defined in Exhibit A attached hereto,
(ii) all precursors, portions and work in progress with respect thereto and all
inventions, works of authorship, mask works, technology, information, know-how,
materials and tools relating thereto or to the development, support or
maintenance thereof and (iii) all copyrights, patent rights, trade secret
rights, trademark rights, mask works rights and other intellectual property
rights and all business, contract rights and goodwill in, incorporated or
embodied in, used to develop, or related to any of the foregoing (collectively
"Intellectual Property").
2. License. Developer has granted and hereby grants to Company
perpetual, irrevocable, royalty-free worldwide licenses (with the right to grant
sublicenses) to use, copy, distribute, modify, and fully exploit the products
and related technologies known as EtherValve and MRTG, as defined in Exhibit A
attached hereto. The foregoing license grants are nonexclusive for MRTG and
exclusive for EtherValve, except that such exclusivity is subject only to the
non-exclusive license granted by Developer to Aponet for EtherValve prior to the
Effective Date.
3. Consideration. The Company agrees to issue to Developer options for
405,000 shares of common stock of the Company on the date of this Agreement
pursuant to the provisions of a Stock Purchase Agreement of even date herewith
between the Company and Developer. Such shares shall be the only consideration
required of the Company with respect to the subject matter of this Agreement
4. Further Assurances; Moral Rights; Competition; Marketing
4.1 Developer agrees to assist Company in every proper way to
evidence, record and perfect the assignment and licenses hereunder and to apply
for and obtain recordation of and from time to time enforce, maintain, and
defend the assigned and licensed rights. If Company is unable for any reason
whatsoever to secure the Developer's signature to any document it is entitled to
hereunder, Developer hereby irrevocably designates and appoints Company and its
duly authorized officers and agents, as its agents and attorneys-in-fact with
full power of substitution to act for and on its behalf and instead of
Developer, to execute and file any such document or documents and to do all
other lawfully permitted acts to further the purposes of the foregoing with the
same legal force and effect as if executed by Developer.
4.2 To the extent allowed by law, the assignment and licenses
hereunder include all rights of paternity, integrity, disclosure and withdrawal
and any other rights
<PAGE> 2
that may be known as or referred to as "moral rights," "artist's rights," "droit
moral," or the like (collectively "Moral Rights"). To the extent Developer
retains any such Moral Rights under applicable law, Developer hereby agrees to
waive such Moral Rights and will confirm such waivers from time to time as
requested by Company.
5. Warranty. Developer represents and warrants to Company that
Developer: (i) has the right to make the assignments and licenses made hereunder
and the full power and authority to enter into this Agreement, (ii) has not
assigned, transferred, licensed, pledged or otherwise encumbered any
Intellectual Property, EtherValve (except as expressly disclosed in Section 2 of
this Agreement) or the Technology or agreed to do so, (iii) has not assigned,
transferred, pledged or otherwise encumbered MRTG or agreed to do so, (iv) is
not aware of any violation, infringement or misappropriation of any third
party's rights (or any claim thereof) by the Intellectual Property, MRTG,
EtherValve or the Technology, and (v) does not own any right, title or interest
in or to any of the following marks: AboveNet, APS, ASAP, As-UR-Here,
EtherValve, ISPCondo, ISX, WebCondo, Cabriolet, or Remote-Hand-Services.
6. Miscellaneous. No failure to exercise, and no delay in exercising, on
the part of either party, any privilege, any power or any rights hereunder will
operate as a waiver thereof. If any provision of this Agreement shall be
adjudged by any court of competent jurisdiction to be unenforceable or invalid,
that provision shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be deemed to have been made in, and shall be
construed pursuant to the laws of the State of California and the United States
without regard to conflicts of laws provisions thereof. Any waivers or
amendments shall be effective only if made in writing and signed by a
representative of the respective parties authorized to bind the parties. Both
parties agree that with the exception of the May 19, 1998 employment agreement
between Developer and Company ("Employment Agreement"), this Agreement is the
complete and exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement. In the event
that any term of the Employment Agreement and this Agreement is construed to be
inconsistent, this Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
COMPANY DEVELOPER
By: By:
------------------------------ ----------------------------------
Printed: Printed:
------------------------- -----------------------------
Title: Address:
--------------------------- ---------------------------
<PAGE> 3
EXHIBIT A
DEFINITIONS
o The"Technology" shall mean all right, title and interest (including
copyrights, patent rights, trade secret rights, mask work rights and all
other rights throughout the world) relating to any and all inventions
(whether or not patentable), works of authorship, mask works, designs,
know-how, ideas and information relating to customer monitoring and
notification software called Automated Pro-Active Services or APS and/or
the customer monitoring software called Asymmetric Allocation of Packets
or ASAP.
o "EtherValve" shall mean all right, title and interest (including
copyrights, patent rights, trade secret rights, mask work rights
and all other rights throughout the world) relating to any and
all inventions (whether or not patentable), works of authorship,
mask works, designs, know-how, ideas and information relating to
bandwidth management software known as EtherValve.
o "MRTG" shall mean all right, title and interest (including copyrights,
patent rights, trade secret rights, mask work rights and all
other rights throughout the world) relating to any and all
inventions (whether or not patentable), works of authorship,
mask works, designs, know-how, ideas and information relating to
customer monitoring software known as Multi Router Traffic
Grapher or MRTG.
<PAGE> 1
Exhibit 10.12
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
ABOVENET COMMUNICATIONS INC.
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS ..................................................................................4
2 LOAN AND TERMS OF PAYMENT ...................................................................................4
2.1 Advances ..........................................................................................4
2.2 Overadvances ......................................................................................4
2.3 Interest Rate, Payments ...........................................................................5
2.4 Fees ..............................................................................................5
3 CONDITIONS OF LOANS .........................................................................................5
3.1 Conditions Precedent to Initial Advance ...........................................................5
3.2 Conditions Precedent to all Advances ..............................................................5
4 CREATION OF SECURITY INTEREST ...............................................................................5
4.1 Grant of Security Interest ........................................................................5
5 REPRESENTATIONS AND WARRANTIES ..............................................................................6
5.1 Due Organization and Authorization.................................................................6
5.2 Collateral ........................................................................................6
5.3 Litigation ........................................................................................6
5.4 No Material Adverse Change in Financial Statements ................................................6
5.5 Solvency ..........................................................................................6
5.6 Regulatory Compliance..............................................................................6
5.7 Subsidiaries ......................................................................................7
5.8 Full Disclosure ...................................................................................7
6 AFFIRMATIVE COVENANTS........................................................................................7
6.1 Government Compliance .............................................................................7
6.2 Financial Statements, Reports, Certificates........................................................7
6.3 Inventory; Returns.................................................................................8
6.4 Taxes..............................................................................................8
6.5 Insurance..........................................................................................8
6.6 Primary Accounts...................................................................................8
6.7 Financial Covenants................................................................................8
6.8 Registration of Intellectual Property Rights.......................................................9
6.9 Further Assurances.................................................................................9
7 NEGATIVE COVENANTS...........................................................................................9
7.1 Dispositions.......................................................................................9
7.2 Changes in Business, Ownership, Management or Business Locations...................................9
7 3 Mergers or Acquisitions............................................................................9
7.4 Indebtedness.......................................................................................9
7.5 Encumbrance.......................................................................................10
7.6 Distributions; Investments........................................................................10
7.7 Transactions with Affiliates......................................................................10
7.8 Subordinated Debt.................................................................................10
7.9 Compliance........................................................................................10
8 EVENTS OF DEFAULT...........................................................................................10
8.1 Payment Default.................................................................................. 10
8.2 Covenant Default..................................................................................10
8.3 Material Adverse Change...........................................................................11
8 4 Attachment. ......................................................................................11
2
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.5 Insolvency .......................................................................................11
8.6 Other Agreements .................................................................................11
8.7 Judgments ........................................................................................11
8.8 Misrepresentations................................................................................11
9 BANK'S RIGHTS AND REMEDIES .................................................................................11
9.1 Rights and Remedies ..............................................................................11
9.2 Power of Attorney.................................................................................12
9.3 Accounts Collection...............................................................................12
9.4 Bank Expenses.....................................................................................12
9.5 Bank's Liability for Collateral...................................................................13
9.6 Remedies Cumulative...............................................................................13
9.7 Demand Waiver.....................................................................................13
10 NOTICES....................................................................................................13
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.................................................................13
12 GENERAL PROVISIONS.........................................................................................13
12.1 Successors and Assigns...........................................................................13
12.2 Indemnification..................................................................................14
12.3 Time of Essence..................................................................................14
12.4 Severability of Provision........................................................................14
12.5 Amendments in Writing, Integration...............................................................14
12.6 Counterparts.....................................................................................14
12.7 Survival.........................................................................................14
12.8 Confidentiality..................................................................................14
12.9 Attorneys' Fees, Costs and Expenses..............................................................14
13 DEFINITIONS................................................................................................15
13.1 Definitions......................................................................................15
3
</TABLE>
<PAGE> 4
THIS LOAN AND SECURITY AGREEMENT dated May 22, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and ABOVENET COMMUNICATIONS INC. ("Borrower"), whose address is
50 W. San Fernando Street, Suite 1010, San Jose, California 95113 provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 ADVANCES.
Borrower will pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base, whichever is less. For
purposes of this Agreement, "Borrowing Base" means an amount equal to eighty
five percent (85%) of Borrower's aggregate Pre-billed Revenue or
Subscription based Revenue for the one (1) month immediately preceding the month
in which an Advance is requested up to a maximum amount of $500,000, provided,
however, that the Borrowing Base shall be equal to eighty five percent (85%) of
the aggregate Pre-billed Revenue or Subscription-based Revenue for the two (2)
months immediately preceding the month in which an Advance is requested with
respect to any Advances requested after the month immediately following Bank's
receipt and satisfactory review of term sheets from Borrower's investors which
represent financing in an aggregate amount of not less than $5,000,000 of
Borrower's Series D round which is expected to close prior to August 1998,
provided, further that no Advances may be made after any month in which Borrower
has suffered a decline in Pre-billed Revenue for any rolling three (3) month
average. Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of either
(i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.
4
<PAGE> 5
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 1.00 percentage point above the Prime Rate. Upon
receipt of funds from the closing of Borrower's Series D round, Advances will
accrue interest on the outstanding principal balance at a per annum rate of
0.500 of a percentage point above the Prime Rate. The effective date of such
interest rate change will be the first day of the month following Bank's receipt
of Borrower's financial statements showing Borrower has met the above-described
criteria for such interest rate change. After an Event of Default, Obligations
accrue interest at 5.00 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 4th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _______________________________ for principal and
interest payments or any amounts Borrower owes Bank. Bank will notify Borrower
when it Debits Borrower's accounts. These debits are not a set-off. Payments
received after 12:00 noon Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $3,750
due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
Bank's obligation to make the initial Advance is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.
Bank's obligations to make each Advance, including the initial Advance,
is subject to the following:
(a) timely receipt of any Payment/Advance Form, and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5
<PAGE> 6
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party.
5.3 LITIGATION.
To the best of Borrower's knowledge and except as shown in the Schedule,
there are no actions or proceedings pending or, to Borrower's knowledge,
threatened by or against Borrower or any Subsidiary in which an adverse decision
could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed
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all required tax returns and paid, or made adequate provision to pay, all taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 90 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of $100,000 or more;
(iv) budgets, sales projections, operating plans or other financial information
Bank reasonably requests; and (v) prompt notice of any material change in the
composition of the Intellectual Property, including any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not shown in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely affects the value of the Intellectual
Property.
(b) Upon requesting the initial Advance or at such time as there are
outstanding Advances and prior to an Advance when there are no outstanding
Advances, within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) Upon requesting the initial Advance or at such time as there are
outstanding Advances and prior to an Advance when there are no outstanding
Advances, within 20 days after the last day of each month, Borrower will deliver
to Bank a monthly report in a form satisfactory to Bank listing subscriber
activations, deactivations and total subscribers.
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(e) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than every 6 months and
shall not exceed $1,200 per audit, unless an Event of Default has occurred and
is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of any returns, recoveries,
disputes and claims, that involve more than $100,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month, unless
otherwise noted:
(i) QUICK RATIO [ADJUSTED]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.25 to 1.00.
(ii) MONTHLY DECLINE IN PRE-BILLED REVENUE. Borrower shall not
suffer any decline in the monthly Pre-billed Revenue for any month from the
immediately preceding rolling three (3) month average.
(iii) MAXIMUM QUARTERLY LOSSES. Borrower shall not suffer
quarterly losses in excess of: $1,587,000 for the quarter ending June 30, 1998;
$1,783,000 for the quarter ending September 30, 1998; $1,433,000 for the quarter
ending December 31, 1998; and $1,073,000 for the quarter ending March 31, 1999.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will register with the United States Patent and Trademark
Office or the United States Copyright Office Intellectual Property rights on
Exhibits A, B, C, and D to the Intellectual Property Security Agreement within
60 days of the date of this Agreement, and additional Intellectual Property
rights developed or acquired including revisions or additions with any product
before the sale or licensing of the product to any third party.
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Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower without Bank's
prior written approval, which approval will not unreasonably be withheld.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
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7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Advances will be
made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency
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and not paid within 10 days after Borrower receives notice. These are not Events
of Default if stayed or it a bond is posted pending contest by Borrower (but no
Advances will be made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $100,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets,
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trade names, Trademarks, service marks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section, Borrower's rights under all licenses
and all franchise agreements inure to Bank's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors; (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and or terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral, No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of
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accounts, documents, instruments, chattel paper, and guarantees held by Bank on
which Borrower is liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.
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12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance. guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all reasonable audit fees and expenses and
reasonable costs of expenses (including reasonable attorneys' fees and expenses)
for preparing, negotiating, administering, defending and enforcing the Loan
Documents (including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or Financial condition and all computer programs or discs or
any equipment containing the information.
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"BORROWING BASE" has the meaning set forth is Section 2.1.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" is an Advance of up to $750,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may, not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet ail Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
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(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
16
<PAGE> 17
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
exchange contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
(f) Indebtedness for leased equipment or other capital leases.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
17
<PAGE> 18
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRE-BILLED REVENUE" means the revenue received by Borrower from account
debtors on account of invoices delivered for services to be rendered in the
ordinary course of Borrower's business during the period following receipt of
such invoices, which invoices are to be paid by customers in the ordinary course
of business within thirty (30) days after receipt of such invoice.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrowers consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable, and investments with
maturities of fewer than 12 months determined according to GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is May 21, 1999.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSCRIPTION-BASED REVENUE" means the revenue received by Borrower from
account debtors on account of invoices delivered for services to be rendered
during the month in which the invoices are delivered, which invoices are paid by
customers in the ordinary course of business within thirty (30) days after
receipt of such invoice.
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
BORROWER:
ABOVENET COMMUNICATIONS INC.
By: /s/ WARREN J. KAPLAN
- ----------------------------------
Title: President & COO
- ----------------------------------
/s/ STEPHEN BELOMY
- ----------------------------------
EVP & CFO
/s/ KEVIN M. HOURIGAN
- ----------------------------------
Controller
BANK:
SILICON VALLEY BANK
By: [SIG]
- -----------------------------------
Title: VP
- -----------------------------------
18
<PAGE> 19
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower:
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE> 20
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ________________________
FAX#: (408) 496-2426 TIME: ________________________
- --------------------------------------------------------------------------------
FROM: ABOVENET COMMUNICATIONS INC.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT # ____________________TO ACCOUNT #_________________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $____________________________________
PRINCIPAL PAYMENT (ONLY) $____________________________________
INTEREST PAYMENT (ONLY) $____________________________________
PRINCIPAL AND INTEREST (PAYMENT) $____________________________________
</TABLE>
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
______________________________________ ______________________________
Authorized Requester Phone #
______________________________________ ______________________________
Received By (Bank) Phone#
____________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE> 21
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: ABOVENET COMMUNICATIONS INC. Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $750,000
- --------------------------------------------------------------------------------
SUBSCRIBER REVENUE
<TABLE>
<S> <C>
1. Pre-billed Revenue for previous month $____________
2. Subscriber-based Revenue for previous month
(capped at $500,000) $____________
3. Total of 1 and 2 $____________
4. LOAN VALUE OF REVENUE (85% of #3)* $____________
</TABLE>
*Upon Bank's satisfactory review and acceptance of term sheets from Borrower's
investors totaling not less than $5,000,000 of the Borrower's Series D round,
the calculation will be increased to 85% of the total of two prior months of
Pre-billed Revenue and 2 prior months Subscriber-based Revenue (no cap) rather
than one month.
<TABLE>
BALANCES
<S> <C> <C>
5. Maximum Loan Amount $____________
6. Total Funds Available [Lesser of #4 or #5] $____________
7. Present balance owing on Line of Credit $____________
8. Outstanding under Sublimits ( ) $____________
9. RESERVE POSITION (#6 minus #7 and #8) $____________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS: ----------------------------
BANK USE ONLY
Rec'd By: _______________
Auth. Signer
ABOVENET COMMUNICATIONS INC. Date: ___________________
Verified:________________
By:____________________________ Auth. Signer
Authorized Signer Date:____________________
______________________
---------------------------
2
<PAGE> 22
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: ABOVENET COMMUNICATIONS INC.
The undersigned authorized officer of ABOVENET COMMUNICATIONS INC.
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY
CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
+Comp. Cert
Annual CPA (Audited) FYE within 90 days Yes No
Monthly Subscriber report* Monthly within 20 days** Yes No
A/R & A/P Agings + BBC Monthly within 20 days** Yes No
A/R Audit Initial and Semi-Annual Yes No
</TABLE>
* to include new subscribers, cancellations, and total subscribers.
** Upon initial Advance or if there are outstanding Advances and prior to an
Advance when there are no outstanding Advances.
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio (Adjusted) 1.25 :1.00 ___ :1.00 Yes No
Monthly Decline of Pre-billed Revenue No decline for any $_________ Yes No
month from the immediately
preceding three (3) month average
Losses: Maximum quarterly losses $_________ Yes No
not to exceed:
$1,587,000 for the quarter ending June 30, 1998;
$1,783,000 for the quarter ending September 30, 1998;
$1,433,000 for the quarter ending December 31, 1998; and
$1,073,000 for the quarter ending March 31, 1999.
</TABLE>
<PAGE> 23
------------------------------------
COMMENTS REGARDING EXCEPTIONS: BANK USE ONLY
See Attached.
Sincerely, Received by: ______________________
AUTHORIZED SIGNER
ABOVENET COMMUNICATIONS INC.
Date:______________________________
- --------------------------------
SIGNATURE Verified:__________________________
AUTHORIZED SIGNER
- --------------------------------
TITLE Date:______________________________
- -------------------------------- Compliance Status: Yes No
DATE
------------------------------------
2
<PAGE> 24
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: ABOVENET COMMUNICATIONS INC.
LOAN OFFICER: Herman White
DATE: May 22, 1998
<TABLE>
<S> <C>
Revolving Loan Fee $3,750.00
Credit Report 35.00
UCC Search Fee 150.00
UCC Filing Fee 20.00
Intellectual Property Filing Fees 550.00
Documentation Fee 350.00
TOTAL FEE DUE $4,855.00
------------- =========
</TABLE>
Please indicate the method of payment:
[ ] A check for the total amount is attached.
[ ] Debit DDA # _________ for the total amount.
[ ] Loan proceeds
Borrower:
<TABLE>
<S> <C>
By: /s/ WARREN J. KAPLAN President /s/ STEPHEN BELOMY EVP & CFO
- ----------------------------------
(Authorized Signer) /s/ KEVIN HOURIGAN
CONTROLLER
[SIG]
- ----------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
</TABLE>
<PAGE> 25
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of May
22, 1998 by and between SILICON VALLEY BANK ("Bank") and ABOVENET COMMUNICATIONS
INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated May 22, 1998 (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement,
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement. the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
<PAGE> 26
GRANTOR:
Address of Grantor: ABOVENET COMMUNICATIONS INC.
50 W. San Fernando Street, Suite 1010 By: WARREN J. KAPLAN
- ------------------------------------- --------------------------------
San Jose, CA 95113
- ------------------------------------- Title: President & CEO
Attn: ----------------------------
--------------------------------
STEPHEN BELOMY
EVP & CFO
KEVIN HOURIGAN
Controller
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive By: [SIG]
Santa Clara, CA 95054-1191 -------------------------------
Attn: Title: VP
---------------------- -----------------------------
2
<PAGE> 27
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
</TABLE>
<PAGE> 28
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
</TABLE>
<PAGE> 29
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
</TABLE>
<PAGE> 30
EXHIBIT D
Mask Works
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
</TABLE>
<PAGE> 31
CORPORATE BORROWING RESOLUTION
BORROWER: ABOVENET COMMUNICATIONS INC. BANK: SILICON VALLEY BANK
50 W. SAN FERNANDO STREET, SUITE 110 3003 TASMAN DRIVE
SAN JOSE, CA 95113 SANTA CLARA, CA 95054-1191
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ABOVENET COMMUNICATIONS
INC. ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly organized
and existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Warren J. Kaplan President & CEO /s/ WARREN J. KAPLAN
Stephen Belomy Exec. V.P. & CFO /s/ STEPHEN BELOMY
Kevin Hourigan Controller /s/ KEVIN HOURIGAN
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment
should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of Borrower to Bank, and also to execute
and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
loan documents, or any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of
Borrower's obligations to Bank.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to Borrower or in which Borrower may have an
interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of Borrower with Bank, or to
cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as,
in the judgment of the officer or officers herein authorized.
<PAGE> 32
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, including agreements waiving the
right to a trial by jury, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on May 22, 1998 and attest that
the signatures set opposite the names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ STEPHEN BELOMY
-------------------------------
*Secretary or Assistant Secretary
X /s/ KEVIN M. HOURIGAN
-------------------------------
Controller
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
<PAGE> 1
EXHIBIT 10.13
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of May 22, 1998, is made by AboveNet
Communications, Inc. (the "Borrower"), a California corporation having its
principal place of business and chief executive office at 50 W. San Fernando
Street #1010, San Jose, California 95113 in favor of Transamerica Business
Credit Corporation, a Delaware corporation (the "Lender"), having its principal
office at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont,
Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
Additional Collateral shall have the meaning specified in Section 2(b).
Agreement shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgage waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Equipment.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Equity Funding Requirement shall mean that Borrower shall have received at
least $7,000,000 net proceeds from its Series D or similar preferred stock
financing.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
<PAGE> 2
GAAP shall mean generally accepted accounting principles in the United States
of America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with terms of this Agreement and the Notes.
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be
modified, extended, restated, or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time.
Obligations shall mean all indebtedness, obligations, and liabilities of the
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen,
mechanics, laborers, materialmen, and other like Persons arising by operation
of law in the ordinary course of business for sums which are not yet due and
payable, or liens which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
are maintained to the extent required by GAAP; (b) deposits or pledges to
secure the payment of worker's compensation, unemployment insurance, or other
social security benefits or obligations, public or statutory obligations,
surety or appeal bonds, bid or performance bonds, or other obligations of a
like nature incurred in the ordinary course of business; (c) licenses,
restrictions, or covenants for or on the use of the Equipment which do not
materially impair either the use of the Equipment in the operation of the
business of the Borrower or the value of the Equipment; (d) attachment or
judgment liens that do not constitute an Event of Default; (e) security
interests in and liens granted to current and future lenders to the Borrower
which are subordinate to the security interest and lien granted to Lender
hereunder; and (f) with respect to the Additional Collateral only, senior
security interests and liens in favor of Silicon Valley Bank.
Person shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity,
party, or government (including any division, agency, or department thereof),
and the successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
Person's solvency is measured.
(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
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(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. (a) The
Borrower hereby assigns and grants to the Lender a continuing general, first
priority lien on, and security interest in, all the Borrower's right, title,
and interest in and to the collateral described in the next sentence (the
"Collateral") to secure the payment and performance of all the Obligations.
Subject to paragraph (b) below, the Collateral consists of all equipment set
forth on all the Schedules delivered from time to time under the terms of this
Agreement (the "Equipment"), together with all present and future additions,
parts, accessories, attachments, substitutions, repairs, improvements, and
replacements thereof or thereto, and any and all proceeds thereof, including,
without limitation, proceeds of insurance and all manuals, blueprints,
know-how, warranties, and records in connection therewith, all rights against
suppliers, warrantors, manufacturers, sellers, or others in connection
therewith, and together with all substitutes for any of the foregoing.
(b) In addition to the foregoing, for the period beginning on
the date hereof and ending on the date that the Equity Funding Requirement is
met, the Borrower hereby assigns and grants to the Lender a continuing general
lien on, and security interest in, all the Borrower's right, title, and
interest in and to the collateral described in the next sentence (the
"Additional Collateral") to secure the payment and performance of all the
Obligations. The Additional Collateral consists of
(i) all present and future machinery, equipment,
furniture, fixtures, leasehold improvements, conveyors, tools,
materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including
central processing units, terminals, drives, memory units,
printers, keyboards, screens, peripherals and input or output
devices, molds, dies, stamps, and other equipment of every kind
and nature and wherever situation now or hereafter owned and held
for use by the Borrower or in which the Borrower may have any
interest as lessee (to the extent of such interest), together with
all additions and accessions thereto, all replacements and all
accessories and parts therefore, all manuals, blueprints,
know-how, warranties and records in connection therewith
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) and all
rights against suppliers, warrantors, manufacturers, and sellers
or others in connection therewith, together with all substitutes
for any of the foregoing;
(ii) all present and future goods intended for sale,
lease or other disposition by the Borrower including, without
limitation, all raw materials, work in process, systems,
accessories, spare parts, finished goods and other retail
inventory, goods in the possession of outside processors or other
third parties, consigned goods (to the extent of the consignee's
interest therein), materials, parts and supplies of any kind,
nature or description which are or might be used in connection
with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, all documents of title or documents
representing the same and all records, files and writings
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) with
respect thereto;
(iii) all of the Borrower's present and future accounts
(including rights to receive payments for goods sold or services
rendered arising out of the sale or delivery of personal property
or work done or labor performed), contract rights, agreements,
understandings, open purchase and sale orders, promissory notes,
chattel paper, documents, tax refunds, rights to receive tax
refunds, bonds, certificates, insurance proceeds, patents, patent
applications, copyrights (registered and unregistered), royalties,
licenses, rights to receive fees, royalties and other payments
under license agreements, permits, franchise rights,
authorizations, customer and supplier lists, rights of
indemnification, contribution and subrogation, leases,
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computer tapes, programs, discs and software, trade secrets,
computer service contracts, trademarks, trade names, service marks
and names, logos, goodwill, deposits, causes of action, chooses in
action, judgments, designs, blueprints, quotations and bids,
plans, specifications, sales literature, know-how, all other
general intangibles, claims against third parties of every kind or
nature, investment securities, notes, drafts, acceptances, letters
of credit and rights to receive payments under letters of credit,
deposit accounts, book accounts, prepaid expenses, credits and
reserves and all forms of obligations whatsoever owing,
instruments, documents of title, leasehold rights, including in
any goods, books, ledgers, files (including credit and project
files) and records (including tax records) with respect to any
collateral or security, together with all right, title, security
and guaranties with respect to thereto, including any right of
stoppage in transit; and
(iv) all proceeds of the foregoing.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount
not less than $100,000 and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its sole discretion, determines that the applicable conditions for
borrowing contained in Sections 3.3 and 3.4 are satisfied. The timing and
financial scope of Lender's obligation to make Loans hereunder are limited as
set forth in a commitment letter executed by Lender and Borrower, dated as of
April 29, 1998 and attached hereto as Exhibit A (the "Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall
not directly or indirectly use any proceeds of the Loans, or cause, assist,
suffer, or permit the use of any proceeds of the Loans, for any purpose other
than for the purchase, acquisition, installation, or upgrading of Equipment or
the reimbursement of the Borrower for its purchase, acquisition, installation,
or upgrading of Equipment.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is
subject to the Lender's receipt of the following, each dated the date of the
initial Loan or as of an earlier date acceptable to the Lender, in form and
substance satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing statements
naming the Borrower as debtor and all tax lien, judgment, and
litigation searches for the Borrower as the Lender shall deem
necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form
UCC-1) duly executed by the Borrower (naming the Lender as secured
party and the Borrower as debtor and in form acceptable for filing
in all jurisdictions that the Lender deems necessary or desirable
to perfect the security interests granted to it hereunder) and, if
applicable, termination statements or other releases duly filed in
all jurisdiction that the Lender deems necessary or desirable to
perfect and protect the priority of the security interests granted
to it hereunder in the Equipment related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing the
amount of such Loan;
(iv) a Collateral Access Agreement duly executed by the
lessor or mortgagee, as the case may be, of premises in Vienna,
Virginia where the Equipment is located;
(v) certificates of insurance required under Section 5.4
of this Agreement together with loss payee endorsements for all
such policies naming the Lender as lender loss payee and as an
additional insured;
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(vi) a copy of the resolutions of the Board of Directors of the
Borrower (or a unanimous consent of directors in lieu thereof) authorizing
the execution, delivery, and performance of this Agreement, the other Loan
Documents, and the transactions contemplated hereby and thereby, attached
to which is a certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (A) that the copy of the resolutions is true, complete,
and accurate, that such resolutions have not been amended or modified since
the date of such certification and are in full force and effect and (B) the
incumbency, names, and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party;
(vii) the opinion of counsel for the Borrower covering such matters
incident to the transactions contemplated by this Agreement as the Lender
may reasonably require; and
(viii) such other agreements and instruments as the Lender deems
necessary in its sole and absolute discretion in connection with the
transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower after
due inquiry, threatened litigation, proceeding, inquiry, or other action (i)
seeking an injunction or other restraining order, damages, or other relief with
respect to the transactions contemplated by this Agreement or the other Loan
Documents or thereby or (ii) which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have a
Material Adverse Effect in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to be paid
by it to the Lender as of such date.
(d) The security interests in the Collateral and the Additional Collateral
granted in favor of the Lender under this Agreement shall have been duly
perfected and, with respect to the Equipment related to the initial Loan, shall
constitute first priority liens.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The obligation of
the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance satisfactory to the Lender and its counsel and each
dated the date of such Loan or as of an earlier date acceptable to the Lender;
(b) the Lender shall have received a Schedule of the Equipment related to
such Loan, in form and substance satisfactory to the Lender and its counsel, and
the security interests in such Equipment related to such loan granted in favor
of the Lender under this Agreement shall have been duly perfected and shall
constitute first priority liens;
(c) all representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
relate solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice or the
passage of fame, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested Loan
as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and ratified
all security interests, liens, and other encumbrances heretofore granted by the
Borrower to the Lender.
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SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower
(a) is duly organized, validly existing, and in good standing under the laws of
the State of its organization, (b) has the power and authority to own its
properties and assets and to transact the business in which it is presently, or
proposes to be, engaged, and (c) is duly qualified and authorized to do business
and is in good standing in every jurisdiction in which the failure to be so
qualified could have a Material Adverse Effect on (i) the Borrower, (ii) the
Borrower's ability to perform its obligations under the Loan Documents, or (iii)
the rights of the Lender hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage, or deed of trust or any material lease, agreement,
or other instrument binding on the Borrower or any of its properties, or (c)
require the consent, authorization by, or approval of or notice to or filing or
registration with any governmental authority or other Person. This Agreement is,
and each of the other Loan Documents to which the Borrower is or will be a
party, when delivered hereunder or thereunder, will be, the legal, valid, and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and will be
Solvent upon the completion of all transactions contemplated to occur hereunder
(including, without limitations, the Loan to be made on the Effective Date); the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral other than Permitted Liens, and, with
respect to the Additional Collateral, the first lien other than the lien of
Silicon Valley Bank; and the Borrower is, or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer, and create a security interest
therein, free and clear of any and all claims or liens in favor of any other
Person other than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are outstanding
against the Borrower nor is there now pending or, to the best of the Borrower's
knowledge after diligent inquiry, threatened any litigation, contested claim, or
governmental proceeding by or against the Borrower except judgments and pending
or threatened litigation, contested claims, and governmental proceedings which
would not, in the aggregate, have a Material Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default or has not
received a notice of default under any material contract, lease, or commitment
to which it is a party or by which it is bound. The Borrower knows of no dispute
regarding any contract, lease, or commitment which could have a Material Adverse
Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each item of
the Collateral is located at the place of business specified in the applicable
Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has occurred
and is continuing nor has any event occurred which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as permitted
herein, none of the Collateral is subject to contractual obligations that may
restrict or inhibit the Lender's rights or abilities to sell or dispose of the
Collateral or any part thereof after the occurrence of an Event of Default.
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SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected first priority and exclusive security interest
in the Collateral, and, subject to the senior lien of Silicon Valley Bank, in
the Additional Collateral, securing the payment of all the Obligations.
SECTION 4.10. MODEL AND SERIAL NUMBERS. The Schedules set
forth the true and correct model number and serial number of each item of
Equipment that constitutes Collateral.
SECTION 4.11. ACCURACY AND COMPLETENESS OF INFORMATION. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and
accurate in all material respects on the date as of which such data, reports,
and information are dated or certified and not incomplete by omitting to state
any material fact necessary to make such data, reports, and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion, or other written
statement previously furnished by the Borrower to the Lender.
SECTION 4.12. PRICE OF EQUIPMENT. The cost of each item of
Equipment does not exceed the fair and usual price for such type of equipment
purchased in like quantity and reflects all discounts, rebates and allowances
for the Equipment (including, without limitation, discounts for advertising,
prompt payment, testing, or other services) given to the Borrower by the
manufacturer, supplier, or any other person.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) retain
its existence and its current yearly accounting cycle, (b) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts, and other rights necessary or desirable to the profitable conduct
of its business unless the failure to do so could not reasonably be expected to
have a Material Adverse Effect on the Borrower, (c) continue in, and limit its
operations to, the same general lines of business as those presently conducted
by it, and (d) comply with all applicable laws and regulations of any federal,
state, or local governmental authority, except for such laws and regulations
the violations of which would not, in the aggregate, have a Material Adverse
Effect on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and
in any event within five days after the Borrower learns of the following, the
Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted by or against the Borrower in any
federal, state, local, or foreign court or before any commission or other
regulatory body (federal, state, local, or foreign) involving a sum, together
with the sum involved in all other similar proceedings, in excess of $50,000
in the aggregate, (b) any contact that is terminated or amended and which has
had or could reasonably be expected to have a Material Adverse Effect on the
Borrower, (c) the occurrence of any Material Adverse Change with respect to the
borrower, and (d) the occurrence of any Event of Default or event or condition
which, with notice or lapse of time or both, would constitute an Event of
Default, together with a statement of the action which the Borrower has taken
or proposes to take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower
will maintain books and records pertaining to the Collateral in such detail,
form, and scope as the Lender shall require in its commercially reasonable
judgment. The Borrower agrees that the Lender or its agents may enter upon the
Borrower's premises at any time and from time to time during normal business
hours, and at any time upon the occurrence and continuance of an Event of
Default, for the purpose of inspecting the Collateral and any and all records
pertaining thereto.
SECTION 5.4 INSURANCE. The Borrower will maintain insurance
on the Collateral under such policies of insurance, with such insurance
companies, in such amounts, and covering such risks as are at
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all times satisfactory to the Lender. All such policies shall be made payable to
the Lender, in case of loss, under a standard non-contributory "lender" or
"secured party" clause and are to contain such other provisions as the Lender
may reasonably require to protect the Lender's interests in the Collateral and
to any payments to be made under such policies. Certificates of insurance
policies are to be delivered to the Lender, premium prepaid, with the loss
payable endorsement in the Lender's favor, and shall provide for not less than
thirty days' prior written notice to the Lender, of any alteration or
cancellation of coverage. If the Borrower fails to maintain such insurance, the
Lender may, arrange for (at the Borrower's expense and without any
responsibility on the Lender's part for) obtaining the insurance. Unless the
Lender shall otherwise agree with the Borrower in writing, the Lender shall have
the sole right, in the name of the Lender or the Borrower, to file claims under
any insurance policies, to receive and give acquittance for any payments that
may be payable thereunder, and to execute any endorsements, receipts, releases,
assignments, reassignments, or other documents that may be necessary to effect
the collection, compromise, or settlement of any claims under any such insurance
policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all taxes,
assessments, claims, and other charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by
the Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may
pay such Taxes, and the amount thereof shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON
COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state, and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move
or permit the movement of any item of Collateral from the location specified in
the applicable Schedule, except that the Borrower may change its chief
executive office and keep Collateral at other locations within the United
States provided that the Borrower has delivered to the Lender (i) prior written
notice thereof and (ii) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to the Lender)
necessary or, in the opinion of the Lender, desirable to perfect and maintain
in favor of the Lender a first priority security interest in the Collateral.
Notwithstanding anything to the contrary in the immediately preceding sentence,
the Borrower may keep any Collateral consisting of motor vehicles or rolling
stock at any location in the United States provided that the Lender's security
interest in any such Collateral is conspicuously marked on the certificate of
title thereof and the Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The Collateral
shall be operated by competent, qualified personnel in connection with the
Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the delivery, installation, use, and operation of the
Collateral. The Borrower shall keep all of the Equipment in a satisfactory
state of repair and satisfactory operating condition in accordance with
industry standards, and will make all repairs and replacements when and where
necessary and practical. The Borrower will not waste or destroy the
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<PAGE> 9
Equipment or any part thereof, and will not be negligent in the care or use
thereof. The Equipment shall not be annexed or affixed to or become part of any
realty without the Lender's prior written consent.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly upon request
by the Lender, execute and deliver or use its best efforts to obtain any
document required by the Lender (including, without limitation, warehouseman or
processor disclaimers, mortgagee waivers, landlord disclaimers, or
subordination agreements with respect to the Obligations and the Collateral),
give any notices, execute and file any financing statements, mortgages, or
other documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender,
desirable to perfect or continue the perfection and the first priority of the
Lender's security interest in the Collateral, to protect the Collateral against
the rights, claims, or interests of any Persons, or to effect the purposes of
this Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Borrower where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law. To
the extent required under this Agreement, the Borrower will pay all costs
incurred in connection with any of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will not in any
way hypothecate or create or permit to exist any lien, security interest,
charge, or encumbrance on or other interest in any of the Collateral, except
for the lien and security interest granted hereby and Permitted Liens which are
junior to the lien and security interest of the Lender, and the Borrower will
not sell, transfer, assign, pledge, collaterally assign, exchange, or otherwise
dispose of any of the Collateral. In the event the Collateral, or any part
thereof, is sold, transferred, assigned, exchanged, or otherwise disposed of in
violation of these provisions, the security interest of the Lender shall
continue in such Collateral or part thereof notwithstanding such sale,
transfer, assignment, exchange, or other disposition, and the Borrower will
hold the proceeds thereof in a separate account for the benefit of the Lender.
Following such a sale, the Borrower will transfer such proceeds to the Lender
in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The Borrower will not
enter into any contractual obligations which may restrict or inhibit the
Lender's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon notice to the Borrower
(provided that if an Event of Default has occurred and is continuing the Lender
need not give any notice), the Lender shall have the right at any time to make
any payments and do any other acts the Lender may deem necessary to protect its
security interests in the Collateral, including, without limitation, the rights
to satisfy, purchase, contest, or compromise any encumbrance, charge, or lien
which, in the reasonable judgment of the lender, appears to be prior to or
superior to the security interests granted hereunder, and appear in, and defend
any action or proceeding purporting to affect its security interests in, or the
value of, any of the Collateral. The Borrower hereby agrees to reimburse the
Lender for all payments made and expenses incurred under this Agreement
including reasonable fees, expenses, and disbursements of attorneys and
paralegals (including the allocated costs of in-house counsel) acting for the
Lender, including any of the foregoing payments under, or acts taken to protect
its security interests in, any of the Collateral, which amounts shall be
secured under this Agreement, and agrees it shall be bound by any payment made
or act taken by the Lender hereunder absent the Lender's gross negligence or
willful misconduct. The Lender shall have no obligation to make any of the
foregoing payments or perform any of the foregoing acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly (but in no
event later than one Business Day) after its receipt thereof, deliver to the
Lender any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of
credit or instruments related to or otherwise in connection with any property
included in the Collateral, which in any such
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<PAGE> 10
case come into the possession of the Borrower, or shall cause the issuer thereof
to deliver any of the same directly to the Lender, in each case with any
necessary endorsements in favor of the Lender and (b) deliver to the Lender as
soon as available copies of any and all press releases and other similar
communications issued by the Borrower.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain Solvent
at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not (a)
amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of
such amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure, in each
case without the Lender's prior written consent which shall not be unreasonably
withheld.
SECTION 5.16. ADDITIONAL REQUIREMENTS. The Borrower shall take all
such further actions and execute all such further documents and instruments as
the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction in
full of all Obligations, the Borrower shall deliver to the Lender the following
financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for
such year, reported on by independent certified public accountants without an
adverse qualification; and
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as available,
but not later than 60 days after the end of each of the first three fiscal
quarters in any fiscal year of the Borrower and its consolidated subsidiaries,
the Financial Statements for such fiscal quarter, together with a certification
duly executed by a responsible officer of the Borrower that such Financial
Statements have been prepared in accordance with GAAP and are fairly stated in
all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days of when due
any amount required to be paid by the Borrower under or in connection with any
Note and this Agreement;
(b) any representation or warranty made or deemed made by the
Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i) any of the
terms, covenants or agreements contained in Sections 5.4, 5.7, 5.10, 5.14, or
5.15 hereof of (ii) any other term, covenant, or agreement contained in any Loan
Document (other than the other Events of Default specified in this Section 7)
and such failure remains unremedied for the earlier of fifteen days from (A) the
date on which the Lender has given the Borrower written notice of such failure
and (B) the date on which the Borrower knew or should have known of such
failure;
(d) any provision of any Loan Document to which the Borrower is a
party shall for any reason cease to be valid and binding on the Borrower, or
the Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
10
<PAGE> 11
(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made
by the Borrower, whether voluntary or involuntary, the appointment of a
trustee, custodian, receiver, or similar official for the Borrower or for any
substantial property of the Borrower, or any action by the Borrower authorizing
any such proceeding;
(h) the Borrower shall default in (i) the payment of
principal or interest on any indebtedness in excess of $50,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or permit the holder or holders of such
indebtedness to cause, with the giving of notice if required, such indebtedness
to become due prior to its stated maturity; or (iii) any loan or other
agreement under which the Borrower has received financing from Transamerica
Corporation or any of its affiliates;
(i) the Borrower suffers or sustains a Material Adverse
Change;
(j) any tax lien, other than a Permitted Lien, is filed
of record against the Borrower and is not bonded or discharged within five
Business Days;
(k) any judgment which has had or could reasonably be
expected to have a Material Adverse Effect on the Borrower and such judgment
shall not be stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under and of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
(m) there is a change in more than 35% of the ownership
of any equity interests of the Borrower on the date hereof or more than 35% of
such interests become subject to any contractual, judicial, or statutory lien,
charge, security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred
and be continuing:
(a) The lender may, without prejudice to any of its
other rights under any Loan Document or Applicable Law, declare all Obligations
to be immediately due and payable (except with respect to any Event of Default
set forth in Section 7(f) hereof, in which case all Obligations shall
automatically become immediately due and payable without necessity of any
declaration) without presentment, representation, demand of payment, or
protest, which are hereby expressly waived.
(b) The Lender may take possession of the Collateral
and, for that purpose may enter, with the aid and assistance of any person or
persons, any premises where the Collateral or any part hereof is, or may be
placed, and remove the same.
11
<PAGE> 12
(c) The obligation of the Lender, if any, to make
additional Loans or financial accommodations of any kind to the Borrower shall
immediately terminate.
(d) The Lender may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein (or in
any Loan Document) or otherwise available to it, all the rights and remedies of
a secured party under the applicable Uniform Commercial Code (the "Code")
whether or not the Code applies to the affected Collateral and also may (i)
require the Borrower to, and the Borrower hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at a
place to be designated by the Lender that is reasonably convenient to both
parties and (ii) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any of
the lender's offices or elsewhere, for cash, on credit, or for future delivery,
and upon such other terms as the Lender may deem commercially reasonable. The
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part
by the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of cash or cash proceeds held by the Lender and
remaining after the full and final payment of all the Obligations shall be paid
over to the Borrower or to such other Person to which the Lender may be
required under applicable law, or directed by a court of competent
jurisdiction, to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1. NOTICES. Except as otherwise provided herein,
all notices, approvals, consents, correspondence, or other communications
required or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mail,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to AboveNet
Communications, Inc., 50 W. San Fernando Street #1010, San Jose, California
95113, Attention: Controller or such other address as shall be designated by the
Borrower or the Lender to the other party in accordance herewith. All such
notices and correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are
for purposes of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the
right to assign any Note or this Agreement or any interest therein unless the
Lender shall have given the Borrower prior written consent and the Borrower and
its assignee shall have delivered assignment documentation in form and
substance satisfactory to the Lender in its sole discretion. The Lender may
assign its rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by the Borrower from any provision of this Agreement shall be
effective only by a writing signed by the Lender and shall bind and benefit the
Borrower and the Lender and their respective successors and assigns, subject,
in the case of the Borrower, to the first sentence of Section 9.3
12
<PAGE> 13
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the essence in
each provision of this Agreement of which time is an element. All terms not
defined herein or in a Note shall have the meaning set forth in the applicable
Code, except where the context otherwise requires. To the extent a term or
provision of this Agreement conflicts with any Note, or any term or provision
thereof, and is not dealt with herein with more specificity, this Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant in determining the meaning of this Agreement
even though the accepting or acquiescing party had knowledge of the nature of
the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure, together with the rights and remedies of the Lender hereunder, to the
benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law, this
Agreement and the rights and powers granted to the Lender hereunder and under
the Loan Documents shall continue to be effective or be reinstated if at any
time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify and
hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement may
be executed in counterparts, each of which when so executed and delivered shall
be an original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or obligation
under this Agreement or any Note or any other Loan Document shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default,
single or partial exercise by the Lender of any right or remedy shall preclude
any other or further exercise thereof, or preclude any other right or remedy.
<PAGE> 14
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender agree
that this Agreement, the Schedule hereto, and the Commitment Letter are the
complete and exclusive statement and agreement between the parties with respect
to the subject matter hereof, superseding all proposals and prior agreements,
oral or written, and all other communications between the parties with respect
to the subject matter hereof. Should there exist any inconsistency between the
terms of the Commitment Letter and this Agreement, the terms of this Agreement
shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of all
rights of offset that the Lender may have under Applicable Law, and whether or
not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENTS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO
RIGHTS AND REMEDIES.
<PAGE> 15
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement
to be duly executed and delivered by its proper and duly authorized officer as
of the date first set forth above.
ABOVENET COMMUNICATIONS, INC.
By:
----------------------------------
Name:
Title:
Federal Tax ID:
Accepted as of the
____ day of ________, 199_
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
------------------------------------
Name:
Title:
Form16
<PAGE> 16
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of May 28, 1998, is made by AboveNet
Communications, Inc. (the "Borrower"), a California corporation having its
principal place of business and chief executive officer at 50 W. San Fernando
Street #1010, San Jose, California 95113 in favor of Transamerica Business
Credit Corporation, a Delaware corporation (the "Lender"), having its principal
office at Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont,
Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings, and shall be equally applicable to both the singular and plural forms
of the terms defined:
Additional Collateral shall have the meaning specified in Section 2(b).
Agreement shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Equipment.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Equity Funding Requirement shall mean that Borrower shall have received at
least $7,000,000 net proceeds from its Series D or similar preferred stock
financing.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
<PAGE> 17
GAAP shall mean generally accepted accounting principles in the United States
of America, as in effect from time to time.
Loans shall mean the loans and financial accommodations made by the Lender to
the Borrower in accordance with terms of this Agreement and the Notes.
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be
modified, extended, restated, or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Material Adverse Effect shall mean, with respect to any Person, a material
adverse effect on the business, prospects, operations, results of operations,
assets, liabilities, or condition (financial or otherwise) of such Person taken
as a whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
Lender, as amended, supplemented, or otherwise modified from time to time.
Obligations shall mean all indebtedness, obligations, and liabilities of the
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen,
mechanics, laborers, materialmen, and other like Persons arising by operation
of law in the ordinary course of business for sums which are not yet due and
payable, or liens which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
are maintained to the extent required by GAAP; (b) deposits or pledges to
secure the payment of worker's compensation, unemployment insurance, or other
social security benefits or obligations, public or statutory obligations,
surety or appeal bonds, bid or performance bonds, or other obligations of a
like nature incurred in the ordinary course of business; (c) licenses,
restrictions, or covenants for or on the use of the Equipment which do not
materially impair either the use of the Equipment in the operation of the
business of the Borrower or the value of the Equipment; (d) attachment or
judgment liens that do not constitute an Event of Default; (e) security
interests in and liens granted to current and future lenders to the Borrower
which are subordinate to the security interest and lien granted to Lender
hereunder; (f) subject to a maximum limit of $2,000,000, purchase money
security interests or liens representing equipment leases for equipment
purchased after the date hereof; (g) purchase money security interests or liens
representing equipment leases for equipment purchased prior to the date hereof
and (h) with respect to the Additional Collateral only, senior security
interests and liens in favor of Silicon Valley Bank.
Person shall mean any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity,
party, or government (including any division, agency, or department thereof),
and the successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
Person's solvency is measured.
2
<PAGE> 18
(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
SECTION 2. CREATION OF SECURITY INTEREST; COLLATERAL. (a) The
Borrower hereby assigns and grants to the Lender a continuing general, first
priority lien on, and security interest in, all the Borrower's right, title,
and interest in and to the collateral described in the next sentence (the
"Collateral") to secure the payment and performance of all the Obligations.
Subject to paragraph (b) below, the Collateral consists of all equipment set
forth on all the Schedules delivered from time to time under the terms of this
Agreement (the "Equipment"), together with all present and future additions,
parts, accessories, attachments, substitutions, repairs, improvements, and
replacements thereof or thereto, and any and all proceeds thereof, including,
without limitation, proceeds of insurance and all manuals, blueprints,
know-how, warranties, and records in connection therewith, all rights against
suppliers, warrantors, manufacturers, sellers, or others in connection
therewith, and together with all substitutes for any of the foregoing.
(b) In addition to the foregoing, for the period beginning on
the date hereof and ending on the date that the Equity Funding Requirement is
met, the Borrower hereby assigns and grants to the Lender a continuing general
lien on, and security interest in, all the Borrower's right, title, and
interest in and to the collateral described in the next sentence (the
"Additional Collateral") to secure the payment and performance of all the
Obligations. The Additional Collateral consists of
(i) all present and future machinery, equipment,
furniture, fixtures, leasehold improvements, conveyors, tools,
materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including
central processing units, terminals, drives, memory units,
printers, keyboards, screens, peripherals and input or output
devices, molds, dies, stamps, and other equipment of every kind
and nature and wherever situated now or hereafter owned and held
for use by the Borrower or in which the Borrower may have any
interest as lessee (to the extent of such interest), together with
all additions and accessions thereto, all replacements and all
accessories and parts therefore, all manuals, blueprints,
know-how, warranties and records in connection therewith
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) and all
rights against suppliers, warrantors, manufacturers, and sellers
or others in connection therewith, together with all substitutes
for any of the foregoing;
(ii) all present and future goods intended for sale,
lease or other disposition by the Borrower including, without
limitation, all raw materials, work in process, systems,
accessories, spare parts, finished goods and other retail
inventory, goods in the possession of outside processors or other
third parties, consigned goods (to the extent of the consignee's
interest therein), materials, parts and supplies of any kind,
nature or description which are or might be used in connection
with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, all documents of title or documents
representing the same and all records, files and writings
(including, without limitation, any computer software, whether on
tape, disc, card, strip or cartridge or in any other form) with
respect thereto;
(iii) all of the Borrower's present and future accounts
(including rights to receive payments for goods sold or services
rendered arising out of the sale or delivery of personal property
or work done or labor performed), contract rights, agreements,
understandings, open purchase and sale orders, promissory notes,
chattel paper, documents, tax refunds, rights to receive tax
refunds, bonds, certificates, insurance policies, insurance
proceeds, patents, patent
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applications, copyrights (registered and unregistered), royalties,
licenses, rights to receive fees, royalties and other payments
under license agreements, permits, franchise rights,
authorizations, customer and supplier lists, rights of
indemnification, contribution and subrogation, leases, computer
tapes, programs, discs and software, trade secrets, computer
service contracts, trademarks, trade names, service marks and
names, logos, goodwill, deposits, causes of action, choices in
action, judgments, designs, blueprints, quotations and bids,
plans, specifications, sales literature, know-how, all other
general intangibles, claims against third parties of every kind or
nature, investment securities, notes, drafts, acceptances, letters
of credit and rights to receive payments under letters of credit,
deposit accounts, book accounts, prepaid expenses, credits and
reserves and all forms of obligations whatsoever owing,
instruments, documents of title, leasehold rights, including in
any goods, books, ledgers, files (including credit and project
files) and records (including tax records) with respect to any
collateral or security, together with all right, title, security
and guaranties with respect to thereto, including any right of
stoppage in transit; and
(iv) all proceeds of the foregoing.
SECTION 3. THE CREDIT FACILITY.
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount
not less than $100,000, and in no event shall the sum of the aggregate Loans
made exceed the amount of the Lender's written commitment to the Borrower in
effect from time to time. Notwithstanding anything herein to the contrary, the
Lender shall be obligated to make the initial Loan and each other Loan only
after the Lender, in its good faith business judgment, determines that the
applicable conditions for borrowing contained in Sections 3.3 and 3.4 are
satisfied. The timing and financial scope of Lender's obligation to make Loans
hereunder are limited as set forth in a commitment letter executed by Lender
and Borrower, dated as of April 29, 1998 and attached hereto as Exhibit A (the
"Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall
not directly or indirectly use any proceeds of the Loans, or cause, assist,
suffer, or permit the use of any proceeds of the Loans, for any purpose other
than for the purchase, acquisition, installation, or upgrading of Equipment or
the reimbursement of the Borrower for its purchase, acquisition, installation,
or upgrading of Equipment.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is
subject to the Lender's receipt of the following, each dated the date of the
initial Loan or as of an earlier date acceptable to the Lender, in form and
substance satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11)
listing all effective Uniform Commercial Code financing statements
naming the Borrower as debtor and all tax lien, judgment, and
litigation searches for the Borrower as the Lender shall deem
necessary or desirable;
(ii) Uniform Commercial Code financing statements (Form
UCC-1) duly executed by the Borrower (naming the Lender as secured
party and the Borrower as debtor and in form acceptable for filing
in all jurisdictions that the Lender deems necessary or desirable
to perfect the security interests granted to it hereunder) and, if
applicable, termination statements or other releases duly filed in
all jurisdictions that the Lender deems necessary or desirable to
perfect and protect the priority of the security interests granted
to it hereunder in the Equipment related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing the
amount of such Loan;
(iv) a Collateral Access Agreement duly executed by the
lessor or mortgagee, as the case may be, of premises in Vienna,
Virginia where the Equipment is located;
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(v) certificates of insurance required under Section 5.4 of this
Agreement together with loss payee endorsements for all such policies
naming the Lender as lender loss payee and as an additional insured;
(vi) a copy of the resolutions of the Board of Directors of the
Borrower (or a unanimous consent of directors in lieu thereof) authorizing
the execution, delivery, and performance of this Agreement, the other Loan
Documents, and the transactions contemplated hereby and thereby, attached
to which is a certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (A) that the copy of the resolutions is true, complete,
and accurate, that such resolutions have not been amended or modified since
the date of such certification and are in full force and effect and (B) the
incumbency, names, and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party;
(vii) the opinion of counsel for the Borrower covering such matters
incident to the transactions contemplated by this Agreement as the Lender
may reasonably require; and
(viii) such other agreements and instruments as the Lender deems
necessary in its good faith business judgment in connection with the
transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower after
due inquiry, threatened litigation, proceeding, inquiry, or other action (i)
seeking an injunction or other restraining order, damages, or other relief with
respect to the transactions contemplated by this Agreement or the other Loan
Documents or thereby or (ii) which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not be expected to have a
Material Adverse Effect in the judgment of the Lender.
(c) The Borrower shall have paid all fees and expenses required to be paid
by it to the Lender as of such date (fees and expenses in connection closing
this transaction are capped at $5,000).
(d) The security interests in the Collateral and the Additional Collateral
granted in favor of the Lender under this Agreement shall have been duly
perfected and, with respect to the Equipment related to the initial Loan, shall
constitute first priority liens.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The obligation of
the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance satisfactory to the Lender and its counsel and each
dated the date of such Loan or as of an earlier date acceptable to the Lender;
(b) the Lender shall have received a Schedule of the Equipment related to
such Loan, in form and substance satisfactory to the Lender and its counsel, and
the security interests in such Equipment related to such Loan granted in favor
of the Lender under this Agreement shall have been duly perfected and shall
constitute first priority liens;
(c) all representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
relate solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(d) no Event of Default or event which with the giving of notice or the
passage of fame, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making
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<PAGE> 21
of the requested Loan as of the date of such request; and
(e) the Borrower shall be deemed to have hereby reaffirmed and ratified
all security interests, liens, and other encumbrances heretofore granted by the
Borrower to the Lender.
SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The Borrower
(a) is duly organized, validly existing, and in good standing under the laws of
the State of its organization, (b) has the power and authority to own its
properties and assets and to transact the business in which it is presently, or
proposes to be, engaged, and (c) is duly qualified and authorized to do business
and is in good standing in every jurisdiction in which the failure to be so
qualified could have a Material Adverse Effect on (i) the Borrower, (ii) the
Borrower's ability to perform its obligations under the Loan Documents, or (iii)
the rights of the Lender hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the organizational
documents, if any, of the Borrower, and do not (a) violate any law or
regulation, or any order or decree of any court or governmental authority, (b)
conflict with or result in a breach of, or constitute a default under, any
material indenture, mortgage, or deed of trust or any material lease, agreement,
or other instrument binding on the Borrower or any of its properties, or (c)
require the consent, authorization by, or approval of or notice to or filing or
registration with any governmental authority or other Person. This Agreement is,
and each of the other Loan Documents to which the Borrower is or will be a
party, when delivered hereunder or thereunder, will be, the legal, valid, and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and will be
Solvent upon the completion of all transactions contemplated to occur hereunder
(including, without limitation, the Loan to be made on the Effective Date); the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral other than Permitted Liens, and, with
respect to the Additional Collateral, the first lien other than the lien of
Silicon Valley Bank; and the Borrower is, or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer, and create a security interest
therein, free and clear of any and all claims or liens in favor of any other
Person other than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are outstanding
against the Borrower nor is there now pending or, to the best of the Borrower's
knowledge after diligent inquiry, threatened any litigation, contested claim, or
governmental proceeding by or against the Borrower except judgments and pending
or threatened litigation, contested claims, and governmental proceedings which
would not, in the aggregate, have a Material Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in default or has not
received a notice of default under any material contract, lease, or commitment
to which it is a party or by which it is bound. The Borrower knows of no dispute
regarding any contract, lease, or commitment which could have a Material Adverse
Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each item of
the Collateral is located at the place of business specified in the applicable
Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. No Event of Default has occurred
and is continuing nor has any event occurred which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as permitted
herein,
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none of the Collateral is subject to contractual obligations that may restrict
or inhibit the Lender's rights or abilities to sell or dispose of the
Collateral or any part thereof after the occurrence of an Event of Default.
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST.
This Agreement creates a valid and, upon completion of all required filings of
financing statements, perfected first priority and exclusive security interest
in the Collateral, and, subject to Permitted Liens and, in the Additional
Collateral, the senior lien of Silicon Valley Bank securing the payment of all
the Obligations.
SECTION 4.10. MODEL AND SERIAL NUMBERS. The Schedules set
forth the true and correct model number and serial number of each item of
Equipment that constitutes Collateral.
SECTION 4.11. ACCURACY AND COMPLETENESS OF INFORMATION. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and
accurate in all material respects on the date as of which such data, reports,
and information are dated or certified and not incomplete by omitting to state
any material fact necessary to make such data, reports, and information not
misleading at such time. There are no facts now known to the Borrower which
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion, or other written
statement previously furnished by the Borrower to the Lender.
SECTION 4.12. PRICE OF EQUIPMENT. The cost of each item of
Equipment does not exceed the fair and usual price for such type of equipment
purchased in like quantity and reflects all discounts, rebates and allowances
for the Equipment (including, without limitation, discounts for advertising,
prompt payment, testing, or other services) given to the Borrower by the
manufacturer, supplier, or any other person.
SECTION 5. COVENANTS OF THE BORROWER.
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) retain
its existence and its current yearly accounting cycle, (b) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks, patents,
contracts, and other rights necessary or desirable to the profitable conduct
of its business unless the failure to do so could not reasonably be expected to
have a Material Adverse Effect on the Borrower, (c) continue in, and limit its
operations to, the same general lines of business as those presently conducted
by it, and (d) comply with all applicable laws and regulations of any federal,
state, or local governmental authority, except for such laws and regulations
the violations of which would not, in the aggregate, have a Material Adverse
Effect on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and
in any event within five days after the Borrower learns of the following, the
Borrower will give written notice to the Lender of (a) any proceeding instituted
or threatened to be instituted by or against the Borrower in any federal, state,
local, or foreign court or before any commission or other regulatory body
(federal, state, local, or foreign) involving a sum, together with the sum
involved in all other similar proceedings, in excess of $100,000 in the
aggregate, (b) any contract that is terminated or amended and which has had or
could reasonably be expected to have a Material Adverse Effect on the Borrower,
(c) the occurrence of any Material Adverse Change with respect to the borrower,
and (d) the occurrence of any Event of Default or event or condition which, with
notice or lapse of time or both, would constitute an Event of Default, together
with a statement of the action which the Borrower has taken or proposes to take
with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower
will maintain books and records pertaining to the Collateral in such detail,
form, and scope as the Lender shall require in its commercially reasonable
judgment. The Borrower agrees that the Lender or its agents may enter upon the
Borrower's premises at any time and from time to time during normal business
hours after reasonable notice, and at any time upon the occurrence and
continuance of an Event of Default, for the purpose of inspecting the
Collateral and any and all records pertaining thereto.
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SECTION 5.4. INSURANCE. The Borrower will maintain insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, and covering such risks as are at all times satisfactory to the
Lender. All such policies shall be made payable to the Lender, in case of loss,
under a standard non-contributory "lender" or "secured party" clause and are to
contain such other provisions as the Lender may reasonably require to protect
the Lender's interests in the Collateral and to any payments to be made under
such policies. Certificates of insurance policies are to be delivered to the
Lender, premium prepaid, with the loss payable endorsement in the Lender's
favor, and shall provide for not less than thirty days' prior written notice to
the Lender, of any alteration or cancellation of coverage. If the Borrower
fails to maintain such insurance, the Lender may, after notice to the Borrower,
arrange for (at the Borrower's expense and without any responsibility on the
Lender's part for) obtaining the insurance. Unless the Lender shall otherwise
agree with the Borrower in writing, the Lender shall have the sole right, in
the name of the Lender or the Borrower, to file claims under any insurance
policies, to receive and give acquittance for any payments that may be payable
thereunder, and to execute any endorsements, receipts, releases, assignments,
reassignments, or other documents that may be necessary to effect the
collection, compromise, or settlement of any claims under any such insurance
policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all taxes,
assessments, claims, and other charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by
the Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may
pay such Taxes, and the amount thereof shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES ON
COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not permit any notice creating or otherwise relating to liens
on the Collateral or any portion thereof to exist or be on file in any public
office other than Permitted Liens. The Borrower shall promptly pay, when
payable, all transportation, storage, and warehousing charges and license fees,
registration fees, assessments, charges, permit fees, and taxes (municipal,
state, and federal) which may now or hereafter be imposed upon the ownership,
leasing, renting, possession, sale, or use of the Collateral, other than taxes
on or measured by the Lender's income and fees, assessments, charges, and taxes
which are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves are maintained to the
extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office or
establish any place of business other than those specified herein or (b) move
or permit the movement of any item of Collateral from the location specified in
the applicable Schedule, except that the Borrower may change its chief
executive office and keep Collateral at other locations within the United
States provided that the Borrower has delivered to the Lender (i) prior written
notice thereof and (ii) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to the Lender)
necessary or, in the opinion of the Lender, desirable to perfect and maintain
in favor of the Lender a first priority security interest in the Collateral.
Notwithstanding anything to the contrary in the immediately preceding sentence,
the Borrower may keep any Collateral consisting of motor vehicles or rolling
stock at any location in the United States provided that the Lender's security
interest in any such Collateral is conspicuously marked on the certificate of
title thereof and the Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The Collateral
shall be operated by competent, qualified personnel in connection with the
Borrower's business purposes, for the purpose for which the Collateral was
designed and in accordance with applicable operating instructions, laws, and
government regulations, and the Borrower shall use every reasonable precaution
to prevent loss or damage to the Collateral from fire and other hazards. The
Collateral shall not be used or operated for personal, family, or household
purposes. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by federal,
state, or local laws or by any governmental body, agency, or authority in
connection with the
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delivery, installation, use, and operation of the Collateral. The Borrower
shall keep all of the Equipment in a satisfactory state of repair and
satisfactory operating condition in accordance with industry standards, and
will make all repairs and replacements when and where necessary and practical.
The Borrower will not waste or destroy the Equipment or any part thereof, and
will not be negligent in the care or use thereof. The Equipment shall not be
annexed or affixed to or become part of any realty without the Lender's prior
written consent.
SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly upon request
by the Lender, execute and deliver or use its best efforts to obtain any
document required by the Lender (including, without limitation, warehouseman or
processor disclaimers, mortgagee waivers, landlord disclaimers, or
subordination agreements with respect to the Obligations and the Collateral),
give any notices, execute and file any financing statements, mortgages, or
other documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender,
desirable to perfect or continue the perfection and the first priority of the
Lender's security interest in the Collateral, to protect the Collateral against
the rights, claims, or interests of any Persons, or to effect the purposes of
this Agreement. The Borrower hereby authorizes the Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of the Borrower where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law. To
the extent required under this Agreement, the Borrower will pay all costs
incurred in connection with any of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will not in any
way hypothecate or create or permit to exist any lien, security interest,
charge, or encumbrance on or other interest in any of the Collateral, except
for the lien and security interest granted hereby and Permitted Liens which are
junior to the lien and security interest of the Lender, and the Borrower will
not sell, transfer, assign, pledge, collaterally assign, exchange, or otherwise
dispose of any of the Collateral. In the event the Collateral, or any part
thereof, is sold, transferred, assigned, exchanged, or otherwise disposed of in
violation of these provisions, the security interest of the Lender shall
continue in such Collateral or part thereof notwithstanding such sale,
transfer, assignment, exchange, or other disposition, and the Borrower will
hold the proceeds thereof in a separate account for the benefit of the Lender.
Following such a sale, the Borrower will transfer such proceeds to the Lender
in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The Borrower will not
enter into any contractual obligations which may restrict or inhibit the
Lender's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon notice to the Borrower
(provided that if an Event of Default has occurred and is continuing the Lender
need not give any notice), the Lender shall have the right at any time to make
any payments and do any other acts the Lender may deem necessary to protect its
security interests in the Collateral, including, without limitation, the rights
to satisfy, purchase, contest, or compromise any encumbrance, charge, or lien
which, in the reasonable judgment of the lender, appears to be prior to or
superior to the security interests granted hereunder, and appear in, and defend
any action or proceeding purporting to affect its security interests in, or the
value of, any of the Collateral. The Borrower hereby agrees to reimburse the
Lender for all payments made and expenses incurred under this Agreement
including reasonable fees, expenses, and disbursements of attorneys and
paralegals (including the allocated costs of in-house counsel) acting for the
Lender, including any of the foregoing payments under, or acts taken to protect
its security interests in, any of the Collateral, which amounts shall be
secured under this Agreement, and agrees it shall be bound by any payment made
or act taken by the Lender hereunder absent the Lender's gross negligence or
willful misconduct. The Lender shall have no obligation to make any of the
foregoing payments or perform any of the foregoing acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly (but in no
event later than one Business Day) after its receipt thereof, deliver to the
Lender any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of
credit or instruments related to or otherwise in connection with any property
included in the Collateral, which in any such
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<PAGE> 25
case come into the possession of the Borrower, or shall cause the issuer thereof
to deliver any of the same directly to the Lender, in each case with any
necessary endorsements in favor of the Lender and (b) deliver to the Lender as
soon as available copies of any and all press releases and other similar
communications issued by the Borrower.
SECTION 5.14. SOLVENCY. The Borrower shall be and remain Solvent
at all times.
SECTION 5.15. FUNDAMENTAL CHANGES. The Borrower shall not (a)
amend or modify its name, unless the Borrower delivers to the Lender thirty
days prior to any such proposed amendment or modification written notice of
such amendment or modification and within ten days before such amendment or
modification delivers executed Uniform Commercial Code financing statements (in
form and substance satisfactory to the Lender) or (b) merge or consolidate with
any other entity or make any material change in its capital structure, in each
case without the Lender's prior written consent which shall not be unreasonably
withheld.
SECTION 5.16. ADDITIONAL REQUIREMENTS. The Borrower shall take all
such further actions and execute all such further documents and instruments as
the Lender may reasonably request.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction in
full of all Obligations, the Borrower shall deliver to the Lender the following
financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the
Borrower and its consolidated subsidiaries (the "Financial Statements") for
such year, reported on by independent certified public accountants without an
adverse qualification; and
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as available,
but not later than 60 days after the end of each of the first three fiscal
quarters in any fiscal year of the Borrower and its consolidated subsidiaries,
the Financial Statements for such fiscal quarter, together with a certification
duly executed by a responsible officer of the Borrower that such Financial
Statements have been prepared in accordance with GAAP and are fairly stated in
all material respects (subject to normal year-end audit adjustments).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days of when due
any amount required to be paid by the Borrower under or in connection with any
Note and this Agreement;
(b) any representation or warranty made or deemed made by the
Borrower under or in connection with any Loan Document or any Financial
Statement shall prove to have been false or incorrect in any material respect
when made;
(c) the Borrower shall fail to perform or observe (i) any of the
terms, covenants or agreements contained in Sections 5.4, 5.10, 5.14, or 5.15
hereof or (ii) any other term, covenant, or agreement contained in any Loan
Document (other than the other Events of Default specified in this Section 7)
and such failure remains unremedied for the earlier of fifteen days from (A)
the date on which the Lender has given the Borrower written notice of such
failure and (B) the date on which the Borrower knew or should have known of
such failure;
(d) any provision of any Loan Document to which the Borrower is a
party shall for any reason cease to be valid and binding on the Borrower, or
the Borrower shall so state;
(e) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
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(f) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, or any action by the
Borrower is taken authorizing any such proceedings;
(g) an assignment for the benefit of creditors is made
by the Borrower, whether voluntary or involuntary, the appointment of a
trustee, custodian, receiver, or similar official for the Borrower or for any
substantial property of the Borrower, or any action by the Borrower authorizing
any such proceeding;
(h) the Borrower shall default in (i) the payment of
principal or interest on any indebtedness in excess of $100,000 (other than the
Obligations) beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created; or (ii) the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement relating thereto, or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of such
indebtedness to cause, with the giving of notice if required, such indebtedness
to become due prior to its stated maturity; or (iii) any loan or other agreement
under which the Borrower has received financing from Transamerica Corporation or
any of its affiliates;
(i) the Borrower suffers or sustains a Material Adverse
Change;
(j) any tax lien, other than a Permitted Lien, is filed
of record against the Borrower and is not bonded or discharged within five
Business Days;
(k) any judgment which has had or could reasonably be
expected to have a Material Adverse Effect on the Borrower and such judgment
shall not be stayed, vacated, bonded, or discharged within sixty days;
(l) any material covenant, agreement, or obligation, as
determined in the sole discretion of the Lender, made by the Borrower and
contained in or evidenced by any of the Loan Documents shall cease to be
enforceable, or shall be determined to be unenforceable, in accordance with its
terms; the Borrower shall deny or disaffirm the Obligations under any of the
Loan Documents or any liens granted in connection therewith; or any liens
granted on any of the Collateral in favor of the Lender shall be determined to
be void, voidable, or invalid, or shall not be given the priority contemplated
by this Agreement; or
(m) there is a change, other than a change which
results from the sale of newly issued securities to investors, in more than 35%
of the ownership of any equity interests of the Borrower on the date hereof or
more than 35% of such interests become subject to any contractual, judicial, or
statutory lien, charge, security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred
and be continuing:
(a) The Lender may, without prejudice to any of its
other rights under any Loan Document or Applicable Law, declare all Obligations
to be immediately due and payable (except with respect to any Event of Default
set forth in Section 7(f) hereof, in which case all Obligations shall
automatically become immediately due and payable without necessity of any
declaration) without presentment, representation, demand of payment, or
protest, which are hereby expressly waived.
(b) The Lender may, upon three (3) days' prior notice,
take possession of the Collateral and, for that purpose may enter, with the aid
and assistance of any person or persons, any premises where the Collateral or
any part hereof is, or may be placed, and remove the same.
11
<PAGE> 27
(c) The obligation of the Lender, if any, to make
additional Loans or financial accommodations of any kind to the Borrower shall
immediately terminate.
(d) The Lender may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein (or in
any Loan Document) or otherwise available to it, all the rights and remedies of
a secured party under the applicable Uniform Commercial Code (the "Code")
whether or not the Code applies to the affected Collateral and also may (i)
require the Borrower to, and the Borrower hereby agrees that it will at its
expense and upon request of the Lender forthwith, assemble all or part of the
Collateral as directed by the Lender and make it available to the Lender at a
place to be designated by the Lender that is reasonably convenient to both
parties and (ii) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any of
the Lender's offices or elsewhere, for cash, on credit, or for future delivery,
and upon such other terms as the Lender may deem commercially reasonable. The
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(e) All cash proceeds received by the Lender in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for, or then or at any time thereafter applied in whole or in part
by the Lender against, all or any part of the Obligations in such order as the
Lender shall elect. Any surplus of cash or cash proceeds held by the Lender and
remaining after the full and final payment of all the Obligations shall be paid
over to the Borrower or to such other Person to which the Lender may be
required under applicable law, or directed by a court of competent
jurisdiction, to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1. NOTICES. Except as otherwise provided
herein, all notices, approvals, consents, correspondence, or other
communications required or desired to be given hereunder shall be given in
writing and shall be delivered by overnight courier, hand delivery, or
certified or registered mail, postage prepaid, if to the Lender, then to
Transamerica Technology Finance Division, 76 Batterson Park Road, Farmington,
Connecticut 06032, Attention: Assistant Vice President, Lease Administration,
with a copy to the Lender at Riverway II, West Office Tower, 9399 West Higgins
Road, Rosemont, Illinois 60018, Attention: Legal Department, and if to the
Borrower, then to AboveNet Communications, Inc., 50 W. San Fernando Street
#1010, San Jose, California 95113, Attention: Controller, with a copy to
Gunderson Dettmer, 155 Constitution Drive, Menlo Park, California 94025,
Attention: Carla Newell, Esq. or such other address as shall be designated by
the Borrower or the Lender to the other party in accordance herewith. All such
notices and correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are
for purposes of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the
right to assign any Note or this Agreement or any interest therein unless the
Lender shall have given the Borrower prior written consent and the Borrower and
its assignee shall have delivered assignment documentation in form and
substance satisfactory to the Lender in its sole discretion. The Lender may
assign its rights and delegate its obligations under any Note or this Agreement.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by the Borrower from any provision of this Agreement shall be
effective only by a writing signed by the Lender and shall bind and benefit the
Borrower and the Lender and their respective successors and assigns, subject,
in the case of the Borrower, to the first sentence of
12
<PAGE> 28
Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the essence in
each provision of this Agreement of which time is an element. All terms not
defined herein or in a Note shall have the meaning set forth in the applicable
Code, except where the context otherwise requires. To the extent a term or
provision of this Agreement conflicts with any Note, or any term or provision
thereof, and is not dealt with herein with more specificity, this Agreement
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant in determining the meaning of this Agreement
even though the accepting or acquiescing party had knowledge of the nature of
the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure, together with the rights and remedies of the Lender hereunder, to the
benefit of the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law, this
Agreement and the rights and powers granted to the Lender hereunder and under
the Loan Documents shall continue to be effective or be reinstated if at any
time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify and
hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This Agreement may
be executed in counterparts, each of which when so executed and delivered shall
be an original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or obligation
under this Agreement or any Note or any other Loan Document shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
13
<PAGE> 29
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender agree
that this Agreement, the Schedule hereto, and the Commitment Letter are the
complete and exclusive statement and agreement between the parties with respect
to the subject matter hereof, superseding all proposals and prior agreements,
oral or written, and all other communications between the parties with respect
to the subject matter hereof. Should there exist any inconsistency between the
terms of the Commitment Letter and this Agreement, the terms of this Agreement
shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of all
rights of offset that the Lender may have under Applicable Law, and whether or
not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO
RIGHTS AND REMEDIES.
14
<PAGE> 30
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement
to be duly executed and delivered by its proper and duly authorized officer as
of the date first set forth above.
ABOVENET COMMUNICATIONS, INC.
By: /s/ STEPHEN BELOMY
----------------------------------
Name: Stephen Belomy
Title: Exec. VP & CFO
Federal Tax ID: 77-0424796
Accepted as of the /s/ KEVIN M. HOURIGAN
29th day of May, 1998 ----------------------------------
Kevin M. Hourigan
Controller
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ GARY P. MORO
------------------------------------
Name: Gary P. Moro
Title: Vice President
Form16
15
<PAGE> 31
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
QTY. DESCRIPTION INVOICE # VENDOR # SERIAL # DATE LOCATION COST
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ACL, Inc.
4 SIMM MEMORY 23997 ACLOO1 S323660 1/16/98 SAN JOSE 2,463.77
4 MEMORY 24072 ACL001 D12884F3V60ECC 1/20/98 SAN JOSE 203.21
American Express AME003
1 NOTE BOOK 41498 Dell N/A 5/11/98 SAN JOSE 2,924.91
N/A NOTEBOOK ACCESSORIES 31598 PC Connection N/A 3/31/98 SAN JOSE 1,072.88
American Consulting Engineers, Inc.
N/A 18F REDESIGN 4557 AME005 N/A 4/25/98 SAN JOSE 6,400.00
N/A 18F REMODAL 4558 AME005 N/A 4/25/98 SAN JOSE 8,000.00
Anistar
1 MICROTEST SCANNER 264109 ANI001 38P98BA0211 4/10/98 SAN JOSE 2,995.01
2 RACK/7 STRIP 267173 ANI001 135883/155883 4/30/98 SAN JOSE 896.79
10 RACK/10 STRIP 267647 ANI001 158528/155883 5/11/98 SAN JOSE 2,836.15
Arvayo
N/A POWER ROOM 98005 ARV001 N/A 2/10/98 SAN JOSE 500.00
N/A POWER ROOM 98004 ARV001 N/A 2/10/98 SAN JOSE 1,361.65
N/A POWER ROOM 98002 ARV001 N/A 2/10/98 SAN JOSE 411.00
N/A POWER ROOM 98001 ARV001 N/A 2/10/98 SAN JOSE 7,742.00
N/A POWER ROOM 97187 ARV001 N/A 2/10/98 SAN JOSE 440.55
Price Costco
11 NOTEBOOKS 20598 BEN001 206628 2/5/98 SAN JOSE 22,624.13
Biggs Cardosa Associates, Inc.
N/A BATTERY SUPPORT/RACKS 22439 BIG001 N/A 3/13/98 SAN JOSE 3,150.00
N/A BATTERY SUPPORT/RACKS 22845 BIG001 N/A 4/24/98 SAN JOSE 2,835.00
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Brian Moore BRI001
1 PRINTER 42498 Fry's 401484 4/24/98 SAN JOSE 1,416.91
Civtel
N/A FEASIBILITY STUDIES 20 CIV001 3 3/26/98 SAN JOSE 2,520.00
Compel
N/A A/A AGRMNT 6048 COM005 N/A 2/27/98 SAN JOSE 112,555.00
N/A A/A AGRMNT 6147 COM005 N/A 4/1/98 SAN JOSE 81,040.00
N/A A/A AGRMNT 6189 COM005 N/A 4/15/98 SAN JOSE 49,165.27
N/A A/A AGRMNT 6225 COM005 N/A 4/23/98 SAN JOSE 52,424.39
CompUSA
1 NOTEBOOKS 76102043 COM011 178991 3/30/98 SAN JOSE 2,167.55
3 NOTEBOOKS 12414941 COM011 178991 4/6/98 SAN JOSE 5,679.95
1 NOTEBOOKS 76102086 COM011 186937 4/14/98 SAN JOSE 4,219.97
2 NOTEBOOKS 76102118 COM011 154208 4/16/98 SAN JOSE 1,898.49
Cypress Computer
2 NOTEBOOKS 1108837 CYP001 P520M 3/13/98 SAN JOSE 6,609.13
1 3GB 2.5" IDE HDD 1108849 CYP001 T03G 3/13/98 SAN JOSE 270.63
Dexon Computer
1 CISCO CATYLST 1900 12059 DEX001 WS-C1900 1/23/98 SAN JOSE 1,614.00
Enviro
N/A DC DRAWING 110102 ENV001 N/A 2/10/98 WASHINGTON DC 725.00
N/A D.C. CONSTRUCTION 110107 ENV001 N/A 4/9/98 WASHINGTON DC 6,910.00
N/A D.C. CONSTRUCTION 110109 ENV001 N/A 2/12/98 WASHINGTON DC 2,954.00
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
E & O Construction
N/A POWER ROOM 11063 EOC001 N/A 2/23/98 SAN JOSE 550.00
N/A NEW CIRCUIT 11064 EOC001 N/A 2/24/98 SAN JOSE 150.00
N/A POWER ROOM 11053 EOC001 N/A 1/27/98 SAN JOSE 6,460.00
N/A POWER ROOM 11037 EOC001 N/A 1/27/98 SAN JOSE 6,460.00
N/A POWER ROOM 11057 EOC001 N/A 2/10/98 SAN JOSE 1,606.08
N/A POWER ROOM 11060 EOC001 N/A 2/10/98 SAN JOSE 16,194.32
N/A POWER ROOM 11058 EOC001 N/A 2/10/98 SAN JOSE 808.43
N/A POWER ROOM 11056 EOC001 N/A 2/10/98 SAN JOSE 3,339.73
N/A TURN UPS 11084 EOC001 N/A 3/10/98 SAN JOSE 2,915.00
N/A INSTALLATION 11062 EOC001 N/A 3/10/98 SAN JOSE 2,323,09
N/A SET RACK 11077 EOC001 N/A 3/13/98 SAN JOSE 100.00
N/A TURN UP 11076 EOC001 N/A 3/13/98 SAN JOSE 150.00
N/A POWER READING 11086 EOC001 N/A 3/17/98 SAN JOSE 452.00
N/A INSTALL INVERTOR 11087 EOC001 N/A 3/17/98 SAN JOSE 3,150.00
N/A INSTALLATION 11075 EOC001 N/A 3/24/98 SAN JOSE 2,819.00
N/A INSTALLATION 11079 EOC001 N/A 3/24/98 SAN JOSE 2,669.00
N/A RETORQUE 11102 EOC001 N/A 3/30/98 SAN JOSE 452.00
N/A REMOVE RACK 11100 EOC001 N/A 3/30/98 SAN JOSE 378.00
N/A FURNISH & INSTALLATION 11099 EOC001 N/A 3/30/98 SAN JOSE 1,450.00
N/A REMOVE INVERTOR 11101 EOC001 N/A 3/30/98 SAN JOSE 508.00
N/A TERMINATE DS3 11103 EOC001 N/A 3/30/98 SAN JOSE 150.00
N/A INSTALLATION 11138 EOC001 N/A 5/12/98 SAN JOSE 294.24
Face Associates, Inc.
N/A DC DESIGN 0197-171 FAC001 N/A 5/6/98 SAN JOSE 11,364.40
Fairmont Plaza
N/A MOVING G0587371 FAI001 N/A 3/17/98 SAN JOSE 9,059.85
N/A T.I. PLAN G0591030 FAI001 N/A 3/26/98 SAN JOSE 513.75
Graybar
4 SOUNDSTATN 326111 GRA001 2200-00696 4/10/98 SAN JOSE 1,851.08
10 RACKS 268761 GRA001 46353-508 1/27/98 SAN JOSE 4,496,76
20 SHELVES 287236 GRA001 40108-519 2/9/98 SAN JOSE 1,739.15
3 SHELVES 284542 GRA001 40108-519 2/9/98 SAN JOSE 271.27
6 RACKS 289829 GRA001 46353-508 2/10/98 SAN JOSE 2,918.21
20 SHELVES 330278 GRA001 40108-519 4/9/98 SAN JOSE 1,850.54
6 RACKS 334737 GRA001 46353-508 4/17/98 SAN JOSE 1,510.48
10 RACKS 343532 GRA001 46353-508 5/11/98 SAN JOSE 2,517.46
8 RACKS 347032 GRA001 46353-508 5/11/98 SAN JOSE 2,013.96
2 RACKS/20 SHELVES 346786 GRA001 46353-508/40108-519 5/11/98 SAN JOSE 2,242.64
8 RACK/30 SHELVES 354931 GRA001 46353-508/40108-519 5/12/98 SAN JOSE 4,614.20
8 RACKS 647032 GRA001 46353-508 4/28/98 SAN JOSE 1,860.48
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
King Fence
N/A DEMOLITION 22598 KIN002 N/A 3/24/98 SAN JOSE 3,200.00
Kroymann Associates
1 GS2.05 SITE 12499 KRO001 GS2 005 5/6/98 SAN JOSE 752.34
Larscom
1 ACCESS-T45 NETWORK SERVICE 139124 LAR001 ACST-45-DC 2/17/98 PALO ALTO 5,362.83
Microwarehouse
40 MICROSOFT OFFICE 97 UPGRAD B5962220 MIC003 LP1789 4/10/98 SAN JOSE 6,732.80
Network Hardware Resale, Inc.
2 POSIP 50 SINGLE MODE 3537 NET001 POSIP-50 5/6/98 SAN JOSE 31,340.30
1 PROCESSOR 3564 NET001 CX-FSIP8 5/11/98 SAN JOSE 6,886.95
4 CAT SWITCH 3584 NET001 N/A 5/11/98 SAN JOSE 19,582.58
4 AC/4 DC POWER 3347 NET001 PWER-7000-AC/DC 3/13/98 SAN JOSE 16,654.00
1 PROCESSOR 3219 NET001 CX-EIP6 2/6/98 PALO ALTO 6,028.75
Nova Construction
N/A SITE DRAWING 16479 NOV001 N/A 1/27/98 SAN JOSE 4,800.00
N/A SITE DRAWING 16479B NOV001 N/A 1/27/98 SAN JOSE 2,500.00
N/A SITE DRAWING 16479A NOV001 N/A 1/27/98 SAN JOSE 2,700.00
N/A DC PLAN 16513 NOV001 N/A 3/17/98 WASHINGTON DC 1,675.00
Robinson Mills & Williams
N/A 18F BLUEPRINT 9800594 ROB001 N/A 3/24/98 SAN JOSE 47.48
N/A 18F EXPANTION 9800595 ROB001 N/A 3/24/98 SAN JOSE 4,315.90
N/A 18F BLUEPRINT 9800596 ROB001 N/A 3/24/98 SAN JOSE 53.83
N/A 18F EXPANTION 9800597 ROB001 N/A 3/24/98 SAN JOSE 672.87
N/A 18F EXPANTION 9800039 ROB001 N/A 3/25/98 SAN JOSE 13.34
N/A 18F EXPANTION 9800703 ROB001 N/A 4/14/98 SAN JOSE 6,487.50
N/A 18F EXPANTION 9801137 ROB001 N/A 4/30/98 SAN JOSE 4,514.90
N/A 18F EXPANTION 9801138 ROB001 N/A 4/30/98 SAN JOSE 228.00
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Rocky Mountain Ram
10 RAM UPGRAD 203543 ROC001 TO32M040U 3/18/98 SAN JOSE 1,328.00
Server Technology, Inc.
N/A REBOOT UNT 38875 SER001 N/A 3/7/98 SAN JOSE 6,062.00
Sherman Tuan SHE001
1 NOTEBOOK 30598 Fry's 1944868 3/6/98 SAN JOSE 2,432.03
4 BATTERIES 12498 Craters & Freighters N/A 2/6/98 N/A 693.78
Solar Depot
4 INVERTER 58283 SOL001 PI/TE-SW5548 5/11/98 SAN JOSE 10,933.25
4 INVERTER 57241 SOL001 PI/TE-SW4048 1/27/98 SAN JOSE 10,286.78
3 INVERTER 57299 SOL001 PI/TE-SW4048 1/29/98 SAN JOSE 7,533.23
4 INVERTER 57433 SOL001 PI/TE-SW4048 2/23/98 SAN JOSE 9,707.11
1 INVERTER 57418 SOL001 PI/TE-SW4048 3/7/98 SAN JOSE 2,389.84
3 INVERTER 57692 SOL001 PI/TE-SW5548 3/13/98 SAN JOSE 8,583.67
4 INVERTER 58363 SOL001 PI/TE-SW5548/4048 5/5/98 SAN JOSE 11,214.92
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
SCHEDULE A
By and between
TO: Transamerica Business Credit Corporation as Lender
And
Master Loan & Security Agreement AboveNet Communications, Inc. as Borrower
UCCI Financing Statement
Dated May 29, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Trucost Inc.
1 NOC BACKUP 17157 TRU001 806010-3628 2/10/98 SAN JOSE 1,518.59
U-Tron
2 586SYS/SAL 96605 UTR001 A-20-2120-0 1/23/98 SAN JOSE 2,602.83
1 21'MONITOR 96570 UTR001 A-99-9999-9 1/23/98 SAN JOSE 1,259.88
1 586SYS/SC 96543 UTR001 A-20-2120-0 1/23/98 SAN JOSE 696.49
1 586SYS/BL 96526 UTR001 A-20-2120-0 1/23/98 SAN JOSE 636.65
1 PENTIEM 133/166 96320 UTR001 A-20-2120-0 1/26/98 SAN JOSE 702.20
1 MINITWR/JC 96560 UTR001 A-20-2120-0 1/26/98 SAN JOSE 625.83
3 586 SYSTEM 97325 UTR001 A-20-4288-8 2/10/98 SAN JOSE 2,939.77
1 COMPUTER SYSTEM 97993 TRU001 A-20-8550-0 2/27/98 SAN JOSE 1,452.43
1 COMPUTER SYSTEM 99541 TRU001 A-20-8550-0 4/6/98 SAN JOSE 1,522.59
1 COMPUTER SYSTEM 99540 TRU001 A-20-8550-0 4/6/98 SAN JOSE 2,598.21
1 COMPUTER SYSTEM 99800 TRU001 A-20-2120-0 4/14/98 SAN JOSE 1,079.24
1 COMPUTER SYSTEM 100078 TRU001 A-20-8550-0 4/21/98 2,104.43
Westinghouse Electric
22 BATTERY 3688 WES002 85 RC-33 1/8/98 WASHINGTON DC 1,700.00
</TABLE>
LENDER: BORROWER:
TRANSAMERICA BUSINESS CREDIT ABOVENET COMMUNICATIONS, INC.
CORPORATION
/s/ GARY P. MORO /s/ STEPHEN BELOMY
- ------------------------------ ------------------------------
Name: Gary P. Moro Name: Stephen Belomy
Title: Vice President Title: Exec. V.P. & CEO
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
Date: May 29, 1998
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Transamerica Business Credit Corporation or its assigns (the "Payee") at its
office located at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018, or at such other place as the Payee or the holder
hereof may designate in writing, the principal amount of Seven Hundred Twenty
Thousand Three Hundred Sixty-Five and 58/100 Dollars ($720,365.58) received by
the undersigned, plus interest, in lawful money of the United States and in
immediately available funds. This Note shall be payable commencing with a first
installment of Forty-One Thousand Eight Hundred Twelve and 90/100 Dollars
($41,812.90) payable on May 29, 1998 and thereafter in 40 consecutive equal
monthly installments of Nineteen Thousand Nine Hundred Ten and 90/100 Dollars
($19,910.9) commencing July 1, 1998 and a final installment payable on November
1, 2001 of Ninety Thousand Forty-Five and 70/100 Dollars ($90,045.70) together
with the unpaid balance of the Note. No amount of principal paid or prepaid
hereunder may be reborrowed.
This Note is one of the Notes referred to in the Master Loan and
Security Agreement dated as of May 28, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Agreement"), between the undersigned
and the Payee and is subject and entitled to all provisions and benefits
thereof. Capitalized terms used but not defined herein shall have the meanings
set forth in the Agreement.
If any installment of this Note is not paid within five days after its
due date, the undersigned agrees to pay on demand, in addition to the amount of
such installment, an amount equal to 5% of such installment, but only to the
extent permitted by Applicable Law.
The undersigned shall have the right to prepay this Note at any time
on or after September 1, 1999, on thirty days' prior written notice to the
Payee. On the date of any such prepayment, the undersigned shall pay an amount
equal to the present value of the remaining payments (principal and interest)
due hereunder discounted at 6% simple interest per annum, together with all
interest, fees and other amounts payable on the amount so prepaid or in
connection therewith to the date of such prepayment. Any prepayments shall be
applied to the installments hereof in the inverse order of maturity.
Upon the maturity of this Note or the acceleration of the maturity of
this Note in accordance with the terms of the Agreement, the entire unpaid
principal amount on this Note, together with all interest, fees and other
amounts payable hereon or in connection herewith, shall be immediately due and
payable without further notice or demand, with interest on all such amounts at a
rate not to exceed the lawful limit, from the date of such maturity or
acceleration, as the case may be, until all such amounts have been paid.
If any payment on this Notice becomes payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day.
The undersigned hereby waives diligence, demand, presentment, protest
and notice of any kind, and assents to extensions of the time of payment,
release, surrender or substitution of security, or forbearance or other
indulgence, without notice. The undersigned agrees to pay all amounts under this
Note without offset, deduction, claim, counterclaim, defense or recoupment, all
of which are hereby waived.
<PAGE> 2
The Payee, the undersigned and any other parties to the Loan Documents
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such Persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by Applicable Law from time to time in effect. Neither the undersigned
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under Applicable Law from time
to time in effect, and the provisions of this paragraph shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith. The Payee expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation is accelerated. If (a) the maturity of any Obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) the Payee or any other holder of any or all the Obligations
shall otherwise collect amounts which are determined to constitute interest
which would otherwise increase the interest on any or all of the Obligations to
an amount in excess of that permitted to be charged by Applicable Law then in
effect, then all sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at the Payee's or such holder's option,
promptly returned to the undersigned upon such determination. In determining
whether or not the interest paid or payable, under any specific circumstance,
exceeds the maximum amount permitted under Applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest through the entire
contemplated term of this Note in accordance with the amount outstanding from
time to time thereunder and the maximum legal rate of interest from time to time
in effect under Applicable Law in order to lawfully charge the maximum amount of
interest permitted under Applicable Law.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the undersigned and the Payee or any holder
hereof.
The undersigned shall, upon demand, pay to the Payee all costs and
expenses incurred by the Payee (including the fees and disbursements of counsel
and other professionals) in connection with the preparation, execution and
delivery of this Note and all other Loan Documents (such costs and expenses not
to exceed $5,000), and in connection with the administration, modification and
amendment of the Loan Documents, and pay to the Payee all costs and expenses
(including the fees and disbursements of counsel and other professionals) paid
or incurred by the Payee in (A) enforcing or defending its rights under or in
respect of this Note or any of the other Loan Documents, (B) collecting any of
the liabilities by the undersigned to the Payee or otherwise administering the
Loan Documents, (C) foreclosing or otherwise collecting upon any collateral and
(D) obtaining any legal, accounting or other advice in connection with any of
the foregoing.
This Note shall be binding upon the successors and assigns of the
undersigned and inure to the benefit of the Payee and its successors, endorsees
and assigns. If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected thereby.
-2-
<PAGE> 3
EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS
OF LAW.
ABOVENET COMMUNICATIONS, INC.
By: /s/ STEPHEN BELOMY
-------------------------
Name: Stephen Belomy
Title: Exec. V.P. & CFO
Form 17
-3-
<PAGE> 1
Exhibit 10.15
OFFICE LEASE
By and Between
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
("Landlord")
and
ABOVENET, a California Corporation
("Tenant")
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1
SUMMARY OF LEASE PROVISIONS ....................................... 1
1.1 Tenant .................................................. 1
1.2 Landlord ................................................ 1
1.3 Lease Date (for reference purposes only) ................ 1
1.4 Premises ................................................ 1
1.5 Improvement Allowance ................................... 1
1.6 Term .................................................... 1
1.7 Commencement Date ....................................... 1
1.8 Termination Date ........................................ 1
1.9 Monthly Base Rent ....................................... 1
1.10 [Intentionally Omitted] ................................. 1
1.11 [Intentionally Omitted] ................................. 1
1.12 Tenant's Allowed Parking Spaces ......................... 1
1.13 Use of Premises ......................................... 1
1.14 Security Deposit ........................................ 1
1.15 Addresses for Notices ................................... 2
1.16 Summary Provisions in General ........................... 2
ARTICLE 2
DEMISE ............................................................ 2
2.1 Demise of Premises ...................................... 2
2.2 Rentable Area ........................................... 2
2.3 Ground Lease ............................................ 2
2.4 Tenant's Improvements ................................... 2
ARTICLE 3
TERM .............................................................. 4
3.1 Term .................................................... 4
3.2 Lease Termination ....................................... 4
3.3 Lease Year; Calendar Year ............................... 4
3.4 Option to Extend Lease Term ............................. 4
ARTICLE 4
POSSESSION ........................................................ 5
4.1 "As Is" Condition ....................................... 5
ARTICLE 5
RENT .............................................................. 5
5.1 Base Rent ............................................... 5
5.2 Late Charges ............................................ 5
5.3 Additional Rent ......................................... 6
5.4 [Intentionally Omitted] ................................. 6
5.5 Rent Deposit ............................................ 7
ARTICLE 6
[Intentionally Omitted]
ARTICLE 7
USE OF PREMISES ................................................... 10
7.1 Permitted Uses .......................................... 10
7.2 Limitations ............................................. 10
7.3 Compliance with Law ..................................... 10
7.4 Signs; Directory ........................................ 10
ARTICLE 8
THE COMMON AREA ................................................... 11
8.1 Tenant's Nonexclusive Right to Use ...................... 11
8.2 Landlord's Control ...................................... 11
ARTICLE 9
REPAIRS AND MAINTENANCE ........................................... 12
9.1 Tenant's Obligations .................................... 12
9.2 Landlord's Obligations .................................. 12
9.3 Tenant's Negligence ..................................... 12
ARTICLE 10
i
<PAGE> 3
ALTERATIONS AND ADDITIONS ......................................... 12
10.1 Restrictions ............................................ 12
10.2 Alterations Required By Law ............................. 13
10.3 Liens ................................................... 13
10.4 Landlord's Improvements ................................. 14
ARTICLE 11
ASSIGNMENT AND SUBLETTING ......................................... 14
11.1 In General .............................................. 14
11.2 Voluntary Assignment and Subletting ..................... 14
11.3 Involuntary Transfer .................................... 16
11.4 Hypothecation ........................................... 17
11.5 Binding on Successors ................................... 17
ARTICLE 12
INSURANCE AND INDEMNITY ........................................... 17
12.1 Tenant's Liability Insurance ............................ 17
12.2 Subrogation ............................................. 17
12.3 Tenant's Indemnity ...................................... 15
12.4 Release of Liability .................................... 18
12.5 Tenant's Personal Property Insurance .................... 18
ARTICLE 13
SERVICES AND UTILITIES ............................................ 18
13.1 Landlord's Obligations .................................. 18
13.2 Tenant's Obligations .................................... 19
ARTICLE 14
PERSONAL PROPERTY TAXES ........................................... 19
14.1 Taxes on Tenant's Property............................... 19
14.2 Taxes on Improvements ................................... 19
ARTICLE 15
DAMAGE TO PREMISES ................................................ 20
15.1 Definition of Terms ..................................... 20
15.2 Insured Casualty ........................................ 20
15.3 Uninsured Casualty ...................................... 20
15.4 Tenant's Election ....................................... 20
15.5 Continuance of Lease .................................... 21
15.6 Damage or Destruction Near End of Lease Term ............ 21
15.7 Termination of Lease .................................... 21
15.8 Abatement of Rentals .................................... 21
15.9 Liability for Personal Property ......................... 21
15.10 Waiver of Civil Code Remedies ........................... 21
ARTICLE 16
DEFAULT AND REMEDIES .............................................. 21
16.1 Events of Default ....................................... 21
16.2 Remedies ................................................ 22
16.3 Attorneys' Fees ......................................... 24
16.4 Landlord's Default ...................................... 24
ARTICLE 17
CONDEMNATION ...................................................... 24
17.1 Landlord's Right to Terminate ........................... 24
17.2 Tenant's Right to Terminate ............................. 24
17.3 Temporary Taking ........................................ 25
17.4 Restoration and Abatement of Rent ....................... 25
17.5 Division of Condemnation Award .......................... 25
ARTICLE 18
SUBORDINATION TO MORTGAGES ........................................ 25
18.1 Subordination ........................................... 25
18.2 Subordination Agreements ................................ 25
18.3 Approval by Mortgagees .................................. 26
18.4 Attornment .............................................. 26
ARTICLE 19
GENERAL PROVISIONS ................................................ 26
19.1 Authority to Sign ....................................... 26
19.2 Intentionally Omitted ................................... 26
19.3 Rules and Regulations ................................... 26
ii
<PAGE> 4
19.4 Holding Over ............................................ 26
19.5 Entry by Landlord ....................................... 27
19.6 Non-Discrimination ...................................... 27
19.7 Estoppel Certificate .................................... 27
19.8 Transfer of Landlord's Interest ......................... 28
19.9 Interest ................................................ 28
19.10 Parking ................................................. 28
19.11 Limitation on Landlord's Liability ...................... 29
19.12 Waiver .................................................. 29
19.13 Notices ................................................. 29
19.14 Joint and Several Obligation ............................ 29
19.15 Headings ................................................ 30
19.16 Time .................................................... 30
19.17 Successors and Assigns .................................. 30
19.18 Recordation ............................................. 30
19.19 Quiet Possession ........................................ 30
19.20 Prior Agreements ........................................ 30
19.21 Inability to Perform .................................... 30
19.22 Attorneys' fees ......................................... 30
19.23 Severability ............................................ 30
19.24 Cumulative Remedies ..................................... 30
19.25 Choice of Law ........................................... 30
19.26 Brokers ................................................. 30
19.27 Exhibits ................................................ 31
EXHIBIT A - FLOOR PLAN OF PREMISES
EXHIBIT B - [INTENTIONALLY OMITTED]
EXHIBIT C - [INTENTIONALLY OMITTED]
EXHIBIT D - STANDARDS FOR UTILITIES AND SERVICES
EXHIBIT E - RULES AND REGULATIONS
EXHIBIT F - PARKING RULES AND REGULATIONS
iii
<PAGE> 5
OFFICE LEASE
For and in consideration of the rentals, covenants and conditions hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the herein described Premises for the term, at the rental and subject
to and upon all of the terms, covenants and agreements set forth in this Office
Lease ("Lease").
ARTICLE 1
SUMMARY OF LEASE PROVISIONS
1.1 Tenant: AboveNet, a California corporation ("Tenant").
1.2 Landlord: 50 West San Fernando Associates, a California limited
partnership ("Landlord").
1.3 Lease Date (for reference purposes only): May 15, 1996.
1.4 Premises: An area consisting of one thousand nine hundred
eight-six (1986) rentable square feet and one thousand seven
hundred thirty-four (1734) usable square feet in that certain
building located at 50 West San Fernando Street, Suite #1010,
San Jose, California, otherwise known as Fairmont Plaza, (the
"Building") , which area is on the tenth (10th) floor of the
Building. (ARTICLE 2.)
1.5 Improvement Allowance: None
1.6 Term: 60 months. (ARTICLE 3.)
1.7 Commencement Date: June 1, 1996. (ARTICLE 3.)
1.8 Termination Date: May 31, 2001. (ARTICLE 3.)
1.9 Monthly Base Rent: For each month of the following Lease Years
and subject to increase upon exercise of the Expansion Option:
Lease Year Monthly Rate
First Lease Year $1.00 per rentable sq foot
Second Lease Year $1.25 "
Third Lease Year $1.50 "
Fourth Lease Year $2.10 "
Fifth Lease Year $2.10 "
1.10 Base Year for Operating Expenses: 1996 (ARTICLE 6.)
1.11 Tenant's Percentage Share: .0062%, calculated as a fraction, the
numerator of which is 1986 (the net rentable area of the
Premises) and the denominator of which is 323,065 (the net
rentable area of the Building). (ARTICLE 6.)
1.12 Tenant shall be entitled, but not obligated, to rent up to a
total number of twelve (12) parking spaces allocated: Four (4)
non-reserved parking space located within the On-Site Parking
Facilities and Eight (8) non-reserved parking spaces located
within the Off-Site Parking Facilities. (ARTICLE 19.)
1.13 Use of Premises: General office uses in support of providing
equipment service to Internet access and service providers
(ARTICLE 7.) and computer related services
1.14 Security Deposit: None
1
<PAGE> 6
1.15 Addresses for Notices:
To Landlord: 50 West San Fernando Street
Suite 320
San Jose, CA 95113
Attn: Steve Belomy
To Tenant: 50 West San Fernando Street,
Suite 1010
San Jose, CA 95113
Attn: Sherman Tuan
1.16 Summary Provisions in General. The parenthetical references in
this Article 1 to other Articles in this Lease are for convenience of reference
and designate some of the other Lease Articles where applicable provisions are
set forth. All of the terms and conditions of each such referenced Article shall
be construed to be incorporated within and made a part of each of the above
referenced Summary of Lease Provisions. In the event of any conflict between any
Summary of Lease Provision as set forth above and the balance of the Lease, the
latter shall control.
ARTICLE 2
DEMISE
2.1 Demise of Premises. Upon the terms, covenants and conditions set
forth herein, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises set forth in Section 1.4 (the "Premises"). A floor plan
of the Premises is attached hereto as Exhibit "A." The real property upon which
the Building is situated is hereinafter referred to as the "Property."
2.2 Rentable Area. The actual "usable area" of the Premises and the
actual "rentable area" of the Premises is set forth in Section 1.4 above. The
rentable area of the Premises shall be utilized to calculate the Base Rent set
forth in Section 1.9 above and to make all other calculations under this Lease
in which rentable area is a factor. For the purposes of this Lease, the Premises
and the Building have been measured in accordance with the Building Owners and
Managers Association Standard of Measurement ANSI Z65.1-1980 (the "BOMA
Standard"). Tenant acknowledges that the rentable area of the Premises consists
of the usable area of the Premises, together with an allocation of certain
Building common areas and services areas equal to fourteen and one half percent
(14.5%) of the usable area of the Premises.
2.3 Ground Lease. Tenant hereby acknowledges that Landlord's
interest in the Property consists of the leasehold interest under that certain
Block 1 Office Parcel Ground Lease entered into by and between the Redevelopment
Agency of the City of San Jose (the "Agency"), as landlord, and Landlord, as
tenant, on or about December 4, 1986, as amended and restated in that certain
Ground Lease dated April 30, 1990 (the "Ground Lease"). Tenant also hereby
acknowledges that Tenant's rights and interests in the Premises are subject and
subordinate to the terms and provisions of the Ground Lease.
2.4 Tenant Improvements.
2.4.1 Landlord Obligations. The parties hereto acknowledge
that the Premises have been previously improved for the benefit of a prior
tenant. Prior to the Commencement Date (defined below), Landlord, at its sole
cost, shall repaint the Premises and provide for not less than ____ electrical
outlets within locations in the Premises to be specified by Tenant. Other than
the aforesaid repainting and installation of outlets, Landlord shall have no
other obligation to refurbish, modify, or otherwise improve the Premises for the
benefit of Tenant.
2.4.2 Tenant's Right to Install. Tenant shall have the right,
at any time during the Lease Term and at its sole cost and expense, to install
and connect within the Building a
2
<PAGE> 7
telco equipment riser from any basement level "demarc" location of any
telecommunication provider servicing the Building to the Premises and/or to
either of the existing telephone "closets" on the 10th floor of the Building;
provided, however, the specific location(s) of the aforesaid riser shall be
subject to the prior approval of Landlord. Tenant shall also have the right, at
any time during the Lease Term and at its sole cost and expense, to install
within the mechanical room on the l0th floor of the Building a separate heat
pump to provide 24 hour computer room cooling for the Premises, which pump shall
be connected to the Building's condenser water system; provided, however, the
specific location(s) of the aforesaid pump shall be subject to the prior
approval of Landlord and the installation thereof shall be subject Landlord's
supervision and technical criteria. Tenant's installation of the telco riser and
the heat pump, as provided herein, shall be carried out in accordance with and
subject to the provisions of Article 10 hereof.
2.5 Cancellation by Landlord. Landlord shall have the right to
cancel this Lease, subject to the following:
(a) Landlord shall have the right to give Tenant written
notice cancelling this Lease, within thirty (30) days following the occurrence
of any of the following:
(i) KPMG Peat Marwick, or its successors or
assignees, (collectively, "Peat") exercises any option Peat has to Lease all or
any portion of the Premises;
(ii) Peat surrenders to Landlord that portion of the
tenth (10) floor of the Building which Peat is occupying as of the Commencement
Date; or,
(iii) Tenant exercises its right to cancel that
certain lease entered into by and between Landlord and Tenant with respect to
portions of the eighteenth floor (18th) of the Building (the "Other Lease");
(b) In the event Landlord gives Tenant notice within the
time and in the manner provided for in (a) above, then this Lease shall be
terminated on the date which is ninety (90) days following the date Tenant
receives Landlord's cancellation notice;
(c) If Tenant has received a cancellation notice from
Landlord, then Tenant, prior to the scheduled date of termination and at its
sole cost and expense, shall remove any and all improvements, fixtures, and
equipment installed by Tenant in the Premises and repair any and all damage to
the Premises (as well as to any other parts of the Building) resulting from
either the installation or removal of Tenant's improvements, fixtures, and
equipment; provided, however, Landlord's cancellation notice may provide a
request that Tenant's improvement and fixtures (but not Tenant's movable
equipment) remain on the Premises following the termination, in which event
Tenant shall leave such items;
(d) Upon the date of termination (as set forth in (c)
above), Landlord and Tenant shall have no further rights or obligations under
the Lease (nor shall Tenant have any other rights with respect to the Premises),
except that Tenant shall remain liable to Landlord with respect to (i) any
indemnity obligations as set forth in Article 12 below or elsewhere in this
Lease, (ii) any and all costs which may be incurred to remove items and repair
the Premises if Tenant has not complied with (c) above , and (iii) any damages
with respect to any default by Tenant under this Lease occurring after the
sending of its notice of cancellation but prior to the date of termination.
2.6 Cancellation by Tenant. Tenant shall have the right to cancel
this Lease, subject to the following:
3
<PAGE> 8
(a) Tenant shall give Landlord written notice of its
election to cancel the Lease not earlier than January 1, 1997 nor later than
December 1, 1997.
(b) Tenant may not exercise its cancellation right if Tenant
is in default in the performance of any of the terms and conditions of this
Lease or of the Other Lease, which default continues after the expiration of any
grace period and the giving of any notice, as provided in Article 16 below or in
the Other Lease. Any notice of cancellation given by Tenant while Tenant is in
default shall be of no force and effect. The period of exercise of any
cancellation shall not be extended for any period in which Tenant is in default.
(c) In the event Tenant gives Landlord notice within the
time and in the manner provided for in (a) above, then this Lease shall be
terminated on the date which is the later of (i) ninety (90) days following the
date Landlord receives Tenant's cancellation notice, or (ii) the date Tenant, at
its sole cost and expense, removes any and all improvements, fixtures, and
equipment installed by Tenant in the Premises and repairs any and all damage to
the Premises (as well as to any other parts of the Building) resulting from
either the installation or removal of Tenant's improvements, fixtures, and
equipment; provided, however, following Tenant's notice of cancellation,
Landlord may provide written notice to Tenant requesting that Tenant's
improvement and fixtures (but not Tenant's movable equipment) remain on the
Premises following the termination, in which event Tenant shall leave such
items;
(d) Upon the date of termination (as set forth in (c)
above), Landlord and Tenant shall have no further rights or obligations under
the Lease (nor shall Tenant have any other rights with respect to the Premises),
except that Tenant shall remain liable to Landlord with respect to (i) any
indemnity obligations as set forth in Article 12 below or elsewhere in this
Lease and (ii) any damages with respect to any default by Tenant under this
Lease occurring after the sending of its notice of cancellation but prior to the
date of termination.
ARTICLE 3
TERM
3.1 Term. This Lease shall extend for the term stated in Section 1.6
above (the "Lease Term") , commencing on June 1, 1996 (the "Commencement Date").
3.2 Lease Termination. This Lease shall terminate on May 31, 1996
(the "Termination Date"), unless earlier terminated as provided elsewhere in
this Lease.
3.3 Lease Year; Calendar Year. The term "Lease Year" shall mean each
successive twelve (12) calendar month period of the Lease Term, commencing on
the Commencement Date. The term "Calendar Year" shall mean each successive
twelve (12) calendar month period from January through December.
3.4 Option to Extend Lease Term. Landlord hereby grants to Tenant
one (1) option ("Option") to extend the Lease Term with respect to the Premises
on the following terms and conditions:
(a) The Option shall give Tenant the right to extend the
Lease Term for an additional ten (10) years (the "Extended Term");
(b) Tenant shall give Landlord written notice of its
exercise of the Option no later than one hundred eighty (180) days, nor earlier
than three hundred sixty (360), prior to the Termination Date;
(c) Tenant may not extend the Lease Term pursuant
4
<PAGE> 9
to this Section 3.4 if Tenant is in default in the performance of any of the
terms and conditions of this Lease and/or the Other Lease, which default
continues after the expiration of any grace period and the giving of any notice,
as provided in Article 16 below or in the Other Lease. Any notice of exercise of
the Option given by Tenant while Tenant is in default shall be of no force and
effect. The period of exercise of the Option shall not be extended for any
period in which Tenant is unable to exercise an Option by reason of Tenant's
default. If Tenant is in default on the date that the Extended Term is to
commence, then Landlord may elect to terminate this Lease pursuant to Section
16.2.1, notwithstanding any notice given by Tenant of the exercise of the
Option.
(d) All terms and conditions of this Lease shall apply
during the Extended Term, except that Base Rent for the Extended Term shall be
determined in accordance with Section 5.1.2 below;
(e) Once Tenant delivers notice of its exercise of the
Option, Tenant may not withdraw such exercise and, subject to the provisions of
this Section 3.4, such notice shall operate to extend the Lease Term. Upon the
extension of the Lease Term pursuant to this Section 3.4, the term "Lease Term"
as used in this Lease shall thereafter include the Extended Term and the
Termination Date shall be the expiration date of the Extended Term.
ARTICLE 4
POSSESSION
4.1 "As is" Condition. Subject to Landlord's obligation to repaint
and install electrical plugs (as set forth in Section 2.4 above), on the
Commencement Date, Landlord shall be deemed to have delivered possession of the
Premises to Tenant and Tenant shall be deemed to have accepted the Premises in
its "As Is" condition.
ARTICLE 5
RENT
5.1 Base Rent.
5.1.1 Initial Lease Term. Beginning on the Commencement Date,
Tenant agrees to pay to Landlord the base rent set forth in Section 1.9 above
(the "Base Rent") on or before the first day of each calendar month during the
Lease Term (including the Extended Term). Base Rent for any period during the
Lease Term which is for less than one (1) month shall be prorated based upon a
thirty (30) day month. Base Rent shall be paid to Landlord without demand,
deduction, or offset, in lawful money of the United States of America, at
Landlord's address set forth in Section 1.15 above or such other place as
Landlord may from time to time designate in writing.
5.1.2 Extended Term. If Tenant elects to extend the Lease Term
pursuant to Section 3.4 above, Base Rent for the Extended Term shall be an
amount equal to the then fair market rental value of the Premises in relation to
market conditions as of the first day of such Extended Term. "Fair market
rental value" shall be determined as follows:
(a) Mutual Agreement. After timely receipt by
Landlord of Tenant's notice of exercise of the Option, Landlord and Tenant shall
have a period of thirty (30) days in which to agree on the fair market rental
value of the Premises. If Landlord and Tenant agree on the fair market rental
value for the Premises, then they shall immediately execute an amendment to this
Lease stating such agreed upon fair market rental value as the Base Rent for the
Extended Term. If Landlord and Tenant are unable to so agree upon the fair
market rental value for the Premises, the provisions of Subsection (b) below
shall apply.
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(b) Appraisal. Within five (5) days after the
expiration of the thirty (30) day period described in (a) above, each party, at
its cost and by giving notice to the other party, shall appoint an M.A.I. real
estate appraiser, with at least five (5) years full-time commercial appraisal
experience in Santa Clara County, to appraise and set the fair market rental
value of the Premises. If a party does not appoint an appraiser within five (5)
days after the other party has given notice of the name of its appraiser, the
single appraiser appointed shall be the sole appraiser and shall set the fair
market rental value. The cost of such sole appraiser shall be borne equally by
the parties. If two appraisers are appointed by the parties as provided in this
Section 5.1.2 (b), the two appraisers shall meet promptly and attempt to set the
fair market rental value. If they are unable to agree within twenty (20) days
after the last appraiser has been appointed, then the two appraisers shall
attempt to select a third appraiser meeting the qualifications stated in this
Section 5.1.2(b) within ten (10) days after the last day the two appraisers are
given to set the fair market rental value. If they are unable to agree on the
third appraiser, either of the parties to this Lease, by giving ten (10) days
notice to the other party, may apply to the presiding judge of the Superior
Court of Santa Clara County for the selection of a third appraiser who meets the
qualifications stated above. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be instructed to select which
of the two appraisals submitted by the parties' respective appraisers more
closely represents the fair market rental value for the Premises, which
selection shall be the fair market rental value of the Premises. In establishing
the fair market rental value, the appraiser or appraisers shall consider the
reasonable market rental value for the use of the Premises permitted in this
Lease (which shall include, but not be limited to, considerations of rental
rates for comparable space with comparable tenant improvements, cost of living
or other rental adjustments, and/or the relative strength of the tenants)
without regard to (i) the Base Rent applicable to the initial Lease Term, and
(ii) any alterations, additions or improvements to the Premises paid for by
Tenant. In addition to the foregoing, Landlord and Tenant shall instruct the
appraiser or appraisers to determine the fair market rental value of the
Premises on a full service basis; i.e., the fair market rental value shall be
inclusive of Tenant's Percentage Share of Operating Expenses projected for the
first Lease Year of the Extended Term.
5.2 Late Charges. If any installment of Base Rent or any other sum
due from Tenant under this Lease shall not be received by Landlord or Landlord's
designee within ten (10) days from when the same is due, then there shall become
automatically due (without notice or demand from Landlord), and Tenant shall pay
to Landlord, a late charge equal to ten percent (10%) of each overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the cost which Landlord will incur by reason of the late payment by
Tenant. Acceptance of such late charges by the Landlord shall in no event
constitute a waiver of a Default by Tenant with respect to such overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
granted or implied pursuant to the terms of this Lease.
5.3 Additional Rent. All sums which Tenant is required to pay
hereunder, including, without limitation, the amounts and charges set forth in
Article 6 and in Section 13.2, with any and all late charges and, pursuant to
Section 19.9 below, interest that may accrue thereon), and all damages, costs
and expenses which Landlord may incur by reason of any default by Tenant shall
be additional rent hereunder ("Additional Rent"). In the event of nonpayment by
Tenant of any Additional Rent, Landlord shall have all of the rights and
remedies with respect thereto as Landlord has for the nonpayment of Base Rent.
The term "Rentals" as used in this Lease shall mean Base Rent and Additional
Rent.
5.4 [Intentionally Omitted]
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5.5 Rent Deposit. Upon execution of this Lease, Tenant shall deposit
with Landlord an amount equal to Nineteen Hundred Eighty-six Dollars ($1986.00)
as a deposit for the Base Rent due for the first month of the Lease Term.
ARTICLE 6
TENANT'S PERCENTAGE SHARE OF EXCESS OPERATING EXPENSES
6.1 Definition of Operating Expenses. The term "Operating Expenses"
shall mean:
(a) All costs, expenses and fees paid or incurred by
Landlord for the operation, maintenance, repair and management of the Premises,
Building, Common Area (defined below), and Property which shall include, without
limitation, the costs and expenses with respect to the following: services
supplied to the Premises, Building and Common Area; security protection; water;
HVAC; sewage, trash removal; fuel; electricity; heat; lighting systems; fire
protection; storm drainage and sanitary sewer systems; materials; supplies;
tools; equipment; rental of equipment; service agreements on equipment; Building
insurance and other insurance (in such amounts and providing such coverage as
determined in Landlord's sole discretion); maintenance and repair of all
intrabuilding phone and network cabling; maintenance and repair of the roof of
the Building and the structural parts of the Building; outside contractors
employed in connection with the operation, maintenance, repair, and management
of the Premises, Building and Common Area; fees for licenses and permits
required for the operation of the Building and Common Area; contesting or
complying with rules, regulations and orders of governmental authorities,
including any required alterations and repairs required in connection therewith;
accounting and legal fees; management fees and the fair rental value of the
management office maintained in the Building by the property manager;
maintenance, repair and operation of all parking areas and facilities for the
Building; compliance with any obligations of Landlord under the Ground Lease to
maintain, repair, and insure any "common areas," as said term is defined in the
Ground Lease; maintenance, repair and operation of the public plaza in front of
the Building; compliance with any "Allocable Share Agreement" with respect to
the Silicon Valley Financial Center Project to which Landlord may be a party;
the maintenance, repair or operation of any other public or nonpublic areas or
improvements, whether or not such areas or improvements are contiguous or
adjacent to the Building or the Property; capital improvements to the Building
which actually reduce or eliminate other Operating Expenses (provided, however,
costs for such capital improvements shall only be included within Operating
Expenses to the extent of any actual reduction or elimination of other Operating
Expenses); capital costs incurred as a result of complying with any laws of
general applicability to the Building, the Property and/or the Premises; and,
(b) All real estate taxes; personal property taxes (except
as provided in Section 14.1 below); taxes computed or based on rental income or
on square footage of the Premises or the Building (other than federal, state and
municipal net income taxes); environmental surcharges; water and sewer taxes;
any taxes which may be due pursuant to Health and safety Code Section 33673;
subject to Section 14.2 below, all taxes and assessments levied, assessed or
imposed on the Interior Improvements and any alterations made by Tenant to the
Premises; and all other governmental impositions of any kind and nature
whatsoever, regardless of whether now customary or within the contemplation of
the parties hereto and regardless of whether resulting from increased rate
and/or valuation, or whether extraordinary or ordinary, general or special,
unforeseen or foreseen, or similar or dissimilar to any of the foregoing which
during the Lease Term are laid, levied, assessed or imposed or become a lien
upon or chargeable against the Premises, Building, Common Area and/or Property.
Notwithstanding anything to the contrary in the definition of
"Operating Expenses," Operating Expenses shall not include the
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following:
(i) any Ground Lease rentals;
(ii) all expenditures required by Landlord's failure
to comply with laws enacted on or before the Commencement Date;
(iii) any cost to the extent reimbursed to Landlord
from any source (including insurance or condemnation proceeds);
(iv) costs, including permit, license and inspection
costs, incurred with respect to the installation of tenant improvements made for
other tenants or occupants in the Building or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for other
(or prospective) tenants or occupants of the Building;
(v) depreciation on the Building, the Property or
any equipment or machinery;
(vi) leasing commissions, attorneys' fees and other
costs and expenses incurred in connection with negotiations or disputes with
present or prospective other tenants or occupants of the Building, or in
connection with any financing or refinancing negotiations with lenders and/or
the Agency, as ground lessor; and,
(vii) except as to the amounts described in the last
eight (8) lines of subsection (a) above, costs incurred by Landlord for
alterations which are considered capital improvements and replacements under
generally accepted accounting principles, consistently applied.
In the event any Operating Expense constitutes a capital expenditure (as
determined in accordance with generally accepted accounting principles), the
subject capital expenditure (together with interest equal to any interest
actually paid by Landlord, to the extent that the capital expenditure in
question has been financed by Landlord) shall be amortized on a monthly basis
over the maximum useful life of the item for which the expenditure was made, and
only the amortized amount allocable to a Calendar Year shall be included as an
Operating Expense for such year.
In the event that the Building is less than ninety-five Percent (95%)
occupied during any Calendar Year, or in the event all of the Building is not
provided with Building standard services during any Calendar Year, an adjustment
shall be made in computing Operating Expenses for such Calendar Year so that the
Operating Expenses shall be computed as though the Building had been ninety-five
percent (95%) occupied or ninety-five percent (95%) of the Building had been
supplied with Building standard services during such year. For the purposes of
the aforesaid adjustment, any required projections of Operating Expenses shall
be reasonably determined by Landlord. The "Tenant's Percentage Share" set forth
in the lease of each tenant of the Building shall be prima facie evidence of
each such tenant's percentage of occupancy of the Building for the purposes of
such projection. Such adjusted Operating Expenses shall be used as the basis for
determining Tenant's share of Excess Operating Expenses under Section 6.2 below.
6.2 Determination of Tenant's Percentage Share of Excess Operating
Expenses. Commencing in the Calendar Year 1997, Tenant shall pay, in accordance
with Section 6.3 below, Tenant's Percentage Share of an amount equal to the
excess of (a) the Operating Expenses paid by Landlord in the Calendar Year in
question, over (b) the Operating Expenses paid by Landlord during the Base Year
for Operating Expenses (the aforesaid excess to be paid by Tenant is referred to
in this Lease as "Tenant's Percentage Share of Excess Operating Expenses").
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6.3 Payment of Tenant's Percentage Share of Excess Operating
Expenses. Tenant's Percentage Share of Excess Operating Expenses shall be paid,
as Additional Rent, in monthly installments on the first day of each month, in
advance, without deduction, offset or prior demand, as follows:
(a) At any time prior to the end of the Base Year for
Operating Expenses, Landlord may give Tenant written notice of Landlord's
estimate of the amount, if any, of Tenant's Percentage Share of Excess Operating
Expense for the following Calendar Year. An amount equal to one-twelfth (1/12)
of the aforementioned estimate shall be payable monthly by Tenant as aforesaid,
commencing on the first day of the calendar month of the following Calendar Year
and continuing until receipt of any notice of adjustment from Landlord given
pursuant to subsections (b) or (c) below.
(b) Prior to or during the last calendar month of each
subsequent Calendar Year during the Lease Term or as soon as practicable
thereafter, Landlord may give Tenant written notice of Landlord's estimate of
the amount of Tenant's Percentage Share of Excess Operating Expenses for the
next succeeding Calendar Year. An amount equal to one-twelfth (1/12) of the
aforesaid estimate shall be payable monthly by Tenant as aforesaid, commencing
on the first day of the calendar month following Landlord's notice and
continuing throughout the Lease Term, subject to further adjustments following
receipt of any notice of increase from Landlord given pursuant to this
subsection (b) or subsection (c) below.
(c) Landlord may at any time during any Calendar Year of the
Lease Term adjust estimates of Tenant's Percentage Share of Excess Operating
Expense to reflect current expenditures and, following written notice to Tenant
of such revised estimate, subsequent payments by Tenant shall be based upon such
revised estimate.
(d) Within one hundred eighty (180) days after the end of
each Calendar Year during the Lease Term or after the Termination Date or as
soon thereafter as practicable, Landlord will furnish to Tenant a statement of
the actual Operating Expenses paid or incurred by Landlord during the preceding
Calendar Year, and thereupon within ten (10) days an adjustment will be made by
payment to Landlord or repayment by Landlord (which repayment may be made by
credit to Rentals becoming due, as Landlord shall determine), as the case may
require, to the end that Landlord shall receive the entire amount of Tenant's
Percentage Share of Excess Operating Expenses and no more. Such statements shall
be binding upon Landlord and Tenant. Failure by Landlord to submit to Tenant
such operating statement within the one hundred eighty (180) day period does not
relinquish Landlord's right to bill and collect such expenses from Tenant.
Tenant at its expense shall have the right at any reasonable time within twelve
(12) months after the end of a Calendar Year to audit Landlord's books and
records relating to Operating Expenses for any Calendar Year, or at Landlord's
sole discretion, Landlord will provide such audit prepared by a certified public
accountant. If the Termination Date shall be on a day other than the last day of
a Calendar Year, the amount of any adjustment to be made pursuant to this
subsection (d) for the Calendar Year in which the Termination Date falls shall
be prorated on the basis which the number of days from the commencement of such
Calendar Year to and including such Termination Date bears to three hundred
sixty-five (365). The termination of this Lease shall not affect the
obligations of Landlord and Tenant pursuant to this subsection (d).
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ARTICLE 7
USE OF PREMISES
7.1 Permitted Uses. Tenant shall use and occupy the Premises only
for the purposes set forth in Section 1.13 above. Tenant shall continuously and
without interruption use the Premises for such purpose throughout the entire
Lease Term. Tenant shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Landlord.
7.2 Limitations. Tenant shall not do or permit anything to be done
in or about the Premises nor bring or keep anything therein which will in any
way damage the Building or any part thereof, cause an increase in the existing
rate of any fire or other insurance upon the Building or any of its contents, or
cause the cancellation of any insurance policy covering the Building or any part
thereof or any of its contents. Tenant shall not use or operate any equipment,
machinery or apparatus within the Premises which will (a) injure, vibrate or
shake the Premises or the Building, (b) overload or damage existing
intra-building cabling (including, without limitation, fiber optic lines,
connections and related equipment), electrical systems or other utilities or
equipment servicing the Premises or Building, or (c) impair the efficient
operation of the sprinkler system (if any) or the heating, ventilating and air
conditioning equipment within or servicing the Premises or the Building. All
noise, noises or odors generated by Tenant's use of the Premises shall be
muffled or contained in such a manner that they do not interfere with the
businesses of other tenants within the Building. Tenant shall not change the
exterior of the Building or install any equipment, antenna, machinery or other
device on or make any penetrations of the exterior or roof of the Building.
Tenant shall not do or permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of Landlord, or other
tenants or occupants of the Building, or injure or annoy them, or use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
7.3 Compliance with Law. Tenant shall not use the Premises or permit
anything to be done in or about the Premises or Building which will in any way
conflict with any law, statute, ordinance or governmental rule or regulation now
in force or which may hereafter be enacted or promulgated. Tenant shall, at its
sole cost and expense, promptly comply (a) with all laws, statutes, ordinances
and governmental rules, regulations or requirements now in force or which may
hereafter be in force (including, without limitation, any and all laws relating
to the operation and maintenance of the specialized equipment and fixtures
installed in the Premises by Tenant), and (b) with the requirements of any board
of fire insurance underwriters or other similar bodies now or hereafter
constituted; provided, however, Tenant shall not be required to make structural
changes not related to or affected by Tenant's improvements or its use or
occupancy of the Premises. The judgment of any court of competent jurisdiction
or the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between the Landlord and Tenant.
7.4 Signs; Directory
7.4.1 Placement of Signs. Landlord, at Landlord's expense,
shall place signage with Tenant's name in the elevator lobby of the tenth (l0th)
floor of the Building and at the entrance to the Premises. The aforesaid signage
will be comprised of Building standard lettering and materials.
Tenant shall not inscribe, paint, affix, place or permit to be placed
any other sign, advertisement, notice, logo or placard
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anywhere in the Common Areas, or in the Building, or anywhere in the Premises
which is visible from any Common Area or from outside of the Building without
the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion. If Tenant installs any signage or other such items
without Landlord's consent, Tenant, at its sole expense, shall remove the same
promptly upon request by Landlord to do so and shall repair any damage arising
therefrom. If Tenant fails to do so, Landlord may cause such removal and repair
to be performed on Tenant's behalf at Tenant's expense, and the cost thereof
shall be Additional Rent hereunder.
7.4.2 Building Directory. Tenant shall be named in the
Building directory. Additional names may be placed in or removed from the
directory at the discretion of Landlord but at the sole expense of Tenant.
Landlord reserves the right to limit the number of names to be placed on the
directory for each tenant of the Building.
ARTICLE 8
THE COMMON AREA
8.1 Tenant's Nonexclusive Right, to Use. The "Common Area" shall
mean those portions of the Building and Property, and all those facilities
within the boundaries of the Property and within the Building, which are
intended for the nonexclusive use of Tenant in common with other tenants and
authorized users, including, but not limited to, entrances, lobbies, halls,
corridors, service areas and the subterranean parking garage under the Building.
Landlord hereby grants to Tenant and Tenant's agents, employees, invitees,
guests and customers the nonexclusive right to use the Common Area in common
with Landlord, Landlord's agents, and with other tenants and authorized users of
the Building, subject to the provisions of this Lease.
8.2 Landlord's Control. Landlord shall at all times during the Term
of this Lease have exclusive control of the Common Area. In this connection,
Landlord shall have the right, without the same constituting an actual or
constructive eviction, and without entitling Tenant to any abatement of Rentals
or other sums payable hereunder to:
(a) Temporarily close any part of the Common Area to
whatever extent required in the reasonable judgment of Landlord's counsel to
prevent a dedication thereof or the accrual of any prescriptive rights therein;
(b) Temporarily close any part of the Common Area to,
perform maintenance or for any other reason deemed sufficient by Landlord in its
reasonable judgment;
(c) Change the shape, size, location and extent of
improvements on the Common Area;
(d) Eliminate or add any improvements;
(e) Select a person to maintain and operate any of the
Common Area at any time Landlord determines that the best interests of the
Property will be served by having the Common Area maintained and operated by
that person;
(f) Make reasonable changes to the Common Area including, by
way of illustration and not limitation, changes in the location of driveways,
entrances, passageways, doors and doorways, elevators, stairs, common restrooms,
exits, parking spaces, parking areas, sidewalks, traffic flow patterns and the
site of the Common Area (but in no event decrease the number of Tenant's Allowed
Parking Spaces as set forth in Section 1.12 above); and/or
(g) Change the name or, the address of the Building.
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The use of the Common Area shall be subject to such reasonable
regulations and changes therein as Landlord shall make from time to time. Tenant
shall keep the Common Area free and clear of all obstructions created or
permitted by Tenant.
ARTICLE 9
REPAIRS AND MAINTENANCE
9.1 Tenant's Obligations. By taking possession of the Premises,
Tenant shall be deemed to have accepted the Premises as being in good, sanitary
order, condition and repair. Subject to Section 9.2 below, Tenant shall, at
Tenant's sole cost and expense, keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear excepted. Tenant shall upon the
expiration or sooner termination of the Lease Term surrender the Premises to the
Landlord in good condition, ordinary wear and tear expected. Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition of the Premises or
the Building except as specifically herein set forth.
9.2 Landlord's Obligations. Except as otherwise provided in Section
9.3 below and without regard to responsibility for payment, Landlord shall
repair and maintain, in reasonably good condition, the following: (a) the
structural parts of the Building (including foundation, load-bearing and
exterior walls, subflooring and roof); (b) the Common Area, including all
landscaped areas and all parking areas and facilities for the Building; (c) all
electrical, plumbing, sewage and other utility lines and equipment, including
HVAC servicing the Building, which has been installed or furnished by Landlord;
and (d) all exterior windows. Landlord shall not be liable for any failure to
make any such repairs or to perform any maintenance unless such failure shall
persist for an unreasonable time after proper written notice of the need for
such repairs or maintenance is given to Landlord by Tenant. There shall be no
abatement of rent (unless Landlord receives rental loss insurance proceeds and
then only to the extent such proceeds are received and retained by Landlord),
and there shall be no liability of Landlord by reason of any injury to or
interference with Tenant's business (excluding personal injury or property
damage) arising from the making of any repairs, alterations or improvements in
or to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant waives the right to make repairs at
Landlord's expense under any law, statute or ordinance now or hereafter in
effect.
9.3 Tenant's Negligence. Anything in this Article 9 to the contrary
notwithstanding, Tenant shall pay for all damage to the Premises or the Building
caused by the negligence or willful misconduct of Tenant, its agents, employees,
assignees, sublessees, contractors, or invitees or by the failure of Tenant to
promptly discharge its obligations under this Lease or otherwise comply with the
terms hereof.
ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 Restrictions. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the prior written consent of Landlord. Landlord's consent to any
proposed alterations may be conditioned on Landlord's receipt, review and
approval of the plans and specifications for the proposed alterations, and of
such other items relating to the proposed alterations as Landlord may request.
Any alterations, additions or improvements to or of the Premises, including, but
not limited to, wall coverings, carpeting, paneling and built-in cabinet work,
but excepting movable furniture and trade fixtures, shall on the expiration of
the Lease Term, or earlier termination of this Lease, become a part of the
Building and belong to the Landlord and, unless required to be removed as
specified below, shall be surrendered with the Premises. In the
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event Landlord consents to the making of any alterations, additions or
improvements to the Premises by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense, and any contractor or person selected by Tenant
to make the same must first be approved of in writing by the Landlord. All
construction undertaken by Tenant shall be done in accordance with all laws and
in a good and workmanlike manner using new materials of good quality. Tenant
shall not commence construction of any alterations, additions or improvements to
the Premises which have been approved by Landlord until:
(a) All required governmental approvals and permits have
been obtained;
(b) All insurance requirements of this Lease have be
satisfied;
(c) Tenant shall have given Landlord at least ten (10) days
prior written notice of its intent to commence construction;
(d) Tenant shall have fully complied with any conditions
which Landlord has imposed in connection with its approval of Tenant's
alterations;
(e) Tenant shall have notified Landlord by telephone of the
commencement of construction on the day it commences; and
(f) If requested by Landlord, Tenant shall have obtained
contingent liability and broad form builders risk insurance in an amount
satisfactory to Landlord if there are any perils relating to the proposed
construction not covered by insurance carried pursuant to Article 12 below.
Upon the expiration or sooner termination (including a cancellation by
Landlord or Tenant pursuant to Article 2) of the Lease Term, Tenant shall,
unless otherwise requested by Landlord, at Tenant's sole cost and expense,
forthwith and with all due diligence remove any alterations, additions, or
improvements made by Tenant, designated by Landlord to be removed, and Tenant
shall repair any damage to the Premises caused by such removal.
10.2 Alterations Recruited By Law. Tenant shall, upon Landlord's
consent and subject to the provisions of Section 10.1 above, make any additional
alterations, additions or improvements of any sort, whether structural or
otherwise, to the Premises that are required by any law in connection with:
(a) Tenant's use of any specialized equipment, fixtures,
cabling, and/or components, and any change of use of the Premises,
(b) Tenant's application for any permit or governmental
approval, or
(c) Tenant's construction or installation of any leasehold
improvements or trade fixtures pursuant to Section 10.1 (and Section 2.4) above.
10.3 Liens. Tenant shall keep the Premises, the Building and the
Property free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, Tenant to provide to Landlord a lien and completion bond in an
amount equal to one and one-half (1-1/2) times the estimated cost of any
improvements, additions, or alterations in the Premises, to insure Landlord
against any liability for mechanics, and materialmen's liens and to insure
completion of the work. Any lien filed against the Premises, Building, or
Property for any work claimed to have been done for, or materials claimed to
have been furnished to, Tenant shall be released or discharged by Tenant, at its
sole cost, within
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ten (10) days of such filing. In the event Landlord acts to remove any lien
filed against the Premises, Tenant shall, upon demand and as Additional Rent,
reimburse Landlord for any costs and expenses expended in connection therewith,
which costs shall include an administrative fee equal to fifteen percent (15%)
of the amount of the lien so removed by Landlord.
10.4 Landlord's Improvements. All fixtures, improvements or equipment
which are installed or constructed on or attached to the Property or Building by
Landlord at its expense shall become a part of the Building and belong to
Landlord.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 In General. Tenant shall not voluntarily sell, assign or
transfer all or any part of Tenant's interest in this Lease or in the Premises
or any part thereof, sublease all or any part of the Premises, or permit all or
any part of the Premises to be used by any person or entity other than Tenant or
Tenant's employees, except as specifically provided in this Article 11.
11.2 Voluntary Assignment and Subletting.
11.2.1 Notice to Landlord. Tenant shall, by written notice,
advise Landlord of Tenant's desire on a stated date (which date shall not be
less than thirty (30) days nor more than ninety (90) days after the date of
Tenant's notice) to assign this Lease or to sublet all or any part of the
Premises for any part of the Lease Term. Tenant's notice shall state the name,
legal composition and address of the proposed assignee or subtenant, and Tenant
shall provide the following information to Landlord with said notice a true and
complete copy of the proposed assignment agreement or sublease; a financial
statement of the proposed assignee or subtenant certified as true and correct by
such assignee or subtenant and prepared in accordance with generally accepted
accounting principles within one (1) year prior to the proposed effective date
of the assignment or sublease; the actual use of the proposed assignee's or
subtenant's business to be carried on at the Premises; the payments to be made
or other consideration to be given on account of the assignment or sublease; a
current financial statement of Tenant; and such other pertinent information as
may be requested by Landlord, all in sufficient detail to enable Landlord to
evaluate the proposed assignment or sublease and the prospective assignee or
subtenant. Tenant's notice shall not be deemed to have been served or given
until such time as Tenant has provided Landlord with all information reasonably
requested by Landlord pursuant to this Section 11.2. Tenant shall immediately
notify Landlord of any modification to the proposed terms of such assignment or
sublease. Tenant may withdraw its notice at any time prior to the exercise by
Landlord of its rights pursuant to Section 11.2.2 below.
11.2.2 Landlord's Option. Within thirty (30) days of Landlord's
receipt of a notice of Tenant's intention to transfer its interest in this Lease
and/or the Premises to a third party, Landlord shall have the right to acquire
from Tenant the interest, or any portion thereof, in this Lease and/or the
Premises that Tenant proposes to transfer, on the same terms and conditions as
the proposed transfer.
11.2.3 Landlord's Consent. If Landlord does not exercise the
right set forth in Section 11.2.2 above within thirty (30) days after receipt of
Tenant's notice or if a proposed sublease is not subject to the provisions of
Section 11.2.2 above, Landlord shall not unreasonably withhold its consent to
the proposed assignment or subletting, on the terms and conditions specified in
said notice. Without otherwise limiting the criteria upon which Landlord may
withhold its consent to any proposed assignment or sublease, if Landlord
withholds its consent where Tenant is in default at the time of the giving of
Tenant's notice or at any time thereafter, or where the net worth of the
proposed
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assignee or subtenant (according to generally accepted accounting principles) is
less than net worth of Tenant at the time this Lease is executed, such
withholding of consent shall be presumptively reasonable. Any and all rent to be
paid by an assignee or subtenant, including, but not limited to, any rent in
excess of the Rentals to be paid under this Lease (prorated in the event that a
sublease or less than the entire Premises) ("Excess Rent"), shall be paid by
Tenant directly to Landlord, as Additional Rent, at the time and place specified
in this Lease. For the purposes of this Article 11, the term "rent" shall
include any consideration of any kind received, or to be received, by Tenant
from an assignee or subtenant, if such sums are related to Tenant's interest in
this Lease or in the Premises, including, but not limited to, key money, bonus
money and payments (in excess of the fair market value thereof) for Tenant's
assets, fixtures, trade fixtures, inventory, accounts, goodwill, equipment,
furniture, general intangibles and any capital stock or other equity ownership
interest of Tenant.
Any assignment or subletting without Landlord's consent shall be
voidable at Landlord's option and shall constitute a Default by Tenant.
Landlord's consent to any one assignment or sublease shall not constitute a
waiver of the provisions of this Article 11 as to any subsequent assignment or
sublease nor a consent to any subsequent assignment or sublease; further,
Landlord's consent to an assignment or sublease shall not release Tenant from
Tenant's obligations under this Lease, and Tenant shall remain Jointly and
severally liable with the assignee or subtenant.
11.2.4 Assumption of Obligations. In the event Landlord
consents to any assignment, such consent shall be conditioned upon the assignee
expressly assuming and agreeing to be bound by each of Tenant's covenants,
agreements and obligations contained in this Lease, pursuant to a written
assignment and assumption agreement in a form approved by Landlord. In the event
Landlord consents to a proposed assignment or sublease, such assignment or
sublease shall be valid and the assignee or subtenant shall have the right to
take possession of the Premises only if an executed original of the assignment
or sublease is delivered to Landlord, and such document contains the same terms
and conditions as stated in Tenant's notice to Landlord given pursuant to
Section 11.2.1 above, except for any such modifications to which Landlord has
consented in writing.
11.2.5 Collection of Rent. Tenant hereby irrevocably gives to
and confers upon Landlord, as security for Tenant's obligations under this
Lease, the right, power and authority to collect all rents from any assignee or
subtenant of all or any part of the Premises as permitted by this Section 11.2,
or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligations under this Lease; provided, however, that until the
occurrence of any Default by Tenant or except as provided by the provisions of
Section 11.2.3 above, Tenant shall have the right to collect such rent. Upon the
occurrence of any Default by Tenant, Landlord may at any time without notice in
Landlord's own name sue for or otherwise collect such rent, including rent past
due and unpaid, and apply the same, less costs and expenses of operation and
collection, including reasonable attorneys' fees, toward Tenant's obligations
under this Lease. Landlord's collection of such rents shall not constitute an
acceptance by Landlord of attornment by such subtenants; in the event of a
Default by Tenant, Landlord shall have all rights provided by this Lease and by
law, and Landlord may, upon re-entry and taking possession of the Premises,
eject all parties in possession or eject some and not others, or eject none, as
Landlord shall determine in Landlord's sole discretion. "Rent" shall not include
any revenue or income received by Tenant from any third party pursuant to any
"co-location" agreement or any other agreement or arrangement whereby such party
compensates Tenant for use of or connection to Tenant's equipment located on the
Premises.
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11.2.6 No Bonus Value. It is the intent of the parties hereto
that this Lease shall confer upon Tenant only the right to use and occupy the
Premises and to exercise such other rights as are conferred upon Tenants by this
Lease. The parties agree that this Lease is not intended to have a bonus value,
nor to serve as a vehicle whereby Tenant may profit by a future assignment or
sublease of this Lease or the right to use or occupy the Premises as a result of
any favorable terms contained herein or any future changes in the market for
leased space. It is the intent of the parties that any such bonus value that may
attach to this Lease shall be, and remain, the exclusive property of Landlord.
Items of revenue or income excluded from "rent" in the last sentence of 11.2.5
above shall be retained by Tenant and shall not be regarded as "bonus value"
under this Lease.
11.2.7 Corporate Transfers. Any dissolution, merger,
consolidation or other reorganization of Tenant, any sale or transfer (or
cumulative sales or transfers) of fifty percent (50%) or more of the capital
stock of Tenant, or any sale (cumulative sale) of all the assets of Tenant shall
be deemed an assignment of this Lease requiring the prior consent of Landlord;
provided, however, the sale or transfer of all or any of the capital stock of
the corporation which comprises Tenant, the capital stock of which is now or
hereinafter becomes publicly traded, shall not be deemed an assignment of this
Lease.
11.2.8 Reimbursement of Fees. Tenant shall reimburse Landlord
for its legal fees incurred in connections with Landlord's review of a proposed
assignment or sublet, which reimbursement shall not exceed Seven Hundred and
Fifty dollars ($750.00) per each proposed transfer.
11.2.9 Reasonable Provisions. Tenant expressly agrees that the
provisions of this Section 11.2 are not unreasonable standards or conditions for
purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from
time to time.
11.3 Involuntary Transfer. No interest of Tenant in this Lease shall
be assignable by operation of law, including, without limitation, the transfer
of this Lease by testacy or intestacy. Each of the following acts shall be
considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or a proceeding under the Bankruptcy
Act is instituted in which Tenant is the bankrupt; or, if Tenant is a
partnership or consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors;
(b) Levy of a writ of attachment or execution on this Lease;
(c) Appointment of a receiver with authority to take
possession of the Premises in any proceeding or action to which Tenant is a
party; or
(d) Foreclosure of any lien affecting Tenant's interest in
the Premises, which lien was not consented to by Landlord pursuant to Section
11.4 below.
An involuntary assignment shall constitute a Default by Tenant and Landlord
shall have the right to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant. In the event the Lease is not terminated, the
provisions of Section 11.2.3 above, regarding rents paid by an assignee or
subtenant and Section 11.2.6 above, shall apply. If a writ of attachment or
execution is levied on this Lease, or if any involuntary proceeding in
bankruptcy is brought against Tenant or a receiver is appointed, Tenant shall
have sixty (60) days in which to cause the attachment or execution to be
removed, the involuntary proceeding dismissed,
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or the receiver removed.
11.4 Hypothecation. Tenant shall not hypothecate, mortgage or
encumber Tenant's interest in this Lease or in the Premises or otherwise use
this Lease as a security device in any manner without the consent of Landlord,
which consent Landlord may withhold in its absolute discretion. Consent by
Landlord to any such hypothecation or creation of a lien or mortgage shall not
constitute consent to an assignment or other transfer of this Lease following
foreclosure of any permitted lien or mortgage.
11.5 Binding on Successors. The provisions of this Article 11
expressly apply to all heirs, successors, sublessees, assignees and transferees
of Tenant.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 Tenant's Liability Insurance. Tenant shall, at Tenant's expense,
obtain and keep in force during the term of this Lease a policy of comprehensive
public liability insurance, with liability limits of not less than One Million
Dollars ($1,000,000) combined single limit coverage per occurrence and with an
extended liability endorsement providing contractual liability (which shall
include coverage for Tenant's indemnity set forth in Section 12.3 below) and
broad form property damage coverage, insuring Landlord and Tenant against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises, the Building, the Common Area and all areas appurtenant thereto. The
limit of said insurance shall not, however, limit the liability of the Tenant
hereunder. Landlord may periodically during the Lease Term, but not more
frequently than once each twelve (12) months, increase the minimum liability
limits specified in this Section 12.1 to an amount equal to the then prevailing
minimum liability limits required by landlords of other similar properties in
Santa Clara County of similar size and use. In the event Landlord and Tenant
agree to increase the rentable area of the Premises, Landlord may increase the
minimum liability limits set forth in this Section 12.1 in order to assure that
Tenant's activities in the Premises, as increased, are adequately insured.
Tenant may carry said insurance under a blanket policy, providing, however, said
insurance by Tenant shall be primary insurance (not requiring contribution from
any insurance carried by Landlord) and shall have a Landlord's protective
liability endorsement attached thereto. If Tenant shall fail to procure and
maintain said insurance, Landlord may, but shall not be required to, procure and
maintain same, but at the expense of Tenant. The insurance required hereunder
shall name Landlord as an additional insured and shall be in companies rated A+,
AAA, or better in "Best's Insurance Guide." Tenant shall deliver to Landlord
prior to occupancy of the Premises copies of policies of liability insurance
required herein or certificates evidencing the existence and amounts of such
insurance with loss payable clauses, satisfactory to Landlord. No policy shall
be cancelable or subject to reduction of coverage except after thirty (30) days,
prior written notice to Landlord.
12.2 Subrogation. Landlord hereby releases Tenant, and Tenant hereby
releases Landlord, and their respective officers, agents, employees and
servants, from any and all claims or demands of damages, loss, expense or injury
to the Premises, the Building, the Common Area, or the Property, or to the
furnishings, fixtures, equipment, inventory or other property of either Landlord
or Tenant in, about or upon the Premises, the Building, the Common Area, or the
Property which is caused by or results from perils, events or happenings which
are the subject of insurance carried by the respective parties and in force at
the time of any such loss, whether due to the negligence of the other party or
its agents and regardless of cause or origin; provided, however, that such
waiver shall be effective only to the extent permitted by the insurance covering
such loss and to the extent such insurance is not prejudiced thereby.
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12.3 Tenant's Indemnity. Tenant shall indemnify and hold harmless
Landlord against and from any and all claims arising from Tenant's use of the
Premises for the conduct of its business or from any activity, work, or other
thing done, permitted or suffered by the Tenant in or about the Building, and
shall further indemnify and hold harmless Landlord against and from any and all
claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of the Tenant, resulting from any construction activity
performed in or about the Premises, Building or adjacent properties, or any
officer, agent, employee, contractor, guest, or invitee of Tenant, and from all
and against all costs, attorneys' fees, expenses and liabilities incurred in or
about any such claim or any action or proceeding brought thereon, and, in the
event any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant, as a material
part of the consideration to Landlord, hereby assumes all risk of damage to
property or injury to any agents, employees, clients, contractors,
subcontractors, vendors, or invitees of Tenant in, upon, or about the Premises,
the Building and the Property from any cause other than Landlord's willful
misconduct or negligence, and Tenant hereby waives all claims in respect thereof
against Landlord.
12.4 Release of Liability. 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 or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or subsurface or from any other place resulting from
dampness or any other cause whatsoever, except as to any personal injury or
property damage resulting from the negligent or willful misconduct of Landlord
or its agents. Landlord or its agents shall not be liable for interference with
the light or other incorporeal hereditaments relating to the Premises, nor shall
Landlord be liable for any loss of business by Tenant, or for any latent defects
in the Premises or in the Building, except as otherwise expressly set forth in
this Lease. Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the Building, or of defects therein or in any
fixtures or equipment
12.5 Tenant's Insurance. Tenant shall, at Tenant's expense, obtain
and keep in force during the Lease Term an "All-Risk" property insurance policy,
which shall include, without limitation, coverage for earthquake, flood, boiler
and machinery damage (if applicable), sprinkler damage, vandalism and malicious
mischief, on all leasehold improvements installed in the Premises by Tenant at
its expense (if any) , and on all equipment, trade fixtures, inventory,
fixtures, furnishings and personal property located on or in the Premises. Such
insurance shall be in an amount equal to the full replacement cost of the
aggregate of the foregoing. Tenant shall also reimburse Landlord, as Additional
Rent and within ten (10) days following written demand, for any and all premiums
or additional premiums or other insurance related costs which are directly
attributable to Tenant's specific operations on the Premises or any equipment
and/or fixtures maintained or operated on the Premises.
ARTICLE 13
SERVICES AND UTILITIES
13.1 Landlord's Obligations. Provided there has not been a default by
Tenant hereunder, Landlord agrees to furnish, or cause to be furnished, to the
Premises the utilities and services described in the Standards for Utilities and
Services, attached hereto as Exhibit "D," subject to the conditions and in
accordance with the standards set forth therein. Landlord's failure to provide
Tenant any utilities or services by reason of accidents, breakdowns, strikes or
other labor disturbances, governmental action, or other causes beyond the
control of Landlord shall not
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result in liability to Landlord. Furthermore, Tenant shall not be entitled to
any abatement or reduction of Rentals, nor shall Tenant be relieved of the
obligation to perform any of its obligations hereunder, by reason of such
failure by Landlord. This Section shall not release Landlord from any duty to
repair, restore, replace or maintain the Premises which Landlord may have
pursuant to the terms of this Lease.
13.2 Tenant's Obligations. Tenant shall pay for the following;
(a) All telephone service and all other utilities and
services which may be furnished to or used in or about the Premises during the
Lease Term, which utilities and services are not expressly required to be
provided, or otherwise paid, for by Landlord;
(b) All Excess Utility Charges. "Excess Utility Charges"
shall mean all charges incurred by Landlord and/or the Building with respect to
HVAC and electrical power use which is consumed on the Premises during regular
Building hours (as set forth in subsection (b) of Exhibit "D") and which are in
excess of normal Building consumption (as reasonably determined by Landlord) ;
(c) All After-Hour Charges. "After-Hour Charges" shall mean
HVAC and electrical charges with respect to usage on the Premises after regular
Building hours, which After-Hour Charges shall be imposed at Landlord's standard
after-hour charge, as established by Landlord from time to time; provided,
however, Landlord may impose a higher After-Hour Charge to Tenant if Tenant's
base use of HVAC and Electrical is excess of normal Building consumption (as
reasonably determined by Landlord.
Tenant shall pay the items in (a) above directly to the service provider
prior to delinquency and shall pay the items in (b) and (c) above within ten
(10) days following a receipt of a statement or invoice from Landlord.
ARTICLE 14
PERSONAL PROPERTY TAXES
14.1 Taxes on Tenant's Property. Tenant shall pay, or cause to be
paid, before delinquency, any and all taxes levied or assessed which become
payable during the term hereof upon any improvements installed at Tenant's
expense, equipment, furniture, fixtures and personal property. In the event any
or all of the Tenant's improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
14.2 Taxes on Improvements. If the Tenant Improvements and/or any
other improvements made to the Premises, whether installed and/or paid for by
Landlord or Tenant and whether or not affixed to the Property so as to become a
part thereof, are assessed for real property tax purposes at a valuation higher
than the valuation at which other tenant improvements conforming to Landlord's
normal standards for the Building in other space in the Building are assessed,
then the real property taxes and assessments levied against the Building by
reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
Section 14.1 above. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether improvements
in the Premises are assessed at a higher valuation than Landlord's normal
standards, as aforesaid, such records shall be binding on both Landlord and
Tenant. If the records of the County Assessor are not available or sufficiently
detailed to serve as a basis for making said determination, the actual cost of
constructing the interior improvements in the Premises shall be used.
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ARTICLE 15
DAMAGE TO PREMISES
15.1 Definition of Terms. For the purposes of this Lease, the term:
(a) "Insured Casualty" means damage to or destruction of the Premises from a
cause actually insured against, for which the insurance proceeds paid or made
available to Landlord are sufficient to rebuild or restore the Premises under
then-existing building codes to the condition existing immediately prior to the
damage or destruction; and (b) "Uninsured Casualty" means damage to or
destruction of the Premises from a cause not actually insured against, or from a
cause actually insured against but for which the insurance proceeds paid or made
available to Landlord are for any reason insufficient to rebuild or restore the
Premises under then-existing building codes to the condition existing
immediately prior to the damage or destruction, or from a cause actually
insured against but for which the insurance proceeds are not paid or made
available to Landlord within sixty (60) days of the event of damage or
destruction.
15.2 Insured Casualty.
15.2.1 Rebuilding Required. In the event of an Insured Casualty
where the extent of damage or destruction is less than twenty-five percent (25%)
of the then full replacement cost of the Premises or the Building, Landlord
shall rebuild or restore the Premises or the Building substantially to the
condition existing immediately prior to the damage or destruction, provided the
damage or destruction was not a result of a negligent or willful act of Tenant
and that there exist no governmental codes or regulations that would interfere
with Landlord's ability to so rebuild or restore.
15.2.2 Landlord's Election. In the event of an Insured Casualty
where the extent of damage or destruction is equal to or greater than
twenty-five percent (25%) of the then full replacement cost of the Premises or
the Building, Landlord may rebuild or restore the Premises or the Building
substantially to the condition existing immediately prior to the damage or
destruction, or terminate this Lease. Landlord shall notify Tenant in writing
within sixty (60) days from the event of damage or destruction of Landlord's
election to either rebuild or restore the Premises or terminate this Lease.
15.3 Uninsured Casualty. In the event of an Uninsured Casualty,
Landlord may (i) rebuild or restore the Premises as soon as reasonably possible
at Landlord's expense (unless the damage or destruction was caused by a
negligent or willful act of Tenant, in which event Tenant shall pay all costs of
rebuilding or restoring), in which event this Lease shall continue in full force
and effect or (ii) terminate this Lease, in which event Landlord shall give
written notice to Tenant within sixty (60) days after the event of damage or
destruction of Landlord's election to terminate this Lease as of the date of the
event of damage or destruction, and if the damage or destruction was caused by a
negligent or willful act of Tenant, Tenant shall be liable therefor to Landlord.
15.4 Tenant's Election. Notwithstanding anything to the contrary
contained in this Article 15, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within one hundred twenty (120) days
after the event of damage or destruction. Tenant's election shall be made by
written notice to Landlord within ten (10) days after Tenant receives from
Landlord the estimate of the time needed to complete repair or restoration of
the Premises. If Tenant does not deliver said notice within said ten (10) day
period, Tenant may not later terminate this Lease even if substantial completion
of the rebuilding or restoration occurs subsequent to said one hundred twenty
(120) day period, provided that Landlord is proceeding with diligence to rebuild
or restore the Premises. If Tenant delivers
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said notice within said ten (10) day period, this Lease shall terminate as of
the date of the event of damage or destruction.
15.5 Continuance of Lease. If Landlord is required or elects to
rebuild or restore the Premises pursuant to this Article 15, this Lease shall
remain in effect and Tenant shall have no claim against Landlord for
compensation for inconvenience or loss of business during any period of repair
or restoration.
15.6 Damage or Destruction Near End of Lease Term. Not withstanding
anything to the contrary contained in this Article 15, in the event the Premises
are damaged or destroyed in whole or in part (regardless of the extent of
damage) from any cause during the last twelve (12) months of the Lease Term,
Landlord may, at Landlord's option, terminate this Lease as of the date of the
event of damage or destruction by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the event of such damage or
destruction. For purposes of this Section 15.6, if Tenant has been granted an
option to extend or renew the Lease Term pursuant to another provision of this
Lease, then the damage or destruction shall be deemed to have occurred during
the last twelve (12) months of the Lease Term if Tenant fails to exercise its
option to extend or renew within twenty (20) days of the event of damage or
destruction.
15.7 Termination of Lease. If the Lease is terminated pursuant to
this Article 15, the unused balance of the Security Deposit shall be refunded to
Tenant. Rentals shall be proportionately reduced during the period following the
event of damage or destruction until the date on which Tenant surrenders the
Premises, based upon the extent to which the damage or destruction interferes
with Tenant's business conducted in the Premises, as reasonably determined by
Landlord.
15.8 Abatement of Rentals. If the Premises are to be rebuilt or
restored pursuant to this Article 15, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Landlord.
15.9 Liability for Personal Property. In no event shall Landlord have
any liability for, nor shall it be required to repair or restore, any injury or
damage to any improvements, alterations or additions to the Premises made by
Tenant, trade fixtures, equipment, merchandise, furniture, or any other property
installed by, Tenant or at the expense of Tenant. If Landlord or Tenant do not
elect to terminate this Lease pursuant to this Article 15, Tenant shall be
obligated to promptly rebuild or restore the same to the condition existing
immediately prior to the damage or destruction in accordance with the provisions
of Article 10 above.
15.10 Waiver of Civil Code Remedies. Landlord and Tenant acknowledge
that the rights and obligations of the parties upon damage or destruction of the
Premises are as set forth herein; therefore Tenant hereby expressly waives any
rights to terminate this Lease upon damage or destruction of the Premises,
except as specifically provided by this Lease, including without limitation any
rights pursuant to the provisions of Subdivision 2 of Section 1932 and
Subdivision 4 of Section 1933 of the California Civil Code, as amended from time
to time, and the provisions of any similar law hereinafter enacted, which
provisions relate to the termination of the hiring of a thing upon its
substantial damage or destruction.
ARTICLE 16
DEFAULT AND REMEDIES
16.1 Events of Default. Tenant shall be in default of this Lease upon
the occurrence of any of the following events:
(a) Tenant's failure to pay any Rentals within five
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(5) days from when the same is due, as provided in this Lease;
(b) Commencement and continuation for at least thirty (30) days of any
case, action or proceeding by, against or concerning Tenant under any federal or
state bankruptcy, insolvency or other debtor's relief law, including without
limitation, (i) a case under Title 11 of the United States Code concerning
Tenant, whether under Chapter 7, 11, or 13 of such Title or under any other
Chapter, or (ii) a case, action or proceeding seeking Tenant's financial
reorganization or an arrangement with any of Tenant's creditors;
(c) The occurrence of any of the following and the continuation
thereof for at least thirty (30) days:
(i) Voluntary appointment of a receiver, trustee, keeper or other
person who takes possession of substantially all of Tenant's assets or of any
asset used in Tenant's business on the Premises, regardless of whether such
appointment is as a result of insolvency or any other cause;
(ii) Involuntary appointment of a receiver, trustee, keeper or
other person who takes possession for more than thirty (30) days of
substantially all of Tenant's assets or of any asset used in Tenant's business
on the Premises, regardless of whether such appointment is as a result of
insolvency or any other cause;
(iii) Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant available by law for the satisfaction of
judgment creditors;
(iv) Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) the entity of Tenant, if Tenant is a
corporation or a partnership;
(v) Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ is not being contested and continues for
a period of ten (10) days;
(d) Transfer of this Lease or the Premises by Tenant contrary to the
provisions of Article 11 above;
(e) Breach by Tenant of any term, covenant, condition, warranty, or
other provision contained in this Lease (which shall incorporate all exhibits
attached hereto) or of any other obligation owing or due to Landlord, where
such breach continues for a period of thirty (30) days following written notice
from Landlord (or if such breach cannot be reasonably cured within thirty (30)
days, Tenant does not commence to cure the default within the aforesaid thirty
(30) day notice period and/or does not diligently and in good faith prosecute
the cure to completion after such period); or,
(f) Breach or default by Tenant of any of the terms or provisions of
the Other Lease (as defined in Section 2.5(b) above) and such breach or default
has not been cured following the giving of any notice and/or within any cure
period provided for in the Other Lease.
The term "Default by Tenant," as used in this Lease, shall mean and refer
to all of the events described in this Section 16.1.
16.2 Remedies. Upon any Default by Tenant, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law, to which Landlord may resort cumulatively, or in the alternative:
16.2.1 Termination. Upon any Default by Tenant, Landlord shall have
the right (but not the obligation), by giving written notice, to terminate this
Lease and Tenant's right to possession of the Premises. The parties agree that
any notice given
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by Landlord to Tenant pursuant to this Section 16.2.1 shall be sufficient notice
for purposes of California Code of Civil Procedure Section 1161 and Landlord
shall not be required to give any additional notice in order to be entitled to
commence an unlawful detainer proceeding. In no event shall this Lease be
terminated unless and until Landlord expressly indicates in writing that this
Lease has terminated. Any exercise by Landlord of its right to terminate this
Lease shall not be construed as a termination of the Other Lease, which Other
Lease may only be terminated pursuant to the terms and provisions thereof. Upon
termination of this Lease, Landlord shall have the right to recover from Tenant:
(a) The worth at the time of award of the unpaid Rentals which had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the rentals
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided;
(c) The worth at the time of award (computed by discounting at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent) of the amount by which the Rentals for the balance of the
Lease Term after the time of award exceed the amount of such rental loss that
Tenant proves could be reasonably avoided;
(d) Any other amounts necessary to compensate Landlord for all
detriment proximately caused by the Default by Tenant or which in the ordinary
course of events would likely result, including without limitation the
following:
(i) Expenses in retaking possession of the Premises;
(ii) Expenses for cleaning, repairing or restoring the Premises;
(iii) Any unamortized real estate brokerage commission paid in
connection with this Lease;
(iv) Expenses for removing, transporting and storing any of
Tenant's property left at the Premises (although Landlord shall have no
obligation to remove, transport, or store any such property);
(v) Expenses of reletting the Premises, including without
limitation, brokerage commissions and attorneys' fees;
(vi) Attorneys' fees and court costs; and
(vii) Costs of carrying the Premises such as repairs,
maintenance, taxes and insurance premiums, utilities and security precautions
(if any).
The "worth at the time of award" of the amounts referred to in subsections
(a) and (b) of this Section 16.2.1 is computed by allowing interest at an annual
rate equal to the greater of: ten percent (10%); or five percent (5%) plus the
rate established by the Federal Reserve Bank of San Francisco, as of the
twenty-fifth (25th) day of the month immediately preceding the Default by
Tenant, on advances to member banks under Sections 13 and 13(a) of the Federal
Reserve Act, as now in effect or hereafter from time to time amended, not to
exceed the maximum rate allowable by law.
16.2.2 Continuance of Lease. Upon Default by Tenant and unless and
until Landlord elects to terminate this Lease pursuant to Section 16.2.1 above,
this Lease shall continue in
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effect after the Default by Tenant and Landlord may enforce all rights and
remedies under this Lease, including without limitation, the right to recover
payment of Rentals as they become due. Neither efforts by Landlord to mitigate
damages caused by a Default by Tenant nor the acceptance of any Rentals shall
constitute a waiver by Landlord of any of Landlord's rights or remedies,
including the rights and remedies specified in this Section 16.2.
16.2.3 Reletting Premises. Upon Default by Tenant, Landlord may, at
Landlord's election, re-enter the Premises, and without terminating this Lease,
and at any time and from time to time, relet the Premises or any part or parts
thereof for the account and in the name of Tenant or otherwise. Landlord may, at
Landlord's election, eject Tenant or any of Tenant's subtenants, assignees or
other person claiming any right in or through this Lease. Tenant shall
nevertheless pay to Landlord on the due dates specified in this Lease all sums
required to be paid by Tenant under this Lease, plus Landlord's expenses, less
the proceeds of any sublease or reletting. The expenses allowed Landlord shall
include without limitation costs paid to retake possession of the Premises
(including attorneys' fees), costs to place the Premises in its original
condition, ordinary wear and Lear excepted, costs to secure new tenants
(including brokers' commissions and attorneys' fees) and costs to fulfill all of
Tenant's covenants and conditions hereunder to the end of the Lease Term. No act
by or on behalf of Landlord under this Section 16.2.3 shall constitute a lease
termination unless Landlord gives Tenant written notice of termination as
provided in Section 16.2.1 above. Notwithstanding any prior reletting without
termination, Landlord may later elect to terminate this Lease because of a
default by Tenant.
16.3 Attorneys' Fees. Tenant shall pay reasonable fees and costs of
attorneys engaged by Landlord in collection of Rentals or to enforce any of
Landlord's rights and remedies under this Article 16 and applicable law.
16.4 Landlord's Default, Landlord shall not be in default under this Lease
unless Tenant shall have given Landlord written notice of the breach and, within
thirty days after notice, Landlord has not cured the breach or, if the breach is
such that it cannot reasonably be cured under the circumstances within thirty
days, Landlord has not commenced diligently to prosecute the cure to completion.
In the event of any default on the part of Landlord under this Lease, Tenant
shall give notice by registered mail to any beneficiary or mortgagee of a deed
of trust or mortgage encumbering the Premises, Building and/or Property whose
address shall have been furnished to it, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or judicial foreclosure, if such
should prove necessary to affect a cure.
ARTICLE 17
CONDEMNATION
17.1 Landlord's Right to Terminate. Landlord shall have the option to
terminate this Lease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation) all or any material portion of the
Property and/or all or any material portion of the Building is so taken. Any
such option to terminate by Landlord shall be exercised within a reasonable time
period, to be effective as of the date possession is taken by the condemnor. For
purposes hereof, a "material portion" of the Property shall mean (a) any taking
of ten percent (10%) or more of the land area of the Property, (b) any taking
which results in the loss of ten percent (10%) or more of the then available
parking spaces on the Property, or (c) any taking of ten percent (10%) or more
of the rentable area of the Building.
17.2 Tenant's Right to Terminate. Tenant shall have the option to terminate
this Lease if, as the result of any taking by
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means of the exercise of the power of eminent domain (including any voluntary
sale or transfer by Landlord to a condemnor under threat of condemnation), (a)
all of the Premises is so taken; or (b) such portion of the Premises is taken
such that the remaining portion of the Premises cannot, in the reasonable
judgment of the Tenant, be utilized for the continuing operation of Tenant's
business therein. Tenant shall exercise such option within thirty (30) days of
notice of such taking. Such exercise by Tenant shall be effective on the date
that possession of the condemned portion of the Premises is taken by the
condemnor.
17.3 Temporary Taking. If any portion of the Premises is temporarily taken
for one (1) year or less, this Lease shall remain in effect. If any portion of
the Premises is temporarily taken by condemnation for a period which either
exceeds one (1) year or which extends beyond what would have been the expiration
of the Lease Term without such taking, then Landlord and Tenant shall each
independently have the option to terminate this Lease, effective on the date
possession is taken by the condemnor.
17.4 Restoration and Abatement of Rent. If any part of the Premises or the
Common Area is taken by condemnation and this Lease is not terminated as
provided above, then Landlord shall restore the Premises and Tenant Improvements
constructed by Landlord to an architecturally complete unit to the extent that
proceeds received by Landlord from the condemnation are sufficient therefor.
Thereafter, except in the case of a temporary taking, as of the date possession
is taken by the condemnor, the monthly Base Rent (but not any Additional Rent)
shall be reduced in the same proportion that the rentable area of that part of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original rentable area of the Premises.
17.5 Division of Condemnation Award. Any award made for any condemnation of
the Property or Premises shall belong to and be paid to Landlord, and Tenant
hereby assigns to Landlord all of its right, title and interest in any such
award; provided, however, that Tenant shall be entitled to receive any
condemnation award that is made directly to Tenant (a) for the taking of
personal property or trade fixtures belonging to Tenant; (b) for the
interruption of Tenant's business or its moving costs; (c) for the loss of
Tenant's goodwill; or (d) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of Section 1265.130 of the California
Code of Civil Procedure, and the provisions of any similar law hereinafter
enacted, allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Premises.
ARTICLE 18
SUBORDINATION TO MORTGAGES
18.1 Subordination. This Lease shall be subject and subordinate to the lien
of any mortgages or deeds of trust (including all advances thereunder, renewals,
replacements, modifications, supplements, consolidations and extensions thereof)
in any amount whatsoever now or hereinafter placed on or against or affecting
the Premises, the Building or the Property, or Landlord's interest or estate
therein (collectively "Mortgages") which subordination shall be effective
without the necessity of execution and delivery of any further instruments on
the part of Tenant. Any mortgagee under a Mortgage ("Mortgagee") shall have the
right to elect to have this Lease prior to their interest, whether this Lease is
dated prior or subsequent to the date, or the date of recordation, of such
Mortgage.
18.2 Subordination Agreements. Tenant shall execute and deliver, without
charge therefor, such further documents and instruments evidencing the
subordination of this Lease to any Mortgage as may be required by Landlord
within ten (10) days
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following Landlord's request therefor; provided that Tenant shall not be
required to execute a subordination to any Mortgage unless the Mortgagee
thereunder agrees in writing that this Lease shall not be terminated in the
event of any foreclosure if Tenant is not then in default under this Lease.
Failure of Tenant to execute instruments evidencing subordination of this Lease
to a Mortgage shall constitute a Default by Tenant hereunder.
18.3 Approval by Mortgagees. Tenant hereby acknowledges that the provisions
of this Lease may be subject to the approval of any financial institution that
may make a loan secured by a Mortgage. If the financial institution shall
require, as a condition of such financing, any modifications of this Lease in
order to protect its security interest in the Premises, including, without
limit, modifications of the provisions relating to the damage to and/or
destruction of the Premises, Tenant agrees to execute the appropriate
amendments; provided, however, that no modifications shall substantially change
the size, location or dimension of the Premises or increase the rentals payable
by Tenant hereunder. If Tenant refuses to execute any such amendment, Landlord
may, in Landlord's discretion, terminate this Lease.
18.4 Attornment. In the event of a foreclosure or the exercise of a power
of sale under any Mortgage, Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided that such purchaser agrees to comply with the terms hereof.
ARTICLE 19
GENERAL PROVISIONS
19.1 Authority to Sign. If Tenant signs as a corporation or a partnership,
each of the persons executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing entity, that
Tenant has and is qualified to do business in the State of California, that
Tenant has full right and authority to enter into this Lease and that each and
both of the persons signing on behalf of Tenant are authorized to do so. Upon
Landlord's request, Tenant shall provide evidence reasonably satisfactory to
Landlord confirming the foregoing covenants and warranties.
19.2 Intentionally Omitted.
19.3 Rules and Regulations. Tenant shall observe and comply with the rules
and regulations attached hereto as Exhibit "E." Landlord shall have the right
from time to time to promulgate amendments and additional rules and regulations
for the care and orderly management of the Building, and for the safety of its
tenants and invitees, provided that such amendments and additional rules and
regulations are reasonable and nondiscriminatory. Upon delivery of a copy of
such amendments and additional rules and regulations to Tenant, Tenant shall
comply with the rules and regulations. A violation by Tenant of any such rules
and regulations, including any amendments thereof, shall constitute a default by
Tenant under this Lease. If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible to Tenant for the
nonperformance of any such rules and regulations by any other tenants or
occupants of the Building.
19.4 Holding Over. If Tenant remains in possession of the Premises or any
part thereof after the Termination Date with the express written consent of
Landlord, such occupancy shall be a tenancy from month to month at a Base Rent
in an amount equal to the one hundred fifty percent (150%) of the last monthly
Base Rent payable hereunder, plus Additional Rent and all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
If Tenant remains in possession of the Premises after the Termination Date
without Landlord's consent, Tenant shall indemnify Landlord against any loss or
liability
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resulting from Tenant's failure to surrender the Premises, including, without
limitation, any claims made by any succeeding tenants based on delay in the
availability of the Premises.
19.5 Entry by Landlord. Landlord reserves and shall at any and all times
have the right, without abatement of Rentals, to enter the Premises inspect the
same, to submit said Premises to prospective purchasers or tenants, to post
notices of nonresponsibility, and to alter, improve or repair the Premises and
any portion of the Building of which the Premises are a part that Landlord may
deem necessary or desirable. Landlord may erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby. With respect to the foregoing, Landlord shall use its best
reasonable efforts to not unreasonably interfere with Tenant's business;
provided, however, Landlord shall not be liable to Tenant for any interference
with Tenant's use of the Premises. Tenant hereby waives any claim for damages
(excluding personal injury or property damage resulting from the negligent or
willful misconduct of Landlord) or for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Premises, excluding Tenant's vaults,
safes and files, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open said doors in an emergency, in order to
obtain entry to the Premises without liability to Tenant except for any failure
to exercise due care for Tenant's property. Any entry to the Premises obtained
by Landlord by any of said means, or otherwise, shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of, the Premises, or an eviction of Tenant from the Premises or any
portion thereof.
19.6 Non-Discrimination. Tenant hereby covenants by and for itself, its
heirs, executors, administrators and assigns, and all persons claiming under or
through it, and this Lease is made and accepted upon and subject to the
following conditions:
"That there shall be no discrimination against or
segregation of any person or group of persons on account of
race, color, creed, religion, sex, age, handicap, marital
status, ancestry or national origin in the leasing,
subleasing, transferring, use, occupancy, tenure or
enjoyment of the Premises herein leased, nor shall the
Tenant itself, or any person claiming under or through it,
establish or permit any such practice or practices of
discrimination or segregation with reference to the
selection, location, number, use or occupancy of Tenants,
lessee, subtenants, sublessees or vendees in the Premises
herein leased."
19.7 Estoppel Certificate. Tenant shall at any time and from time to time
upon not less than ten (10) days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified,
is in full force and effect), and the date to which the Base Rent and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Property of which the Premises are a part. Tenant's failure to
deliver such statement to Landlord within the time period herein
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specified shall be a material breach of this Lease.
19.8 Transfer of Landlord's Interest. In the event of a sale or conveyance
by the Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) of Landlord's interest in the Premises, Building
or Property other than a transfer for security purposes only, the Landlord
herein named (and in case of any subsequent transfers or conveyances, the then
grantor) shall be relieved, from and after the date of such transfer, of all
obligations and liabilities accruing thereafter on the part of Landlord.
Following such sale or conveyance by Landlord (or the then grantor), Tenant
agrees to look solely to the responsibility of the successor-in-interest of
Landlord in and to this Lease. This Lease shall not be affected by any such sale
or conveyance and Tenant agrees to attorn to the purchaser or assignee.
19.9 Interest. Any installment of Base Rent or any other sum due from
Tenant under this Lease which is received by Landlord after thirty (30) days
from when the same is due shall bear interest from said thirtieth (30th) day
until paid, at an annual rate equal to the greater of: (i) ten percent (10%); or
(ii) five percent (5%) plus the rate established by the Federal Reserve Bank of
San Francisco, as of the twenty-fifth (25th) day of the month immediately
preceding the due date, on advances to member banks under Sections 13 and 13(a)
of the Federal Reserve Act, as now in effect or hereafter from time to time
amended. Payment of such interest shall not excuse or cure any Default by
Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by
Landlord in collection of such amounts.
19.10 Parking.
19.10.1 Parking Areas. The "parking areas" for the Building are
comprised of the On-Site Parking Facilities and the Off-Site Parking Facilities.
"On-Site Parking Facilities" shall mean and refer to the subterranean parking
facilities located below the Building, which facilities are owned and operated
by Landlord pursuant to its rights under the Ground Lease. "Off-Site Parking
Facilities" shall mean and refer to such parking facilities located not more
than four blocks from the Building, which facilities will be operated by
Landlord or Landlord's designee pursuant to an operation agreement with the
Agency.
19.10.2 Tenant's Rights. Subject to the parking rules and regulations
set forth in Exhibit "F" attached hereto, Tenant shall have the right to lease
up to the number of parking spaces within parking facilities for the Building
specified in Section 1.12 above ("Tenant's Allowed Parking Spaces") on a
nonexclusive basis. Tenant shall, prior to the Commencement Date, notify
Landlord of the actual number of Tenant's Allowed Parking Spaces it intends to
lease. Thereafter, Tenant may reduce or increase the number of Tenant's Allowed
Parking Spaces actually leased by providing Landlord written notice thereof,
which reduction or increase shall become effective in the calendar month
immediately following such notice.
19.10.3 Parking Fees. Tenant shall, on a monthly basis, pay to
Landlord, for the number of Tenant's Allowed Parking Spaces actually leased by
Tenant pursuant to Section 19.10.2 above, the currently scheduled parking fees
for the parking areas for the Building which are in effect from time to time. As
of the date of execution of this Lease, the fees for unreserved parking spaces
located in the On-Site Parking Facilities is equal to Seventy-five Dollars ($75)
per space and for parking spaces located in the Off-Site Parking Facilities,
Fifty-five Dollars ($55) per space. The parking fees to be paid by Tenant for
Tenant's Allowed Parking Spaces shall be determined by Landlord and may be
adjusted by Landlord at any time during the Lease Term to conform to changes in
applicable market rates as reasonably determined by Landlord, from time to time.
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19.10.4 Landlord's Right to Relocate Parking. Landlord reserves the
right to relocate the Off-Site Parking Facilities during the term of the Lease
in order to accommodate the course of construction of additional phases of the
Silicon Valley Financial Center. Landlord shall also have the right to
temporarily or permanently relocate and redesignate Tenant's spaces in the
On-site Parking Facilities to other areas located in the On-Site Parking
Facilities in order to provide parking facilities for all tenants of the
Building.
19.11 Limitation on Landlord's Liability. Tenant, for itself and its
successors and assigns, hereby agrees that in the event of any actual, or
alleged, breach or default by Landlord under this Lease that:
(a) Tenant's sole and exclusive remedy against Landlord shall be as
against Landlord's interest in the Building;
(b) No partner of Landlord shall be sued or named as a party in a suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(d) No partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(e) No judgment will be taken against any partner of Landlord;
(f) Any judgment taken against any partner of Landlord may be vacated
and set aside at any time nunc pro tunc;
(g) No writ of execution will ever be levied against the assets of any
partner of Landlord;
(h) The covenants and agreements of Tenant set forth in this Section
19.11 shall be enforceable by Landlord and any partner of Landlord.
19.12 Waiver. The waiver by Landlord of any terms, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of Rentals hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular Rentals so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such Rentals.
19.13 Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in writing
and shall be served by personal service or mailing. All notices and demands
which are mailed shall be sent by United States first class mail (registered or
certified, return receipt requested), addressed to the addresses set forth in
Article I hereof, if sent prior to Tenant's taking possession of the Premises,
or at the Premises if sent subsequent to Tenant's taking possession of the
Premises, or at any place where Tenant or any agent, employee, or officer can be
found, if sent subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Premises or to such other place as either party may designate
to each other in accordance with the provisions of this Article 19.13. Any
notice given pursuant to this Section 19.11 shall be deemed served when
delivered by personal service, or as of seventy-two (72) hours after the deposit
thereof in the United States mail.
19.14 Joint and Several Obligation. If there be more than one (1) person
executing this Lease as "Tenant" or as a general
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partner of Tenant, then each such person shall be jointly and severally liable
for each and every duty and obligation arising on the part of "Tenant" under
this Lease. In addition to Landlord's other rights and remedies as set forth
herein and as provided by law, Landlord shall have the right in the event of a
breach or Default by Tenant under this Lease, to proceed against any one or all
of the persons executing this Lease as Tenant.
19.15 Headings. The headings and titles to the Articles, Sections and
Subsections of this Lease are not part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
19.16 Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
19.17 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
19.18 Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
19.19 Quiet Possession. Upon Tenant paying the Rentals required hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
19.20 Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understandings, written or oral, pertaining to any
such matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. This Lease shall not be
effective or binding upon any party until fully executed by both parties hereto.
19.21 Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
19.22 Attorneys' fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the Court may adjudge reasonable
as attorneys' fees.
19.23 Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provisions shall remain in full force and
effect.
19.24 Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
19.25 Choice of Law. This Lease shall be governed by the laws of the State
of California.
19.26 Brokers. Tenant warrants that it has had no dealings with any real
estate brokers or agents in connection with the negotiation of this Lease to
whom a commission or finder's fee is payable.
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19.27 Exhibits. All Exhibits, Amendments, or Addendum attached hereto, and
all terms and conditions contained therein, are incorporated into, and shall
become part of, this Lease.
The parties hereto have executed this Lease on the dates specified
immediately adjacent to their respective signatures.
LANDLORD:
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
By: SFG SAN JOSE COMPANY, LLC, an
Indiana limited liability
company
By: MELVIN SIMON & ASSOCIATES,
INC.
its Manager
Dated:____________________________ By:____________________________
Name:_____________________
Title :___________________
TENANT:
AboveNet, a California corporation
Dated:____________________________ /s/ SHERMAN TUAN
------------------------------------
By: Sherman Tuan, president
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EXHIBIT "A"
FLOOR PLAN OF PREMISES
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EXHIBIT "B"
[Intentionally Omitted)
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EXHIBIT "C"
[Intentionally Omitted]
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EXHIBIT "D"
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in effect. Landlord
reserves the right to adopt nondiscriminatory modifications and additions
hereto:
As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide nonattended automatic elevator facilities Monday through
Friday, except holidays, from 7;30 a.m. to 6:00 p.m. and Saturdays from 7:30
a.m. to Noon, and have one elevator available at all other times. Should
Landlord determine that additional security is required in order to monitor
Tenant's usage of the freight or passenger elevators, Tenant shall reimburse
Landlord (determined as additional rent) for the costs of such additional
services.
(b) on Monday through Friday, except holidays, from 8:00 a.m. to 8:00 p.m.,
Saturdays from 9:00 a.m. to 1:00 p.m. (and at other times for a reasonable
hourly additional charge to be fixed by Landlord), ventilate the Premises and
furnish air conditioning or heating on such days and hours, when in the judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
The aforesaid hours shall, for the purposes of Section 13.2, comprise the
"regular building hours". The air conditioning system achieves maximum cooling
when the window coverings are closed. Landlord shall not be responsible for room
temperatures if Tenant does not keep all window coverings in the Premises closed
whenever the system is in operation. Tenant agrees to cooperate fully at all
times with Landlord and to abide by all regulations and requirements which
Landlord may prescribe for the proper function and protection of said air
conditioning system. Tenant agrees not to connect any apparatus, device conduit
or pipe to the Building chilled and hot water air conditioning supply lines.
Tenant further agrees that neither Tenant nor its servants, employees, agents,
visitors, licensees or contractors shall at any time enter the mechanical
installations or facilities of the Building or adjust, tamper with, touch or
otherwise in any manner affect said installations or facilities. The cost of
maintenance and service calls to adjust and regulate the air conditioning system
shall be charged to Tenant if the need for maintenance work results from either
Tenant's adjustment of room thermostats or Tenant's failure to comply with its
obligations under this section, including keeping window coverings closed as
needed. Such work shall be charged at hourly rates equal to then-current
journeymen's wages for air conditioning mechanics.
(c) Furnish to the Premises, on Monday through Friday, except holidays,
from 8:00 a.m. to 8:00 p.m., Saturdays from 9:00 a.m. to 1:00 p.m. electric
current as required by the Building standard office lighting and fractional
horsepower office business machines in an amount not to exceed .025 KWH per
square foot per normal business day. Tenant agrees, should its electrical
installation or electrical consumption be in excess of the aforesaid quantity or
extend beyond normal business hours, shall be reimbursed by Tenant to Landlord
as Excess Utility Charges and/or After-Hour Charges pursuant to Section 13.2 of
the Lease. Tenant agrees not to use any apparatus or device in, or upon, or
about the Premises which may in any way increase the amount of such services
usually furnished or supplied to said Premises, and Tenant further agrees not to
connect any apparatus or device with wires, conduits or pipes, or other means by
which such services are supplied, for the purpose of using additional or unusual
amounts of such services without written consent of Landlord. Should Tenant use
the same to excess, the refusal on the part of Tenant to pay upon demand of
Landlord the amount established by Landlord for such excess charge shall
constitute a breach of the obligation to pay rent under this
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Lease and shall entitle Landlord to the rights therein granted for such breach.
At all times Tenant's use of electric current shall never exceed the capacity of
the feeders to the Building or the risers or wiring installation.
(d) Water will be available in public areas for drinking and lavatory
purposes.
(e) Tenant shall provide it own janitor service to the Premises, provided
that any company retained by Tenant shall be subject to Landlord's approval and
any rules and regulations established by Landlord (from time to time) . Tenant
shall assure that the Premises are to be kept clean. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish, to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of the Premises as offices.
Subject to the provision of Section 13.1 and 19.5, Landlord reserves the
right to stop service of the elevator, plumbing, ventilation, air conditioning
and electric systems, when necessary, by reason of accident or emergency or for
repairs, alterations or improvements, in the judgment of Landlord desirable or
necessary to be made, until said repairs, alterations or improvements shall have
been completed, and shall further have no responsibility or liability for
failure to supply elevator facilities, plumbing, ventilating, air conditioning
or electric service, when prevented from so doing by strike or accident or by
any cause beyond Landlord's reasonable control, or by laws, rules, orders,
ordinances, directions, regulations or requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel.
Tenant shall comply with all rules, regulations and requirements
promulgated by national, state or local governmental agencies or utility
suppliers concerning the use of utility services including any rationing,
limitation or other control on the quantity of utilities consumed.
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EXHIBIT "E"
RULES AND REGULATIONS
1. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window or glass door on the Premises without the
prior written consent of Landlord. In any event, with the prior written consent
of Landlord, said above items shall be installed inboard of Landlord's standard
window covering and shall in no way be visible from the exterior of the
Building. No articles shall be placed or kept on the window sills so as to be
visible from the exterior of the Building.
2. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. The halls,
passages, exists, entrances, elevators, escalators and stairways are not open to
the general public, but are open, subject to reasonable regulation, to Tenant's
business invitees. Landlord shall in all cases retain the right to control and
prevent access thereto of all persons whose presence in the judgment of Landlord
would be prejudicial to the safety, character, reputation and interest of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
3. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude and limit any other names therefrom.
4. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
shall be employed by Tenant or permitted to enter the Building for the purpose
of cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
Landlord shall in no event be responsible to Tenant for any loss of property on
the Premises, however occurring, or for any damage done to the effects of Tenant
by the janitor or other employee or any other person. Janitor service will not
be furnished on nights when rooms are occupied after 9:00 p.m. Window cleaning
shall be done only at regular and customary times determined by Landlord for
such services.
5. Landlord will furnish Tenant, free of charge, with two keys to each
corridor door lock in the Premises. Landlord may make a reasonable charge for
any additional keys. Tenant shall not make or have made additional keys, and
Tenant shall not alter any lock or install new additional lock or bolt on any
door of its Premises. Tenant, upon the termination of its tenancy, shall deliver
to Landlord the keys of all doors which have been furnished to Tenant, and in
the event of loss of any keys so furnished, shall pay Landlord therefor.
6. No boring or cutting for telephone, telegraph, burglar alarms, electric
wires or similar services shall be allowed without the consent of Landlord and
any such wires permitted shall be introduced at the place and in the manner
described by Landlord. The location of telephones, speakers, fire extinguishers
and all other office equipment affixed to premises occupied by tenants shall be
subject to the written approval of Landlord. Each tenant shall pay all expenses
incurred in connection with the installation of its equipment, including any
telephone, telegraph and electricity distribution equipment.
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7. The Building freight elevator(s) shall be available for use by all
tenants in the Building, subject to such reasonable scheduling as Landlord, in
its discretion, shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in the
Building or carried in the elevators except between such hours and in such
elevators as may be designated by Landlord. Tenant's initial move in and
subsequent deliveries of bulky items, such as furniture, safes and similar items
shall, unless otherwise agreed in writing by Landlord, be made during the hours
of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal
office hours shall be limited to normal office supplies and other small items.
No deliveries shall be made which impede or interfere with other tenants or the
operation of the Building. Landlord reserves the right to refuse the
transporting of any materials in the elevators which may be of a hazardous or
bulky nature, or be beyond the loading capacity or operational capacity of the
elevators. Tenant shall be liable for any and all repairs to the elevators due
to the improper use or misuse of the elevators by Tenant, its agents, employees
or invitees.
8. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight, which platforms shall be provided at Tenant's
expense. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment or other property shall be repaired at the expense of
Tenant.
9. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,-
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
10. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord.
11. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Buildings heating and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and shall refrain from attempting to adjust controls. Tenant shall keep
corridor doors closed, and shall close window coverings at the end of each
business day.
12. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Saturdays, Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Building and has a pass or is properly identified. Tenant shall be
responsible for all persons for whom it requests passes and shall
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be liable to Landlord for all acts of such persons. Landlord shall not be liable
for damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
13. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and electricity, gas or air
outlets before tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
14. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such hours and under such
regulations as may be fixed by Landlord. No cooking shall be done or permitted
on the Premises except for that used by Tenant of U.L. approved equipment for
the brewing of coffee, tea and other similar beverages.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
16. Tenant shall not sell, or permit the sale at retail of newspapers
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
17. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere. Tenant shall not install any burglar alarm, security
system, or other similar protection device without the prior written approval
of Landlord.
18. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to alterations.
Landlord reserves the right to direct electricians as to where and how telephone
and telegraph wires are to be introduced to the Premises. Tenant shall not cut
or bore holes or wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord. Tenant shall
repair any damage resulting from noncompliance with this rule.
19. Tenant shall not install, maintain or operate upon the Premises any
vending machines without the written consent of Landlord.
20. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
21. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
22. Tenant shall store all its trash and garbage within its Premises or in
other facilities provided by Landlord. Tenant shall
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not place in any, trash box or receptacle any material which cannot be disposed
of in the ordinary and customary manner of trash and garbage disposal. Tenant
shall be charged accordingly for any costs incurred in the removal of rubbish or
debris not commonly incurred in normal business activity. All garbage and refuse
disposal shall be made in accordance with directions issued from time to time by
Landlord.
23. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Landlord's
consent, except that use by Tenant of Underwriters' Laboratory approved
equipment for brewing coffee, tea, hot chocolate and similar beverages or use of
microwave ovens for employee use shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the
Building any hand truck except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Building.
25. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
26. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
27. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
28. Tenant's requirements will be attended to only upon appropriate
application to the Building management office by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord, and no employee
of Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of Tenant's Lease of its Premises in the
Building.
31. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
32. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
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33. Tenant shall cooperate with Landlord in complying with all resolutions
and requirements established by governmental agencies relative to transportation
and transit conditions established for the Building and shall designate a
responsible employee to represent Tenant in all matters pertaining to
transportation.
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EXHIBIT "F"
PARKING RULES AND REGULATIONS
The following rules and regulations shall govern use of the parking areas
and facilities for the Building (the "Parking Areas"):
1. Tenant, shall not park or permit the parking of any vehicle under its
control in any areas designated by Landlord as parking areas for visitors to the
Building. Tenant shall not park any vehicles in the Parking Areas other than
automobiles, motorcycles, motor driven or nonmotor driven bicycles or
four-wheeled trucks.
2. Parking stickers or any other device or form of identification supplied
by Landlord as a condition of use of the Parking Areas shall remain the property
of Landlord. Such parking identification device must be displayed as requested
and may not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable and
any device in the possession of an unauthorized holder will be void.
3. No overnight or extended term storage of vehicles shall be permitted.
4. Vehicles must be parked entirely within the painted stall lines of a
single parking stall.
5. All directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be 5 miles per hour.
7. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) on ramps;
(e) in cross hatched areas; and
(f) in such other areas as may be designated by Landlord or Landlord's
Parking Operator.
8. Every parker is required to park and lock his own vehicle. All
responsibility for damage to vehicles is assumed by the parker.
9. Loss or theft of parking identification devices from automobiles must be
reported immediately, and a lost or stolen report must be filed by the customer
at that time. Landlord has the right to exclude any car from the Parking Areas
that does not have an identification device. Any parking identification devices
reported lost or stolen found on any unauthorized car will be confiscated and
the illegal holder will be subject to prosecution. Lost or stolen devices found
by the purchaser must be reported immediately to avoid confusion.
10. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
11. Landlord reserves the right to refuse the sale of monthly stickers or
other parking identification devices to any tenant or person and/or his agents
or representatives who willfully refuse to comply with these Parking Rules and
Regulations and all
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unposted City, State or Federal ordinances, laws or agreements.
12. Landlord reserves the right to modify and/or adopt such other
reasonable and nondiscriminatory rules and regulations for the parking
facilities as it deems necessary for the operation of the parking facilities.
Landlord may refuse to permit any person who violates these rules to park in the
parking facilities, and any violation of the rules shall subject the car to
removal.
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EXHIBIT 10.16
Suite 1010 ORIGINAL
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement ("Amendment") is made and entered into
on this 12th day of December, 1996 (the "Effective Date"), by and between 50
West San Fernando Associates, a California Limited Partnership ("Landlord"), and
AboveNet, a California corporation ("Tenant"), and recites as follows:
RECITALS
A. Landlord and Tenant entered into that certain Lease Agreement dated May 15,
1996 (the "Lease"), pursuant to which Landlord leased to Tenant, and Tenant
leased from Landlord, certain premises consisting of approximately 1986
rentable square feet located on the 10th floor of that certain building
located at 50 West San Fernando Street, San Jose, CA (the "Premises").
Except as otherwise provided herein, the capitalized terms used herein
shall have the same meanings and definitions as are set forth in the Lease.
B. The Lease provides to Tenant certain rights to cancel the Lease prior to
the Termination Date set forth therein. As an inducement for Landlord to
lease additional space within the Building to Tenant (pursuant to a
separate lease) and for other good and valuable consideration, Tenant is
willing to release any rights it may have to cancel the Lease.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows:
1. EXTINGUISHMENT OF TENANT'S RIGHT TO CANCEL. The provisions of Section 2.6
of the Lease and any other provisions of the Lease which may grant to
Tenant the right to cancel or terminate the Lease or to otherwise relieve
Tenant of any of its obligations under the Lease prior to the Termination
Date are hereby deleted and, as of the Effective Date hereof, shall be of
no further force or effect. This Amendment shall constitute a waiver by
Tenant of any of the cancellation or termination rights referenced in this
Section 1 and a full revocation of any attempt on the part of Tenant,
prior to or following the Effective Date hereof, to exercise any such
cancellation or termination rights.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. The terms and provisions of this Amendment
shall inure to the benefit of and shall be binding upon the parties
hereto and their respective successors and assigns.
2.2 INTEGRATION. The terms and provisions of this Amendment shall
constitute all of the terms and provisions which have been agreed
to between Landlord and Tenant with respect to the amendment of the
Lease and there are no other terms
1
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and provisions, oral or written, which apply to the amendment of the
Lease except as set forth herein and in the Lease.
2.3 COUNTERPARTS. This Amendment may be executed in multiple
counterparts, and all of such counterparts shall together constitute
one fully executed document.
2.4 FULL FORCE AND EFFECT. Except as amended by this Amendment, the terms
and provisions of the Lease shall remain unmodified and in full force
and effect (including, without limitation, any rights which Landlord
may have to cancel or terminate the Lease, as set forth in Sections
2.5 and 16.2.1 and elsewhere in the Lease). In the event of any
conflict or inconsistency between the terms and provisions of this
Amendment and the terms and provisions of the Lease, the terms and
provisions of this Amendment shall control.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment on
the date first set forth above.
LANDLORD:
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
By: SFG SAN JOSE COMPANY, LLC, INC.
an Indiana limited liability company
By: MELVIN SIMON & ASSOCIATES, INC.
its Manager
By: [SIG]
---------------------------
Name:
-------------------------
Title:
------------------------
TENANT:
ABOVENET,
a California corporation
By: /s/ SHERMAN TUAN, President
------------------------------------
Sherman Tuan, President
2
<PAGE> 1
EXHIBIT 10.17
10TH FLOOR
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (the "Second Amendment") is dated as of
February 23, 1998, for reference purposes only, and is made between 50 West San
Fernando Associates, a California limited partnership ("Landlord") and
AboveNet, a California corporation ("Tenant") with reference to the following
facts and circumstances, which are conclusively agreed between the parties:
A. Landlord and Tenant are parties to that certain Office Lease
dated for reference purposes as of May 15, 1996, as amended by First
Amendment to Lease dated as of December 12, 1996 (collectively referred to
as the "Lease"). All capitalized words having an assigned meaning in the
Lease shall continue to have such meaning in this Amendment unless
explicitly modified.
B. The Lease relates to Landlord's premises located on the 10th
floor of Landlord's property located at 50 West San Fernando Street, San
Jose, California (the "Building"). Pursuant to the Lease, Tenant occupies
1,986 rentable square feet of space in the Building commonly known as
Suite 1010 (also referred to as the "Existing Premises").
C. Tenant is also occupying 3,211 rentable square feet of space in
the Building commonly known as Suite 1015 pursuant to a sublease from
Kimball Small Properties ("KSP"). Concurrently herewith, KSP and Tenant
are executing a Termination Agreement whereby KSP's lease on Suite 1015 is
relocated and Tenant's sublease on Suite 1015 will be terminated.
D. Tenant is currently arranging to sublease 10,419.97 rentable
square feet of space in the Building commonly known as Suite 1000, which
is currently under lease to Peat Marwick ("PM").
E. Bohn, Bennion, and Niland ("BBN") is currently occupying 4,306
rentable square feet of space in the Building commonly known as Suite 1020
(the "BBN Space").
F. Landlord and Tenant wish to amend the Lease to add Suite 1015 to
the Existing Premises on the Suite 1015 Commencement
<PAGE> 2
Second Amendment to Lease Page 2 of 17
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Date (as defined below) and to add Suite 1000 to the Existing Premises on
September 1, 1998, when the PM lease expires, on the terms and conditions
set forth below. As a part of this same transaction, Landlord and Tenant
wish to extend the term of Tenant's lease on the Existing Premises such
that said term is coterminous with the term on Suites 1000 and 1015, to
settle various other issues between Landlord and Tenant, and to grant
Landlord and Tenant various other rights. The Existing Premises and Suite
1015 are referred to herein collectively as the "Premises", and from the
Second Amendment Commencement Date, all references in the Lease to the
Premises shall be to Suites 1010 and 1015, until September 1, 1998, when
Tenant will occupy Suite 1000, as of which time the "Premises" shall
include Suites 1000, 1010, and 1015.
Now, therefore, in consideration of all of the foregoing facts and
circumstances, and for good and valuable consideration, the receipt of which is
acknowledged by each party, Landlord and Tenant agree to and do amend the Lease
as follows:
1. DEMISE OF SUITES 1015 AND 1000
Commencing on the Suite 1015 Commencement Date (defined below) and
subject to the terms and provisions of the Lease and this Second Amendment,
Landlord hereby leases to Tenant, and Tenant leases from Landlord, Suite 1015.
Commencing on September 1, 1998 and subject to the terms and provisions of the
Lease and this Second Amendment, Landlord hereby leases to Tenant, and Tenant
leases from Landlord, Suite 1000. All of the Existing Premises and these Suites
shall be deemed leased under one single, inseparable lease.
2. LEASE TERM FOR NEW SPACE; EXTENSION OF LEASE TERM FOR EXISTING PREMISES
Subject to the terms and provisions of this Second Amendment, Landlord and
Tenant agree that the Lease Term of the Existing Premises shall be and hereby is
extended as follows: The Lease Term shall continue from the Suite 1015
Commencement Date for the remainder of a calendar month (if the Suite 1015
Commencement Date occurs on a date other than the first day of a calendar month)
- --------------------------------------------------------------------------------
<PAGE> 3
Second Amendment To Lease Page 3 of 17
- --------------------------------------------------------------------------------
plus one hundred twenty (120) full calendar months and expire, unless sooner
terminated pursuant to the provisions of the Lease and this Second Amendment,
on the last day of the 120th full calendar month following the Suite 1015
Commencement Date (the "Lease Term Expiration Date"). The Lease
Term for Suite 1015 shall begin on the Suite 1015 Commencement Date and the
Lease Term for Suite 1000 shall begin on September 1, 1998, and each shall be
coterminous with the Lease Term of the Existing Premises, and thus will also
end, unless sooner terminated pursuant to the provisions of this Lease and this
Second Amendment, on the Lease Term Expiration Date. Effective on execution
hereof, Paragraph 1.6 ("Term") of the Lease shall be of no further force or
effect, but shall be deemed replaced by this Paragraph.
3. SUITE 1015 COMMENCEMENT DATE
Landlord shall deliver occupancy of Suite 1015 to Tenant on March 1, 1998
(the "Suite 1015 Commencement Date"). In the event that Landlord does not
deliver on said date, however, the Suite 1015 Commencement Date shall be the
actual date of delivery. This Second Amendment shall not be void or voidable,
nor shall Landlord be liable to Tenant for any loss of damage resulting
therefrom, if Landlord is unable to deliver Suite 1015 by the Suite 1015
Commencement Date or to deliver Suite 1000 by September 1, 1998, provided, that
no Rent shall be payable by Tenant to Landlord on each such Suite for any
period prior to the date on which possession of the Suite is delivered by
Landlord.
4. INCREASES IN MONTHLY RENT
Tenant's Monthly Rent on Suite 1015 shall be $6,905.25 through August
31, 1998. In addition to such Suite 1015 Monthly Rent, Tenant shall pay to
Landlord as Monthly Rent on Suite 1010, beginning on the Suite 1015
Commencement Date and continuing through May 31, 1998, the sum of $2,482.50 per
month, and from June 1, 1998 through August 31, 1998, the sum of $2,979.00 per
month, for a total rent of $9,387.75 from the Suite 1015 Commencement Date to
May 31, 1998 and $9,884.25 from June 1, 1998 through August 31, 1998. Tenant's
Monthly Rent from and after September 1, 1998 for the Premises shall be as set
forth in the following table:
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<PAGE> 4
Second Amendment To Lease Page 4 of 17
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<TABLE>
<CAPTION>
Total
Rentable Per Rentable Monthly
Period Square Feet Square Foot Rent
-------------------------------------------------------------------
<S> <C> <C> <C>
9/1/98 to end of 15,616.97 $2.85 $44,508.36
first lease year*
Year 2** 15,616.97 $2.85 $44,508.36
Year 3 15,616.97 $2.95 $46,070.06
Year 4 15,616.97 $2.95 $46,070.06
Year 5 15,616.97 $3.10 $48,412.61
Year 6 15,616.97 $3.10 $48,412.61
Year 7 15,616.97 $3.20 $49,974.30
Year 8 15,616.97 $3.20 $49,974.30
Year 9 15,616.97 $3.30 $51,536.00
Year 10 15,616.97 $3.30 $51,536.00
</TABLE>
* Includes twelve full calendar months beginning on the Suite 1015
Commencement Date plus the partial month, if any, between the Suite 1015
Commencement Date and the last day of the calendar month in which it occurs.
** This and all following Lease Years begins on the day following the end of
the preceding Lease Year.
5. OPTION TO LEASE ADDITIONAL SPACE:
A. GRANT: If BBN does not extend its lease on Suite 1020 or if Suite
1020 becomes available for lease for any reason, Landlord hereby grants Tenant a
first option (subject only to any option or first refusal rights of current
tenants of the Building) to lease such space, on the terms and conditions set
forth below in this Paragraph. Such lease would be for a term beginning on the
Occupancy Date (as defined below) and ending coterminously with the term of this
lease, and with the same option to extend the lease after the end of the Lease
Term, and on all of the terms and conditions hereof, including the same rental
rate as is then in force for the Premises, and all increases in such rent. This
option is subject to all rights of BBN now or hereafter granted in regard to the
space, and Tenant understands and agrees that its rights under this option are
subordinate to any lease rights currently enjoyed
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Second Amendment To Lease Page 5 of 17
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by or hereafter granted to BBN, whether pursuant to exercise of an option to
extend the lease or by negotiation and a new amended lease between Landlord and
BBN.
B. NOTICE: Landlord shall give Tenant written notice of the availability
of Suite 1020, including a statement of the date on which it would become
available for occupancy (the "Occupancy Date"). Within thirty (30) days after
such notice, Tenant shall give Landlord written notice that Tenant exercises
the option to lease Suite 1020 granted in this Paragraph 5. Such notice shall
form a binding contract to lease Suite 1020 on the terms stated in this
Paragraph 5, beginning on the Occupancy Date. Unless exercised in accordance
with the strict requirements hereof, by a valid notice delivered to Landlord on
or before the required date, the option granted hereby shall be of no force or
effect whatever.
C. CONDITIONS: Tenant may not exercise the option granted in this
Paragraph if (i) there is a Default by Tenant on the date of Tenant's notice,
or at any time thereafter and prior to the Occupancy Date; and/or (ii) Tenant
has assigned or otherwise transferred its interest in this Lease and/or the
Premises, whether or not Landlord has consented to such assignment or transfer,
on the date of Tenant's notice or the Occupancy Date; and notice of exercise
shall be, at Landlord's sole discretion and option, of no force or effect in
either such circumstance. The period of exercise of the Option shall not be
extended for any period in which Tenant is unable to exercise the Option by
reason of a Default by Tenant, assignment, or transfer by Tenant. This option
shall be subordinate to any right of first refusal or option on the First
Refusal Space which has been granted by Landlord to any third party prior to
the execution hereof.
D. TERMS: Except as otherwise specifically excluded, all terms and
conditions of the Lease as amended by this Second Amendment (except for this
option) shall apply during any Extended Term created by Tenant's proper
exercise of the Option.
E. FORMATION OF CONTRACT BY NOTICE: Once Tenant delivers notice of its
exercise of the Option, Tenant may not withdraw such exercise and, subject to
the provisions of this Section, such notice shall automatically operate to
lease Suite 1020. Upon such lease, the term "Premises" as used in this Lease
shall thereafter include both the Premises as defined in this Amendment and
Suite 1020.
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Second Amendment To Lease Page 6 of 17
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F. SECURITY DEPOSIT: Upon the day immediately prior to Occupancy Date,
Tenant shall supply Landlord with sufficient funds as a further Security
Deposit to increase the total Security Deposit to an amount equal to the rent
for the first full month after the Occupancy Date, and unless and until Tenant
delivers such additional Security Deposit, Tenant shall not be delivered
possession of Suite 1020, but such failure shall not postpone or delay the
start of Tenant's rent obligations, which shall be on the Occupancy Date.
G. FAILURE TO GIVE VALID NOTICE: If Tenant does not give a valid
notice of exercise on or before the required date, then Tenant agrees that it
will forthwith execute such documents as are reasonably required by Landlord to
document that the Option is of no further force or effect. Tenant agrees to
indemnify, defend, and hold harmless Landlord from any and all costs, losses,
damages, or claims suffered or incurred by Landlord on account of Tenant's
failure to execute such documents if a valid notice of exercise is not timely
given.
6. RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE:
A. GRANT AND RIGHT OF FIRST REFUSAL: Solely in the event that Tenant
does not exercise the option granted to Tenant in Paragraph 5, Landlord grants
to Tenant a right of first refusal to lease the BBN Space (referred to in this
Paragraph as the "First Refusal Space"), on the terms contained in this
Paragraph.
B. NOTICE OF INTENT TO LEASE: If Landlord has a bona fide offer (which
may include an executed non-binding letter of intent) to lease, rent, or
license the First Refusal Space or a portion thereof to a prospective tenant at
any time after the Tenant has been offered the First Refusal Space pursuant to
the option granted herein and before the expiration or earlier termination of
this Lease or this right of first refusal, if such offer is one to which this
right of first refusal applies, as set forth in Subparagraph G below, and if
this Right of First Refusal has not been terminated as set forth in
Subparagraphs E and F, then Landlord shall notify Tenant in writing (the "First
Refusal Notice") of (a) the amount and location of the space within the First
Refusal Space which it proposes to lease (the "Offered Space"), (b) the
business terms and conditions upon which it proposes to lease such space, and
(c) the identity of the proposed tenant, and such notice shall constitute an
offer by Landlord to lease the Offered Space to Tenant as set forth below.
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Second Amendment To Lease Page 7 of 17
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C. EXERCISE OF RIGHT OF FIRST REFUSAL: If Tenant, within three (3)
business days after receipt of the First Refusal Notice (the "First Refusal
Period"), agrees in writing to lease the Offered Space on the terms and
conditions stated in the First Refusal Notice, then Landlord and Tenant shall
enter into an Amendment to this Lease (the "Amendment") whereby the Offered
Space shall be leased to Tenant on the terms and conditions stated in the First
Refusal Notice, with the exception that the lease of the Offered Space,
notwithstanding any greater or lesser term to be offered to the third party
tenant, shall be for a term which is coterminous with the term of the Lease as
amended by this Amendment and the Base Monthly Rent for the Offered Space shall
be the same as Tenant's Base Rent for the Premises as of the date of Tenant's
acceptance of the Offered Space, or the Base Rent offered by the third party,
whichever is higher, and the Amendment shall provide that Tenant shall have
the same option to extend the Lease Term as to the Offered Space as Tenant then
has to extend the Lease Term of the Premises (provided, that exercise of such
option shall be conditioned on Tenant's exercise of its option to extend the
term on the Premises).
D. LANDLORD'S RIGHT TO LEASE: If Tenant does not give written notice of
agreement to lease the Offered Space on the terms contained in the First Refusal
Notice within the First Refusal Period, then Landlord shall have the right to
lease the Offered Space to the identified tenant (or an associated party) on
substantially the business terms and conditions set forth in the First Refusal
Notice, provided, however, that Landlord may make changes to its form of lease
at the request of the identified prospective tenant to induce it to lease such
space from Landlord so long as Landlord does not substantially change the basic
business terms and conditions in First Refusal Notice in favor of the third
party tenant. If Landlord does not lease the Offered Space to the prospective
tenant within one hundred twenty (120) days after the First Refusal Notice is
given, then any further transaction shall be deemed a new transaction and the
provisions of this paragraph shall again be applicable.
E. TERMINATION: The right granted to Tenant in this Paragraph is
personal to Tenant, and may not be assigned by Tenant to any third party,
either alone or in conjunction with an assignment of this Lease or a sublease
of all or any part of the Premises. The provisions of this paragraph shall
terminate upon the earliest of the following to happen: (i) the expiration or
earlier termination of the Lease, (ii) any assignment by Tenant of its
interest in this Lease, (iii) any subletting by Tenant of substantially all of
the Premises for substantially all of the remainder of
- --------------------------------------------------------------------------------
<PAGE> 8
Second Amendment To Lease Page 8 of 17
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the Lease Term, (iv) the termination of this right by default as set forth in
Subparagraph F. below, or (v) as to any Offered Space, if Tenant refuses to
lease the Offered Space within the First Refusal Period after being given a
First Refusal Notice as to such Offered Space, if Landlord subsequently leases
the Offered Space to a prospective third party tenant or occupant.
F. TERMINATION BY DEFAULT: The rights of Tenant under this Paragraph
shall not be effective at any time when Tenant there exists a Default by
Tenant. If Tenant, with the agreement of Landlord, shall nevertheless cure such
Default by Tenant, then the rights provided hereunder shall be reinstated, but
any transaction to lease or rent any or all of the First Refusal Space entered
into by Landlord during such period of default shall be valid and Tenant shall
have no further Right of First Refusal as to any such leased or agreed to be
leased by Landlord while Tenant is in default as set forth above.
G. NO RIGHT OF FIRST REFUSAL FOR RENEWAL OR EXTENSION SPACE: The right
granted to Tenant by this Paragraph shall not arise on account of or in
connection with the renewal or extension of the term of any lease or rental
agreement affecting all or any portion of the First Refusal Space, and shall be
subordinate to any right of first refusal or option on the First Refusal Space
which has been granted by Landlord to any third party prior to the execution
hereof.
7. INCORPORATION OF NEW SPACE INTO THE PREMISES:
From and after the Suite 1015 Commencement Date and after September 1,
1998, respectively, all of the terms and conditions of the Lease, as the same
are amended and modified in this Second Amendment, shall be applicable to Suite
1015 and Suite 1000 in the same manner as applicable to the Existing Premises,
except as set forth herein.
From and after the Suite 1015 Commencement Date and until August 31, 1998,
Tenant's Percentage shall be 1.65%. From and after September 1, 1998 to the
Lease Term Expiration Date, Tenant's Percentage shall be 4.88%.
8. SECURITY DEPOSIT
Upon execution hereof, the Security Deposit pursuant to this Lease shall be
<PAGE> 9
Second Amendment To Lease Page 9 of 17
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increased from the current amount to an amount equal to $9,884.25. On September
1, 1998, the Security Deposit shall be further increased to a total of
$52,015.76, the amount of the last month's rent hereunder.
9. OPTION TO EXTEND LEASE TERM FURTHER
Landlord hereby grants to Tenant two (2) options (the "Options") to extend
the Lease Term with respect to the Premises on the following terms and
conditions:
A. GRANT: The Options shall give Tenant the right to extend the Lease
Term (as set forth herein) for two additional periods each of which shall be
five (5) years in length (each of which is referred to herein as an "Extended
Term");
B. NOTICE: Tenant shall give Landlord written notice of its exercise of
the Option (the "Notice of Exercise") no earlier than eighteen (18) nor later
than fourteen (14) months before the date on which the Lease Term would end but
for said exercise. Unless a valid Notice of Exercise is given during the period
specified in this Subparagraph, the Option shall be null, void, and of no force
or effect. At any time that the Option has become null, void, and of no further
force or effect, Tenant shall, at Landlord's written request, sign such
documents as Landlord shall reasonably propose, establishing in recordable form
that the Option no longer exists.
C. CONDITIONS: Tenant may not extend the Lease Term pursuant to this
Paragraph if (i) there is a Default by Tenant on the date of Tenant's Notice of
Exercise; and/or (ii) Tenant has assigned or otherwise transferred its interest
in this Lease and/or the Premises, whether or not Landlord has consented to such
assignment or transfer, on the date of Tenant's Notice of Exercise; and any
purported Notice of Exercise given under either of such circumstances shall be
of no force or effect. The period of exercise of the Option shall not be
extended for any period in which Tenant is unable to exercise the Option by
reason of a Default, assignment, or transfer by Tenant; provided, however, that
if there is a Default by Tenant which prevents Tenant from giving a valid Notice
of Exercise and the Default by Tenant is later cured by Tenant within the
applicable exercise period (without extension), then Tenant may exercise the
Option by giving a new Notice of Exercise prior to the end of such unextended
exercise period. If there is a Default by Tenant on the date that the Extended
Term is to commence, and said Default has continued uncured past the applicable
cure periods set forth in Paragraph 16.2 of the
<PAGE> 10
Second Amendment To Lease Page 10 of 17
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Lease, then Landlord may elect to terminate this Lease by written notice to
Tenant, in which case the Lease shall terminate notwithstanding any Notice of
Exercise, and in such case, the Notice of Exercise, the Option, and the
Extended Term shall be of no force or effect (and any further Option shall be
void). In such case, Landlord shall give the Tenant notice that Landlord elects
to terminate the Lease on such grounds, no later than ten (10) days after the
Extended Term would have otherwise commenced, which notice shall set a date not
less than thirty (30) nor more than sixty (60) days after the date on which the
notice is given, upon which date the Lease shall terminate and Tenant shall
deliver possession of the Premises to Landlord.
D. TERMS: Except as otherwise specifically excluded, all terms and
conditions of the Lease as amended by this Second Amendment (except for this
option) shall apply during any Extended Term created by Tenant's proper exercise
of the Option, except that the Base Rent for the Extended Term shall be
determined as set forth below, and any Tenant Improvement Allowances set forth
in the Lease or in this Second Amendment shall not be applicable to any Extended
Term.
E. FORMATION OF CONTRACT BY NOTICE: Once Tenant delivers notice of its
exercise of the Option, Tenant may not withdraw such exercise and, subject to
the provisions of this Section, such notice shall automatically operate to
extend the Lease Term. Upon the extension of the Lease Term pursuant to this
Section, the term "Lease Term" as used in this Lease shall thereafter include
any Extended Term created by the exercise of the Option, and the Termination
date shall be the expiration date of such Extended Term.
F. OTHER CONDITIONS TO EXERCISE: Tenant's options must be exercised
sequentially, and if Tenant does not exercise the first of the two Options, or
if, pursuant to the terms of this Section, the first option shall terminate or
become void, then the second Option shall thereupon, and without further action
by either party, immediately lapse and be of no further force or effect. Each
of the Options may be exercised only as to the total 10th floor Premises then
leased by Tenant under this Lease as amended, including any of the Option Space
which has been added to the Premises by Tenant's exercise of Option to Expand
as described above.
10. RENT DURING OPTION TERM.
<PAGE> 11
Second Amendment To Lease Page 11 of 17
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If Tenant elects to extend the Term of the Lease pursuant to Paragraph 8
above, Base Rent for the Extended Term shall be an amount equal to the Fair
Market Rental Value (as defined below) of the Premises during such Extended
Term, but in no event less than the Base Rent due during the last year of the
Lease Term prior to such Extended Term. The amount of such Base Rent during the
Extended Term shall be determined as follows:
A. DETERMINATION OF FAIR MARKET RENTAL VALUE. The "Fair Market
Rental Value", as used herein, shall be the reasonable market rental value for
the use of the Premises permitted in this Lease (including, but not limited to,
considerations of rental rates for comparable space with comparable tenant
improvements located in the Building and in the central area of downtown San
Jose in which the Building is located, but not elsewhere, cost of living or
other rental adjustments, and the relative financial and credit strength of
Tenant versus other tenants of comparable properties), on a "full service"
basis, for a property which is already improved with the Tenant Improvements
which are present in the Premises, but with such periodic increases in rent
during the Extended Term as the appraiser(s) shall determine to be reasonable
market lease conditions.
B. MUTUAL AGREEMENT. After timely receipt by Landlord of Tenant's
notice of exercise of an Option to extend the Lease Term, Landlord and Tenant
shall have a period of thirty (30) days in which to agree on the Fair Market
Rental Value of the Premises. If Landlord and Tenant agree on the Fair Market
Rental Value for the Premises, then they shall immediately execute an amendment
to this Lease stating such agreed upon Fair Market Rental Value as the Base
Rent for the Extended Term. If Landlord and Tenant are unable to so agree upon
the Fair Market Rental Value for the Premises, the provisions of Subparagraph
(c) below shall apply.
C. APPRAISAL. If Landlord and Tenant cannot agree in writing on a
Fair Market Rental Value for the Premises within five (5) days after the
expiration of the thirty (30) day period described in Subparagraph (b) above,
each party, at its cost and by giving notice to the other party, shall appoint
and M.A.I. real estate appraiser, with at least five (5) years full-time
commercial appraisal experience in this County, to appraise and set the Fair
Market Rental Value of the Premises. If a party does not appoint an appraiser
within five (5) days after the other party has given notice of the name of its
appraiser, the single appraiser appointed shall be the sole appraiser and
<PAGE> 12
Second Amendment to Lease Page 12 of 17
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shall set the Fair Market Rental Value, and in such case, the cost of such sole
appraiser shall be born equally by the parties. If two appraisers are appointed
by the parties as provided in this Subparagraph, the appraisers shall meet
promptly and attempt to set the Fair Market Rental Value. If they are unable to
agree within twenty (20) days after the last appraiser has been appointed, then
each of the two appraisers shall prepare a written report setting forth the
basis of and result of his/her appraisal of the Fair Market Rental Value of the
Premises, and provide copies to Landlord and Tenant. The two appraisers shall
attempt to select and agree upon a third appraiser meeting the qualifications
stated in this Section within ten (10) days after the last day the two
appraisers are given to set the Fair Market Rental Value. If they are unable to
agree on the third appraiser, either of the parties to this Lease, by giving
ten (10) days notice to the other party, may apply to the presiding judge of
the Superior Court of County for the selection of a third appraiser who meets
the qualifications stated above. Each of the parties shall bear one-half (1/2)
of the cost (including attorney's fees and court costs) of appointing the third
appraiser and of paying the third appraiser's fee. The third appraiser,
however selected, shall select which of the two appraisals submitted by the
parties' respective appraisers more closely represents the Fair Market Rental
Value for the Premises, which selection shall establish and set the Fair Market
Rental Value of the Premises for purposes of determining the Base Rent during
the Extended Term. The third appraiser shall be provided with the written
appraisals of the first two appraisers upon appointment, and shall select which
appraisal shall set Fair Market Rental Value within ten (10) days of
appointment, by a written selection provided to Tenant and Landlord.
11. WAIVER OF OTHER RENEWAL OPTIONS
Tenant agrees that the execution of this Second Amendment substitutes
new obligations in lieu of any options to extend the Lease Term or expand the
Premises or to exercise any right of first refusal, and that such shall be of
no further force or effect upon execution hereof.
12. CONDITION OF PREMISES
Tenant is currently in possession of the Existing Premises and is
familiar with their condition, and Tenant has had the opportunity to become
familiar with all other space discussed herein, and to perform any
investigations of its condition and
<PAGE> 13
Second Amendment To Lease Page 13 of 17
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suitability as Tenant deemed necessary or appropriate. Tenant accepts the
Premises, including Suites 1000, 1010, 1015, and 1020 in their current condition
as of the date on which Tenant takes possession thereof, "AS-IS", with all
faults, and acknowledges that neither Landlord, nor any agent, employee,
manager, or attorney of Landlord, has made any representations or warranties
with respect to the Premises or the Building, or with respect to the suitability
of either for the conduct of Tenant's business.
13. CONSTRUCTION OF TENANT IMPROVEMENTS
Tenant may construct Tenant Improvements in the Premises pursuant to the
provisions of the Lease and of this Second Amendment.
A. All construction of Tenant Improvements must be through a licensed
general contractor approved in advance in writing by Landlord, and pursuant to
building and other required permits issued by the City of San Jose. Landlord
shall also have the right to approve all subcontractors who will be working in
the Building.
B. Tenant shall construct any Tenant Improvements pursuant to plans
and specifications which have been submitted to and approved in writing by
Landlord prior to the beginning of construction, including (1) any engineering
and load calculations and (2) power and energy calculations, each as Landlord
shall deem necessary or appropriate. Such construction shall be in accordance
with all laws and regulations applicable thereto, and subject to the
confirmation of insurance as provided in the Lease. Tenant shall pay for any
and all construction work and materials performed in regard to such Tenant
Improvements, and shall keep the Building free and clear of all liens or
encumbrances relating thereto in accordance with Paragraph 10.3 of the Lease.
Construction shall otherwise be in accordance with the rules and requirements
of Paragraphs 10.1 of the Lease. Tenant's contractor shall obey all regulations
and directives of Landlord's management staff, and shall cooperate with said
staff to minimize any inconvenience and/or damage to the Building. Prior to the
start of construction, Tenant's contractor shall deposit with Landlord the sum
of $1,000.00, which Landlord shall hold as a deposit against any damages to the
Building, damage to neighboring tenants, completion of any common area or
Building punchlist items, and full compliance with all Building regulations and
directives.
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<PAGE> 14
Second Amendment To Lease Page 14 of 17
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C. Tenant will pay all Monthly and Additional Rent payable hereunder,
including making such payments during any period of construction of Tenant
Improvements in any of the Premises.
14. PARKING
Subject to the provisions of the Lease relating to parking, Tenant
shall continue to have the same rights as are currently granted to Tenant under
this Lease through September 1, 1998, and thereafter, Landlord shall make
available to Tenant three (3) unreserved parking spaces for each 1,000 rentable
square feet subject to this Lease, one half in the Off-Site Parking Facilities
and one half in the On-site Parking Facilities, all at the standard rates
charged by Landlord or its contractor for the use of such spaces.
15. CROSS-DEFAULT
Tenant acknowledges and agrees that it is currently leasing other
portions of the Building pursuant to another lease between Landlord and Tenant
relating to other premises in the Building, which lease is dated for reference
purposes as of May 24, 1996 (relating to space on the 18th floor) as amended
from time to time (the "Other Premises Lease"), that any Default by Tenant
under this Lease shall be considered a Default by Tenant under the Other
Premises Lease, and that any Default By Tenant under the Other Premises Lease
shall be considered to be a Default By Tenant under this Lease. Accordingly,
this Lease is amended to add the following Subparagraph (g) to the list of
occurrences which constitute a Default by Tenant:
(g) Any Default by Tenant under the Other Premises Lease between
landlord and Tenant, as amended from time to time.
Provided that Landlord has given any notice and opportunity to cure required by
the Other Premises Lease, Landlord shall not be required to give any further
notice or offer any further opportunity to cure a Default by Tenant under the
Other Premises Lease in order to have such be considered a Default by Tenant
hereunder. Any notice given by Landlord in order to satisfy the requirements of
Other Premises Lease which meets the requirements of California Code of Civil
Procedure Section 1161 shall also satisfy the notice requirements of such
Section regarding unlawful
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<PAGE> 15
Second Amendment To Lease Page 15 of 17
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detainer proceedings as to the Premises which are the subject of this Lease,
and no further notice shall be required. Tenant agrees that any Default by
Tenant under this Lease shall also be considered a Default by Tenant under the
Other Premises Lease. If there is a Default by Tenant under the Other Premises
Lease, Landlord may, but is not required to, pursue any or all rights and
remedies (separately or in combination) granted to Landlord under either such
lease in regard to default.
16. ADMINISTRATIVE AND MANAGEMENT SERVICES BY LANDLORD
In the event that, at Tenant's request, Landlord or Landlord's management
company renders any administrative or management services to Tenant for matters
which are outside the scope of Landlord's obligations under this Lease
(including, but not limited to, construction management or administration,
ordering special products, arranging extra janitorial or other services by
building staff or subcontractors, finding and engaging contractors,
subcontractors, or other goods and services providers, finding and engaging
repair persons for Tenant's equipment and property, purchasing materials or
supplying labor, and/or performing any services or providing any goods where
Landlord expends funds which are to be reimbursed by Tenant and then bills
Tenant for the cost thereof, which are referred to herein as "Extra Services"),
Landlord shall be entitled to and shall charge Tenant a fee equal to Fifteen
Percent (15%) of the cost of such matters (which fee is agreed as a reasonable
reimbursement of Landlord for its administrative time and services expended in
connection with arranging for such matters. Amounts payable under this
Paragraph shall be considered to be Additional Rent, shall be paid within
thirty (30) days of Landlord's invoice, and shall be subject to the late fees
and interest payments set forth hereunder. Tenant waives any liability on the
part of the Landlord arising out of the performance of Extra Services hereunder.
17. NOTICE ADDRESS
The notice address for Landlord pursuant to the Lease shall be changed as
follows:
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<PAGE> 16
Second Amendment To Lease Page 16 of 17
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50 West San Fernando Associates
C/o Simon DeBartolo Group
Attn: Vicki Herl, General Manager
50 W. San Fernando St., Suite 405
San Jose, California 95113
With a copy to:
John Marshall Collins
Collins and Perkins
111 W. St. John St., Suite 400
San Jose, California 95113.
18. CONTINUING OBLIGATION
Except as expressly set forth in this Amendment, all terms and conditions
of the Lease remain in full force and effect, and all terms and conditions of
the Lease are incorporated as though set forth at length.
19. EFFECT OF AMENDMENT
This Second Amendment modifies the Lease. In the event of any conflict or
discrepancy between the Lease and/or any other previous documents between the
parties and the provisions of this Amendment, then the provisions of this
amendment shall control. The parties agree that the square footage figures set
forth herein are for reference purposes only, and that the amounts payable
hereunder will not vary on any measurements taken subsequent to the execution
hereof.
20. BROKERAGE COMMISSION
Neither party has been represented by a real estate broker in regard to the
transaction represented by this Amendment, and no brokerage commissions or
finder's fees are due in regard to the transaction. Tenant will hold Landlord
harmless and indemnify Landlord against any claim, loss, or damage, including
reasonable attorney's fees, in regard to a brokerage commission or finder's fee
claim by a broker or finder under contract with or working with Tenant.
Landlord will hold Tenant harmless and indemnify Tenant against any claim,
loss, or damage,
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<PAGE> 17
Second Amendment To Lease Page 17 of 17
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including reasonable attorney's fees, in regard to a brokerage commission or
finder's fee claim by a broker or finder under contract with or working with
Landlord.
21. ENTIRE AGREEMENT
The Lease, as modified by this Second Amendment, constitutes and contains
the entire agreement between the parties, and there are no binding agreements
or representations between the parties except as expressed herein. Tenant
acknowledges that neither Landlord nor Landlord's Agents have made any legally
binding representations or warranties as to any matter except for such matters
which are expressly set forth herein, including any representations or
warranties relating to the condition of the Premises or the improvements
thereto or the suitability of the Premises or the Project for Tenant's business.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
50 West San Fernando Associates, a AboveNet, a California corporation
California limited partnership
By: SFG San Jose Company, LLC, By: [SIG]
an Indiana limited liability -------------------------------
company, its general partner
By: Melvin Simon & Associates, Stephen Belomy, Exec. VP & CF
Inc., an Indiana corporation, its -----------------------------------
manager [Print Name and Title]
Dated: 2/24/98
----------------------
By: /s/ HERBERT SIMON
---------------------------------
Herbert Simon, President
Dated:_______________________________
</TABLE>
<PAGE> 1
Exhibit 10.18
OFFICE LEASE
By and Between
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
("Landlord")
and
ABOVENET, a California Corporation
("Tenant")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
SUMMARY OF LEASE PROVISIONS
1.1 Tenant ...................................... 1
1.2 Landlord .................................... 1
1.3 Lease Date (for reference purposes only) .... 1
1.4 Premises .................................... 1
1.5 Improvement Allowance ....................... 1
1.6 Term ........................................ 1
1.7 Commencement Date ........................... 1
1.8 Termination Date ............................ 1
1.9 Monthly Base Rent ........................... 1
1.10 [Intentionally Omitted] .................... 1
1.11 [Intentionally Omitted] .................... 1
1.12 Tenant's Allowed Parking Spaces ............ 1
1.13 Use of Premises ............................ 1
1.14 Security Deposit ........................... 1
1.15 Addresses for Notices ...................... 1
1.16 Summary Provisions in General .............. 2
ARTICLE 2
DEMISE .......................................... 2
2.1 Demise of Premises .......................... 2
2.2 Rentable Area ............................... 2
2.3 Ground Lease ................................ 2
2.4 Tenant's Improvements ....................... 2
ARTICLE 3
TERM ............................................ 4
3.1 Term ........................................ 4
3.2 Lease Termination ........................... 5
3.3 Lease Year; Calendar Year ................... 5
3.4 Option to Extend Lease Term ................. 5
ARTICLE 4
POSSESSION ...................................... 5
4.1 "As Is" Condition ........................... 5
ARTICLE 5
RENT ............................................ 5
5.1 Base Rent ................................... 5
5.2 Late Charges ................................ 6
5.3 Additional Rent ............................. 6
5.4 [Intentionally Omitted] ..................... 6
5.5 Rent Deposit ................................ 6
ARTICLE 6
[Intentionally Omitted]
ARTICLE 7
USE OF PREMISES ................................. 7
7.1 Permitted Uses .............................. 7
7.2 Limitations ................................. 7
7.3 Compliance with Law ......................... 7
7.4 Signs; Directory ............................ 7
ARTICLE 8
THE COMMON AREA ................................. 8
8.1 Tenant's Nonexclusive Right to Use .......... 8
8.2 Landlord's Control .......................... 8
ARTICLE 9
REPAIRS AND MAINTENANCE ......................... 9
9.1 Tenant's Obligations ........................ 9
9.2 Landlord's Obligations ...................... 9
9.3 Tenant's Negligence ......................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 10
ALTERATIONS AND ADDITIONS ....................... 9
10.1 Restrictions ............................... 9
10.2 Alterations Required By Law ................ 10
10.3 Liens ...................................... 10
10.4 Landlord's Improvements .................... 11
ARTICLE 11
ASSIGNMENT AND SUBLETTING ....................... 11
11.1 In General ................................. 11
11.2 Voluntary Assignment and Subletting ........ 11
11.3 Involuntary Transfer ....................... 13
11.4 Hypothecation .............................. 14
11.5 Binding on Successors ...................... 14
ARTICLE 12
INSURANCE AND INDEMNITY ......................... 14
12.1 Tenant's Liability Insurance ............... 14
12.2 Subrogation ................................ 14
12.3 Tenant's Indemnity ......................... 15
12.4 Release of Liability ....................... 15
12.5 Tenant's Personal Property Insurance ....... 15
ARTICLE 13
SERVICES AND UTILITIES .......................... 16
13.1 Landlord's Obligations ..................... 16
13.2 Tenant's Obligations ....................... 16
ARTICLE 14
PERSONAL PROPERTY TAXES ......................... 16
14.1 Taxes on Tenant's Property ................. 16
14.2 Taxes on Improvements ...................... 16
ARTICLE 15
DAMAGE TO PREMISES .............................. 17
15.1 Definition of Terms ........................ 17
15.2 Insured Casualty ........................... 17
15.3 Uninsured Casualty ......................... 17
15.4 Tenant's Election .......................... 18
15.5 Continuance of Lease ....................... 18
15.6 Damage or Destruction Near End of Lease Term 18
15.7 Termination of Lease ....................... 18
15.8 Abatement of Rentals ....................... 18
15.9 Liability for Personal Property ............ 18
15.10 Waiver of Civil Code Remedies ............. 18
ARTICLE 16
DEFAULT AND REMEDIES ............................ 19
16.1 Events of Default .......................... 19
16.2 Remedies ................................... 20
16.3 Attorneys' Fees ............................ 21
16.4 Landlord's Default ......................... 21
ARTICLE 17
CONDEMNATION .................................... 22
17.1 Landlord's Right to Terminate .............. 22
17.2 Tenant's Right to Terminate ................ 22
17.3 Temporary Taking ........................... 22
17.4 Restoration and Abatement of Rent .......... 22
17.5 Division of Condemnation Award ............. 22
ARTICLE 18
SUBORDINATION TO MORTGAGES ...................... 23
18.1 Subordination .............................. 23
18.2 Subordination Agreements ................... 23
18.3 Approval by Mortgagees ..................... 23
18.4 Attornment ................................. 23
ARTICLE 19
GENERAL PROVISIONS .............................. 23
19.1 Authority to Sign .......................... 23
19.2 Intentionally Omitted ...................... 23
</TABLE>
ii
<PAGE> 4
<TABLE>
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Page
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<S> <C>
19.3 Rules and Regulations ...................... 23
19.4 Holding Over ............................... 24
19.5 Entry by Landlord .......................... 24
19.6 Non-Discrimination ......................... 24
19.7 Estoppel Certificate ....................... 25
19.8 Transfer of Landlord's Interest ............ 25
19.9 Interest ................................... 25
19.10 Parking ................................... 25
19.11 Limitation on Landlord's Liability ........ 27
19.12 Waiver .................................... 27
19.13 Notices ................................... 27
19.14 Joint and Several Obligations ............. 27
19.15 Headings .................................. 27
19.16 Time ...................................... 27
19.17 Successors and Assigns .................... 27
19.18 Recordation ............................... 27
19.19 Quiet Possession .......................... 27
19.20 Prior Agreements .......................... 27
19.21 Inability to Perform ...................... 27
19.22 Attorneys' Fees ........................... 28
19.23 Severability .............................. 28
19.24 Cumulative Remedies ....................... 28
19.25 Choice of Law ............................. 28
19.26 Brokers ................................... 28
19.27 Exhibits .................................. 28
</TABLE>
EXHIBIT A - FLOOR PLAN OF PREMISES
EXHIBIT B - (INTENTIONALLY OMITTED)
EXHIBIT C - (INTENTIONALLY OMITTED]
EXHIBIT D - STANDARDS FOR UTILITIES AND SERVICES
EXHIBIT E - RULES AND REGULATIONS
EXHIBIT F - PARKING RULES AND REGULATIONS
iii
<PAGE> 5
OFFICE LEASE
For and in consideration of the rentals, covenants and conditions hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the herein described Premises for the term, at the rental and subject
to and upon all of the terms, covenants and agreements set forth in this Office
Lease ("Lease").
ARTICLE 1
SUMMARY OF LEASE PROVISIONS
1.1 Tenant: AboveNet, a California corporation ("Tenant").
1.2 Landlord: 50 West San Fernando Associates, a California limited
partnership ("Landlord").
1.3 Lease Date (for reference purposes only): May 15, 1996.
1.4 Premises: An area consisting of Two Thousand (2000) rentable
feet in that certain building located at 50 West San Fernando
Street, Suite #1800, San Jose, California, otherwise known as
Fairmont Plaza, (the "Building"), which area is on the
eighteenth (18th) floor of the Building.(ARTICLE 2.)
1.5 Improvement Allowance: None
1.6 Term: 60 months. (ARTICLE 3.)
1.7 Commencement Date: June 1, 1996. (ARTICLE 3.)
1.8 Termination Date: May 31, 2001. (ARTICLE 3.)
1.9 Monthly Base Rent: For each month of the following Lease Years
and subject to increase upon exercise of the Expansion Option:
<TABLE>
<CAPTION>
Lease Year Monthly Rate
---------- ------------
<S> <C>
First Lease Year Months 1-6, no Base Rent;
Months 7-12, $0.25 per rentable
sq foot
Second Lease Year $0.50 per rentable sq foot
Third Lease Year $0.75 "
Fourth Lease Year $1.00 "
Fifth Lease Year $1.00 "
</TABLE>
1.10 [Intentionally Omitted]
1.11 [Intentionally Omitted]
1.12 Tenant's Allowed Parking Spaces: Tenant shall be entitled, but
not obligated, to rent up to a total number of Two (2) parking
spaces located within the On-Site Parking Facilities. (ARTICLE
19.)
1.13 Use of Premises: Operation of equipment for Internet access and
service providers (ARTICLE 7.)
1.14 Security Deposit: None
1.15 Addresses for Notices:
To Landlord: 50 West San Fernando Street
Suite 320
San Jose, CA 95113
Attn: Steve Belomy
1
<PAGE> 6
To Tenant: 50 West San Fernando Street, Suite 1800
San Jose, CA 95113
Attn: Sherman Tuan
1.16 Summary Provisions in General. The parenthetical references in this
Article 1 to other Articles in this Lease are for convenience of reference and
designate some of the other Lease Articles where applicable provisions are set
forth. All of the terms and conditions of each such referenced Article shall be
construed to be incorporated within and made a part of each of the above
referenced Summary of Lease Provisions. In the event of any conflict between any
Summary of Lease Provision as set forth above and the balance of the Lease, the
latter shall control.
ARTICLE 2
DEMISE
2.1 Demise of Premises. Upon the terms, covenants and conditions set
forth herein, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises set forth in Section 1.4 (the "Premises"). A floor plan
of the Premises is attached hereto as Exhibit "A." The real property upon which
the Building is situated is hereinafter referred to as the "Property."
2.2 Rentable Area. The actual "usable area" of the Premises and the
actual "rentable area" of the Premises is set forth in Section 1.4 above. The
rentable area of the Premises shall be utilized to calculate the Base Rent set
forth in Section 1.9 above and to make all other calculations under this Lease
in which rentable area is a factor. For the purposes of this Lease, the Premises
and the Building have been measured in accordance with the Building Owners and
Managers Association Standard of Measurement ANSI Z65.1-1980 (the "BOMA
Standard") . Tenant acknowledges that the rentable area of the Premises consists
of the usable area of the Premises, together with an allocation of certain
Building common areas and services areas equal to fourteen and one half percent
(14.5%) of the usable area of the Premises.
2.3 Ground Lease. Tenant hereby acknowledges that Landlord's interest in
the Property consists of the leasehold interest under that certain Block 1
Office Parcel Ground Lease entered into by and between the Redevelopment Agency
of the City of San Jose (the "Agency"), as landlord, and Landlord, as tenant, on
or about December 4, 1986, as amended and restated in that certain Ground Lease
dated April 30, 1990 (the "Ground Lease"). Tenant also hereby acknowledges that
Tenant's rights and interests in the Premises are subject and subordinate to the
terms and provisions of the Ground Lease.
2.4 Tenant's Improvements.
2.4.1 In General. The parties hereto acknowledge that (a) the
improvements and fixturing required for Tenant to operate on the Premises shall
be installed and paid for by Tenant, (b) that Tenant's improvements and
fixturing shall be deemed "alterations" and, as such, all of the provisions of
Article 10 below shall apply (including, without limit, the requirement of
Landlord's prior approval), and (c) Landlord shall have no obligation to provide
or pay for Tenant's improvements and fixtures or to perform any work to prepare
the Premises for delivery to Tenant.
2.4.2 Specific Installations. Tenant shall have the right, at any
time during the Lease Term and at its sole cost and expense, to install and
connect within the Building a telco equipment riser from any basement level
"demarc" location of any telecommunication provider servicing the Building to
the Premises or from Tenant's 10th floor premises within the Building or any
other relocated premises to Tenant's equipment within the Premises; provided,
however, the specific location(S) of the aforesaid riser
2
<PAGE> 7
shall be subject to the prior approval of Landlord. Tenant shall also have the
right, at any time during the Lease Term and at its sole cost and expense, to
install on the roof of the Building up to four (4) separate "self-contained" air
conditioning units (the "Separate AC")to service the Premises; provided,
however, the specific location of the Separate AC shall be subject to the prior
approval of Landlord and the installation thereof shall be subject to Landlord's
supervision and technical criteria. During the entire Lease Term, Tenant shall,
at its sole cost and expense, carry out any and all maintenance and repairs
which may be required in connection with the Separate AC, and Landlord shall
have no responsibility or liability with respect thereto. Tenant may install on
the roof of the Building an emergency generator powered by either diesel or
natural gas (the "Generator"). If the Generator is powered by natural gas,
Tenant may connect the same to the Building gas system, in which event Tenant
shall pay all costs of such connection and for the installation of a meter. If
Tenant connects to the Building gas system, Tenant may either contract directly
with the appropriate utility provider or pay to Landlord, as Additional Rent
(defined below) and within ten (10) days of demand, its share of the combined
gas bill received by Landlord. Tenant shall also have the right, at any time
during the Lease Term and at its sole cost and expense, to install on the roof
of the Building an antenna.
Tenant shall be responsible for assuring that the installation and
on-going maintenance of the Separate AC, the Generator and any antenna are
carried out in such a manner that there will not be any water leaks in the roof
system of the Building; in this regard, Tenant shall construct proper
water-proof "flashing" as part of the installation of the Separate AC, the
Generator and roof antenna, as appropriate. Tenant's installation of the telco
riser, the Separate AC, the Generator and antenna, as provided herein, shall be
carried out in accordance with and subject to the provisions of Article 10
hereof.
2.5 Expansion Option.
2.5.1 Exercise. Landlord hereby grants to Tenant the option (the
"Expansion Option") to lease an additional four thousand (4000) square feet on
the 18th floor of the Building (as designated in the area shown on in Exhibit
"A" (the "Expansion Area"), on the following terms and conditions:
(a) Tenant may give Landlord written notice of its
exercise of the Expansion Option at any time during the initial five (5) years
of the Lease Term (defined below);
(b) Tenant may not exercise the Expansion Option pursuant
to this Section 2.5 if Tenant is in default in the performance of any of the
terms and conditions of this Lease or of any other lease arrangement which
exists between Landlord and Tenant with respect to other portions of the
Building (including, without limit, that certain lease with respect to portions
of the 10th floor of the Building) ("Other Lease(s)") , which default continues
after the expiration of any grace period and the giving of any notice, as
provided in Article 16 below. Any notice of exercise of the Expansion Option
given by Tenant while Tenant is in default shall be of no force and effect. The
period of exercise of the Expansion Option shall not be extended for any period
in which Tenant is unable to exercise an Expansion Option by reason of Tenant's
default. If Tenant is in default under this Lease or the Other Lease on the
Expansion Area Commencement Date (defined below) , then Landlord may elect to
terminate this Lease pursuant to Section 16.2.1, notwithstanding any notice
given by Tenant of the exercise of the Expansion Option.
2.5.2 Lease of Expansion Area. This Lease, as to the Expansion
Area shall commence on the date which is thirty (30) days after the date
Landlord receives Tenant's exercise notice (the
3
<PAGE> 8
"Expansion Area Commencement Date"). Upon the Expansion Area Commencement Date,
the following shall apply:
(a) The term "Premises" as used in this Lease shall mean
and include the original Premises described in Section 1.4 above and the
Expansion Area;
(b) All calculations in which Net Rentable Area is a
factor shall be modified as of the Expansion Area Commencement Date (defined
below) to include the Expansion Area, including, without limitation, the
calculation of Base Rent. The rate to be utilized for the purposes of
calculating the Base Rent applicable to the Expansion Area shall be the same per
rentable square foot rate as is in effect as to the original Premises, as set
forth in Section 1.9 above; and,
(c) All of the terms and conditions of the Lease shall
apply during the Lease Term to the Expansion Area, including, without
limitation, the provisions of Sections 2.4 and 4. 1.
2.6 Cancellation by Tenant. Tenant shall have the right to cancel this
Lease, subject to the following:
(a) Tenant shall give Landlord written notice of its election to
cancel the Lease not earlier than January 1, 1997 nor later than December 1,
1997.
(b) Tenant may not exercise its cancellation right if Tenant is
in default in the performance of any of the terms and conditions of this Lease
or of the Other Lease, which default continues after the expiration of any grace
period and the giving of any notice, as provided in Article 16 below or in the
Other Lease. Any notice of cancellation given by Tenant while Tenant is in
default shall be of no force and effect. The period of exercise of any
cancellation shall not be extended for any period in which Tenant is in default.
(c) In the event Tenant gives Landlord notice within the time and
in the manner provided for in (a) above, then this Lease shall be terminated on
the date which is the later of (i) ninety (90) days following the date Landlord
receives Tenant's cancellation notice, or (ii) the date Tenant, at its sole cost
and expense, removes any and all improvements, fixtures, and equipment installed
by Tenant in the Premises and repairs any and all damage to the Premises (as
well as to any other parts of the Building) resulting from either the
installation or removal of Tenant's improvements, fixtures, and equipment;
provided, however, following Tenant's notice of cancellation, Landlord may
provide written notice to Tenant requesting that Tenant's improvement and
fixtures (but not Tenant's movable equipment)remain on the Premises following
the termination, in which event Tenant shall leave such items;
(d) Upon the date of termination (as set forth in (c) above),
Landlord and Tenant shall have no further rights or obligations under the Lease
(nor shall Tenant have any other rights with respect to the Premises), except
that Tenant shall remain liable to Landlord with respect to (i) any indemnity
obligations as set forth in Article 12 below or elsewhere in this Lease and (ii)
any damages with respect to any default by Tenant under this Lease occurring
after the sending of its notice of cancellation but prior to the date of
termination.
ARTICLE 3
TERM
3.1 Term. This Lease shall extend for the term stated in Section 1.6
above (the "Lease Term"), commencing on June 1, 1996 (the "Commencement Date").
4
<PAGE> 9
3.2 Lease Termination. This Lease shall terminate on May 31, 1996 (the
"Termination Date"), unless earlier terminated as provided elsewhere in this
Lease.
3.3 Lease Year; Calendar Year. The term "Lease Year" shall mean each
successive twelve (12) calendar month period of the Lease Term, commencing on
the Commencement Date. The term "Calendar Year" shall mean each successive
twelve (12) calendar month period from January through December.
3.4 Option to Extend Lease Term. Landlord hereby grants to Tenant one
(1) option ("Option") to extend the Lease Term with respect to the Premises on
the following terms and conditions:
(a) The Option shall give Tenant the right to extend the Lease
Term for an additional ten (10) years (the "Extended Term");
(b) Tenant shall give Landlord written notice of its exercise of
the Option no later than one hundred eighty (180)days, nor earlier than three
hundred sixty (360), prior to the Termination Date;
(c) Tenant may not extend the Lease Term pursuant to this Section
3.4 if Tenant is in default in the performance of any of the terms and
conditions of this Lease and/or the Other Lease, which default continues after
the expiration of any grace period and the giving of any notice, as provided in
Article 16 below or in the Other Lease. Any notice of exercise of the Option
given by Tenant while Tenant is in default shall be of no force and effect. The
period of exercise of the Option shall not be extended for any period in which
Tenant is unable to exercise an Option by reason of Tenant's default. If Tenant
is in default on the date that the Extended Term is to commence, then Landlord
may elect to terminate this Lease pursuant to Section 16.2.1, notwithstanding
any notice given by Tenant of the exercise of the Option.
(d) All terms and conditions of this Lease shall apply during the
Extended Term, except that Base Rent for the Extended Term shall be determined
in accordance with Section 5.1.2 below;
(e) Once Tenant delivers notice of its exercise of the Option,
Tenant may not withdraw such exercise and, subject to the provisions of this
Section 3.4, such notice shall operate to extend the Lease Term. Upon the
extension of the Lease Term pursuant to this Section 3.4, the term "Lease Term"
as used in this Lease shall thereafter include the Extended Term and the
Termination Date shall be the expiration date of the Extended Term.
ARTICLE 4
POSSESSION
4.1 "As is" Condition. On the Commencement Date, Landlord shall be
deemed to have delivered possession of the Premises to Tenant and Tenant shall
be deemed to have accepted the Premises in its "As Is" condition.
ARTICLE 5
RENT
5.1 Base Rent.
5.1.1 Initial Lease Term. Beginning on the Commencement Date,
Tenant agrees to pay to Landlord the base rent set forth in Section 1.9 above
(the "Base Rent") on or before the first day of each calendar month during the
Lease Term (including the Extended Term). Base Rent for any period during the
Lease Term which is for less than one (1) month shall be prorated based upon a
thirty (30) day month. Base Rent shall be paid to Landlord
5
<PAGE> 10
without demand, deduction, or offset, in lawful money of the United States of
America, at Landlord's address set forth in Section 1.15 above or such other
place as Landlord may from time to time designate in writing.
5.1.2 Extended Term. In the event Tenant exercises the Option
and, pursuant to the provisions of Section 3.4 above, the Extended Term
commences, then monthly Base Rent shall be payable with respect to the following
Lease Years;
<TABLE>
<CAPTION>
Lease Year Monthly Rate
---------- ------------
<S> <C>
Sixth Lease Year $1.10 per rentable square foot
(including the rentable square footage
of the Expansion Area, if applicable)
Seventh Lease Year $1.12 "
Eighth Lease Year $1.14 "
Ninth Lease Year $1.17 "
Tenth Lease Year $1.19 "
Eleventh Lease Year $1.22 "
Twelfth Lease Year $1.24 "
Thirteenth Lease Year $1.27 "
Fourteenth Lease Year $1.29 "
Fifteenth Lease Year $1.32 "
</TABLE>
5.2 Late Charges. If any installment of Base Rent or any other sum due
from Tenant under this Lease shall not be received by Landlord or Landlord's
designee within ten (10) days from when the same is due, then there shall become
automatically due (without notice or demand from Landlord), and Tenant shall pay
to Landlord, a late charge equal to ten percent (10%) of each overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the cost which Landlord will incur by reason of the late payment by
Tenant. Acceptance of such late charges by the Landlord shall in no event
constitute a waiver of a Default by Tenant with respect to such overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
granted or implied pursuant to the terms of this Lease.
5.3 Additional Rent. All sums which Tenant is required to pay hereunder,
including, without limitation, the charges set forth in Section 13.2 below,
(together with any and all late charges and, pursuant to Section 19.9 below,
interest that may accrue thereon), and all damages, costs and expenses which
Landlord may incur by reason of any default by Tenant shall be additional rent
hereunder ("Additional Rent"). In the event of nonpayment by Tenant of any
Additional Rent, Landlord shall have all of the rights and remedies with respect
thereto as Landlord has for the nonpayment of Base Rent. The term "Rentals" as
used in this Lease shall mean Base Rent and Additional Rent.
5.4 [Intentionally Omitted]
5.5 Rent Deposit. Upon execution of this Lease, Tenant shall deposit
with Landlord an amount equal to Five Hundred Dollars ($500.00) as a deposit for
the Base Rent due for the first month of the Lease Term in which Base Rent is
due.
ARTICLE 6
[Intentionally Omitted]
6
<PAGE> 11
ARTICLE 7
USE OF PREMISES
7.1 Permitted Uses. Tenant shall use and occupy the Premises only for
the purposes set forth in Section 1.13 above. Tenant shall continuously and
without interruption use the Premises for such purpose throughout the entire
Lease Term. Tenant shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Landlord.
7.2 Limitations. Tenant shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any way
damage the Building or any part thereof, cause an increase in the existing rate
of any fire or other insurance upon the Building or any of its contents, or
cause the cancellation of any insurance policy covering the Building or any part
thereof or any of its contents. Tenant shall not use or operate any equipment,
machinery or apparatus within the Premises which will (a) injure, vibrate or
shake the Premises or the Building, (b) overload or damage existing
intra-building cabling (including, without limitation, fiber optic lines,
connections and related equipment), electrical systems or other utilities or
equipment servicing the Premises or Building, or (c) impair the efficient
operation of the sprinkler system (if any) or the heating, ventilating and air
conditioning equipment within or servicing the Premises or the Building. All
noise, noises or odors generated by Tenant's use of the Premises shall be
muffled or contained in such a manner that they do not interfere with the
businesses of other tenants within the Building. Tenant shall not change the
exterior of the Building or install any equipment, antenna, machinery or other
device on or make any penetrations of the exterior or roof of the Building.
Tenant shall not do or permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of Landlord, or other
tenants or occupants of the Building, or injure or annoy them, or use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
7.3 Compliance with Law. Tenant shall not use the Premises or permit
anything to be done in or about the Premises or Building which will in any way
conflict with any law, statute, ordinance or governmental rule or regulation now
in force or which may hereafter be enacted or promulgated. Tenant shall, at its
sole cost and expense, promptly comply (a) with all laws, statutes, ordinances
and governmental rules, regulations or requirements now in force or which may
hereafter be in force (including, without limitation, any and all laws relating
to the operation and maintenance of the specialized equipment and fixtures
installed in the Premises by Tenant) , and (b) with the requirements of any
board of fire insurance underwriters or other similar bodies now or hereafter
constituted; provided, however, Tenant shall not be required to make structural
changes not related to or affected by Tenant's improvements or its use or
occupancy of the Premises. The judgment of any court of competent jurisdiction
or the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that fact
as between the Landlord and Tenant.
7.4 Signs; Directory.
7.4.1 Placement of Signs. Landlord, at Tenant's expense, shall
place signage with Tenant's name in the elevator lobby of the 18th floor of the
Building and at the entrance to the Premises. The aforesaid signage will be
comprised of Building standard lettering and materials.
Tenant shall not inscribe, paint, affix, place or permit to
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be placed any other sign, advertisement, notice, logo or placard anywhere in the
Common Areas, or in the Building, or anywhere in the Premises which is visible
from any Common Area or from outside of the Building without the prior written
consent of Landlord, which consent may be withheld in Landlord's sole
discretion, if Tenant installs any signage or other such items without
Landlord's consent, Tenant, at its sole expense, shall remove the same promptly
upon request by Landlord to do so and shall repair any damage arising therefrom.
If Tenant fails to do so, Landlord may cause such removal and repair to be
performed on Tenant's behalf at Tenant's expense, and the cost thereof shall be
Additional Rent hereunder.
7.4.2 Building Directory. Tenant shall be named in the Building
directory. Additional names may be placed in or removed from the directory at
the discretion of Landlord but at the sole expense of Tenant. Landlord reserves
the right to limit the number of names to be placed on the directory for each
tenant of the Building. Tenant shall reimburse Landlord, within ten (10) days
following demand, for Landlord's actual cost of placing Tenant in the Building
directory.
ARTICLE 8
THE COMMON AREA
8.1 Tenant's Nonexclusive Right to Use. The "Common Area" shall mean
those portions of the Building and Property, and all those facilities within the
boundaries of the Property and within the Building, which are intended for the
nonexclusive use of Tenant in common with other tenants and authorized users,
including, but not limited to, entrances, lobbies, halls, corridors, service
areas and the subterranean parking garage under the Building. Landlord hereby
grants to Tenant and Tenant's agents, employees, invitees, guests and customers
the nonexclusive right to use the Common Area in common with Landlord,
Landlord's agents, and with other tenants and authorized users of the Building,
subject to the provisions of this Lease.
8.2 Landlord's Control. Landlord shall at all times during the Term of
this Lease have exclusive control of the Common Area. In this connection,
Landlord shall have the right, without the same constituting an actual or
constructive eviction, and without entitling Tenant to any abatement of Rentals
or other sums payable hereunder to:
(i) Temporarily close any part of the Common Area to whatever
extent required in the reasonable judgment of Landlord's counsel to prevent a
dedication thereof or the accrual of any prescriptive rights therein;
(ii) Temporarily close any part of the Common Area to perform
maintenance or for any other reason deemed sufficient by Landlord in its
reasonable judgment;
(iii) Change the shape, size, location and extent of improvements
on the Common Area;
(iv) Eliminate or add any improvements;
(v) Select a person to maintain and operate any of the Common
Area at any time Landlord determines that the best interests of the Property
will be served by having the Common Area maintained and operated by that person;
(vi) Make reasonable changes to the Common Area including, by way
of illustration and not limitation, changes in the location of driveways,
entrances, passageways, doors and doorways, elevators, stairs, common restrooms,
exits, parking spaces, parking areas, sidewalks, traffic flow patterns and the
site of the Common Area (but in no event decrease the number of
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Tenant's Allowed Parking Spaces as set forth in Section 1.12 above); and/or
(vii) Change the name or, the address of the Building.
The use of the Common Area shall be subject to such reasonable
regulations and changes therein as Landlord shall make from time to time. Tenant
shall keep the Common Area free and clear of all obstructions created or
permitted by Tenant.
ARTICLE 9
REPAIRS AND MAINTENANCE
9.1 Tenant's Obligations. By taking possession of the Premises, Tenant
shall be deemed to have accepted the Premises as being in good, sanitary order,
condition and repair. Subject to Section 9.2 below, Tenant shall, at Tenant's
sole cost and expense, keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear excepted. Tenant shall upon the
expiration or sooner termination of the Lease Term surrender the Premises to the
Landlord in good condition, ordinary wear and tear excepted. Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition of the Premises or
the Building except as specifically herein set forth.
9.2 Landlord's Obligations. Except as otherwise provided in Section 9.3
below and without regard to responsibility for payment, Landlord shall repair
and maintain, in reasonably good condition, the following: (a) the structural
parts of the Building (including foundation, load-bearing and exterior walls,
subflooring and roof); (b) the Common Area, including all landscaped areas and
all parking areas and facilities for the Building; (c) all electrical, plumbing,
sewage and other utility lines and equipment, including HVAC servicing the
Building, which has been installed or furnished by Landlord; and (d) all
exterior windows. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time after proper written notice of the need for such repairs or
maintenance is given to Landlord by Tenant. There shall be no abatement of rent
(unless Landlord receives rental loss insurance proceeds and then only to the
extent such proceeds are received and retained by Landlord), and there shall be
no liability of Landlord by reason of any injury to or interference with
Tenant's business (excluding personal injury or property damage) arising from
the making of any repairs, alterations or improvements in or to any portion of
the Building or the Premises or in or to fixtures, appurtenances and equipment
therein. Tenant waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect.
9.3 Tenant's Negligence. Anything in this Article 9 to the contrary
notwithstanding, Tenant shall pay for all damage to the Premises or the Building
caused by the negligence or willful misconduct of Tenant, its agents, employees,
assignees, sublessees, contractors, or invitees or by the failure of Tenant to
promptly discharge its obligations under this Lease or otherwise comply with the
terms hereof.
ARTICLE 10
ALTERATIONS AND ADDITIONS
10.1 Restrictions. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
(including, without limitation, the improvements described in Section 2.4 above)
without the prior written consent of Landlord. Landlord's consent to any
proposed alterations may be conditioned on Landlord's receipt, review and
approval of the plans and specifications for the proposed alter-
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ations, and of such other items relating to the proposed alterations as Landlord
may request. Any alterations, additions or improvements to or of the Premises,
including, but not limited to, wall coverings, carpeting, paneling and built-in
cabinet work, but excepting movable furniture and trade fixtures, shall on the
expiration of the Lease Term, or earlier termination of this Lease, become a
part of the Building and belong to the Landlord and, unless required to be
removed as specified below, shall be surrendered with the Premises. In the event
Landlord consents to the making of any alterations, additions or improvements to
the Premises by Tenant, the same shall be made by Tenant at Tenant's sole cost
and expense, and any contractor or person selected by Tenant to make the same
must first be approved of in writing by the Landlord. All construction
undertaken by Tenant shall be done in accordance with all laws and in a good and
workmanlike manner using new materials of good quality. Tenant shall not
commence construction of any alterations, additions or improvements to the
Premises which have been approved by Landlord until:
(a) All required governmental approvals and permits have been
obtained,
(b) All insurance requirements of this Lease have been satisfied;
(c) Tenant shall have given Landlord at least ten (10) days prior
written notice of its intent to commence construction;
(d) Tenant shall have fully complied with any conditions which
Landlord has imposed in connection with its approval of Tenant's alterations;
(e) Tenant shall have notified Landlord by telephone of the
commencement of construction on the day it commences and
(f) If requested by Landlord, Tenant shall have obtained
contingent liability and broad form builders risk insurance in an amount
satisfactory to Landlord if there are any perils relating to the proposed
construction not covered by insurance carried pursuant to Article 12 below.
Upon the expiration or sooner termination (including a cancellation by
Tenant pursuant to Section 2.6 above) of the Lease Term, Tenant shall, unless
otherwise requested by Landlord, at Tenant's sole cost and expense, forthwith
and with all due diligence remove any alterations, additions, or improvements
made by Tenant, designated by Landlord to be removed, and Tenant shall repair
any damage to the Premises caused by such removal.
10.2 Alterations Required By Law. Tenant shall, upon Landlord's consent
and subject to the provisions of Section 10.1 above, make any additional
alterations, additions or improvements of any sort, whether structural or
otherwise, to the Premises that are required by any law in connection with:
(a) Tenant's use of any specialized equipment, fixtures, cabling,
and/or components, and any change of use of the Premises,
(b) Tenant's application for any permit or governmental approval,
or
(C) Tenant's construction or installation of any leasehold
improvements or trade fixtures pursuant to Section 10.1 (and Section 2.4) above.
10.3 Liens. Tenant shall keep the Premises, the Building and the
Property free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant.
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Landlord may require, at Landlord's sole option, Tenant to provide to Landlord a
lien and completion bond in an amount equal to one and one-half (1-1/2) times
the estimated coat of any improvements, additions, or alterations in the
Premises, to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work. Any lien filed against
the Premises, Building, or Property for any work claimed to have been done for,
or materials claimed to have been furnished to, Tenant shall be released or
discharged by Tenant, at its sole cost, within ten (10) days of such filing. In
the event Landlord acts to remove any lien filed against the Premises, Tenant
shall, upon demand and as Additional Rent, reimburse Landlord for any costs and
expenses expended in connection therewith, which costs shall include an
administrative fee equal to fifteen percent (15%) of the amount of the lien so
removed by Landlord.
10.4 Landlord's Improvements. All fixtures, improvements or equipment
which are installed or constructed on or attached to the Property or Building by
Landlord at its expense shall become a part of the Building and belong to
Landlord.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 In General. Tenant shall not voluntarily sell, assign or transfer
all or any part of Tenant's interest in this Lease or in the Premises or any
part thereof, sublease all or any part of the Premises, or permit all or any
part of the Premises to be used by any person or entity other than Tenant or
Tenant's employees, except as specifically provided in this Article 11.
11.2 Voluntary Assignment and Subletting.
11.2.1 Notice to Landlord. Tenant shall, by written notice,
advise Landlord of Tenant's desire on a stated date (which date shall not be
less than thirty (30) days nor more than ninety (90) days after the date of
Tenant's notice) to assign this Lease or to sublet all or any part of the
Premises for any part of the Lease Term. Tenant's notice shall state the name,
legal composition and address of the proposed assignee or subtenant, and Tenant
shall provide the following information to Landlord with said notice: a true and
complete copy of the proposed assignment agreement or sublease; a financial
statement of the proposed assignee or subtenant certified as true and correct by
such assignee or subtenant and prepared in accordance with generally accepted
accounting principles within one (1) year prior to the proposed effective date
of the assignment or sublease; the actual use of the proposed assignee's or
subtenant's business to be carried on at the Premises; the payments to be made
or other consideration to be given on account of the assignment or sublease; a
current financial statement of Tenant; and such other pertinent information as
may be requested by Landlord, all in sufficient detail to enable Landlord to
evaluate the proposed assignment or sublease and the prospective assignee or
subtenant. Tenant's notice shall not be deemed to have been served or given
until such time as Tenant has provided Landlord with all information reasonably
requested by Landlord pursuant to this Section 11.2. Tenant shall immediately
notify Landlord of any modification to the proposed terms of such assignment or
sublease. Tenant may withdraw its notice at any time prior to the exercise by
Landlord of its rights pursuant to Section 11.2.2 below.
11.2.2 Landlord's Option. Within thirty (30) days of Landlord's
receipt of a notice of Tenant's intention to transfer its interest in this Lease
and/or the Premises to a third party, Landlord shall have the right to acquire
from Tenant the interest, or any portion thereof, in this Lease and/or the
Premises that Tenant proposes to transfer, on the same terms and conditions as
the proposed transfer.
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11.2.3 Landlord's Consent If Landlord does not exercise the right
set forth in Section 11.2.2 above within thirty (30) days after receipt of
Tenant's notice or if a proposed sublease is not subject to the provisions of
Section 11.2.2 above, Landlord shall not unreasonably withhold its consent to
the proposed assignment or subletting, on the terms and conditions specified in
said notice. Without otherwise limiting the criteria upon which Landlord may
withhold its consent to any proposed assignment or sublease, if Landlord
withholds its consent where Tenant is in default at the time of the giving of
Tenant's notice or at any time thereafter, or where the net worth of the
proposed assignee or subtenant (according to generally accepted accounting
principles) is less than net worth of Tenant at the time this Lease is executed,
such withholding of consent shall be presumptively reasonable. Any and all rent
to be paid by an assignee or subtenant, including, but not limited to, any rent
in excess of the Rentals to be paid under this Lease (prorated in the event that
a sublease or less than the entire Premises) ("Excess Rent"), shall be paid by
Tenant directly to Landlord, as Additional Rent, at the time and place specified
in this Lease. For the purposes of this Article 11, the term "rent" shall
include any consideration of any kind received, or to be received, by Tenant
from an assignee or subtenant, if such sums are related to Tenant's interest in
this Lease or in the Premises, including, but not limited to, key money, bonus
money and payments (in excess of the fair market value thereof) for Tenant's
assets, fixtures, trade fixtures, inventory, accounts, goodwill, equipment,
furniture, general intangibles and any capital stock or other equity ownership
interest of Tenant.
Any assignment or subletting without Landlord's consent shall be
voidable at Landlord's option and shall constitute a Default by Tenant.
Landlord's consent to any one assignment or sublease shall not constitute a
waiver of the provisions of this Article 11 as to any subsequent assignment or
sublease nor a consent to any subsequent assignment or sublease; further,
Landlord's consent to an assignment or sublease shall not release Tenant from
Tenant's obligations under this Lease, and Tenant shall remain jointly and
severally liable with the assignee or subtenant.
11.2.4 Assumption of Obligations. In the event Landlord consents
to any assignment, such consent shall be conditioned upon the assignee expressly
assuming and agreeing to be bound by each of Tenant's covenants, agreements and
obligations contained in this Lease, pursuant to a written assignment and
assumption agreement in a form approved by Landlord. In the event Landlord
consents to a proposed assignment or sublease, such assignment or sublease shall
be valid and the assignee or subtenant shall have the right to take possession
of the Premises only if an executed original of the assignment or sublease is
delivered to Landlord, and such document contains the same terms and conditions
as stated in Tenant's notice to Landlord given pursuant to Section 11.2.1 above,
except for any such modifications to which Landlord has consented in writing.
11.2.5 Collection of Rent. Tenant hereby irrevocably gives to and
confers upon Landlord, as security for Tenant's obligations under this Lease,
the right, power and authority to collect all rents from any assignee or
subtenant of all or any part of the Premises as permitted by this Section 11.2,
or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligations under this Lease; provided, however, that until the
occurrence of any Default by Tenant or except as provided by the provisions of
Section 11.2.3 above, Tenant shall have the right to collect such rent. Upon the
occurrence of any Default by Tenant, Landlord may at any time without notice in
Landlord's own name sue for or otherwise collect such rent, including rent past
due and unpaid, and apply the same, less costs and expenses of operation and
collection, including reasonable attorneys' fees, toward Tenant's obligations
under this Lease. Landlord's collection of such rents shall not constitute an
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acceptance by Landlord of attornment by such subtenants; in the event of a
Default by Tenant, Landlord shall have all rights provided by this Lease and by
law, and Landlord may, upon re-entry and taking possession of the Premises,
eject all parties in possession or eject some and not others, or eject none, as
Landlord shall determine in Landlord's sole discretion. "Rent" shall not include
any revenue or income received by Tenant from any third party pursuant to any
"co-location" agreement or any other agreement or arrangement whereby such party
compensates Tenant for use of or connection to Tenant's equipment located on the
Premises.
11.2.6 No Bonus Value. It is the intent of the parties hereto
that this Lease shall confer upon Tenant only the right to use and occupy the
Premises and to exercise such other rights as are conferred upon Tenants by this
Lease. The parties agree that this Lease is not intended to have a bonus value,
nor to serve as a vehicle whereby Tenant may profit by a future assignment or
sublease of this Lease or the right to use or occupy the Premises as a result of
any favorable terms contained herein or any future changes in the market for
leased space. It is the intent of the parties that any such bonus value that may
attach to this Lease shall be, and remain, the exclusive property of Landlord.
Items of revenue or income excluded from "rent" in the last sentence of 11.2.5
above shall be retained by Tenant and shall not be regarded as "bonus value"
under this Lease.
11.2.7 Corporate Transfers. Any dissolution, merger,
consolidation or other reorganization of Tenant, any sale or transfer (or
cumulative sales or transfers) of fifty percent (50%) or more of the capital
stock of Tenant, or any sale (cumulative sale) of all the assets of Tenant shall
be deemed an assignment of this Lease requiring the prior consent of Landlord;
provided, however, the sale or transfer of all or any of the capital stock of
the corporation which comprises Tenant, the capital stock of which is now or
hereinafter becomes publicly traded, shall not be deemed an assignment of this
Lease.
11.2.8 Reimbursement of Fees. Tenant shall reimburse Landlord for
its legal fees incurred in connections with Landlord's review of a proposed
assignment or sublet, which reimbursement shall not exceed Seven Hundred and
Fifty dollars ($750.00) per each proposed transfer.
11.2.9 Reasonable Provisions. Tenant expressly agrees that the
provisions of this Section 11.2 are not unreasonable standards or conditions for
purposes of Section 1951.4 (b) (2) of the California Civil Code, as amended from
time to time.
11.3 Involuntary Transfer. No interest of Tenant in this Lease shall be
assignable by operation of law, including, without limitation, the transfer of
this Lease by testacy or intestacy. Each of the following acts shall be
considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or a proceeding under the Bankruptcy
Act is instituted in which Tenant is the bankrupt; or, if Tenant is a
partnership or consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors;
(b) Levy of a writ of attachment or execution on this Lease;
(c) Appointment of a receiver with authority to take possession
of the Premises in any proceeding or action to which Tenant is a party; or
(d) Foreclosure of any lien affecting Tenant's interest in the
Premises, which lien was not consented to by
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Landlord pursuant to Section 11.4 below.
An involuntary assignment shall constitute a Default by Tenant and Landlord
shall have the right to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant. In the event the Lease is not terminated, the
provisions of Section 11.2.3 above, regarding rents paid by an assignee or
subtenant and Section 11.2.6 above, shall apply. If a writ of attachment or
execution is levied on this Lease, or if any involuntary proceeding in
bankruptcy is brought against Tenant or a receiver is appointed, Tenant shall
have sixty (60) days in which to cause the attachment or execution to be
removed, the involuntary proceeding dismissed, or the receiver removed.
11.4 Hypothecation. Tenant shall not hypothecate, mortgage or encumber
Tenant's interest in this Lease or in the Premises or otherwise use this Lease
as a security device in any manner without the consent of Landlord, which
consent Landlord may withhold in its absolute discretion. Consent by Landlord to
any such hypothecation or creation of a lien or mortgage shall not constitute
consent to an assignment or other transfer of this Lease following foreclosure
of any permitted lien or mortgage.
11.5 Binding on Successors. The provisions of this Article 11 expressly
apply to all heirs, successors, sublessees, assignees and transferees of Tenant.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 Tenant's Liability Insurance. Tenant shall, at Tenant's expense,
obtain and keep in force during the term of this Lease a policy of comprehensive
public liability insurance, with liability limits of not less than One Million
Dollars ($1,000,000) combined single limit coverage per occurrence and with an
extended liability endorsement providing contractual liability (which shall
include coverage for Tenant's indemnity set forth in Section 12.3 below) and
broad form property damage coverage, insuring Landlord and Tenant against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises, the Building, the Common Area and all areas appurtenant thereto. The
limit of said insurance shall not, however, limit the liability of the Tenant
hereunder. Landlord may periodically during the Lease Term, but not more
frequently than once each twelve (12) months, increase the minimum liability
limits specified in this Section 12.1 to an amount equal to the then prevailing
minimum liability limits required by landlords of other similar properties in
Santa Clara County of similar size and use. In the event Landlord and Tenant
agree to increase the rentable area of the Premises, Landlord may increase the
minimum liability limits set forth in this Section 12.1 in order to assure that
Tenant's activities in the Premises, as increased, are adequately insured.
Tenant may carry said insurance under a blanket policy, providing, however, said
insurance by Tenant shall be primary insurance (not requiring contribution from
any insurance carried by Landlord) and shall have a Landlord's protective
liability endorsement attached thereto. If Tenant shall fail to procure and
maintain said insurance, Landlord may, but shall not be required to, procure and
maintain same, but at the expense of Tenant. The insurance required hereunder
shall name Landlord as an additional insured and shall be in companies rated A+,
AAA, or better in "Best's Insurance Guide." Tenant shall deliver to Landlord
prior to occupancy of the Premises copies of policies of liability insurance
required herein or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No policy shall be
cancelable or subject to reduction of coverage except after thirty (30) days'
prior written notice to Landlord.
12.2 Suborgation. Landlord hereby releases Tenant, and Tenant hereby
releases Landlord, and their respective officers, agents, employees and
servants, from any and all claims or demands
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of damages, loss, expense or injury to the Premises, the Building, the Common
Area, or the Property, or to the furnishings, fixtures, equipment, inventory or
other property of either Landlord or Tenant in, about or upon the Premises, the
Building, the Common Area, or the Property which is caused by or results from
perils, events or happenings which are the subject of insurance carried by the
respective parties and in force at the time of any such loss, whether due to the
negligence of the other party or its agents and regardless of cause or origin;
provided, however, that such waiver shall be effective only to the extent
permitted by the insurance covering such loss and to the extent such insurance
is not prejudiced thereby.
12.3 Tenant's Indemnity. Tenant shall indemnify and hold harmless
Landlord against and from any and all claims arising from Tenant's use of the
Premises for the conduct of its business or from any activity, work, or other
thing done, permitted or suffered by the Tenant in or about the Building, and
shall further indemnify and hold harmless Landlord against and from any and all
claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of the Tenant resulting from any construction activity
performed in or about the Premises, Building or adjacent properties, or any
officer, agent, employee, contractor, guest, or invitee of Tenant, and from all
and against all costs, attorneys' fees, expenses and liabilities incurred in or
about any such claim or any action or proceeding brought thereon, and, in the
event any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant, as a material
part of the consideration to Landlord, hereby assumes all risk of damage to
property or injury to any agents, employees, clients, contractors,
subcontractors, vendors, or invitees of Tenant in, upon, or about the Premises,
the Building and the Property from any cause other than Landlord's willful
misconduct or negligence, and Tenant hereby waives all claims in respect thereof
against Landlord.
12.4 Release of Liability. 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 or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or subsurface or from any other place resulting from
dampness or any other cause whatsoever, except as to any personal injury or
property damage resulting from the negligent or willful misconduct of Landlord
or its agents. Landlord or its agents shall not be liable for interference with
the light or other incorporeal hereditaments relating to the Premises, nor shall
Landlord be liable for any loss of business by Tenant, or for any latent defects
in the Premises or in the Building, except as otherwise expressly set forth in
this Lease. Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the Building, or of defects therein or in any
fixtures or equipment.
12.5 Tenant's Insurance. Tenant shall, at Tenant's expense, obtain and
keep in force during the Lease Term an "All-Risk" property insurance policy,
which shall include, without limitation, coverage for earthquake, flood, boiler
and machinery damage (if applicable), sprinkler damage, vandalism and malicious
mischief, on all leasehold improvements installed in the Premises by Tenant at
its expense (if any), and on all equipment, trade fixtures, inventory, fixtures,
furnishings and personal property located on or in the Premises. Such insurance
shall be in an amount equal to the full replacement cost of the aggregate of the
foregoing. Tenant shall also reimburse Landlord, as Additional Rent and within
ten (10) days following written demand, for any and all premiums or additional
premiums or other insurance related costs which are directly attributable to
Tenant's specific operations on the Premises or any equipment and/or fixtures
maintained or operated on
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the Premises.
ARTICLE 13
SERVICES AND UTILITIES
13.1 Landlord's Obligations. Provided there has not been a default by
Tenant hereunder, Landlord agrees to furnish, or cause to be furnished, to the
Premises the utilities and services described in the Standards for Utilities and
Services, attached hereto as Exhibit "D" subject to the conditions and in
accordance with the standards set forth therein. Landlord's failure to provide
Tenant any utilities or services by reason of accidents, breakdowns, strikes or
other labor disturbances, governmental action, or other causes beyond the
control of Landlord shall not result in liability to Landlord. Furthermore,
Tenant shall not be entitled to any abatement or reduction of Rentals, nor shall
Tenant be relieved of the obligation to perform any of its obligations
hereunder, by reason of such failure by Landlord. This Section shall not release
Landlord from any duty to repair, restore, replace or maintain the Premises
which Landlord may have pursuant to the terms of this Lease.
13.2 Tenant's Obligations. Tenant shall pay for the following;
(a) All telephone service and all other utilities and services
which may be furnished to or used in or about the Premises during the Lease
Term, which utilities and services are not expressly required to be provided, or
otherwise paid, for by Landlord;
(b) All Excess Utility Charges. "Excess Utility Charges" shall
mean all charges incurred by Landlord and/or the Building with respect to HVAC
and electrical power use which is consumed on the Premises during regular
Building hours (as set forth in subsection (b) of Exhibit "D") and which are in
excess of normal Building consumption (as reasonably determined by Landlord) ;
(C) All After-Hour Charges. "After-Hour Charges" shall mean HVAC
and electrical charges with respect to usage on the Premises after regular
Building hours, which After-Hour Charges shall be imposed at Landlord's standard
after-hour charge, as established by Landlord from time to time; provided,
however, Landlord may impose a higher After-Hour Charge to Tenant if Tenant's
base use of HVAC and Electrical is excess of normal Building consumption (as
reasonably determined by Landlord.
Tenant shall pay the items in (a) above directly to the service provider
prior to delinquency and shall pay the items in (b) and (c) above within ten
(10) days following a receipt of a statement or invoice from Landlord.
ARTICLE 14
PERSONAL PROPERTY TAXES
14.1 Taxes on Tenant's Property. Tenant shall pay, or cause to be paid,
before delinquency, any and all taxes levied or assessed which become payable
during the term hereof upon any improvements installed at Tenant's expense,
equipment, furniture, fixtures and personal property. In the event any or all of
the Tenant's improvements, equipment furniture, fixtures and personal property
shall be assessed and taxed with the Building, Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to Tenant by Landlord a
statement in writing setting forth the amount of such taxes applicable to
Tenant's property.
14.2 Taxes on Improvements. If the Tenant Improvements and/or any other
improvements made to the Premises, whether installed and/or paid for by Landlord
or Tenant and whether or not affixed to the Property so as to become a part
thereof, are assessed for real property tax purposes at a valuation higher than
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the valuation at which other tenant improvements conforming to Landlord's normal
standards for the Building in other space in the Building are assessed, then the
real property taxes and assessments levied against the Building by reason of
such excess assessed valuation shall be deemed to be taxes levied against
personal property of Tenant and shall be governed by the provisions of Section
14.1 above. If the records of the County Assessor are available and sufficiently
detailed to serve as a basis for determining whether improvements in the
Premises are assessed at a higher valuation than Landlord's normal standards, as
aforesaid, such records shall be binding on both Landlord and Tenant. If the
records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of constructing
the interior improvements in the Premises shall be used.
ARTICLE 15
DAMAGE TO PREMISES
15.1 Definition of Terms. For the purposes of this Lease, the term: (a)
"Insured Casualty" means damage to or destruction of the Premises from a cause
actually insured against, for which the insurance proceeds paid or made
available to Landlord are sufficient to rebuild or restore the Premises under
then-existing building codes to the condition existing immediately prior to the
damage or destruction: and (b) "Uninsured Casualty" means damage to or
destruction of the Premises from a cause not actually insured against, or from a
cause actually insured against but for which the insurance proceeds paid or made
available to Landlord are for any reason insufficient to rebuild or restore the
Premises under then-existing building codes to the condition existing
immediately prior to the damage or destruction, or from a cause actually insured
against but for which the insurance proceeds are not paid or made available to
Landlord within sixty (60) days of the event of damage or destruction.
15.2 Insured Casualty.
15.2.1 Rebuilding Required. In the event of an Insured Casualty
where the extent of damage or destruction is less than twenty-five percent (25%)
of the then full replacement cost of the Premises or the Building, Landlord
shall rebuild or restore the Premises or the Building substantially to the
condition existing immediately prior to the damage or destruction, provided the
damage or destruction was not a result of a negligent or willful act of Tenant
and that there exist no governmental codes or regulations that would interfere
with Landlord's ability to so rebuild or restore.
15.2.2 Landlord's Election. In the event of an Insured Casualty
where the extent of damage or destruction is equal to or greater than
twenty-five percent (25%) of the then full replacement cost of the Premises or
the Building, Landlord may rebuild or restore the Premises or the Building
substantially to the condition existing immediately prior to the damage or
destruction, or terminate this Lease. Landlord shall notify Tenant in writing
within sixty (60) days from the event of damage or destruction of Landlord's
election to either rebuild or restore the Premises or terminate this Lease.
15.3 Uninsured Casualty. In the event of an Uninsured Casualty, Landlord
may (i) rebuild or restore the Premises as soon as reasonably possible at
Landlord's expense (unless the damage or destruction was caused by a negligent
or willful act of Tenant, in which event Tenant shall pay all costs of
rebuilding or restoring), in which event this Lease shall continue in full force
and effect or (ii) terminate this Lease, in which event Landlord shall give
written notice to Tenant within sixty (60) days after the event of damage or
destruction of Landlord's election to terminate this Lease as of the date of the
event of damage or destruction, and if the damage or destruction was caused by a
negligent or willful act
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of Tenant, Tenant shall be liable therefor to Landlord.
15.4 Tenant's Election. Notwithstanding anything to the contrary
contained in this Article 15, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within one hundred twenty (120) days
after the event of damage or destruction. Tenant's election shall be made by
written notice to Landlord within ten (10) days after Tenant receives from
Landlord the estimate of the time needed to complete repair or restoration of
the Premises. If Tenant does not deliver said notice within said ten (10) day
period, Tenant may not later terminate this Lease even if substantial completion
of the rebuilding or restoration occurs subsequent to said one hundred twenty
(120) day period, provided that Landlord is proceeding with diligence to rebuild
or restore the Premises. If Tenant delivers said notice within said ten (10) day
period, this Lease shall terminate as of the date of the event of damage or
destruction.
15.5 Continuance of Lease. If Landlord is required or elects to rebuild
or restore the Premises pursuant to this Article 15, this Lease shall remain in
effect and Tenant shall have no claim against Landlord for compensation for
inconvenience or loss of business during any period of repair or restoration.
15.6 Damage or Destruction Near End of Lease Term. Notwithstanding
anything to the contrary contained in this Article 15, in the event the Premises
are damaged or destroyed in whole or in part (regardless of the extent of
damage) from any cause during the last twelve (12) months of the Lease Term,
Landlord may, at Landlord's option, terminate this Lease as of the date of the
event of damage or destruction by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the event of such damage or
destruction. For purposes of this Section 15.6, if Tenant has been granted an
option to extend or renew the Lease Term pursuant to another provision of this
Lease, then the damage or destruction shall be deemed to have occurred during
the last twelve (12) months of the Lease Term if Tenant fails to exercise its
option to extend or renew within twenty (20) days of the event of damage or
destruction.
15.7. Termination of Lease. If the Lease is terminated pursuant to this
Article 15, the unused balance of the Security Deposit shall be refunded to
Tenant. Rentals shall be proportionately reduced during the period following the
event of damage or destruction until the date on which Tenant surrenders the
Premises, based upon the extent to which the damage or destruction interferes
with Tenant's business conducted in the Premises, as reasonably determined by
Landlord.
15.8 Abatement of Rentals. If the Premises are to be rebuilt or restored
pursuant to this Article 15, the then current Rentals shall be proportionately
reduced during the period of repair or restoration, based upon the extent to
which the making of repairs interferes with Tenant's business conducted in the
Premises, as reasonably determined by Landlord.
15.9 Liability for Personal Property. In no event shall Landlord have
any liability for, nor shall it be required to repair or restore, any injury or
damage to any improvements, alterations or additions to the Premises made by
Tenant, trade fixtures, equipment, merchandise, furniture, or any other property
installed by Tenant or at the expense of Tenant. If Landlord or Tenant do not
elect to terminate this Lease pursuant to this Article 15, Tenant shall be
obligated to promptly rebuild or restore the same to the condition existing
immediately prior to the damage or destruction in accordance with the provisions
of Article 10 above.
15.10 Waiver of Civil Code Remedies. Landlord and Tenant acknowledge
that the rights and obligations of the parties upon
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damage or destruction of the Premises are as set forth herein; therefore Tenant
hereby expressly waives any rights to terminate this Lease upon damage or
destruction of the Premises, except as specifically provided by this Lease,
including without limitation any rights pursuant to the provisions of
Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the
California Civil Code, as amended from time to time, and the provisions of any
similar law hereinafter enacted, which provisions relate to the termination of
the hiring of a thing upon its substantial damage or destruction.
ARTICLE 16
DEFAULT AND REMEDIES
16.1 Events of Default. Tenant shall be in default of this Lease upon
the occurrence of any of the following events:
(a) Tenant's failure to pay any Rentals within five (5) days from
when the same is due, as provided in this Lease;
(b) Commencement and continuation for at least thirty (30) days
of any case, action or proceeding by, against or concerning Tenant under any
federal or state bankruptcy, insolvency or other debtor's relief law, including
without limitation, (i) a case under Title 11 of the United States Code
concerning Tenant, whether under Chapter 7, 11, or 13 of such Title or under
any other Chapter, or (ii) a case, action or proceeding seeking Tenant's
financial reorganization or an arrangement with any of Tenant's creditors;
(c) The occurrence of any of the following and the continuation
thereof for at least thirty (30) days:
(i) Voluntary appointment of a receiver, trustee, keeper
or other person who takes possession of substantially all of Tenant's assets or
of any asset used in Tenant's business on the Premises, regardless of whether
such appointment is as a result of insolvency or any other cause;
(ii) Involuntary appointment of a receiver, trustee,
keeper or other person who takes possession for more than thirty (30) days of
substantially all of Tenant's assets or of any asset used in Tenant's business
on the Premises, regardless of whether such appointment is as a result of
insolvency or any other cause;
(iii) Execution of an assignment for the benefit of
creditors of substantially all assets of Tenant available by law for the
satisfaction of judgment creditors;
(iv) Commencement of proceedings for winding up or
dissolving (whether voluntary or involuntary) the entity of Tenant, if Tenant is
a corporation or a partnership;
(v) Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ is not being contested and continues for
a period of ten (10) days;
(d) Transfer of this Lease or the Premises by Tenant contrary to
the provisions of Article 11 above;
(e) Breach by Tenant of any term, covenant, condition, warranty,
or other provision contained in this Lease (which shall incorporate all exhibits
attached hereto) or of any other obligation owing or due to Landlord, where such
breach continues for a period of thirty (30) days following written notice from
Landlord (or if such breach cannot be reasonably cured within thirty (30) days,
Tenant does not commence to cure the default within the aforesaid thirty (30)
day notice period and/or does not diligently and in good faith prosecute the
cure to completion after such period); or,
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(f) Breach or default by Tenant of any of the terms or provisions
of the Other Lease (as defined in Section 2.5(b) above) and such breach or
default has not been cured following the giving of any notice and/or within any
cure period provided for in the Other Lease.
The term "Default by Tenant," as used in this Lease, shall mean and
refer to all of the events described in this Section 16.1.
16.2 Remedies. Upon any Default by Tenant, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law, to which Landlord may resort cumulatively, or in the alternative:
16.2.1 Termination. Upon any Default by Tenant, Landlord shall
have the right (but not the obligation), by giving written notice, to terminate
this Lease and Tenant's right to possession of the Premises. The parties agree
that any notice given by Landlord to Tenant pursuant to this Section 16.2.1
shall be sufficient notice for purposes of California Code of Civil Procedure
Section 1161 and Landlord shall not be required to give any additional notice in
order to be entitled to commence an unlawful detainer proceeding. In no event
shall this Lease be terminated unless and until Landlord expressly indicates in
writing that this Lease has terminated. Any exercise by Landlord of its right to
terminate this Lease shall not be construed as a termination of the Other Lease,
which Other Lease may only be terminated pursuant to the terms and provisions
thereof. Upon termination of this Lease, Landlord shall have the right to
recover from Tenant:
(a) The worth at the time of award of the unpaid Rentals
which had been earned at the time of termination;
(b) The worth at the time of award of the amount by which
the Rentals which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(C) The worth at the time of award (computed by
discounting at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent) of the amount by which the Rentals for the
balance of the Lease Term after the time of award exceed the amount of such
rental loss that Tenant proves could be reasonably avoided;
(d) Any other amounts necessary to compensate Landlord for
all detriment proximately caused by the Default by Tenant or which in the
ordinary course of events would likely result, including without limitation the
following:
(A) Expenses in retaking possession of the Premises;
(B) Expenses for cleaning, repairing or restoring the
Premises;
(C) Any unamortized real estate brokerage commission
paid in connection with this Lease;
(D) Expenses for removing, transporting and storing
any of Tenant's property left at the Premises (although Landlord shall have no
obligation to remove, transport, or store any such property);
(E) Expenses of reletting the Premises, including
without limitation, brokerage commissions and attorneys' fees;
(F) Attorneys' fees and court costs; and
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(G) Costs of carrying the Premises such as repairs,
maintenance, taxes and insurance premiums, utilities and security precautions
(if any).
The "worth at the time of award" of the amounts referred to in
subsections (a) and (b) of this Section 16.2.1 is computed by allowing interest
at an annual rate equal to the greater of: ten percent (10%); or five percent
(5%) plus the rate established by the Federal Reserve Bank of San Francisco, as
of the twenty-fifth (25th) day of the month immediately preceding the Default by
Tenant, on advances to member banks under Sections 13 and 13(a) of the Federal
Reserve Act, as now in effect or hereafter from time to time amended, not to
exceed the maximum rate allowable by law.
16.2.2 Continuance of Lease. Upon Default by Tenant and unless
and until Landlord elects to terminate this Lease pursuant to Section 16.2.1
above, this Lease shall continue in effect after the Default by Tenant and
Landlord may enforce all rights and remedies under this Lease, including without
limitation, the right to recover payment of Rentals as they become due. Neither
efforts by Landlord to mitigate damages caused by a Default by Tenant nor the
acceptance of any Rentals shall constitute a waiver by Landlord of any of
Landlord's rights or remedies, including the rights and remedies specified in
this Section 16.2.
16.2.3 Reletting Premises. Upon Default by Tenant, Landlord may,
at Landlord's election, re-enter the Premises, and without terminating this
Lease, and at any time and from time to time, relet the Premises or any part or
parts thereof for the account and in the name of Tenant or otherwise. Landlord
may, at Landlord's election, eject Tenant or any of Tenant's subtenants,
assignees or other person claiming any right in or through this Lease. Tenant
shall nevertheless pay to Landlord on the due dates specified in this Lease all
sums required to be paid by Tenant under this Lease, plus Landlord's expenses,
less the proceeds of any sublease or reletting. The expenses allowed Landlord
shall include without limitation costs paid to retake possession of the Premises
(including attorneys' fees), costs to place the Premises in its original
condition, ordinary wear and tear excepted, costs to secure new tenants
(including brokers' commissions and attorneys' fees) and costs to fulfill all of
Tenant's covenants and conditions hereunder to the end of the Lease Term. No act
by or on behalf of Landlord under this Section 16.2.3 shall constitute a lease
termination unless Landlord gives Tenant written notice of termination as
provided in Section 16.2.1 above. Notwithstanding any prior reletting without
termination, Landlord may later elect to terminate this Lease because of a
default by Tenant.
16.3 Attorneys' Fees. Tenant shall pay reasonable fees and costs of
attorneys engaged by Landlord in collection of Rentals or to enforce any of
Landlord's rights and remedies under this Article 16 and applicable law.
16.4 Landlord's Default. Landlord shall not be in default under this
Lease unless Tenant shall have given Landlord written notice of the breach and,
within thirty days after notice, Landlord has not cured the breach or, if the
breach is such that it cannot reasonably be cured under the circumstances within
thirty days, Landlord has not commenced diligently to prosecute the cure to
completion. In the event of any default on the part of Landlord under this
Lease, Tenant shall give notice by registered mail to any beneficiary or
mortgagee of a deed of trust or mortgage encumbering the Premises, Building
and/or Property whose address shall have been furnished to it, and shall offer
such beneficiary or mortgagee a reasonable opportunity to cure the default,
including time to obtain possession of the Premises by power of sale or judicial
foreclosure, if such should prove necessary to affect a cure.
ARTICLE 17
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CONDEMNATION
17.1 Landlord's Right to Terminate. Landlord shall have the option to
terminate this Lease if, as a result of a taking by means of the exercise of
the power of eminent domain (including a voluntary sale or transfer by Landlord
to a condemnor under threat of condemnation) all or any material portion of the
Property and/or all or any material portion of the Building is so taken. Any
such option to terminate by Landlord shall be exercised within a reasonable time
period, to be effective as of the date possession is taken by the condemnor For
purposes hereof, a "material portion" of the Property shall mean (a) any taking
of ten percent (10%) or more of the land area of the Property, (b) any taking
which results in the loss of ten percent (10%) or more of the then available
parking spaces on the Property, or (c) any taking of ten percent (10%) or more
of the rentable area of the Building.
17.2 Tenant's Right to Terminate. Tenant shall have the option to
terminate this Lease if, as the result of any taking by means of the exercise of
the power of eminent domain (including any voluntary sale or transfer by
Landlord to a condemnor under threat of condemnation), (a) all of the Premises
is so taken; or (b) such portion of the Premises is taken such that the
remaining portion of the Premises cannot, in the reasonable judgment of the
Tenant, be utilized for the continuing operation of Tenant's business therein.
Tenant shall exercise such option within thirty (30) days of notice of such
taking. Such exercise by Tenant shall be effective on the date that possession
of the condemned portion of the Premises is taken by the condemnor.
17.3 Temporary Taking. If any portion of the Premises is temporarily
taken for one (1) year or less, this Lease shall remain in effect. If any
portion of the Premises is temporarily taken by condemnation for a period which
either exceeds one (1) year or which extends beyond what would have been the
expiration of the Lease Term without such taking, then Landlord and Tenant shall
each independently have the option to terminate this Lease, effective on the
date possession is taken by the condemnor.
17.4 Restoration and Abatement of Rent. If any part of the Premises or
the Common Area is taken by condemnation and this Lease is not terminated as
provided above, then Landlord shall restore the Premises and Tenant Improvements
constructed by Landlord to an architecturally complete unit to the extent that
proceeds received by Landlord from the condemnation are sufficient therefor.
Thereafter, except in the case of a temporary taking, as of the date possession
is taken by the condemnor, the monthly Base Rent (but not any Additional Rent)
shall be reduced in the same proportion that the rentable area of that part of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original rentable area of the Premises.
17.5 Division of Condemnation Award. Any award made for any
condemnation of the Property or Premises shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant (a) for the
taking of personal property or trade fixtures belonging to Tenant; (b) for the
interruption of Tenant's business or its moving costs; (c) for the loss of
Tenant's goodwill; or (d) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of Section 1265.130 of the California
Code of Civil Procedure, and the provisions of any similar law hereinafter
enacted, allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Premises.
ARTICLE 18
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SUBORDINATION TO MORTGAGES
18.1 Subordination. This Lease shall be subject and subordinate to the
lien of any mortgages or deeds of trust (including all advances thereunder,
renewals, replacements, modifications, supplements, consolidations and
extensions thereof) in any amount whatsoever now or hereinafter placed on or
against or affecting the Premises, the Building or the Property, or Landlord's
interest or estate therein (collectively "Mortgages") which subordination shall
be effective without the necessity of execution and delivery of any further
instruments on the part of Tenant. Any mortgagee under a Mortgage ("Mortgagee")
shall have the right to elect to have this Lease prior to their interest,
whether this Lease is dated prior or subsequent to the date, or the date of
recordation, of such Mortgage.
18.2 Subordination Agreements. Tenant shall execute and deliver, without
charge therefor, such further documents and instruments evidencing the
subordination of this Lease to any Mortgage as may be required by Landlord
within ten (10) days following Landlord's request therefor; provided that Tenant
shall not be required to execute a subordination to any Mortgage unless the
Mortgagee thereunder agrees in writing that this Lease shall not be terminated
in the event of any foreclosure if Tenant is not then in default under this
Lease. Failure of Tenant to execute instruments evidencing subordination of this
Lease to a Mortgage shall constitute a Default by Tenant hereunder.
18.3 Approval by Mortgagees. Tenant hereby acknowledges that the
provisions of this Lease may be subject to the approval of any financial
institution that may make a loan secured by a Mortgage. If the financial
institution shall require, as a condition of such financing, any modifications
of this Lease in order to protect its security interest in the Premises,
including, without limit, modifications of the provisions relating to the damage
to and/or destruction of the Premises, Tenant agrees to execute the appropriate
amendments; provided, however, that no modifications shall substantially change
the size, location or dimension of the Premises or increase the rentals payable
by Tenant hereunder. If Tenant refuses to execute any such amendment, Landlord
may, in Landlord's discretion, terminate this Lease.
18.4 Attornment. In the event of a foreclosure or the exercise of a
power of sale under any Mortgage, Tenant shall attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided that such purchaser agrees to comply with the terms hereof.
ARTICLE 19
GENERAL PROVISIONS
19.1 Authority to Sign. If Tenant signs as a corporation or a
partnership, each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized and existing
entity, that Tenant has and is qualified to do business in the State of
California, that Tenant has full right and authority to enter into this Lease
and that each and both of the persons signing on behalf of Tenant are authorized
to do so. Upon Landlord's request, Tenant shall provide evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties.
19.2 Intentionally Omitted.
19.3 Rules and Regulations. Tenant shall observe and comply with the
rules and regulations attached hereto as Exhibit "E." Landlord shall have the
right from time to time to promulgate amendments and additional rules and
regulations for the care and orderly management of the Building, and for the
safety of its tenants and invitees, provided that such amendments and additional
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rules and regulations are reasonable and nondiscriminatory. Upon delivery of a
copy of such amendments and additional rules and regulations to Tenant, Tenant
shall comply with the rules and regulations. A violation by Tenant of any such
rules and regulations, including any amendments thereof, shall constitute a
default by Tenant under this Lease. If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible to Tenant for the
nonperformance of any such rules and regulations by any other tenants or
occupants of the Building.
19.4 Holding Over. If Tenant remains in possession of the Premises or any
part thereof after the Termination Date with the express written consent of
Landlord, such occupancy shall be a tenancy from month to month at a Base Rent
in an amount equal to the one hundred fifty percent (150%) of the last monthly
Base Rent payable hereunder, plus Additional Rent and all other charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
If Tenant remains in possession of the Premises after the Termination Date
without Landlord's consent, Tenant shall indemnify Landlord against any loss or
liability resulting from Tenant's failure to surrender the Premises, including,
without limitation, any claims made by any succeeding tenants based on delay in
the availability of the Premises.
19.5 Entry by Landlord. Landlord reserves and shall at any and all times
have the right, without abatement of Rentals, to enter the Premises inspect the
same, to submit said Premises to prospective purchasers or tenants, to post
notices of nonresponsibility, and to alter, improve or repair the Premises and
any portion of the Building of which the Premises are a part that Landlord may
deem necessary or desirable. Landlord may erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby. With respect to the foregoing, Landlord shall use its best
reasonable efforts to not unreasonably interfere with tenant's business;
provided, however, Landlord shall not be liable to Tenant for any interference
with Tenant's use of the Premises. Tenant hereby waives any claim for damages
(excluding personal injury or property damage resulting from the negligent or
willful misconduct of Landlord) or for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Premises, excluding Tenant's vaults,
safes and files, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open said doors in an emergency, in order to
obtain entry to the Premises without liability to Tenant except for any failure
to exercise due care for Tenant's property. Any entry to the Premises obtained
by Landlord by any of said means, or otherwise, shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of, the Premises, or an eviction of Tenant from the Premises or any
portion thereof.
19.6 Non-Discrimination. Tenant hereby covenants by and for itself, its
heirs, executors, administrators and assigns, and all persons claiming under or
through it, and this Lease is made and accepted upon and subject to the
following conditions:
"That there shall be no discrimination against or
segregation of any person or group of persons on account of
race, color, creed, religion, sex, age, handicap, marital
status, ancestry or national origin in the leasing,
subleasing, transferring, use, occupancy, tenure or
enjoyment of the Premises herein leased, nor shall the
Tenant itself, or
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any person claiming under or through it, establish or
permit any such practice or practices of discrimination or
segregation with reference to the selection, location,
number, use or occupancy of Tenants, lessee, subtenants,
sublessees or vendees in the Premises herein leased."
19.7 Estoppel Certificate. Tenant shall at any time and from time to time
upon not less than ten (10) days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified,
is in full force and effect), and the date to which the Base Rent and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Property of which the Premises are a part. Tenant's failure to
deliver such statement to Landlord within the time period herein specified shall
be a material breach of this Lease.
19.8 Transfer of Landlord's Interest. In the event of a sale or
conveyance by the Landlord herein named (and in case of any subsequent transfers
or conveyances, the then grantor) of Landlord's interest in the Premises,
Building or Property other than a transfer for security purposes only, the
Landlord herein named (and in case of any subsequent transfers or conveyances,
the then grantor) shall be relieved, from and after the date of such transfer,
of all obligations and liabilities accruing thereafter on the part of Landlord.
Following such sale or conveyance by Landlord (or the then grantor), Tenant
agrees to look solely to the responsibility of the successor-in-interest of
Landlord in and to this Lease. This Lease shall not be affected by any such sale
or conveyance and Tenant agrees to attorn to the purchaser or assignee.
19.9 Interest. Any installment of Base Rent or any other sum due from
Tenant under this Lease which is received by Landlord after thirty (30) days
from when the same is due shall bear interest from said thirtieth (30th) day
until paid, at an annual rate equal to the greater of: (i) ten percent (10%); or
(ii) five percent (5%) plus the rate established by the Federal Reserve Bank of
San Francisco, as of the twenty-fifth (25th) day of the month immediately
preceding the due date, on advances to member banks under Sections 13 and 13(a)
of the Federal Reserve Act, as now in effect or hereafter from time to time
amended. Payment of such interest shall not excuse or cure any Default by
Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by
Landlord in collection of such amounts.
19.10 Parking.
19.10.1 Parking Areas. The "parking areas" for the Building are
comprised of the On-Site Parking Facilities and the Off-Site Parking Facilities.
"On-Site Parking Facilities" shall mean and refer to the subterranean parking
facilities located below the Building, which facilities are owned and operated
by Landlord pursuant to its rights under the Ground Lease. "Off-Site Parking
Facilities" shall mean and refer to such parking facilities located not more
than four blocks from the Building, which facilities will be operated by
Landlord or Landlord's designee pursuant to an operation agreement with the
Agency.
19.10.2 Tenant's Rights. Subject to the parking rules and
regulations set forth in Exhibit "F" attached hereto, Tenant shall have the
right to lease up to the number of parking spaces within parking facilities for
the Building specified in
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Section 1.12 above ("Tenant's Allowed Parking Spaces") on a nonexclusive basis.
Tenant shall, prior to the Commencement Date, notify Landlord of the actual
number of Tenant's Allowed Parking Spaces it intends to lease. Thereafter,
Tenant may reduce or increase the number of Tenant's Allowed Parking Spaces
actually leased by providing Landlord written notice thereof, which reduction or
increase shall become effective in the calendar month immediately following
such notice.
19.10.3 Parking Fees. Tenant shall, an a monthly basis, pay to
Landlord, for the number of Tenant's Allowed Parking Spaces actually leased by
Tenant pursuant to Section 19.10.2 above, the currently scheduled parking fees
for the parking areas for the Building which are in effect from time to time. As
of the date of execution of this Lease, the fees for unreserved parking spaces
located in the On-Site Parking Facilities is equal to Seventy-five Dollars ($75)
per space and for parking spaces located in the Off-Site Parking Facilities,
Fifty-five Dollars ($55) per space. The parking fees to be paid by Tenant for
Tenant's Allowed Parking Spaces shall be determined by Landlord and may be
adjusted by Landlord at any time during the Lease Term to conform to changes in
applicable market rates as reasonably determined by Landlord, from time to time.
19.10.4 Landlord's Right to Relocate Parking. Landlord reserves
the right to relocate the Off-Site Parking Facilities during the term of the
Lease in order to accommodate the course of construction of additional phases of
the Silicon Valley Financial Center. Landlord shall also have the right to
temporarily or permanently relocate and redesignate Tenant's spaces in the
On-Site Parking Facilities to other areas located in the On-Site Parking
Facilities in order to provide parking facilities for all tenants of the
Building.
19.11 Limitation on Landlord's Liability. Tenant, for itself and
its successors and assigns, hereby agrees that in the event of any actual, or
alleged, breach or default by Landlord under this Lease that:
(a) Tenant's sole and exclusive remedy against Landlord
shall be as against Landlord's interest in the Building;
(b) No partner of Landlord shall be sued or named as a
party in a suit or action (except as may be necessary to secure jurisdiction of
the partnership);
(c) No service of process shall be made against any
partner of Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(d) No partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(e) No judgment will be taken against any partner of
Landlord;
(f) Any judgment taken against any partner of Landlord may
be vacated and set aside at any time nunc pro tunc;
(g) No writ of execution will ever be levied against the
assets of any partner of Landlord;
(h) The covenants and agreements of Tenant set forth in
this Section 19.11 shall be enforceable by Landlord and any partner of Landlord.
19.12 waiver. The waiver by Landlord of any terms, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of Rentals hereunder by
Landlord shall
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not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of the Tenant to pay
the particular Rentals so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rentals.
19.13 Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in writing
and shall be served by personal service or mailing. All notices and demands
which are mailed shall be sent by United States first class mail (registered or
certified, return receipt requested), addressed to the addresses set forth in
Article 1 hereof, if sent prior to Tenant's taking possession of the Premises,
or at the Premises if sent subsequent to Tenant's taking possession of the
Premises, or at any place where Tenant or any agent, employee, or officer can be
found, if sent subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Premises or to such other place as either party may designate
to each other in accordance with the provisions of this Article 19.13. Any
notice given pursuant to this Section 19.11 shall be deemed served when
delivered by personal service, or as of seventy-two (72) hours after the deposit
thereof in the United States mail.
19.14 Joint and Several Obligation. If there be more than one (1) person
executing this Lease as "Tenant" or as a general partner of Tenant, then each
such person shall be jointly and severally liable for each and every duty and
obligation arising on the part of "Tenant" under this Lease. In addition to
Landlord's other rights and remedies as set forth herein and as provided by law,
Landlord shall have the right in the event of a breach or Default by Tenant
under this Lease, to proceed against any one or all of the persons executing
this Lease as Tenant.
19.15 Headings. The headings and titles to the Articles, Sections and
Subsections of this Lease are not part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
19.16 Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
19.17 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
19.18 Recordation. Neither Landlord nor Tenant shall record this Lease or
a short form memorandum hereof without the prior written consent of the other
party.
19.19 Quiet Possession. Upon Tenant paying the Rentals required hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
19.20 Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understandings, written or oral, pertaining to any
such matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. This Lease shall not be
effective or binding upon any party until fully executed by both parties hereto.
19.21 Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by
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reason of strike, labor troubles, acts of God, or any other cause beyond the
reasonable control of the Landlord.
19.22 Attorneys' fees. In the event of any action or proceeding brought
by either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the Court may adjudge reasonable
as attorneys' fees.
19.23 Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provisions shall remain in full force and
effect.
19.24 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
19.25 Choice of Law. This Lease shall be governed by the laws of the
State of California.
19.26 Brokers. Tenant warrants that it has had no dealings with any real
estate brokers or agents in connection with the negotiation of this Lease to
whom a commission or finder's fee is payable:
19.27 Exhibits. All Exhibits, Amendments, or Addendum attached hereto,
and all terms and conditions contained therein, are incorporated into, and shall
become part of, this Lease.
The parties hereto have executed this Lease on the dates specified
immediately adjacent to their respective signatures.
LANDLORD:
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
By: SFG SAN JOSE COMPANY, LLC, an
Indiana limited liability company
By: MELVIN SIMON ASSOCIATES, INC.
its Manager
Dated: By:
------------------------ --------------------------
Name:
------------------------
Title:
-----------------------
TENANT:
AboveNet, a California corporation
Dated: /s/ SHERMAN TUAN
----------------- ----------------------------------------
By: Sherman Tuan, president
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EXHIBIT "A"
FLOOR PLAN OF PREMISES
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EXHIBIT "B"
(Intentionally omitted)
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EXHIBIT "C"
(Intentionally Omitted)
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EXHIBIT "D"
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto:
As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide nonattended automatic elevator facilities Monday through
Friday, except holidays, from 7:30 a.m. to 6:00 p.m. and Saturdays from 7:30
a.m. to Noon, and have one elevator available at all other times. Should
Landlord determine that additional security is required in order to monitor
Tenant's usage of the freight or passenger elevators, Tenant shall reimburse
Landlord (determined as additional rent) for the costs of such additional
services.
(b) on Monday through Friday, except holidays, from 8:00 a.m. to 8:00
p.m., Saturdays from 9:00 a.m. to 1:00 p.m. (and at other times for a reasonable
hourly additional charge to be fixed by Landlord), ventilate the Premises and
furnish air conditioning or heating on such days and hours, when in the
judgment of Landlord it may be required for the comfortable occupancy of the
Premises. The aforesaid hours shall, for the purposes of Section 13.2, comprise
the "regular building hours". The air conditioning system achieves maximum
cooling when the window coverings are closed. Landlord shall not be responsible
for room temperatures if Tenant does not keep all window coverings in the
Premises closed whenever the system is in operation. Tenant agrees to cooperate
fully at all times with Landlord and to abide by all regulations and
requirements which Landlord may prescribe for the proper function and protection
of said air conditioning system. Tenant agrees not to connect any apparatus,
device conduit or pipe to the Building chilled and hot water air conditioning
supply lines. Tenant further agrees that neither Tenant nor its servants,
employees, agents, visitors, licensees or contractors shall at any time enter
the mechanical installations or facilities of the Building or adjust, tamper
with, touch or otherwise in any manner affect said installations or facilities.
The cost of maintenance and service calls to adjust and regulate the air
conditioning system shall be charged to Tenant if the need for maintenance work
results from either Tenant's adjustment of room thermostats or Tenant's failure
to comply with its obligations under this section, including keeping window
coverings closed as needed. Such work shall be charged at hourly rates equal to
then-current journeymen's wages for air conditioning mechanics.
(c) Furnish to the Premises, on Monday through Friday, except holidays,
from 8:00 a.m. to 8:00 p.m., Saturdays from 9:00 a.m. to 1:00 p.m. electric
current as required by the Building standard office lighting and fractional
horsepower office business machines in an amount not to exceed .025 KWH per
square foot per normal business day. Tenant agrees, should its electrical
installation or electrical consumption be in excess of the aforesaid quantity or
extend beyond normal business hours, shall be reimbursed by Tenant to Landlord
as Excess Utility Charges and/or After-Hour Charges pursuant to Section 13.2 of
the Lease. Tenant agrees not to use any apparatus or device in, or upon, or
about the Premises which may in any way increase the amount of such services
usually furnished or supplied to said Premises, and Tenant further agrees not to
connect any apparatus or device with wires, conduits or pipes, or other means by
which such services are supplied, for the purpose of using additional or
unusual amounts of such services without written consent of Landlord. Should
Tenant use the same to excess, the refusal on the part of Tenant to pay upon
demand of Landlord the amount established by Landlord for such excess charge
shall constitute a breach of the obligation to pay rent under this
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Lease and shall entitle Landlord to the rights therein granted for such breach.
At all times Tenant's use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installation.
(d) Water will be available in public areas for drinking and lavatory
purposes.
(e) Tenant shall provide it own janitor service to the Premises, provided
that any company retained by Tenant shall be subject to Landlord's approval and
any rules and regulations established by Landlord (from time to time). Tenant
shall assure that the Premises are to be kept clean. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish, to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of the Premises as offices.
Subject to the provision of Section 13.1 and 19.5, Landlord reserves the
right to stop service of the elevator, plumbing, ventilation, air conditioning
and electric systems, when necessary, by reason of accident or emergency or for
repairs, alterations or improvements, in the judgment of Landlord desirable or
necessary to be made, until said repairs, alterations or improvements shall have
been completed, and shall further have no responsibility or liability for
failure to supply elevator facilities, plumbing, ventilating, air conditioning
or electric service, when prevented from so doing by strike or accident or by
any cause beyond Landlord's reasonable control, or by laws, rules, orders,
ordinances, directions, regulations or requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel.
Tenant shall comply with all rules, regulations and requirements
promulgated by national, state or local governmental agencies or utility
suppliers concerning the use of utility services including any rationing,
limitation or other control on the quantity of utilities consumed.
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EXHIBIT "E"
RULES AND REGULATIONS
1. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window or glass door on the Premises without the
prior written consent of Landlord. In any event, with the prior written consent
of Landlord, said above items shall be installed inboard of Landlord's standard
window covering and shall in no way be visible from the exterior of the
Building. No articles shall be placed or kept on the window sills so as to be
visible from the exterior of the Building.
2. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. The halls,
passages, exists, entrances, elevators, escalators and stairways are not open to
the general public, but are open, subject to reasonable regulation, to Tenant's
business invitees. Landlord shall in all cases retain the right to control and
prevent access thereto of all persons whose presence in the judgment of Landlord
would be prejudicial to the safety, character, reputation and interest of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
3. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude and limit any other names therefrom.
4. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
shall be employed by Tenant or permitted to enter the Building for the purpose
of cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
Landlord shall in no event be responsible to Tenant for any loss of property on
the Premises, however occurring, or for any damage done to the effects of Tenant
by the janitor or other employee or any other person. Janitor service will not
be furnished on nights when rooms are occupied after 9:00 p.m. Window cleaning
shall be done only at regular and customary times determined by Landlord for
such services.
5. Landlord will furnish Tenant, free of charge, with two keys to each
corridor door lock in the Premises. Landlord may make a reasonable charge for
any additional keys. Tenant shall not make or have made additional keys, and
Tenant shall not alter any lock or install new additional lock or bolt on any
door of its Premises. Tenant, upon the termination of its tenancy, shall deliver
to Landlord the keys of all doors which have been furnished to Tenant, and in
the event of loss of any keys so furnished, shall pay Landlord therefor.
6. No boring or cutting for telephone, telegraph, burglar alarms,
electric wires or similar services shall be allowed without the consent of
Landlord and any such wires permitted shall be introduced at the place and in
the manner described by Landlord. The location of telephones, speakers, fire
extinguishers and all other office equipment affixed to premises occupied by
tenants shall be subject to the written approval of Landlord. Each tenant shall
pay all expenses incurred in connection with the installation of its equipment,
including any telephone, telegraph and electricity distribution equipment.
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7. The Building freight elevator(s) shall be available for use by all
tenants in the Building, subject to such reasonable scheduling as Landlord, in
its discretion, shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in the
Building or carried in the elevators except between such hours and in such
elevators as may be designated by Landlord. Tenant's initial move in and
subsequent deliveries of bulky items, such as furniture, safes and similar items
shall, unless otherwise agreed in writing by Landlord, be made during the hours
of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal
office hours shall be limited to normal office supplies and other small items.
No deliveries shall be made which impede or interfere with other tenants or the
operation of the Building. Landlord reserves the right to refuse the
transporting of any materials in the elevators which may be of a hazardous or
bulky nature, or be beyond the loading capacity or operational capacity of the
elevators. Tenant shall be liable for any and all repairs to the elevators due
to the improper use or misuse of the elevators by Tenant, its agents, employees
or invitees.
8. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight, which platforms shall be provided at Tenant's
expense. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment on other property shall be repaired at the expense of
Tenant.
9. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
10. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord.
11. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Buildings heating and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has
actual notice, and shall refrain from attempting to adjust controls. Tenant
shall keep corridor doors closed, and shall close window coverings at the end of
each business day.
12. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Saturdays, Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Building and has a pass or is properly identified. Tenant shall be
responsible for all persons for whom it requests passes and shall
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be liable to Landlord for all acts of such persons. Landlord shall not be liable
for damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
13. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
14. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such hours and under such
regulations as may be fixed by Landlord. No cooking shall be done or permitted
on the Premises except for that used by Tenant of U.L. approved equipment for
the brewing of coffee, tea and other similar beverages.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
16. Tenant shall not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
17. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere. Tenant shall not install any burglar alarm, security
system, or other similar protection device without the prior written approval of
Landlord.
18. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except in accordance with the provisions of the Lease pertaining to
alterations. Landlord reserves the right to direct electricians as to where and
how telephone and telegraph wires are to be introduced to the Premises. Tenant
shall not cut or bore holes or wires. Tenant shall not affix any floor covering
to the floor of the Premises in any manner except as approved by Landlord.
Tenant shall repair any damage resulting from noncompliance with this rule.
19. Tenant shall not install, maintain or operate upon the Premises any
vending machines without the written consent of Landlord.
20. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
21. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
22. Tenant shall store all its trash and garbage within its Premises or
in other facilities provided by Landlord. Tenant shall
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not place in any trash box or receptacle any material which cannot be disposed
of in the ordinary and customary manner of trash and garbage disposal. Tenant
shall be charged accordingly for any costs incurred in the removal of rubbish or
debris not commonly incurred in normal business activity. All garbage and refuse
disposal shall be made in accordance with directions issued from time to time by
Landlord.
23. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted on the Premises without
Landlord's consent, except that use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar beverages
or use of microwave ovens for employee use shall be permitted, provided that
such equipment and use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the
Building any hand truck except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Building.
25. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
26. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
27. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
28. Tenant's requirements will be attended to only upon appropriate
application to the Building management office by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord, and no employee
of Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
29. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of Tenant's Lease of its Premises in the
Building.
31. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
32. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
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33. Tenant shall cooperate with Landlord in complying with all
resolutions and requirements established by governmental agencies relative to
transportation and transit conditions established for the Building and shall
designate a responsible employee to represent Tenant in all matters pertaining
to transportation.
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EXHIBIT "F"
PARKING RULES AND REGULATIONS
The following rules and regulations shall govern use of the parking areas
and facilities for the Building (the "Parking Areas");
1. Tenant shall not park or permit the parking of any vehicle under its
control in any areas designated by Landlord as parking areas for visitors to the
Building. Tenant shall not park any vehicles in the Parking Areas other than
automobiles, motorcycles, motor driven or nonmotor driven bicycles or
four-wheeled trucks.
2. Parking stickers or any other device or form of identification
supplied by Landlord as a condition of use of the Parking Areas shall remain the
property of Landlord. Such parking identification device must be displayed as
requested and may not be mutilated in any manner. The serial number of the
parking identification device may not be obliterated. Devices are not
transferable and any device in the possession of an unauthorized holder will be
void.
3. No overnight or extended term storage of vehicles shall be permitted.
4. Vehicles must be parked entirely within the painted stall lines of a
single parking stall.
5. All (directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be 5 miles per hour.
7. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) on ramps;
(e) in cross hatched areas; and
(f) in such other areas as may be designated by Landlord or
Landlord's Parking Operator.
8. Every parker is required to park and lock his own vehicle. All
responsibility for damage to vehicles is assumed by the parker.
9. Loss or theft of parking identification devices from automobiles must
be reported immediately, and a lost or stolen report must be filed by the
customer at that time. Landlord has the right to exclude any car from the
Parking Areas that does not have an identification device. Any parking
identification devices reported lost or stolen found on any unauthorized car
will be confiscated and the illegal holder will be subject to prosecution. Lost
or stolen devices found by the purchaser must be reported immediately to avoid
confusion.
10. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
11. Landlord reserves the right to refuse the sale of monthly stickers or
other parking identification devices to any tenant or person and/or his agents
or representatives who willfully refuse to comply with these Parking Rules and
Regulations and all
39
<PAGE> 44
unposted City, State or Federal ordinances, laws or agreements.
12. Landlord reserves the right to modify and/or adopt such other
reasonable and nondiscriminatory rules and regulations for the parking
facilities as it deems necessary for the operation of the parking facilities.
Landlord may refuse to permit any person who violates these rules to park in the
parking facilities, and any violation of the rules shall subject the car to
removal.
40
<PAGE> 1
EXHIBIT 10.19
18th Floor
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement ("Amendment") is made and entered into
on this 24th day of December, 1996 (the "Effective Date"), by and between 50
West San Fernando Associates, a California Limited Partnership ("Landlord"), and
AboveNet, a California corporation ("Tenant"), and recites as follows:
RECITALS
A. Landlord and Tenant entered into that certain Lease Agreement dated May 15,
1996 (the "Lease"), pursuant to which Landlord leased to Tenant, and Tenant
leased from Landlord, certain premises consisting of approximately 2000
rentable square feet located on the 18th floor of that certain building
located at 50 West San Fernando Street, San Jose, CA. (the "Premises").
Except as otherwise provided herein, the capitalized terms used herein
shall have the same meanings and definitions as are set forth in the Lease.
B. The Lease provides to Tenant certain rights to cancel the Lease prior to
the Termination date set forth therein. As an inducement for Landlord to
lease additional space within the Building to Tenant (pursuant to a
separate lease) and for other good and valuable consideration, Tenant is
willing to release any rights it may have to cancel the Lease.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows:
1. EXTINGUISHMENT OF TENANT'S RIGHT TO CANCEL. The provisions of Section 2.6
of the Lease and any other provisions of the Lease which may grant to
Tenant the right to cancel or terminate the Lease or to otherwise relieve
Tenant of any of its obligations under the Lease prior to the Termination
date are hereby deleted and, as of the Effective Date hereof, shall be of
no further force or effect. This Amendment shall constitute a waiver by
Tenant of any of the cancellation or termination rights referenced in this
Section 1 and a full revocation of any attempt on the part of Tenant,
whether prior to or following the Effective Date hereof, to exercise any
such cancellation or termination rights.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. The terms and provisions of this Amendment
shall inure to the benefit of and shall be binding upon the parties
hereto and their respective successors and assigns.
2.2 INTEGRATION. The terms and provisions of this Amendment shall
constitute all of the terms and provisions which have been agreed to
between Landlord and Tenant with respect to the amendment of the Lease
and there are no other terms
1
<PAGE> 2
and provisions, oral or written, which apply to the amendment of
the Lease except as set forth herein and in the Lease.
2.3 COUNTERPARTS. This Amendment may be executed in multiple
counterparts, and all of such counterparts shall together
constitute one fully executed document.
2.4 FULL FORCE AND EFFECT. Except as amended by this Amendment, the
terms and provisions of the Lease shall remain unmodified and in
full force and effect (including, without limitation, any rights
which Landlord may have to cancel or terminate the Lease, as set
forth in Section 16.2.1 and elsewhere in the Lease). In the event
of any conflict or inconsistency between the terms and provisions
of this Amendment and the terms and provisions of the Lease, the
terms and provisions of this Amendment shall control.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment on
the date first set forth above.
LANDLORD:
50 WEST SAN FERNANDO ASSOCIATES,
a California limited partnership
By: SFG SAN JOSE COMPANY, LLC, INC.
an Indiana limited liability company
By: MELVIN SIMON & ASSOCIATES, INC.
its Manager
By: [SIG]
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
TENANT:
ABOVENET,
a California corporation
By: /s/ SHERMAN TUAN
-------------------------------
Sherman Tuan, president
<PAGE> 1
EXHIBIT 10.20
18th Floor
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (the "Second Amendment") is dated as of
February 23, 1998, for reference purposes only, and is made between 50 West San
Fernando Associates, a California limited partnership ("Landlord") and
AboveNet, a California corporation ("Tenant") with reference to the following
facts and circumstances, which are conclusively agreed between the parties:
A. Landlord and Tenant are parties to that certain Office
Lease dated for reference purposes as of May 24, 1996, as amended by
First Amendment to Lease dated as of December 12, 1996 (collectively
referred to as the "Lease"). All capitalized words having an assigned
meaning in the Lease shall continue to have such meaning in this
Amendment unless explicitly modified.
B. The Lease relates to Landlord's premises located on the
18th floor of Landlord's property located at 50 West San Fernando Street,
San Jose, California (the "Building"). Said 18th floor premises are
divided into the following spaces, which are more exactly located and
identified on the floor plan which is attached hereto as Exhibit "A" and
incorporated by reference herein.
<TABLE>
<CAPTION>
USEABLE
SPACE SQUARE FEET
- ----- -----------
<S> <C>
A 1,560
B 857
C 737
D 1,813
E 4,005
===== =====
TOTAL 8,972
</TABLE>
The total rentable square feet in these spaces is 9,842.28.
C. Pursuant to the Lease, Tenant has leased from Landlord a
total of 2,402.43 rentable square feet of space constituting Space D and
<PAGE> 2
Second Amendment To Lease Page 2 of 17
- --------------------------------------------------------------------------------
a portion of Space C (comprising 413.57 rentable square feet) of the 18th
floor of Landlord's Building located at 50 West San Fernando Street, San
Jose, California. Pursuant to oral permission from Landlord, Tenant has
also been occupying and using the remainder of Space C since July 1, 1997
(containing the remaining 323.43 rentable square feet). Spaces C and D are
referred to herein as the "Existing Premises". The Lease of the Existing
Premises is currently scheduled to expire on May 31, 2001.
D. Landlord and Tenant wish to amend the Lease to add to the
Existing Premises that certain space comprising all of Spaces A, B, and E
(collectively referred to as the "18th Floor Expansion Space"), which
contains a total of 7,440.25 rentable square feet of space, on the terms
and conditions set forth below. As a part of this same transaction,
Landlord and Tenant wish to extend the term of Tenant's lease on the
Existing Premises such that said term is coterminous with the term on the
18th Floor Expansion Space, to settle various other issues between
Landlord and Tenant, and to grant Landlord and Tenant various other
rights. The Existing Premises and the 18th Floor Expansion Space are
referred to herein collectively as the "Premises", and all references in
the Lease to the Premises shall be, as regards periods of time following
the execution hereof, to the totality of such space, which shall comprise
9,842.28 rentable square feet.
Now, therefore, in consideration of all of the foregoing facts and
circumstances, and for good and valuable consideration, the receipt of which is
acknowledged by each party, Landlord and Tenant agree to and do amend the Lease
as follows:
1. DEMISE OF 18TH FLOOR EXPANSION SPACE
Commencing on the Second Amendment Commencement Date (defined below) and
subject to the terms and provisions of the Lease and this Second Amendment,
Landlord hereby leases to Tenant, and Tenant leases from Landlord, the 18th
Floor Expansion Space. All of the Existing Premises and the 18th Floor
Expansion Space shall be deemed leased under one single, inseparable lease.
<PAGE> 3
Second Amendment To Lease Page 3 of 17
- --------------------------------------------------------------------------------
A. EXCEPTION; SPACE B: Notwithstanding anything to the contrary
herein or in the Lease, Tenant understands and acknowledges that its
lease will be subject to the occupancy of 4 storage tenants in Space B.
Landlord will make its best efforts to relocate these storage tenants no
later than sixty (60) days after the Second Amendment Commencement Date.
Tenant's duty to pay rent will begin as to the entire Premises on the
Second Amendment Commencement Date, notwithstanding this continued
occupation, but if Landlord cannot remove the storage tenants within the
time allowed, then Tenant's rent on Space B shall be abated starting on
the 61st day and continuing until Landlord relocates the storage tenants.
As to storage tenants remaining in Spaces B and E, Tenant will pay directly or
reimburse Landlord for the cost of a moving company to relocate such tenants to
other storage space(s), will reimburse Landlord $3,200.00 on execution hereof
for the recently incurred costs of storage cages in these Spaces, and will meet
any other reasonably incurred costs of relocating such storage tenants.
2. LEASE TERM FOR EIGHTEENTH FLOOR; EXTENSION OF LEASE TERM FOR EXISTING
PREMISES
Subject to the terms and provisions of this Second Amendment, Landlord
and Tenant agree that the Lease Term of the Existing Premises shall be and
hereby is extended as follows: The Lease Term shall continue from the Second
Amendment Date for the remainder of a calendar month (if the Second Amendment
Commencement Date occurs on a date other than the first day of a calendar
month) plus one hundred twenty (120) full calendar months and expire, unless
sooner terminated pursuant to the provisions of the Lease and this Second
Amendment, on the last day of the 120th full calendar month following the
Second Amendment Commencement Date (the "Lease Term Expiration Date"). The Lease
Term for the 18th Floor Expansion Space shall begin on the Second Amendment
Commencement Date and be coterminous with the Lease Term of the Existing
Premises, and thus will also end, unless sooner terminated pursuant to the
provisions of this Lease and this Second Amendment, on the Lease Term Expiration
Date. Effective on execution hereof, Paragraph 1.6 ("Term") of the Lease shall
be of no further force or effect, but shall be deemed replaced by this
Paragraph.
- --------------------------------------------------------------------------------
<PAGE> 4
Second Amendment To Lease Page 4 of 17
- --------------------------------------------------------------------------------
3. ROOF ACCESS AND SATELLITE RECEIVER MAINTENANCE
Tenant may use and access the roof of the Building for the installation,
placement, operation, or maintenance of satellite dishes, receivers, antennas,
electronic equipment, or other items, as follows. As space and availability
permits, Landlord will permit satellite dishes, receivers, antennas, electronic
equipment, or other items to be placed by AboveNet customers on the roof of the
Building, each pursuant to a separate written agreement providing for separate
compensation to Landlord by the AboveNet customer. Such license agreements shall
be on a master license form which Landlord will prepare, and shall be priced at
a fair market value for the use of such space. Tenant understands and agrees
that the right granted hereby is not exclusive and that Landlord may allow and
charge others to use the roof for similar purposes or otherwise. In addition to
all other waivers and indemnities granted under the Lease and this Amendment,
Tenant waives all claims and liabilities against Landlord resulting from the use
and access to the roof area of the Building by Tenant and/or its agents,
servants, employees, customers, customer representatives, and any other persons
permitted such access by Tenant, agrees to indemnify and defend Landlord and its
agents, servants, employees, attorneys, officers, directors, partners, and
management companies against any claim, loss or damage resulting therefrom.
Tenant and all persons who have access to the roof of the Building through
Tenant shall at all times obey and follow rules and procedures relating to roof
access and work which have been or will be established by Landlord, and all
directives and orders of Landlord relating to roof access. In addition, roof
access by Tenant, its customers, and its vendors shall be conducted only
pursuant to Landlord's permission and with a Landlord's representative present
throughout the access; installation of equipment or any other items on the roof
shall be only with the written advance permission of Landlord; and vendor access
will also be conducted only after submission of proof of current liability and
worker's compensation insurance with limits satisfactory to Landlord, provision
of names of personnel, company name and address, and provision of a schedule of
maintenance or work. The provisions of this Paragraph also apply to any
existing installations on the roof of the Building which belong to Tenant or its
customers or which have been allowed or permitted by Tenant to be placed on the
roof. Within 60 days of execution hereof, all such existing installations will
be made the subject of new written agreements between Landlord and AboveNet
and/or its customer, as the case may be, which will conform to all of the above
requirements.
<PAGE> 5
Second Amendment To Lease Page 5 of 17
________________________________________________________________________________
4. EXTRA MONTHLY BASE RENT
Tenant agrees to pay Landlord a sum for its use of the 323.43 rentable
space foot portion of Space C up to the Second Amendment Commencement Date,
calculated by multiplying the Base Monthly Rental Rate of $0.50 per rentable
square foot times 323.43 rentable square feet times the number of months from
July 1, 1997 (the date on which this use began) to the Second Amendment
Commencement Date. Said sum shall be paid on the Second Amendment Commencement
Date.
5. PLACEMENT AND OPERATION OF GENERATOR:
Tenant shall not place any electrical generation equipment in the Premises
or on the roof above the Premises. However, Tenant shall have the right to keep
and maintain an electrical generator in a space adjacent to that used for the
Building generator on floor P-1 of the Building parking area at the bottom of
the ramp. The generator will require approximately 325 square feet of space.
Tenant will pay Landlord as Additional Rent the sum of $150.00 per month to
reimburse Landlord for the cost of the parking spaces which will be consumed by
Tenant's generator. Tenant will pay all costs of installation, maintenance,
repair, and upkeep of the generator, including reimbursing Landlord for any
costs which Landlord is required to expend on account of the installation,
maintenance, repair, or use of the generator. Upon expiration or earlier
termination of the Lease, Tenant will remove the generator and restore the
Building in all respects to its condition prior to installation.
6. SECOND AMENDMENT COMMENCEMENT DATE
Landlord shall deliver occupancy of the 18th Floor Expansion Space to
Tenant on February 14, 1998 (the "Second Amendment Commencement Date"). In the
event that Landlord does not deliver on said date, however, the Second
Amendment Commencement Date shall be the actual date of delivery. This Second
Amendment shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, if Landlord is unable to deliver
the 18th Floor Expansion Space by the Second Amendment Commencement Date,
provided, that no Rent shall be payable by Tenant on the 18th Floor Expansion
Space for any period prior to the date on which possession of the 18th Floor
Expansion Space is delivered by Landlord. However, possession shall be deemed
to be delivered notwithstanding the remaining
________________________________________________________________________________
<PAGE> 6
Second Amendment To Lease Page 6 of 17
- --------------------------------------------------------------------------------
rights of storage tenants as set forth in Paragraph 1A.
7. INCREASES IN PROPERTY TAXES:
In the event that Tenant's use, occupancy, improvement, or maintenance of
the Premises on the 18th floor of the Building causes an increase in the amount
of property taxes payable by Landlord, Tenant shall pay Landlord the amount of
such increase, as Additional Rent hereunder. Landlord may require Tenant to pay
such amounts to Landlord thirty (30) days prior to the date on which each such
tax payment is due, or Landlord may estimate the tax payments for each calendar
year, provide Tenant with such estimates in writing, and require Tenant to pay
one twelfth of such annual estimates in advance on a monthly basis. If Landlord
elects to require Tenant to pay on estimates, Landlord will provide Tenant with
a written reconciliation of estimates with actual expenses after the close of
each calendar year, and there shall be an immediate adjusting by Tenant if
actual expenses have been underpaid or by Landlord if actual expenses have been
overpaid.
8. INCREASES IN MONTHLY RENT
Tenant's Monthly Rent on the Existing Premises shall remain as set forth
in the Lease through the Second Amendment Commencement Date (plus the
additional Monthly Rent for Space C as set forth in Paragraph 4 hereof.
Tenant's Monthly Rent from and after the Second Amendment Commencement Date for
the Premises shall be as set forth in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Total
Rentable Square Per Rentable Monthly
Lease Year Feet Square Foot Rent
- ------------------------------------------------------------------
<S> <C> <C> <C>
1* 9,842.28 $2.50 $24,605.70
2** 9,842.28 $2.70 $26,574.16
3 9,842.28 $2.90 $28,542.61
4 9,842.28 $3.10 $30,511.07
5 9,842.28 $3.30 $32,479.52
6 9,942.28 $3.50 $34,447.98
7 9,942.28 $3.70 $36,416.44
- ------------------------------------------------------------------
</TABLE>
<PAGE> 7
Second Amendment To Lease Page 7 of 17
________________________________________________________________________________
<TABLE>
<S> <C> <C> <C>
------------------------------------------
8 9,842.28 $3.90 $38,384.89
------------------------------------------
9 9,842.28 $4.10 $40,353.35
------------------------------------------
10 9,842.28 $4.20 $41,337.58
------------------------------------------
</TABLE>
* Includes twelve full calendar months plus the partial month, if any,
between the Second Amendment Commencement Date and the last day of the calendar
month in which it occurs.
** This and all following Lease Years begins on the day following the end of
the preceding Lease Year.
9. INCORPORATION OF 18TH FLOOR EXPANSION SPACE INTO THE PREMISES:
From and after the Second Amendment Commencement Date, all of the terms
and conditions of the Lease, as the same are amended and modified in this
Second Amendment, shall be applicable to the 18th Floor Expansion Space in the
same manner as applicable to the Existing Premises.
10. SECURITY DEPOSIT
Upon execution hereof, the Security Deposit pursuant to this Lease shall
be increased from the current amount of $2,000 to an amount equal to the first
month's Base Rent hereunder, that is, $24,605.70.
11. OPTION TO EXTEND LEASE TERM FURTHER
Landlord hereby grants to Tenant two (2) options (the "Options") to extend
the Lease Term with respect to the Premises on the following terms and
conditions:
A. GRANT: The Options shall give Tenant the right to extend the Lease
Term (as set forth herein) for two additional periods each of which shall be
five (5) years in length (each of which is referred to herein as an "Extended
Term");
B. NOTICE: Tenant shall give Landlord written notice of its exercise
of the Option (the "Notice of Exercise") no earlier than eighteen (18) nor
later than fourteen (14) months before the date on which the Lease Term would
end but for said exercise.
________________________________________________________________________________
<PAGE> 8
Second Amendment To Lease Page 8 of 17
________________________________________________________________________________
Unless a valid Notice of Exercise is given during the period specified in this
Subparagraph, the Option shall be null, void, and of no force or effect. At any
time that the Option has become null, void, and of no further force or effect,
Tenant shall, at Landlord's written request, sign such documents as Landlord
shall reasonably propose, establishing in recordable form that the Option no
longer exists.
C. CONDITIONS: Tenant may not extend the Lease Term pursuant to this
Paragraph if (i) there is a Default by Tenant on the date of Tenant's Notice of
Exercise; and/or (ii) Tenant has assigned or otherwise transferred its interest
in this Lease and/or the Premises, whether or not Landlord has consented to
such assignment or transfer, on the date of Tenant's Notice of Exercise; and
any purported Notice of Exercise given under either of such circumstances shall
be of no force or effect. The period of exercise of the Option shall not be
extended for any period in which Tenant is unable to exercise the Option by
reason of a Default, assignment, or transfer by Tenant; provided, however, that
if there is a Default by Tenant which prevents Tenant from giving a valid
Notice of Exercise and the Default by Tenant is later cured by Tenant within
the applicable exercise period (without extension), then Tenant may exercise
the Option by giving a new Notice of Exercise prior to the end of such
unextended exercise period. If there is a Default by Tenant on the date that
the Extended Term is to commence, and said Default has continued uncured past
the applicable cure periods set forth in Paragraph 16.2 of the Lease, then
Landlord may elect to terminate this Lease by written notice to Tenant, in
which case the Lease shall terminate notwithstanding any Notice of Exercise,
and in such case, the Notice of Exercise, the Option, and the Extended Term
shall be of no force or effect (and any further Option shall be void). In such
case, Landlord shall give the Tenant notice that Landlord elects to terminate
the Lease on such grounds, no later than ten (10) days after the Extended Term
would have otherwise commenced, which notice shall set a date not less than
thirty (30) nor more than sixty (60) days after the date on which the notice is
given, upon which date the Lease shall terminate and Tenant shall deliver
possession of the Premises to Landlord.
D. TERMS: Except as otherwise specifically excluded, all terms and
conditions of the Lease as amended by this Second Amendment (except of this
option) shall apply during any Extended Term created by Tenant's proper
exercise of the Option, except that the Base Rent for the Extended Term shall
be determined in accordance with Section 4 below, and the Tenant Improvement
Allowances set forth
________________________________________________________________________________
<PAGE> 9
Second Amendment To Lease Page 9 of 17
________________________________________________________________________________
in the Lease and in this Second Amendment shall not be applicable to any
Extended Term.
E. FORMATION OF CONTRACT BY NOTICE: Once Tenant delivers notice of its
exercise of the Option, Tenant may not withdraw such exercise and, subject to
the provisions of this Section, such notice shall automatically operate to
extend the Lease Term. Upon the extension of the Lese Term pursuant to this
Section, the term "Lease Term" as used in this Lease shall thereafter include
any Extended Term created by the exercise of the Option,and the Termination
Date shall be the expiration date of such Extended Term.
F. OTHER CONDITIONS TO EXERCISE: Tenant's options must be exercised
sequentially, and if Tenant does not exercise the first of the two Options, or
if, pursuant to the terms of this Section, the second Option shall thereupon,
and without further action by either party, immediately lapse and be of no
further force or effect. Each of the Options may be exercised only as to the
total Premises then leased by Tenant under this Lease as amended, including any
First Refusal Space which has been added to the Premises by Tenant's exercise
of its right of first refusal.
12. RENT DURING OPTION TERM.
If Tenant elects to extend the Term of the Lease pursuant to Paragraph 5
above, Base Rent for the Extended Term shall be an amount equal to the Fair
Market Rental Value (as defined below) of the Premises during such Extended
Term, but in no event less than the Base Rent due during the last year of the
Lease Term prior to such Extended Term. The amount of such Base Rent during the
Extended Term shall be determined as follows:
A. DETERMINATION OF FAIR MARKET RENTAL VALUE. The "Fair Market Rental
Value", as used herein, shall be the reasonable market rental value for the use
of the Premises permitted in this Lease (including, but not limited to,
considerations of rental rates for comparable space with comparable tenant
improvements located in the Building and in the central area of downtown San
Jose in which the Building is located, but not elsewhere, cost of living or
other rental adjustments, and the relative financial and credit strength of
Tenant versus other tenants of comparable properties), on a "full service"
basis, for a property which is already improved with the Tenant
________________________________________________________________________________
<PAGE> 10
Second Amendment To Lease Page 10 of 17
- --------------------------------------------------------------------------------
Improvements which are present in the Premises, but with such periodic
increases in rent during the Extended Term as the appraiser(s) shall determine
to be reasonable market lease conditions.
B. MUTUAL AGREEMENT. After timely receipt by Landlord of Tenant's
notice of exercise of an Option to extend the Lease Term, Landlord and Tenant
shall have a period of thirty (30) days in which to agree on the Fair Market
Rental Value of the Premises. If Landlord and Tenant agree on the Fair Market
Rental Value of the Premises, then they shall immediately execute an amendment
to this Lease stating such agreed upon Fair Market Rental Value as the Base
Rent for the Extended Term. If Landlord and Tenant are unable to so agree upon
the Fair Market Rental Value for the Premises, the provisions of Subparagraph
(c) below shall apply.
C. APPRAISAL. If Landlord and Tenant cannot agree in writing on a Fair
Market Rental Value for the Premises within five (5) days after the expiration
of the thirty (30) day period described in Subparagraph (b) above, each party,
at its cost and by giving notice to the other party, shall appoint an M.A.I.
real estate appraiser, with at least five (5) years full-time commercial
appraisal experience in this County, to appraise and set the Fair Market Value
of the Premises. If a party does not appoint an appraiser within five (5) days
after the other party has given notice of the name of its appraiser, the single
appraiser shall be the sole appraiser and shall set the Fair Market Rental
Value, and in such case, the cost of such sole appraiser shall be born equally
by the parties. If two appraisers are appointed by the parties as provided in
this Subparagraph, the appraisers shall meet promptly and attempt to set the
Fair Market Rental Value. If they are unable to agree within twenty (20) days
after the last appraiser has been appointed, then each of the two appraisers
shall prepare a written report setting forth the basis of and result of his/her
appraisal of the Fair Market Value of the Premises, and provide copies to
Landlord and Tenant. The two appraisers shall attempt to select and agree upon
a third appraiser meeting the qualifications stated in this Section within ten
(10) days after the last day the two appraisers are given to set the Fair
Market Rental Value. If they are unable to agree on the third appraiser, either
of the parties to this Lease, by giving ten (10) days notice to the other party,
may apply to the presiding judge of the Superior Court of County for the
selection of a third appraiser who meets the qualifications stated above.
Each of the parties shall bear one-half (1/2) of the cost (including attorney's
fees and court costs) of appointing the third appraiser and of paying the third
appraiser's fee. The
- --------------------------------------------------------------------------------
<PAGE> 11
Second Amendment To Lease Page 11 of 17
- --------------------------------------------------------------------------------
third appraiser, however selected, shall select which of the two appraisals
submitted by the parties' respective appraisers more closely represents the
Fair Market Rental Value for the Premises, which selection shall establish and
set the Fair Market Rental Value of the Premises for purposes of determining
the Base Rent during the Extended Term. The third appraiser shall be provided
with the written appraisals of the first two appraisers upon appointment, and
shall select which appraisal shall set Fair Market Rental Value within ten (10)
days of appointment, by a written selection provided to Tenant and Landlord.
13. LAPSE OF EXPANSION OPTION AND WAIVER OF OTHER RENEWAL OPTIONS
Tenant agrees that the execution of this Second Amendment substitutes new
obligations in lieu of Tenant's option to extend the Lease Term granted under
Paragraph 3.4 of the Lease and Tenant's Expansion Option granted in Paragraphs
2.5, 2.5.1, and 2.5.2 of the Lease, that such options to extend and expand
shall be of no further force or effect upon execution hereof, and accordingly,
that on execution hereof, Paragraphs 3.4 and 2.5, 2.5.1, and 2.5.2 shall be
deemed deleted from the Lease.
14. CONDITION OF PREMISES.
Tenant is currently in possession of the Existing Premises and is
familiar with their condition, and Tenant has had the opportunity to become
familiar with the 18th Floor Expansion Space and to perform any investigations
of its condition and suitability as Tenant deemed necessary or appropriate.
Tenant accepts the Premises in their current condition, "AS-IS", with all
faults, and acknowledges that neither Landlord, nor any agent, employee,
manager, or attorney of Landlord, has made any representations or warranties
with respect to the Premises or the Building, or with respect to the
suitability of either for the conduct of Tenant's business.
Tenant recognizes that, in order to access the 18th floor, Tenant and its
invitees and employees are using Landlord's freight elevator on a non-exclusive
basis for passenger service as well as freight, and that Landlord will continue
to use said elevator as the freight elevator for the Building. Pursuant to
agreement, Landlord will, at its cost and expense, remove the protective pads
and replace the floor of the freight elevator. Tenant agrees that it will be
responsible financially for the additional
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Second Amendment To Lease Page 12 of 17
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maintenance, repair, and replacement of all or part of the freight elevator due
to Tenant's use and due to the removal of the protective surfaces, and that it
will pay Landlord's invoices for such expenses, as Landlord shall reasonably
determine, within ten (10) days of receipt, as Additional Rent.
15. CONSTRUCTION OF TENANT IMPROVEMENTS IN THE 18TH FLOOR EXPANSION SPACE
Tenant may construct Tenant Improvements in the 18th Floor Expansion
Space pursuant to the provisions of the Lease and of this Second Amendment.
A. All construction of Tenant Improvements must be through a licensed
general contractor approved in advance in writing by Landlord, and pursuant to
building and other required permits issued by the City of San Jose. Landlord
shall also have the right to approve all subcontractors who will be working in
the Building.
B. Tenant shall construct any Tenant Improvements pursuant to plans and
specifications which have been submitted to and approved in writing by
Landlord prior to the beginning of construction, including (1) any engineering
and load calculations and (2) power and energy calculations, each as Landlord
shall deem necessary or appropriate. Such construction shall be in accordance
with all laws and regulations applicable thereto, and subject to the
confirmation of insurance as provided in the Lease. Tenant shall pay for any
and all construction work and materials performed in regard to such Tenant
Improvements, and shall keep the Building free and clear of all liens or
encumbrances relating thereto in accordance with Paragraph 10.3 of the Lease.
Construction shall otherwise be in accordance with the rules and requirements
of Paragraphs 10.1 of the Lease. Tenant's contractor shall obey all regulations
and directives of Landlord's management staff, and shall cooperate with said
staff to minimize any inconvenience and/or damage to the Building. Prior to the
start of construction, Tenant's contractor shall deposit with Landlord the sum
of $1,000.00, which Landlord shall hold as a deposit against any damages to the
Building, damage to neighboring tenants, completion of any common area or
Building punchlist items, and full compliance with all Building regulations and
directives.
C. Tenant will pay all Monthly and Additional Rent payable hereunder,
<PAGE> 13
Second Amendment To Lease Page 13 of 17
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including making such payments during any period of construction of Tenant
Improvements in any of the Premises.
D. Landlord will grant Tenant permission to redecorate and upgrade the
common area elevator lobby on the 18th floor of the Building, at Tenant's sole
cost of expense, and subject to all of the above requirements and all
requirements of Paragraph 10.3 of the Lease.
Subject to all of the foregoing requirements, Tenant shall construct and
agrees to install, maintain, and use a 1200 amp separately metered electrical
service, including a transformer. Installation and maintenance of the service
and transformer (as well as all necessary associated wiring and other matters)
shall be at Tenant's sole cost and expense. The transformer and service are to
be located in Tenant's space on the 18th floor and separately metered. Tenant
shall contract for service and directly pay all electrical bills incurred in
this regard.
16. UTILITIES
Upon execution hereof, Tenant shall pay to Landlord, as Rent, and in
addition to all other sums due under the Lease, the amount of $22,500.00 as and
for the parties' agreed estimate of excess utility costs for the 18th floor
space in the Building occupied by Tenant from January 1, 1997 through
September 30, 1997. The parties agree that from and after October 1, 1997, and
throughout the term of the Lease as amended hereby, Landlord has caused the
utilities for the 18th floor space used by Tenant to be separately metered, and
Tenant agrees to pay, as Rent, any and all sums due under such separately
metered utilities, said payments to be due upon presentation of invoices and
deemed overdue and in default ten (10) days thereafter.
17. PARKING
Subject to the provisions of the Lease relating to parking, Landlord
shall make available to Tenant three (3) unreserved parking spaces in the
Off-Site Parking Facilities from execution hereof and in addition, from and
after September 1, 1998, five (5) unreserved spaces in the On-Site Parking
Facilities, all at the standard rates charged by Landlord or its contractor for
the use of such spaces. To the extent that Landlord is able to accommodate
these needs consistent with its obligations to other
<PAGE> 14
Second Amendment To Lease Page 14 of 17
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tenants, Landlord will make the five (5) unreserved spaces in the On-Site
Parking Facility available earlier, but Tenant understands that (1) doing so
will require Landlord to terminate existing parking spaces which are in excess
of tenant's lease rights and (2) Tenant is currently using parking in excess of
its lease rights under its other leases and would probably have to give up its
excess parking use under its other leases and would probably have to give up its
excess parking use under other leases to accommodate these five spaces in the
period prior to September 1, 1998.
18. CROSS-DEFAULT:
Tenant acknowledges and agrees that it is currently leasing other portions
of the Building pursuant to another lease between Landlord and Tenant relating
to other premises in the Building, which lease is dated for reference purposes
as of May 15, 1996 (relating to space on the 10th floor) as amended from time to
time (the "Other Premises Lease"), that any Default by Tenant under this Lease
shall be considered a Default by Tenant under the Other Premises Lease, and that
any Default by Tenant under the Other Premises Lease shall be considered to be a
Default By Tenant under this Lease. Accordingly, this Lease is amended to add
the following Subparagraph (g) to the list of occurrences which constitute a
Default by Tenant:
(g) Any Default by Tenant under the Other Premises Lease between
Landlord and Tenant, as amended from time to time.
Provided that Landlord has given any notice and opportunity to cure required by
the Other Premises Lease, Landlord shall not be required to give any further
notice or offer any further opportunity to cure a Default by Tenant under the
Other Premises Lease in order to have such be considered a Default by Tenant
hereunder. Any notice given by Landlord in order to satisfy the requirements of
Other Premises Lease which meets the requirements of California Code of Civil
Procedure Section 1161 shall also satisfy the notice requirements of such
Section regarding unlawful detainer proceedings as to the premises which are the
subject of this Lease, and no further notice shall be required. Tenant agrees
that any Default by Tenant under this Lease shall also be considered a Default
by Tenant under the Other Premises Lease. If there is a Default by Tenant under
the Other Premises Lease, Landlord may, but is not required to, pursue any or
all rights and remedies (separately or in combination) granted to Landlord under
either such lease in regard to default.
<PAGE> 15
Second Amendment To Lease Page 15 of 17
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19. ADMINISTRATIVE AND MANAGEMENT SERVICES BY LANDLORD
In the event that, at Tenant's request, Landlord or Landlord's management
company renders any administrative or management services to Tenant for matters
which are outside the scope of Landlord's obligations under this Lease
(including, but not limited to, construction management or administration,
ordering special products, arranging extra janitorial or other services by
building staff or subcontractors, finding and engaging contractors,
subcontractors, or other goods and services providers, finding and engaging
repair persons for Tenant's equipment and property, purchasing materials or
supplying labor, and/or performing any services or providing any goods where
Landlord expends funds which are to be reimbursed by Tenant and then bills
Tenant for the cost thereof, which are referred to herein as "Extra Services"),
Landlord shall be entitled to and shall charge Tenant a fee equal to Fifteen
Percent (15%) of the cost of such matters (which fee is agreed as a reasonable
reimbursement of Landlord for its administrative time and services expended in
connection with arranging for such matters), in addition to receiving full
reimbursement for all costs of such matters. Amounts payable under this
Paragraph shall be considered to be Additional Rent, shall be paid within
thirty (30) days of Landlord's invoice, and shall be subject to the late fees
and interest payments set forth hereunder. Tenant waives any liability on the
part of the Landlord arising out of the performance of Extra Services hereunder.
20. NOTICE ADDRESS
The notice address for Landlord pursuant to the Lease shall be changed as
follows:
50 West San Fernando Associates
c/o Simon DeBartolo Group
Attn: Vicki Herl, General Manager
50 W. San Fernando St., Suite 405
San Jose, California 95113
With a copy to:
John Marshall Collins
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<PAGE> 16
Second Amendment To Lease Page 16 of 17
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Collins and Perkins
111 W. St. John St., Suite 400
San Jose, California 95113
21. CONTINUING OBLIGATION
Except as expressly set forth in this Amendment, all terms and conditions
of the Lease remain in full force and effect, and all terms and conditions of
the Lease are incorporated herein as though set forth at length.
22. EFFECT OF AMENDMENT
This Second Amendment modifies the Lease. In the event of any conflict or
discrepancy between the Lease and/or any other previous documents between the
parties and the provisions of this Amendment, then the provisions of this
Amendment shall control. The parties agree that the square footage figures set
forth herein are for reference purposes only, and that the amounts payable
hereunder will not vary based on any measurements taken subsequent to the
execution hereof.
23. BROKERAGE COMMISSIONS
Neither party has been represented by a real estate broker in regard to
the transaction represented by this Amendment, and no brokerage commissions or
finder's fees are due in regard to the transaction. Tenant will hold Landlord
harmless and indemnify Landlord against any claim, loss, or damage, including
reasonable attorney's fees, in regard to a brokerage commission or finder's fee
claim by a broker or finder under contract with or working with Tenant.
Landlord will hold Tenant harmless and indemnify Tenant against any claim,
loss, or damage, including reasonable attorney's fees, in regard to a brokerage
commission or finder's fee claim by a broker or finder under contract with or
working with Landlord.
24. ENTIRE AGREEMENT
The Lease, as modified by this Second Amendment, constitutes and contains
the entire agreement between the parties, and there are no binding agreements
or representations between the parties except as expressed herein. Tenant
acknowledges
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<PAGE> 17
Second Amendment to Lease Page 17 of 17
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that neither Landlord nor Landlord's Agents have made any legally binding
representations or warranties as to any matter except for such matters which
are expressly set forth herein, including any representations or warranties
relating to the condition of the Premises or the improvements thereto or the
suitability of the Premises or the Project for Tenant's business.
LANDLORD: TENANT:
50 West San Fernando Associates, AboveNet, a California corporation
a California limited partnership
By: SFG San Jose Company, LLC By: /s/ STEPHEN BELOMY
an Indiana limited liability ------------------------------------
company, its general partner Stephen Belomy, Executive V.P. & CFO
------------------------------------
By: Melvin Simon & Associates, [Print Name and Title]
Inc., an Indiana corporation,
its manager Dated: 2/24/98
---------
By: /s/ HERBERT SIMON
------------------------------
Herbert Simon, President
Dated:
---------------------------
<PAGE> 18
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.21
CONSENT OF LANDLORD
Pursuant to a Lease Agreement dated for reference purposes as of May 15,
1996, as amended by First Amendment to Lease dated as of December 12, 1996 and
the Second Amendment to Lease dated as of February 13, 1998 (collectively
referred to as the "Lease") between 50 West San Fernando Associates, a
California limited partnership ("Landlord") and AboveNet, a California
corporation ("Tenant") relating to Premises commonly known as 50 West San
Fernando Street, Suite 1010 and 1015, San Jose, California, in the County of
Santa Clara (the "Premises"), Tenant has requested that Landlord consent to
Tenant's Sublease to Halcyon Software California Inc., a California corporation
("Subtenant") of the said suites 1010 and 1015, which will hereafter be
known jointly as Suite 1012 (the "Subleased Premises") on the terms and
conditions set forth in the Sublease dated for reference purposes as of March
31, 1998 and attached to this Consent as Exhibit 'A" (the "Sublease").
In consideration of Tenant's and Subtenant's execution of this Consent of
Landlord and agreement to the terms and conditions set forth in this Consent,
Landlord consents to the Sublease on the following terms and conditions:
1. SUBRENT: Tenant represents and warrants to Landlord that the Sublease
contains a complete and accurate statement of all rent and other consideration
received or to be received from Subtenant in regard to the Sublease.
2. NO WAIVER: This Consent does not constitute consent to any subsequent
subletting or assignment, nor a waiver of the restriction on assignment and
subletting contained in the Lease. Any substantial modifications in the terms of
the Sublease, including but not limited to any change in the rent or other
payments made by the Subtenant or any change in the term of the Sublease,
constitutes a new sublease which requires Landlord's written consent. This
Consent shall not be deemed to be approval of any such modified Sublease.
3. TENANT'S PRIMARY OBLIGATIONS: Nothing herein shall release or alter the
primary obligations of Tenant under the Lease, nor shall this Consent be deemed
to create contractual obligations on the part of Landlord to the Subtenant. By
executing this Consent, Subtenant agrees to assume all obligations of Tenant
under the Lease related to the Subleased Premises arising after the date hereof
and during the term of the Sublease and to remain jointly and severally liable
therefore with Tenant.
4. COSTS AND ATTORNEY'S FEES: This consent is conditional upon Landlord's
receipt of the Landlord's reasonable costs and attorney's fees, to which
Landlord is entitled under the Lease. Tenant shall immediately reimburse
Landlord for such fees and costs upon receipt of Landlord's statement.
5. NO EFFECT ON LEASE: In no event shall Landlord's consent to this
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<PAGE> 2
CONSENT OF MASTER LESSOR PAGE 2 OF 4
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Sublease be, or be construed as, a modification of the terms of the Lease, and
in the event of any inconsistency between any term of the Sublease and the terms
of the Lease, the terms of the Lease shall prevail. To the extent that the
Sublease contains any terms or provisions which purport to bind Landlord, such
terms shall be of no force or effect.
6. HAZARDOUS MATERIALS: (a) Subtenant, at its sole cost, shall comply with
all laws relating to the storage, use, and disposal of Hazardous Materials (as
defined in the Lease) that Subtenant, its agents, employees, contractors, or
invitees bring or permit to be brought on to the Subleased Premises or on the
Premises or the Property. If Subtenant does store, use, or dispose of any
Hazardous Materials, Subtenant shall notify Landlord in writing at least five
(5) days prior to their first appearance on the Subleased Premises, and unless
disclosed prior to the execution of this Consent in a response provided by
Subtenant to Landlord's Hazardous Materials Questionnaire or other written
disclosure, such Hazardous Materials shall not be stored, used, or disposed of
on the Subleased or Premises without Landlords advance written approval.
Subtenant shall be subject to all obligations of Tenant under the Lease relating
to Hazardous Materials.
(b) Subtenant shall be responsible for and shall defend, indemnify, and
hold Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorney's fees and costs, arising out of or in
connection with the storage, use, or disposal of Hazardous Materials in or about
the Subleased Premises, the Premises, or the Property by Subtenant, its agents,
employees, contractors, or invitees which occur prior to or after the Effective
Date, but Tenant shall remain responsible for any such matters to the extent set
forth in the Lease, and Subtenant's responsibility and duty as set forth above
shall not relieve Tenant of its responsibilities and duties pursuant to the
Lease.
7. CONSTRUCTION AND SIGNAGE: Any and all construction to be performed by
Tenant or Subtenant on the Subleased Premises shall be subject to the advance
written approval of Landlord and all other provisions relating to construction
which are set forth in the Lease. Any signage called for in the Sublease shall
be subject to Landlord's approval as per the terms of the Lease, and subject to
the procurement of approval and permits from the City of San Jose if required.
By approving the Sublease, Landlord shall not be deemed to have approved any
signage or construction referenced therein
8. INSURANCE: The Subtenant shall comply with all of the provisions of the
Lease as to insurance as if it were the Tenant named thereunder, and shall name
the Landlord as an additional insured on all policies of insurance required by
the Sublease and Lease, and provide the Landlord with a documentary proof
thereof as required by the Lease.
9. USE: Subtenant shall use the Subleased Premises only for the uses for
which Tenant is allowed to use the Subleased Premises pursuant to the Lease.
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<PAGE> 3
CONSENT OF MASTER LESSOR PAGE 3 OF 4
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10. ASSIGNMENT OF TENANT'S RIGHTS: Tenant irrevocably assigns to Landlord,
as security for the performance of each and all of Tenant's obligations under
the Lease, all rent and other consideration received or to be received from
Subtenant. Landlord, as assignee of Tenant, or a receiver for Tenant appointed
on Landlord's application, may (but is not required to) collect such rent or
other consideration provided, however, that until and unless Tenant commits an
Event of Default under the Lease, Tenant shall have the right to collect such
rent or other consideration (subject to any obligation set forth in the Lease
whereby Tenant is to pay all or a part of such rent or other consideration to
Landlord). Such assignment shall be subject to the following terms and
conditions:
(a) Landlord may collect such rent or other consideration from
Subtenant only so long as Tenant shall continue to be in default of
its obligations under the Lease.
(b) Upon Landlord's written request following the occurrence of
an Event of Default under the Lease, Tenant shall execute such
documents as are reasonably requested by Landlord for the purpose of
confirming to Subtenant that Landlord has the right to collect all
rent and other consideration otherwise due to Tenant from such
subtenant or assignee.
(c) Subtenant has the right and duty to pay rent or other
consideration otherwise due to Tenant directly to Landlord upon
receipt from Landlord of a declaration under penalty of perjury
stating that an Event of Tenant's Default exists under the Lease, and
in such event, each payment made to Landlord shall be deemed to
satisfy the obligations of Subtenant to Tenant, but only to the extent
of such payment.
(d) Subtenant's payment to Landlord pursuant to this assignment
shall not create or evidence any direct landlord tenant relationship
between Subtenant and Landlord, and Landlord may exercise all remedies
to terminate the Lease (including the termination of Subtenant's
possession of the Premises or the Subleased Premises) in the event of
any Event of Default by Tenant, notwithstanding its receipt of any
payment from Subtenant pursuant to this assignment, unless the receipt
of such payment completely cures Tenant's default. The acceptance of a
payment from Subtenant pursuant to this assignment shall not affect
Landlord's right to its remedies with regard to all defaults remaining
uncured after such payment.
11. TERMINATION: The Sublease is and remains subject and subordinate to the
Lease, and a termination of the Lease for any reason (including but not limited
to a default of Tenant) shall terminate the Sublease.
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<PAGE> 4
CONSENT OF MASTER LESSOR PAGE 4 OF 4
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12. BROKERAGE COMMISSIONS: Landlord has not been represented by a real
estate broker in regard to the transaction represented by this Amendment, and no
brokerage commissions or finder's fees are due from Landlord in regard to the
transaction. Tenant will hold Landlord harmless and indemnify Landlord against
any claim, loss, or damage, including reasonable attorney's fees, in regard to
a brokerage commission or finder's fee claim by a broker or finder and arising
out of this transaction.
LANDLORD: TENANT:
50 West San Fernando Associates, a AboveNet, a California corporation
California limited partnership
By: SFG San Jose Company, LLC, an /s/ STEPHEN BELOMY
Indiana limited liability company, ------------------------------------
General Partner Stephen Belomy
By Exec. V.P. & CFO
By: Melvin Simon & Associates, Inc., ---------------------------------
an Indiana corporation, Manager [Print Name and Title]
Dated: 3/31/98
By: /s/ DAVID SIMON
-------------------------------
David Simon, Vice President SUBTENANT
Dated: 4-20-98 Halcyon Software California, Inc., a
California corporation
/s/ DON HSI
------------------------------------
By Don Hsi President & CEO
---------------------------------
[Print Name and Title]
Dated: 3/31/98
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<PAGE> 5
EXHIBIT "A"
Sublease
<PAGE> 6
SUBLEASE
This Sublease (the "Sublease") is dated as of March 31, 1998, for reference
purposes only, and is made between AboveNet, a California corporation ("Tenant")
and Halcyon Software California, Inc., a California corporation ("Subtenant")
with reference to the following facts and circumstances, which are conclusively
agreed between the parties:
A. 50 West San Fernando Associates, a California limited
partnership ("Landlord") and Tenant are parties to that certain Office
Lease dated for reference purposes as of May 15, 1996, as amended by
First Amendment to Lease dated as of December 12, 1996 and the Second
Amendment to Lease dated as of February 23, 1998 (collectively
referred to as the "Lease"). A copy of the Lease is attached as
Exhibit "A" and incorporated herein by this reference.
B. The Lease relates to Landlord's premises located on the 10th
floor of Landlord's property located at 50 West San Fernando Street,
San Jose, California (the "Building"). Pursuant to the Lease, Tenant
occupies 1,986 rentable square feet of space in the Building, commonly
known as Suite 1010, and 3,211 rentable square feet of space in the
Building, commonly known as Suite 1015, and totaling 5,197 rentable
square feet in area. The location of these spaces are shown on the
floor plan attached as Exhibit "B", which is incorporated herein.
C. Tenant and Subtenant wish to enter into a sublease whereby
Subtenant will sublease Suites 1010 and 1015 (collectively referred to
as the "Subleased Premises") from Tenant for a portion of Tenant's
Lease Term for such Premises.
Now , therefore, in consideration of all of the foregoing facts and
circumstances, and for good and valuable consideration, the receipt of which is
acknowledged by each party, Tenant agree to and do amend the Lease as follows:
1. Demise Of Subleased Premises
Commencing on April 1, 1998 (the "Sublease Commencement Date") and subject
to the terms and provisions hereof, Tenant hereby subleases to Subtenant, and
Subtenant subleases from Tenant, the Subleased Premises. In the event that
Tenant does not deliver possession of the Subleased Premises on April 1, 1998,
the Sublease Commencement Date shall be the actual date of delivery. This
Sublease shall not be void or voidable, nor shall Tenant be liable to Subtenant
for any loss or damage resulting therefrom, if Tenant is unable to deliver the
Subleased Premises by April 1,
<PAGE> 7
Sublease Page 2 of 6
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1998, provided, that no Rent shall be payable by Subtenant on the Subleased
Premises for any period prior to the date on which possession of the Subleased
Premises is delivered by Tenant.
2. INCORPORATION OF PROVISIONS OF THE LEASE
The parties hereby incorporate all provisions of the Lease, except for
provisions which are specifically addressed or the inclusion of which is
disavowed hereby, specifically or by context. The incorporated provisions shall
be applicable between Tenant and Subtenant in regard to the Subleased Premises
as if the word "Landlord" set forth therein was "Tenant" and the word "Tenant"
therein was "Subtenant". Notwithstanding anything set forth herein, such
incorporation shall not extend to any provisions relating to options or rights
of first refusal or expansion rights as to any space in the Building, nor to any
options to renew or extend the term of the Lease, nor shall such incorporation
extend the Term hereof or change the Rent set forth herein, nor shall such
incorporation grant Subtenant any rights relating to construction of
improvements or paying the cost thereof except for those rights specifically
granted to Subtenant in this Sublease. Paragraphs 1.1 through 1.9; 1.11 through
1.12, 1.14, 1.15; 2.1, 2.4, 2.5; 3.1, 3.2, 3.4.5.1, 5.5; 7.4 (insofar as it
obligates Tenant to pay for such signage, or to obtain signage other than that
allowed by Landlord) of the original the Lease, and Paragraphs A through F of
the Recitals and Paragraphs 1 through 6, 8 through 10, 14 through 16 in the body
of the Second Amendment to Lease shall not be deemed incorporated herein.
3. TERM
The Lease Term for the Subleased Premises shall be from the Sublease
Commencement Date to March 31, 2000, unless sooner terminated pursuant to the
terms hereof
4. RENUMBERING
Suites 1010 and 1015 shall be renumbered so that they have a joint suite
number of Suite 1012. Tenant will use Suite 1010 as the number of another suite
on the 10th floor of the Building which Tenant is also leasing from Landlord.
5. BASE RENT
Subtenant shall pay Tenant monthly base rent as follows: (a) from the
Sublease Commencement Date through May 31, 1998, the sum of $9,387.75 per month,
(b)
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Sublease Page 3 of 6
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from June 1, 1998 through August 31, 1998, the sum of $9,884.25 per month; and
(c) from September 1, 1998 to March 31, 2000, the sum of $14,811.45 per month.
Said sums shall be prorated for any partial months.
6. OPERATING EXPENSES AND OTHER CHARGES
Subtenant shall pay to Tenant, as additional rent hereunder, an amount
equal to Subtenant's Share (defined below) of all operating expenses which
Tenant is obligated to pay to Landlord under the Lease. Subtenant shall pay
Tenant monthly, on the first day of each month, Subtenant's Share of any
estimated operating expense payments for which Tenant is liable under the Lease,
and Tenant shall further pay, within thirty days of receiving Tenant's invoice
therefor, Subtenant's Share of any reconciliation payment required of Tenant
pursuant to Landlord's reconciliation of estimated operating expenses with
actual operating expenses.
Subtenant's Share shall be a percentage derived by dividing the rentable
square feet of the Subleased Premises by the total rentable-square feet which
Tenant is leasing directly from Landlord under the Lease (not to include any
space subleased by Tenant in the Building from other tenants, nor space leased
from Landlord by Tenant which is not on the 10th floor of the Building). When
the Sublease begins, Subtenant's Share will be 100%.
In addition, Subtenant shall pay to Tenant, as additional rent, any and all
sums which Tenant is required to pay to Landlord for excess utility consumption,
after hours HVAC or lighting, administrative services, services rendered at the
request of or for the benefit of Subtenant relating to the Subleased Premises,
and any and all other charges arising from occupancy of the Subleased Premises
which Tenant is required to pay to Landlord.
Subtenant shall repair and maintain the Premises to the extent that such
matters are required of Tenant under the Lease.
7. USE
Subtenant shall use the Premises only for office purposes allowed pursuant
to the Lease, and subject to all other use restrictions set forth in the Lease.
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<PAGE> 9
Sublease Page 4 of 6
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8. CONDITION OF SUBLEASED PREMISES.
Subtenant is familiar with the condition of the Subleased Premises, and has
had the opportunity to perform any investigations of its condition and
suitability as Subtenant deemed necessary or appropriate. Subtenant accepts the
Subleased Premises in their current condition, "AS-IS", with all faults, and
acknowledges that neither Tenant, nor any agent, employee, manager, or attorney
of Tenant, has made any representations or warranties with respect to the
Subleased Premises or the Building, or with respect to the suitability of either
for the conduct of Subtenant's business.
9. CONSTRUCTION OF SUBTENANT IMPROVEMENTS IN THE SUBLEASED PREMISES
Subtenant may construct Subtenant Improvements in the Subleased Premises
under the terms and conditions of the rules and requirements of Paragraphs 10.1
of the Lease. Subtenant understands and agrees that all consents and approvals
set forth therein must be given by both Tenant and Landlord, and that all
insurance must name, both Landlord and Tenant as insureds or additional
insureds.
Subtenant's contractor shall obey all regulations and directives of
Landlord's management staff, and shall cooperate with said staff to minimize any
inconvenience and/or damage to the Building in regard to such construction.
Prior to the start of construction, Subtenant's contractor shall deposit with
Landlord the sum of $1,000.00, which Landlord shall hold as a deposit against
any damages to the Building, damage to neighboring tenants, completion of any
common area or Building punchlist items, and full compliance with all Building
regulations and directives.
Subtenant shall pay all rent which is due under this Sublease during any
period of construction of Subtenant Improvements in the Subleased Premises.
10. INSURANCE.
Subtenant shall, procure and maintain, at its own cost and expense, such
liability insurance as is required to be carried by Tenant under the Lease,
naming Tenant as well as Landlord, in the manner required therein and such
property insurance as is insurance required to be carried by Tenant under the
Lease to the extent such property pertains to the Subleased Premises. Subtenant
shall furnish to Tenant and Landlord a certificate of Subtenant's insurance
required hereunder not later than ten (10) days before Tenant takes possession
of the Subleased Premises. Each party hereby waives claims against the other for
property damage covered (or if not covered, which is
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Sublease Page 5 of 6
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required hereby to be covered) by the party's insurance, provided such waiver
shall not invalidate the waiving party's property insurance. Each party shall
attempt to obtain from its insurance carrier a waiver of its right of
subrogation. Subtenant hereby waives claims against Tenant and Landlord for
property damage to the Premises or its contents if and to the extent that Tenant
waives such claims against Landlord under the Lease. Tenant agrees to obtain,
for the benefit of Tenant and Landlord, such waivers of subrogation rights from
its insurer as required of Tenant under the Lease.
11. PARKING:
Tenant will make available to Subtenant fifteen (15) non-exclusive parking
spaces which are available to Tenant pursuant to its Lease with Landlord, 8
spaces in the Off-Site Parking Facilities and 7 spaces in the On-Site Parking
Facilities. Subtenant will pay all costs and charges associated with such
spaces, and at Tenant's election, will contract directly with, or pay monthly
fees directly to, the Landlord or its designated parking contractor.
12. NOTICE ADDRESS
The notice address for Tenant pursuant to the Sublease shall be as
follows:
AboveNet
Attn: Steve Belomy
50 W. San Fernando St., Suite 1010
San Jose, California 95113
The notice address for Subtenant pursuant to this Sublease shall be:
Halcyon Software California, Inc.
Attn: Don Shi
50 W. San Fernando St., Suite 1012
San Jose, California 95113
13. BROKERAGE COMMISSION
Neither party has been represented by a real estate broker in regard to the
transaction represented by this Sublease and no brokerage commissions or
finder's fees are due in regard to the transaction. Subtenant will hold Tenant
harmless and indemnify Tenant against any claim, loss, or damage, including
reasonable attorney's
- --------------------------------------------------------------------------------
<PAGE> 11
Sublease Page 6 of 6
- --------------------------------------------------------------------------------
fees, in regard to a brokerage commission or finder's fee claim by a broker or
finder under contract with or working with Subtenant. Tenant will hold Subtenant
harmless and indemnify Subtenant against any claim, loss, or damage, including
reasonable attorney's fees, in regard to a brokerage commission or finder's fee
claim by a broker or finder under contract with or working with Tenant.
14. ENTIRE AGREEMENT
This Sublease constitutes and contains the entire agreement between the
parties, and there are no binding agreements or representations between the
parties except as expressed herein. Subtenant acknowledges that neither
Landlord, Tenant, nor Landlord's or Tenant's agents have made any legally
binding representations or warranties as to any matter except for such matters
which are expressly set forth herein, including any representations or
warranties relating to the condition of the Subleased Premises or the
improvements thereto or the suitability of the Subleased Premises or the
Building for Subtenant's business.
15. LANDLORD'S CONSENT
This Sublease is subject to the written consent of Landlord, and Subtenant
agrees to execute such Consent of Landlord as shall be requested pursuant to the
granting of such consent.
16. SUBORDINATION TO LEASE
This Sublease is subject to and subordinate to the Lease. Subtenant agrees
that it will not, by its act or omission to act, cause a default under the
Lease.
TENANT: SUBTENANT:
AboveNet, a California corporation Halcyon Software California, Inc., a
California corporation
By: /s/ STEPHEN BELOMY By: /s/ DON HSI
------------------------------- ---------------------------------
Stephen Belomy, Exec. V.P. & CFO Don Hsi, President & CEO
- ------------------------------------- ------------------------------------
[Print Name and Title] [Print Name and Title]
Dated: 3/31/98 Dated: 3/31/98
-------- -------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.22
DUPLICATE ORIGINAL
CONSENT OF LANDLORD
Pursuant to a Lease Agreement dated for reference purposes as of May 2,
1998, as amended by a First Amendment to Lease dated as of August 4, 1989
(collectively referred to as the "Lease") between 50 West San Fernando
Associates, a California limited partnership ("Landlord") and KPMG Peat Marwick
LLP (formerly Peat, Marwick, Main & Co. ("Tenant") relating to premises which
include, but are not limited to, those commonly known as 50 West San Fernando
Street, Suite 1000, San Jose California in the County of Santa Clara, Tenant
has requested that Landlord consent to Tenant's Sublease to AboveNet, a
California corporation ("Subtenant") of Suite 1000 (the "Subleased Premises"),
containing approximately 10,420 rentable square feet, on the terms and
conditions set forth in the Sublease dated March 13, 1998 and attached to this
Consent as Exhibit "A" (the "Sublease").
In consideration of Tenant's and Subtenant's execution of this Consent of
Landlord and agreement to the terms and conditions set forth in this Consent,
Landlord consents to the Sublease on the following terms and conditions:
1. SUBRENT: Tenant represents and warrants to Landlord that the
Sublease contains a complete and accurate statement of all rent and other
consideration received or to be received from Subtenant in regard to the
Sublease.
2. NO WAIVER: This Consent does not constitute consent to any
subsequent subletting or assignment, nor a waiver of the restriction on
assignment and subletting contained in the Lease. Any substantial modifications
in the terms of the Sublease, including but not limited to any change in the
rent or other payments made by the Subtenant or any change in the term of the
Sublease, constitutes a new sublease which requires Landlord's written consent.
This Consent shall not be deemed to be approval of any such modified Sublease.
3. TENANT'S PRIMARY OBLIGATIONS: Nothing herein shall release or
alter the primary obligations of Tenant under the Lease, nor shall this Consent
be deemed to create contractual obligations on the part of Landlord to the
Subtenant. By executing this Consent, Subtenant agrees to assume all
obligations of Tenant under the Lease related to the Subleased Premises arising
after the date hereof and during the term of the Sublease and to remain jointly
and severally liable therefor with Tenant.
4. COSTS AND ATTORNEY'S FEES: This consent is conditional upon
Landlord's receipt of the Landlord's reasonable costs and attorney's fees, to
which Landlord is entitled under the Lease. Tenant shall immediately reimburse
Landlord for such fees and costs upon receipt of Landlord's statement.
5. NO EFFECT ON LEASE: In no event shall Landlord's consent to this
- --------------------------------------------------------------------------------
<PAGE> 2
CONSENT OF MASTER LESSOR PAGE 2 of 4
- --------------------------------------------------------------------------------
Sublease be, or be construed as, a modification of the terms of the Lease, and
in the event of any inconsistency between any term of the Sublease and the
terms of the Lease, the terms of the Lease shall prevail. To the extent that
the Sublease contains any terms or provisions which purport to bind Landlord,
such terms shall be of no force or effect.
6. HAZARDOUS MATERIALS: (a) Subtenant, at its sole cost, shall comply
with all laws relating to the storage, use, and disposal of Hazardous Materials
(as defined in the Lease) that Subtenant, its agents, employees, contractors,
or invitees bring or permit to be brought on to the Subleased Premises or on
the Premises or the Property. If Subtenant does store, use, or dispose of any
Hazardous Materials, Subtenant shall notify Landlord in writing at least five
(5) days prior to their first appearance on the Subleased Premises, and unless
disclosed prior to the execution of this Consent in a response provided by
Subtenant to Landlord's Hazardous Materials Questionnaire or other written
disclosure, such Hazardous Materials shall not be stored, used, or disposed of
on the Subleased or Premises without Landlord's advance written approval.
Subtenant shall be subject to all obligations of Tenant under the Lease
relating to Hazardous Materials.
(b) Subtenant shall be responsible for and shall defend, indemnify, and
hold Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorney's fees and costs, arising out of or in
connection with the storage, use, or disposal of Hazardous Materials in or
about the Subleased Premises, the Premises, or the Property by Subtenant, its
agents, employees, contractors, or invitees which occur prior to or after the
Effective Date, but Tenant shall remain responsible for any such matters to the
extent set forth in the Lease, and Subtenant's responsibility and duty as set
forth above shall not relieve Tenant of its responsibilities and duties
pursuant to the Lease.
7. CONSTRUCTION AND SIGNAGE: Any and all construction to be performed
by Tenant or Subtenant on the Subleased Premises shall be subject to the
advance written approval of Landlord and all other provisions relating to
construction which are set forth in the Lease. Any signage called for in the
Sublease shall be subject to Landlord's approval as per the terms of the Lease,
and subject to the procurement of approval and permits from the City of San
Jose if required. By approving the Sublease, Landlord shall not be deemed to
have approved any signage or construction referenced therein.
8. INSURANCE: The Subtenant shall comply with all of the provisions of
the Lease as to insurance as if it were the Tenant named thereunder, and shall
name the Landlord as an additional insured on all policies of insurance
required by the Sublease and Lease, and provide the Landlord with a documentary
proof thereof as required by
- --------------------------------------------------------------------------------
<PAGE> 3
CONSENT OF MASTER LESSOR PAGE 3 of 4
- --------------------------------------------------------------------------------
the Lease.
9. USE: Subtenant shall use the Subleased Premises only for the uses
and for which Tenant is allowed to use the Subleased Premises pursuant to the
Lease.
10. ASSIGNMENT OF TENANT'S RIGHTS: Tenant irrevocably assigns to
Landlord, as security for the performance of each and all of Tenant's
obligations under the Lease, all rent and other consideration received or to be
received from Subtenant. Landlord, as assignee of Tenant, or a receiver for
Tenant appointed on Landlord's application, may (but is not required to)
collect such rent or other consideration, provided, however, that until and
unless Tenant commits an Event of Default under the Lease, Tenant shall have
the right to collect such rent or other consideration (subject to any
obligation set forth in the Lease whereby Tenant is to pay all or a part of
such rent or other consideration to Landlord). Such assignment shall be subject
to the following terms and conditions:
(a) Landlord may collect such rent or other consideration from
Subtenant only so long as Tenant shall continue to be in default of its
obligations under the Lease.
(b) Upon Landlord's written request following the occurrence of an
Event of Default under the Lease, Tenant shall execute such documents as
are reasonably requested by Landlord for the purpose of confirming to
Subtenant that Landlord has the right to collect all rent and other
consideration otherwise due to Tenant from such subtenant or assignee.
(c) Subtenant has the right and duty to pay rent or other
consideration otherwise due to Tenant directly to Landlord upon receipt
from Landlord of a declaration under penalty of perjury stating that an
Event of Default exists under the Lease, and in such event, each payment
made to Landlord shall be deemed to satisfy the obligations of Subtenant
to Tenant, but only to the extent of such payment.
(d) Subtenant's payment to Landlord pursuant to this assignment
shall not create or evidence any direct landlord tenant relationship
between Subtenant and Landlord, and Landlord may exercise all remedies to
terminate the Lease (including the termination of Subtenant's possession
of the Premises or the Subleased Premises) in the event of any Event of
Default by Tenant, notwithstanding its receipt of any payment from
Subtenant pursuant to this assignment, unless the receipt of such
payment completely cures Tenant's default. The acceptance of a
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<PAGE> 4
CONSENT OF MASTER LESSOR PAGE 4 OF 4
- --------------------------------------------------------------------------------
payment from Subtenant pursuant to this assignment shall not affect
Landlord's right to its remedies with regard to all defaults remaining
uncured after such payment.
11. TERMINATION: The Sublease is and remains subject and subordinate to
the Lease, and a termination of the Lease for any reason (including but not
limited to a default of Tenant) shall terminate the Sublease.
12. BROKERAGE COMMISSIONS: Landlord had not been represented by a real
estate broker in regard to the transaction represented by this Amendment, and
no brokerage commissions or finder's fees are due from Landlord in regard to
the transaction. Tenant will hold Landlord harmless and indemnify Landlord
against any claim, loss, or damage, including reasonable attorney's fees, in
regard to a brokerage commission or finder's fee claim by a broker or finder
and arising out of this transaction.
LANDLORD: TENANT:
50 West San Fernando Associates, KPMG Peat Marwick LLP (formerly
a California limited partnership Peat, Marwick, Main & Co.
By: SFG San Jose Company, LLC, an /s/ [SIG]
Indiana limited liability company, ---------------------------------------
its general partner
By: Melvin Simon & Associates, Inc., By: [Illegible]
an Indiana corporation, ------------------------------------
its manager [Print Name and Title]
By: /s/ HERBERT SIMON Dated: 4/6/98
----------------------------------
Herbert Simon, President
SUBTENANT
Dated: 4/12/98
AboveNet, a California corporation
By:
---------------------------------- /s/ STEPHEN BELOMY
---------------------------------------
Dated:
------------------------------- By: Stephen Belomy, Exec. V.P. & CFO
------------------------------------
[Print Name and Title]
Dated:
---------------------------------
[Rev. 3/1/98]
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.23
This SUBLEASE made as of March 13, 1998, by KPMG Peat Marwick (USA) LLP, a
Delaware limited liability partnership with offices at Three Chestnut Ridge
Road, Montvale, New Jersey 07645 ("SUBLANDLORD"), and AboveNet Communications,
Inc., a California corporation with offices at 50 W. San Francisco Street, San
Jose, California ("SUBTENANT").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to an Office Lease entered into by and between 50 West
San Fernando Associates, as Landlord ("OVERLANDLORD"), and Peat, Marwick, Main
& Co., as Tenant ("SUBLANDLORD"), on May 2, 1988, as amended by a First
Amendment to Office Lease entered into August 4, 1989 (the "LEASE"),
Overlandlord demised and Sublandlord leased approximately 48,754 net rentable
square feet (the "PREMISES") in a building known as Fairmont Plaza in Silicon
Valley Financial Center located at 50 West San Fernando Street in San Jose,
California (the "BUILDING") for a term August 31, 1998; and
WHEREAS, Subtenant desires to sublease from Sublandlord and Sublandlord is
willing to sublease to Subtenant approximately 10,420 square feet of the
Premises consisting of a portion of the tenth floor of the Building.
NOW, THEREFORE, the parties hereto, for themselves, their heirs,
administrators, legal representatives, successors and assigns, hereby mutually
covenant and agree as follows:
1. Sublease. Sublandlord subleases to Subtenant and Subtenant subleases
from Sublandlord the Subleased Premises for the remainder of the term of the
Lease upon and subject to all of the terms and conditions provided for herein.
Subtenant has received and reviewed an accurate and complete copy of the
Lease. The Lease is in full force and effect; neither Overlandlord nor
Sublandlord is in default thereunder; and there are no other occupancies or
subtenancies affecting he Subleased Premises.
2. Incorporation of Lease. This Sublease is and shall be subject and
subordinate to all of the Lease, which are hereby incorporated into this
Sublease in their entirety except as hereinafter expressly set forth; and
Sublandlord leases the Subleased Premises to Subtenant upon, and Subtenant
accepts the
1
<PAGE> 2
Subleased Premises subject to, all the terms and conditions of the Lease.
For purposes of the incorporation of the Lease into this Sublease, the
terms "Landlord" and "Tenant" as used in this Lease shall be deemed to refer to
Sublandlord and Subtenant, respectively, and the term "Premises" shall be
deemed to refer just to the Subleased Premises.
All of the rights and obligations conferred and imposed by the Lease upon
Sublandlord as Tenant thereunder are hereby conferred and imposed upon
Subtenant with respect to the Subleased Premises except as hereinafter
expressly set forth.
Sublandlord shall not be obligated to perform and shall not be liable for
the performance by Overlandlord of any of the obligations of Overlandlord under
the Lease; and Sublandlord shall have no obligation during the Term of this
Sublease, except as explicitly stated in Section 5 hereof, to render any
services to Subtenant or to the Subleased Premises or to expand any funds of
any nature whatsoever for the preservation or repair of the Subleased Premises.
Subtenant shall have no claim against Sublandlord by reason of any default
on the part of Overlandlord; Subtenant shall look solely to Overlandlord for
the furnishing of any services to which Sublandlord may be entitled under the
Lease; and nothing in this Sublease shall authorize Subtenant to represent
Sublandlord in connection with any suit or claim by or against Overlandlord.
Notwithstanding anything to the contrary which might be implied by the
terms and provisions of this Sublease, Overlandlord shall have no obligation to
Subtenant by reason of the Sublease or by reason of Subtenant's occupancy of the
Premises.
3. Sublease Term. The term ("TERM") of this Sublease shall commence on
the later of (i) the execution hereof, and (ii) execution of a consent to
sublease by the Overlandlord (the "COMMENCEMENT DATE") and shall end on August
30, 1998 (the "EXPIRATION DATE").
4. Subrents. Except as hereinafter provided, Subtenant shall pay to
Sublandlord commencing April 1, 1998, without notice or demand and without
abatement, deduction or setoff, in lawful money of the United States of
America, at the office of Sublandlord or at such other place as Sublandlord may
designate, base rent in an amount equal to twenty-four thousand eight dollars
2
<PAGE> 3
($24,800.00) Dollars per month ("BASE SUBRENT") in installments due in
advance on the first of each month. If the Commencement Date shall occur
on a day other than the first day of a calendar month, the rent payment
for such calendar month shall be prorated for the period from the
Commencement Date to the last day of the said calendar month and such sum
shall be due and payable on the Commencement Date. Subtenant will not be
responsible for any increases in Base Subrent due to increases in
Overlandlord's Base Rent.
In case Sublandlord fails to make any rent payments to Overlandlord
on any date upon which the same becomes due pursuant to the Lease, and
such failure continues for three (3) days after Overlandlord shall have
give notice of nonpayment to Sublandlord, Subtenant may make rent
payments directly to Overlandlord on the fourth (4th) or fifth (5th) day
following Overlandlord's provision of the above-referenced notice to
Sublandlord. In the event that Subtenant exercises its right pursuant to
this paragraph, Subtenant shall be entitled to a credit from Sublandlord
in the amount of any payments made directly to Overlandlord, such credit
to be applied to the succeeding month's Base Subrent payment due from
Subtenant. No breach or default hereunder shall be attributed to
Sublandlord as a result of Subtenant exercising its right pursuant to
this paragraph.
5. Sublandlord's Services. Sublandlord shall cooperate with
Subtenant and take the actions reasonably required to enforce for the
benefit of Subtenant the obligations of Overlandlord to Sublandlord under
the Lease insofar as they relate to the Subleased Premises, provided all
reasonable out-of-pocket expenses of Sublandlord arising from
Sublandlord's action taken pursuant to the preceding sentence shall be
reimbursed by Subtenant as additional rent under this Sublease.
Otherwise, Sublandlord shall not be obligated to furnish any
services to Subtenant or to the Subleased Premises or to expend any funds
of any nature whatsoever for the preservation or repair of the Subleased
Premises.
6. Inapplicable Lease Provisions. The following provisions of
the Lease shall not apply to or for the benefit of Subtenant:
<TABLE>
<CAPTION>
Section Heading
------- -------
<S> <C>
2.3 Option to Lease Expansion Areas
2.4 Tenant Improvements
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
2.5 Right of First Offer
3.2 Options to Extend Lease Term
4.1 Delay in Construction and Delivery
4.2 Tenant's Rights
4.4 Tenant Inducements
5.1 Base Rent; Additional Rent
5.2 Rent During Extended Term(s)
5.3 Rent for Expansion Areas
5.4 Termination
7.4 Signs; Directory
10.5 Redecorating Allowances
15.4 Tenant's Election
16.5 Tenant's Performance of Landlord's Obligations
</TABLE>
7. Notices to and from Overlandlord. Subtenant shall promptly
furnish Sublandlord with copies of all notices which Subtenant shall
receive from Overlandlord and Sublandlord shall promptly furnish
Subtenant with copies of all notices relating to the Subleased Premises
which Sublandlord receives from Overlandlord.
Whenever any notice from Overlandlord or any provision of the Lease
requires any action to be taken by the Tenant with respect to the
Subleased Premises within a limited period of time during the Term, the
Subtenant shall be required to take such action within the period of time
allowed to Sublandlord as Tenant under the Lease less five (5) days.
Whenever any notice from Sublandlord is to be given to Overlandlord
with respect to the Subleased Premises no fewer than a specified number
of days or months prior to a fixed date or deadline during the Term, the
Subtenant shall give such notice to Sublandlord at least five (5) days
prior to latest date for Sublandlord to give such notice to Overlandlord
in a timely manner under the Lease.
8. Notices to and from Sublandlord and Subtenant. Notices and
other communications hereunder to either party shall be in writing only
and shall be given or made by personal delivery, by Federal Express or by
express or certified mail, return receipt requested, if to Sublandlord at
its address as indicated on the first page of the Sublease, and if to
Subtenant at the Subleased Premises. Notices delivered by personal
delivery shall be deemed received on the day of delivery; notices sent by
Federal Express, express mail or certified mail shall be deemed received
upon actual receipt or rejection of delivery.
<PAGE> 5
9. Overlandlord's Consent. In any case where the rights conferred upon
Subtenant by this Sublease require the consent or approval of Sublandlord, it
shall be a condition precedent to such rights that the prior consent or approval
of Overlandlord shall have been obtained; and Sublandlord shall not have any
duty or responsibility with respect to obtaining the consent or approval of
Overlandlord when the same is required, other than (i) the transmission by
Sublandlord to Overlandlord of Subtenant's request for such consent or approval
and (ii) Sublandlord's cooperation with Subtenant to obtain such approval or
consent which does not require Sublandlord to pay any sum or incur any expense
or to make any material performance or undertaking.
Sublandlord shall not be required to give any consent or approval provided
for in the provisions of the Lease incorporated herein just because Overlandlord
has given consent or approval with respect to the same matter.
For purposes of Section 19.26 of the Lease, Sublandlord's refusal to
consent to or approve any matter or thing, whenever Sublandlord's consent or
approval is required under the provisions of the Lease incorporated herein,
shall not be deemed unreasonable if Overlandlord's consent is also so required
and Overlandlord has refused to give such consent or approval.
10. Brokers. Each party represents and warrants to the other party that
it has not hired, retained or dealt with any finder, consultant, broker, firm or
salesman in connection with this Sublease who is entitled to any brokerage
commission or finder's fee by reason thereof other than NONE, whose fees will be
paid by Sublandlord under a separate agreement; and each party shall defend,
indemnify and hold the other party harmless from and against any and all claims
for brokerage fees or other commissions or fees which may at any time be
asserted against the indemnified party founded upon a claim that the aforesaid
representation and warranty of the indemnifying party is untrue, together with
any reasonable attorneys' fees and disbursements) relating to such claims or
arising therefrom or incurred by the indemnified party in connection with the
enforcement of this indemnification provision.
11. Security Deposit. Subtenant shall deposit with Sublandlord the sum of
none ($ 0 ) Dollars as security for the performance by Subtenant of the terms,
provisions and conditions of this Sublease. In the event that Subtenant fully
performs all of the terms, provisions, covenants and conditions of this
Sublease, and vacates and surrenders the Subleased Premises back to
<PAGE> 6
Sublandlord in the condition required by the Lease on the last day of the term
hereof, ordinary wear and tear excepted, the foregoing security deposit shall
be returned to Subtenant.
IN WITNESS WHEREOF, Sublandlord and Subtenant have duly authorized,
executed and delivered this Sublease as of the date first above written.
KPMG Peat Marwick (USA) LLP,
Sublandlord
By /s/ KENNETH J. BOLAND
-------------------------------
Name: Kenneth J. Boland
Title: Director
Real Estate and
Facilities Planning
AboveNet Communications, Inc.
-------------------------------
Subtenant
By /s/ STEPHEN BELOMY
-------------------------------
Name: Stephen Belomy
Title: Exec. V.P. & CFO
<PAGE> 7
ADDENDUM TO SUBLEASE
1. Parking
Subtenant shall be allowed the use of thirty (30) parking spaces within
the Parking Areas of the Building (as defined in the Office Lease) of which
fifteen (15) shall be within the "On-Site Parking Facilities" (as defined in
the Lease) and fifteen (15) shall be located within the "Off-Site Parking
Facilities." Three of the on-site parking spaces shall be reserved spaces. All
other parking spaces will be non-reserved spaces.
Subtenant will reimburse Sublandlord monthly for Sublandlord's actual
monthly cost to provide these parking spaces to Subtenant.
2. Additional Services
If Subtenant requires additional services such as overtime
air-conditioning, non-standard cleaning or any other service provided by
Overlandlord, Subtenant will contract with and pay Overlandlord directly for
such additional services.
7
<PAGE> 1
EXHIBIT 10.24
DEED OF LEASE
8100 Boone Boulevard
Vienna, Virginia 22182
THIS DEED OF LEASE made and entered into on this the third (3rd) day of
September, 1997 by and between GOSNELL PROPERTIES, INC. whose address for
purposes hereof is 8130 Boone Boulevard, Vienna, Virginia 22182 hereinafter
called "Lessor", and ABOVENET COMMUNICATIONS, INC., a California corporation
hereinafter called "Lessee".
WITNESSETH, that for and in consideration of the rents, mutual covenants
and agreements hereinafter set forth, the parties hereto do hereby mutually
agree as follows:
1. DEMISED PREMISES
The Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, for the term and upon the conditions hereinafter provided, approximately
twelve thousand five hundred ninety (12,590) square feet of rentable area on the
B-2 level of the office building (the "Building") situated on that certain
parcel of real estate (the "Land") at 8100 Boone Boulevard, Vienna, Virginia
22182 (such space being hereinafter referred to as the "Demised Premises"), the
Land and Building being herein referred to as the "Property." The Demised
Premises have been assigned Suite #B-290, and are outlined in red on the plan
attached hereto and made a part hereof as Exhibit A.
2. TERM
(a) Subject to and upon the terms and conditions set forth herein,
or in any exhibit or addendum hereto, this Lease shall continue in force for a
term of six (6) years, beginning on the earlier of (i) substantial completion of
the Tenant's Work, or (ii) September 15, 1997 (the "Commencement Date"), and
ending (subject to the terms hereof) on the day preceding the sixth (6th)
anniversary of the Commencement Date (the "Initial Term", the Initial Term
together with the Renewal Term, if any, being herein referred to as the "Lease
Term").
(b) In the event the Demised Premises are not completed in
accordance with the provisions of this lease and ready for occupancy by said
Commencement Date, for any reason or cause, Lessor, its agents and employees,
shall not be liable or responsible for any claims, damages, or liabilities in
connection therewith or by reason thereof, nor shall the obligations of the
Lessee provided herein be excused, except the payment of Rent and the date of
commencement of the other obligations under this Lease shall be extended one (1)
day for each day of delay attributable to the wrongful acts of Lessor (Lessee
acknowledging that the mere failure to complete the Tenant's Work by the
Commencement Date shall not be deemed wrongful, so long as Lessor has exercised
commercially reasonable efforts to complete the same). When the Demised Premises
are occupied by Lessee, Lessor and Lessee will execute a declaration specifying
the commencement and termination date determined as provided above (Exhibit D),
but the failure to execute the same shall not affect this Lease.
3. USE
Lessee will use and occupy the Demised Premises solely for the
installation and operation of computer equipment only and for no other purpose
whatsoever. Lessee will not use the Demised Premises in any manner which will
annoy or interfere with other tenants in the Building and will comply with the
Rules and Regulations listed under Exhibit C. Lessee will not use or
<PAGE> 2
occupy the Demised Premises for any unlawful purpose, and will comply with all
present and future laws, ordinances, regulations, and orders of the United
States of America, the State of Virginia, the Fire Marshall and any other public
authority having jurisdiction over the Demised Premises that may affect the
Demised Premises or Lessee's use and/or occupancy thereof. In no event shall
Lessee generate, manufacture, prepare, use, store, treat or dispose of any
polychlorinated biphenyls ("PCB's"), petroleum products or asbestos, or any
hazardous, radioactive, carcinogenic, or toxic chemicals, substances pollutants,
contaminant, materials or waste, including storage tanks and/or containers
thereof, as such terms are defined under applicable Federal, state and local
laws, ordinances or regulations, in or on the Demised Premises or the Building
on the Property upon which the Demised Premises is located or any portion
thereof, nor shall Lessee use, or suffer the Demised Premises to be used, for
industrial or manufacturing purposes. In the event of any breach of this Section
3, Lessee agrees to defend, indemnify and hold Lessor harmless from and against
any and all claims, damages, expense and liability incurred as a result,
including, but not limited to, costs and attorneys' fees incurred by or on
behalf of Lessor to (i) cure Lessee's breach of this Section 3, (ii) remediate
the effects of Lessee's breach, or (iii) to bring Lessee into compliance with
any and all federal, state and municipal orders, ordinances, laws, and
regulations. The foregoing indemnity shall be deemed to survive the expiration
of this Lease.
4. RENTAL
The monthly Rent to be paid for the Demised Premises during the Lease
Term, which Lessee hereby agrees to pay to Lessor in advance, and Lessor hereby
agrees to accept, shall be the sum of Ten Thousand Four Hundred Ninety-One and
sixty-seven/one hundredths Dollars ($10,491.67) per month, payable on the first
day of each calendar month during the Lease Term commencing with the
Commencement Date; provided that (i) for each of the first (1st) six (6) months
of the Initial Term in which Lessee shall not utilize more than one-third (1/3)
of the Demised Premises, Landlord agrees to abate the sum of Six Thousand Nine
Hundred Ninety-Four and forty-five/one hundredths Dollars ($6,994.45), and (ii)
for each of the next six (6) months of the Initial Term in which Lessee shall
not utilize more than two-thirds (2/3) of the Demised Premises, Landlord agrees
to abate the sum of Three Thousand Four Hundred Ninety-Seven and twenty-two/one
hundredths Dollars ($3,497.22). Monthly rent payable under this Section 4 shall
be hereinafter referred to as "Monthly Base Rent." Such Monthly Base Rent shall
be subject to escalation as hereinafter provided. If the obligation of the
Lessee to pay Rent hereunder begins on a day other than on the first day of a
month, Rent from such date until the first day of the following month shall be
prorated at the rate of one-thirtieth (1/30) of the Monthly Base Rent for each
day payable in advance. The Lessee will pay Rent without demand, by check to the
Lessor or to such other party or to such other address as Lessor may designate
from time to time by written notice to Lessee, without demand and without
deduction, set-off or counterclaim. If Lessor shall at any time or times accept
said Rent after it shall become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute, or be construed as, a
waiver of any or all of the Lessor's rights hereunder. The term "Rent" as used
herein shall mean each installment of Monthly Base Rent payable hereunder, all
additional Rent plus all other sums payable by Lessee to Lessor hereunder
(including, but not limited to, late charges and
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interest).
5. BASE MONTHLY RENTAL RATE ESCALATION, BASED UPON INCREASES IN REAL
ESTATE TAXES, AND ANNUAL ESCALATION.
A. Definitions
1. Real Estate Taxes shall mean the aggregate amount of real
estate taxes and assessments, general and special, ordinary and extraordinary,
foreseeable or unforeseen, including assessments for public improvements and
betterments, real estate taxes upon any "air rights", front foot benefit
assessments, vault rents, sewer assessments, and special area taxes assessed,
levied or imposed with respect to the Land and the improvements located on the
Land in the manner in which such taxes and assessments are imposed, as of the
Commencement Date provided, that if because of any change in the taxation of
real estate or tax assessment (including, without limitation, any occupancy,
gross receipts or rental tax) is imposed upon Lessor or the owner of the Land
and/or Building, or upon or with respect to the Land and/or Building, or the
occupancy, rents or income therefrom, in substitution for, or in addition to,
any of the foregoing Taxes, such other tax or assessment shall be deemed part of
the Taxes. Real Estate Taxes shall not include any sales tax or excise tax
imposed by any governmental authority upon the Rent payable by Lessee hereunder,
and in the event that any sales tax or excise tax is imposed by any governmental
authority on the Rent payable by Lessee hereunder, such sales tax or excise tax
shall be paid by Lessee.
2. Monthly Base Rent shall mean the rate of Monthly Base Rent
originally fixed in Section 4 of this Lease on the date of execution thereof, as
such rate may be subsequently modified or supplemented in any way other than
under the provisions of Sections 5B and 5C hereof.
3. Lease Term shall be deemed to mean the period beginning
with the Commencement Date in accordance with Exhibit D and ending with the date
of the expiration in accordance with Exhibit D or sooner termination of this
Lease subject to the terms of this Lease.
4. Intentionally Omitted.
5. Base Year shall be the period January 1, 1996 to
December 31, 1996.
6. Comparison Year shall mean any twelve month period after
the Base Year which begins with the same first month as the Base Year.
7. Real Estate Tax Fiscal Year shall mean the period January 1
to December 31 (or such other period as hereafter may be duly adopted by the
State of Virginia and/or Fairfax County, Virginia, as the fiscal year for real
estate tax purposes; and wherever reference is hereinafter made to January 1, it
shall mean, in the case of such other fiscal year, the first day thereof).
8. Base Tax Year shall mean the Real Estate Tax Fiscal Year
commencing January 1, 1996 and ending December 31, 1996.
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9. Base Real Estate Taxes shall mean the taxes payable for the
Base Tax Year.
10. Lessee's Proportionate Percentage shall mean nine and
ninety-four/one thousandths percent (9.094%) and shall represent the agreed
percentage of the Building for purposes of computing Lessee's allocable share of
any change in Real Estate Taxes provided hereunder.
B. Increases in Real Estate Taxes
During the Lease Term, Lessee shall pay to Lessor, as additional Rent,
Lessee's Proportionate Percentage of any increase during the Lease Term in Real
Estate Taxes (exclusive of the Allocated Taxes, as hereinafter defined) levied
on the Building and the Land on which the Building is situated over the Base
Real Estate Taxes; provided that, Lessee shall pay one hundred percent (100%) of
any increase in Real Estate Taxes levied on the Building and/or the Land on
which the Building is situated, to the extent attributable to Lessee's occupancy
of the Demised Premises, the equipment installed by Lessee within the Demised
Premises, and/or the business conducted therein by Lessee or the income derived
therefrom (the "Allocated Taxes"). Lessor shall submit to Lessee a Statement of
such tax increase and Lessee shall pay to Lessor its aforesaid percentage share
of such tax increase for the Real Estate Tax Fiscal Year of Fairfax County,
Virginia (currently January 1 to December 31) for which such tax increase is
effective and shall, commencing with the first monthly installment of Rent which
is due during such Real Estate Tax Fiscal Year, pay to Lessor as additional
monthly Rent, together with such monthly installment of Rent an amount equal to
one-twelfth (1/12) of Lessee's aforesaid percentage share of such annual
increase in Real Estate Taxes to be applied to Lessee's obligation thereafter
accruing under this Section. If the expiration date of this Lease does not
coincide with the last day of the Real Estate Tax Fiscal Year, the portion of
the increase in Real Estate Taxes payable by Lessee hereunder for the Real
Estate Tax Fiscal Year in which the expiration date occurs, shall be
appropriately adjusted and pro-rated between the Lessor and Lessee, based upon
the respective number of days in such Real Estate Fiscal Year prior to and after
the expiration date.
C. Operating Costs
Lessee shall be solely responsible for the payment of any and all costs,
expenses and fees arising directly or indirectly from or out of, or in
connection with, Lessee's occupancy of the Demised Premises, the equipment
installed by Lessee within the Demised Premises, and/or the business conducted
therein by Lessee (including, but not limited to, the cost of separately
metering all utilities to the Demised Premises), when and as due. In the event
any such costs, expenses and/or fees shall be incurred by or on behalf of
Lessor, Lessee shall reimburse Lessor for the same upon demand. It is the intent
of the parties hereto that the Rent payable under this Lease shall be an
absolutely net return to the Lessor and that the Lessee shall pay all costs and
expenses relating to the Demised Premises and the business carried on therein,
unless otherwise expressly provided in this Lease. Any amount or obligation
herein relating to the Demised Premises which is not expressly declared to be
that of the Lessor shall be deemed to be an obligation of the Lessee to be
performed by the Lessee at the Lessee's sole expense.
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<PAGE> 5
D. Base Rental Adjustment
Commencing with the first anniversary of the Commencement Date and on each
anniversary thereof throughout the term, Lessee's Monthly Base Rent shall be
increased by three percent (3%) of the previous year's Monthly Base Rent. Lessee
shall pay such increased Rent in monthly installments commencing with the
Monthly Base Rent payment then due.
E. Personal Property Taxes
Lessee shall pay before delinquency all taxes, assessments, license fees,
and other charges that are levied and assessed against Lessee's personal
property installed or located in or on the Demised Premises, and that become
payable during the term. On demand by Lessor, Lessee shall furnish Lessor with
satisfactory evidence of these payments.
If any taxes on Lessee's personal property are levied against Lessor or
Lessor's property, or if the assessed value of the Building and other
improvements in which the Demised Premises are located is increased by the
inclusion of a value placed on Lessee's personal property, and if Lessor pays
the taxes on any of these items or the taxes based on the increased assessment
of these items, Lessee, on demand, shall immediately reimburse Lessor for the
sum of the taxes levied against Lessor, or the proportion of the taxes resulting
from the increase in Lessor's assessment. Lessor shall have the right to pay
these taxes regardless of the validity of the levy.
In the event that any sales tax or excise tax is imposed by any
governmental authority on either the Rent payable by Lessee hereunder or on the
services provided under the Lease hereunder, such sales tax or excise tax shall
be paid by Lessee.
6. DEPOSIT
Simultaneously with the execution of this Lease, Lessee shall
deposit with Lessor the sum of Twenty Thousand Nine Hundred Eighty-Three and
thirty-four/one hundredths Dollars ($20,983.34), as a security deposit for the
performance by Lessee of the provisions of this Lease. Such deposit shall be
considered as security for the payment and performance by Lessee of all Lessee's
obligations, covenants, conditions and agreements under this Lease. In the event
of any default by Lessee hereunder, Lessor shall have the right, but shall not
be obligated, to apply all or any portion of the deposit to cure such default,
in which event Lessee shall be obligated to promptly deposit with Lessor the
amount necessary to restore the deposit to its original amount provided,
however, such defaults and Lessee's liability under this Lease shall thereby be
discharged only pro tanto and Lessee shall remain liable for any amounts that
said Security Deposit shall be insufficient to pay. If Lessee is not in default
at the expiration or termination of this Lease, Lessor shall return the security
deposit to Lessee. Lessor shall not be required to pay Lessee interest on the
security deposit. Notwithstanding the foregoing, in the event of the sale or
transfer of Lessor's interest in the Demised Premises or this Lease, Lessor
shall have the right to transfer the Security Deposit to the purchaser or
transferee provided that the purchaser or transferee shall agree to hold the
same in accordance with the terms hereof, in which event Lessee shall look only
to the new landlord for the return of the Security Deposit and Lessor shall
thereupon be released from all liability
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<PAGE> 6
to Lessee for the return of such Security Deposit.
7. ASSIGNMENT AND SUBLETTING
(a) Lessee shall not mortgage or encumber this Lease. Lessee shall
not assign or transfer this Lease, or grant any license or concession hereunder,
or sublet or permit the occupancy or use of the Demised Premises, or any part
thereof (each of the foregoing herein referred to as a "Transfer", and any
person or entity to whom a Transfer is made or proposed to be made being herein
referred to as a "Transferee"), by any person or entity other than Lessee and
its employees, or cause, permit or suffer any Transfer to occur by operation of
law or otherwise, without obtaining the prior written consent of Lessor. In no
event shall Lessee grant any partial assignment of Lessee's interest in this
Lease. Lessee shall deliver not less than thirty (30) days prior written notice
of any proposed Transfer, said notice to further specify the identity of the
proposed Transferee, the terms of the proposed Transfer and such other
information as Lessor may reasonably request. Any costs and expenses, including,
but not limited to, attorney's fees (which shall include the cost of any time
expended by Lessor's attorneys including in-house counsel) incurred by Lessor in
connection with any proposed Transfer shall be borne by Lessee and shall be
payable to Lessor as additional Rent.
(b) Subject to the other provisions of this Section 7, and provided
that (i) Lessee is not and has not been in default hereunder and (ii) Lessee
will remain in possession of in excess of fifty percent (50%) of the Demised
Premises, Lessor agrees that it will not unreasonably withhold or delay its
consent to a proposed sublease or assignment; provided that, notwithstanding the
foregoing, it shall be deemed reasonable for Lessor to withhold its consent to a
proposed Transfer if Lessor determines that: (A) the proposed Transferee or its
business is not of a type and quality suitable for a first-class office
building, (B) the proposed Transferee is a governmental or quasi-governmental
authority, a foreign government or international agency or other organization
entitled to sovereign or other immunity, (C) the proposed assignment or
sub-tenancy or the proposed assignee or subtenant would adversely affect the
other tenants of the Building or would impose an additional, material burden
upon Lessor in its operation of the Building, (D) the proposed Transfer would
impair the reputation of the Building as a first-class office building, (E) the
proposed Transferee has not been demonstrated to Lessor's satisfaction to have
sufficient financial capability and stability to perform its obligations under
this Lease and under such proposed assignment or sublease (as the case may be),
(F) the proposed Transfer would result in more than one (1) sublease being in
effect, (G) the Lease has previously been Transferred, (H) the proposed
Transferee is proposing to engage in a use which (i) is not permitted pursuant
to Section 3 hereof, (ii) is not permitted pursuant to applicable law to be
conducted by the proposed Transferee or within the Demised Premises (or such
lesser portion as is being sublet) or both, (iii) will violate any covenant,
condition, restriction or other matter of record affecting title to the
Building, or any other agreement, judgment or law by which Lessor or the
Building is bound, or (iv) will violate any "exclusive use" or other restrictive
covenant of any other lease of any portion of the Building, (I) the proposed
Transferee is proposing to manufacture, use, store or dispose of Hazardous
Materials in, on or upon the Demised Premises (or such lesser portion as is
being sublet), (J) the rent to be paid in connection with such Transfer
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<PAGE> 7
is less than the comparable rents then being charged for similar space in the
Building, or (K) Lessor's lender shall refuse to grant its consent to such
Transfer (if required). Notwithstanding anything herein contained, Lessee shall
have no right to make any Transfer to any person or entity with whom Lessor is
negotiating to lease space in the Building, or to any existing tenant or other
occupant of the Building.
(c) The consent by Lessor to any Transfer shall not be construed as
a waiver or release of Lessee from the terms of any covenant or obligation under
this Lease, nor shall the collection or acceptance of Rent from any Transferee
constitute a waiver or release of Lessee of any covenant or obligation contained
in this Lease, nor shall any such Transfer be construed to relieve Lessee from
giving Lessor said thirty (30) days notice or from obtaining the consent in
writing of Lessor to any further Transfer. Lessee hereby assigns to Lessor the
rent due from any Transferee and hereby authorizes each such Transferee to pay
said rent directly to Lessor; provided that so long as Lessee is not in default
hereunder, Lessee shall be authorized to collect the rent from each such
Transferee. Any costs and expenses, including, but not limited to, reasonable
attorney's fees (which shall include the cost of any time expended by Lessor's
attorneys including in-house counsel) incurred by Lessor in connection with any
proposed or purported Transfer shall be borne by Lessee and shall be payable to
Lessor as additional Rent.
(d) Without conferring any rights upon Lessee not otherwise provided
in this Section 7, in the event of a Transfer fifty percent (50%) of the excess
of any monthly base rent or other payment or consideration accruing to the
Lessee as a result of such Transfer (including, but not limited to, any lump sum
or periodic payment in any manner relating to such Transfer) above the Monthly
Base Rent payable by Lessee with respect to that portion of the Demised
Premises, shall, after deduction of Lessee's reasonable out-of-pocket costs for
brokerage commissions and tenant improvements paid by Lessee in connection with
such Transfer (such costs to be amortized on a straight-line basis over the term
of any sublease), be paid by Lessee to Lessor within ten (10) days following
receipt thereof by Lessee, as additional Rent.
(e) If Lessee is a corporation, then the sale, issuance or transfer
of any voting capital stock of Lessee or of any corporate entity which directly
or indirectly controls Lessee (unless Lessee is a corporation whose stock is
traded on the New York Stock Exchange or the American Stock Exchange or a
recognized national "over-the-counter" exchange) which shall result in a change
in the voting control of Lessee or the corporate entity which controls Lessee
shall be deemed to be an assignment of this Lease within the meaning of this
Section 7; provided that, so long as Tenant is not in default hereunder, neither
(i) the issuance of voting stock of Lessee through an initial public offering on
a nationally-recognized exchanged, or (ii) the issuance of voting stock of
Lessee to raise venture capital for Lessee's business, which does not result in
a change in the managerial control of Lessee, shall be deemed to be an
assignment of this Lease within the meaning of this Section 7. If Lessee is a
partnership or an unincorporated association, then the sale, issuance or
transfer of a majority interest therein, or the transfer of a majority interest
in or a change in the voting control of any partnership or unincorporated
association or corporation which directly or indirectly controls Lessee, or the
transfer of any portion or all of any general partnership or
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<PAGE> 8
managing partnership interest, shall be deemed to be an assignment of this Lease
within the meaning of this Section 7. Any attempted or purported Transfer in
violation of the foregoing, whether voluntary or involuntary or by operation of
law or otherwise, shall be null and void and shall not confer any rights upon
any purported Transferee, and shall, at Lessor's option, terminate this Lease
without relieving Lessee of any of its obligations hereunder for the balance of
the stated Term.
(f) Notwithstanding anything herein contained to the contrary, the
co-location of customer equipment in the Demised Premises in the ordinary course
of Lessee's business shall not be deemed to be an assignment or subletting.
However, Lessee shall be solely responsible for all risk of loss or damage to
any such equipment, and shall be solely responsible for any and all loss or
damage occasioned by the installation, operation, repair, maintenance and/or
removal of such equipment.
8. MAINTENANCE BY LESSEE
Lessee, subject to Sections 9, 10, and 20, at its cost shall keep the
Demised Premises and the fixtures and equipment therein in clean, safe and
sanitary condition, will take good care thereof, will suffer no waste or injury
thereto, and will, at the expiration or other termination of the term of this
Lease, surrender the same, broom clean, in the same order and condition in which
they are on the Commencement Date, ordinary wear and tear and damage by the
elements, fire and other casualty not due to the intentional or negligent acts
or omissions of Lessee or Lessee's agents, employees, contractors, licensees or
invitees (collectively, "Lessee's Agents") excepted; and upon such termination
of this Lease, Lessor shall have the right to re-enter and resume possession of
the Demised Premises. It is hereby understood and acknowledged by the parties
hereto that, except as expressly set forth in the Lease, Lessor is leasing the
Demised Premises to Lessee in "as is" condition with all faults, and that Lessor
has made no representations respecting the condition or suitability of the
Demised Premises or the Property not expressly contained herein. Except as
expressly set forth herein, Lessor shall have no liability to Lessee or any of
Lessee's Agents arising from the condition of the Property or the Demised
Premises, and Lessee shall defend, indemnify and hold Lessor harmless from and
against any claims, causes of action, damages and liability arising from the
condition of the Demised Premises or, to the extent caused by Lessee or Lessee's
Agents, the Property (exclusive of the Demised Premises). The foregoing
indemnity shall be deemed to survive the expiration of this Lease.
9. ALTERATIONS
(a) Lessee will not make or permit any alterations, decorations,
additions or improvements, structural or otherwise, in or to the Demised
Premises or the Building, without the prior written consent of Lessor, which
consent may be conditioned, inter alia, upon Lessee's agreement to remove the
same and restore the Demised Premises to its condition prior to the making of
such alterations, at Lessee's sole cost and expense, upon the expiration or
sooner termination of this Lease.
(b) If any mechanic's lien is filed against the Demised Premises, or
the real property of which the Demised Premises are a part, for work claimed to
have been done for, or materials claimed to have been furnished to, Lessee, such
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<PAGE> 9
mechanic's lien shall be discharged by Lessee within ten (10) days thereafter,
at Lessee's sole cost and expense, by the payment thereof or by filing any bond
required by law. Lessee shall promptly inform Lessor upon receipt, by Lessee, of
any notice of the filing of any such mechanics lien(s). If Lessee shall fail to
discharge any such mechanic's lien, Lessor may, at its option and without
inquiring into the validity thereof discharge the same and treat the cost
thereof as additional Rent payable with the monthly installment of Rent next
becoming due; it being hereby expressly covenanted and agreed that such
discharge by Lessor shall not be deemed to waive, or release, the default of
Lessee in not discharging the same. Lessee hereby covenants and agrees to
defend, indemnify and hold Lessor, the Demised Premises and the property upon
which the Demised Premises is constructed, harmless from and against any and all
claims, damages, cost, expense, liability, liens and other detriment which they
may suffer or which may arise by reason of the making of any such alterations,
decorations, additions or improvements. If any such alteration, decoration,
addition or improvement is made without the prior written consent of Lessor,
Lessor may correct or remove the same, and Lessee shall be liable for any and
all expenses incurred by Lessor in the performance of this work. All
alterations, decorations, additions or improvements in or to the Demised
Premises made by either party shall immediately become the property of Lessor
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the Lease Term without disturbance, molestation or injury;
provided, however, that Lessee shall have the right to remove, prior to the
expiration or termination of the Lease Term, movable furniture, furnishings or
equipment installed in the Demised Premises at the expense of Lessee, so long as
at all times the fair market value of the personal property of Lessee remaining
upon the Demised Premises shall equal not less than one hundred fifty percent
(150%) of the value of the remaining rental obligations of Lessee hereunder, and
if such property of Lessee is not removed by Lessee prior to the expiration or
termination of this Lease the same shall become the property of Lessor and shall
be surrendered with the Demised Premises as a part thereof. In the event of a
termination or expiration of this Lease, Lessor agrees to permit customers who
have co-located equipment in the Demised Premises to recover the same, provided
that (i) Lessee shall authorize Lessor in writing to deliver such equipment to
the owners thereof (which writing shall specify the equipment to be returned and
the owner(s) to whom each piece of equipment shall be delivered), (ii) each
customer who seeks to recover their co-located equipment shall retrieve the same
not more than twenty (20) days after this Lease shall be terminated or shall
expire (whether or not notice of such termination or expiration shall be
delivered by Lessor to any such customer, Lessee hereby assuming all
responsibility for such notification to its customers), and (iii) Lessee and
each such customer shall defend, indemnify and hold Lessor harmless from and
against any and all claims, costs, damages, expenses, fees, liabilities, losses
or suits arising from or out of, or in connection with, such recovery
(including, but not limited to, any damage occasioned to the Demised Premises or
the Building arising from or out of, or in connection with, the installation,
operation or removal of their respective equipment). Should the Lessor elect
that alterations, decorations, additions or improvements upon the Demised
Premises be removed, upon termination of this Lease or upon termination of any
renewal period hereof, Lessee hereby agrees to cause same to be removed at
Lessee's sole cost and expense and should Lessee fail to remove the same, then
and in such event, the Lessor shall cause same to be removed at the
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Lessee's expense and the Lessee hereby agrees to reimburse the Lessor for the
cost of such removal together with any and all damages which the Lessor may
suffer and sustain by reason of the failure of Lessee to remove the same.
10. TENANT WORK
(a) (i) Promptly following the execution hereof, Lessee shall
deliver to Lessor, for Lessor's approval, Lessee's requirements for the
improvement of the Demised Premises, including, but not limited to, the size,
location and special mechanical, electrical and/or plumbing attributes or
requirements of Lessee's furniture and equipment, the location and specification
of telephone and other communications outlets, the location and specification of
electrical load and outlet requirements, especially those required to
accommodate items such as computers and 220 volt equipment, the location of
heat-producing machines, and specification of heat output (BTU/hour) and
required operating conditions (maximum/minimum temperature, hours of operation)
for such equipment. Lessor hereby acknowledges that, subject to receipt of all
applicable governmental approvals, and subject to Lessor's review and approval
of the plans and specifications therefor, the Tenant's Work (as herein defined)
may include the installation of an FM200 system, a pre-action sprinkler system,
one or more stand-alone supplemental heating, ventilation and air conditioning
units, and a generator umbilical feed to an above-grade location on the exterior
of the fire stairway in the northeast corner of the Property. Based on those
requirements which are approved by Lessor (which approval shall not be
unreasonably withheld, except with regard to requirements which will or may
require changes, improvements or modifications to the structure of, or the
systems serving, the Building or any part thereof, and with regard to
requirements which may adversely affect the operation of the Building or other
occupants of the Building, the approval of which may be withheld in Lessor's
sole discretion), Lessee shall cause Lessor's architect and engineer to prepare,
at Lessee's expense, construction drawings and specifications for the
improvements to the Demised Premises which are consistent with the Lessor's
approval, and to deliver the same to Lessor for Lessor's approval. Lessee shall
thereafter cause Lessor's architect and engineer to make such revisions as are
required to incorporate the changes required by Lessor. Lessor shall have final
approval regarding such construction drawings and specifications.
(ii) Following preparation of the final, approved construction
drawings and specifications, Lessor shall cause its general contractor to obtain
competitive bids from subcontractors for each trade forming a portion of the
leasehold improvements shown on the final construction drawings and
specifications prepared by Lessor's architect and engineer (the "Tenant's
Work"). Upon receipt of such competitive bids, Lessor shall provide to Lessee a
written estimate of the cost to perform the Tenant's Work (based on the lowest
responsible and responsive bids for the trades so bid, the costs of supervision,
dumpster charges, and interim and final cleaning costs, and a mark-up on all
such costs and charges of ten percent (10%) for Lessor's overhead and ten
percent (10%) for Lessor's profit). Lessee shall have three (3) business days
after receipt of such written estimate within which to review the same and to
submit to Lessor in writing any requests for value engineering changes. Lessor's
agreement to such value engineering changes shall not be unreasonably withheld,
so long as (A) the same do not represent a material variation from the final,
approved construction drawings and specifications, and (B) Lessee shall agree in
writing to pay any and all costs attributable to such
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<PAGE> 11
changes (including, but not limited to, any delays associated therewith).
Following Lessee's approval of the pricing for the Tenant's Work, Lessor shall,
on Lessee's behalf and at Lessee's expense, obtain in Lessee's name a building
permit for, and direct Gosnell Development, Inc. to perform in the Demised
Premises, the Tenant's Work. The Tenant's Work shall be performed in accordance
with the final construction drawings and specifications, utilizing Building
standard materials except as otherwise specified in the plans and specifications
for the Tenant's Work. In no event shall the Tenant's Work include any work to
the Demised Premises not set forth in the final construction drawings and
specifications as approved by Lessor.
(b) All costs associated with the design, permitting, planning and
construction of the Tenant's Work shall be borne by Lessee. Lessee shall pay to
Lessor (which amount shall be deemed additional Rent for purposes of Lessor's
remedies under this Lease), the cost of the Tenant's Work as follows:
(i) prior to the commencement of the Tenant's Work, Lessee
shall pay to Lessor the sum equal to twenty percent (20%) of Lessor's estimate
of the cost of the Tenant's Work; and
(ii) following commencement of the Tenant's Work, Lessor shall
submit invoices to Lessee on or before the twenty-fifth (25th) of each month for
the unpaid costs incurred by Lessor for the portion of the Tenant's Work
theretofore completed or, in the case of special orders, ordered. Lessee shall
pay to Lessor the amount of each such invoice not later than the fifth (5th) day
of the following month.
(c) Following completion of the Tenant's Work, Lessee may undertake
to have extra tenant work performed at its own expense, provided, that (i) the
design of all such work and installations shall be subject to the prior written
approval of Lessor and Lessor's architect or supervising engineer (which
approval may be withheld or conditioned in Lessor's sole discretion), (ii) no
work may be commenced until the written approval of Lessor is obtained, (iii)
all work must be performed in accordance with tenant work procedures promulgated
by Lessor, (iv) Lessee shall have no right to make any structural modifications,
(v) Lessee will obtain a building permit for said work and will deliver one set
of approved plans as well as final inspection stickers and non-residential use
permit to Lessor, and (vi) all work must be performed by a contractor approved
by Lessor. In addition, (i) Lessee's contractor, if other than Lessor, Lessor's
Contractor or a third party contractor approved by Lessor (in Lessor's sole
discretion) to proceed without a bond, is to be bonded if the total cost of the
proposed improvements exceeds $10,000.00; (ii) Lessee shall comply with all such
other reasonable restrictions and conditions as Lessor may impose; (iii) Lessee
shall discharge all mechanics' liens in accordance with Section 9(b); (iv)
Lessee will defend, indemnify and hold Lessor and Lessor's Property harmless
from and against all damage and liability arising from the making of any such
tenant improvements; (v) Lessee shall deliver to Lessor a certificate of
insurance evidencing such insurance coverage as Lessor may require in connection
with the performance of such work and naming Lessor (and, at Lessor's option,
Lessor's mortgagee) as an additional insured; and (vi) Lessee shall provide
Lessor with waivers and releases of liens with respect to such improvements as
each payment for such work is made.
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11. SIGNS, SAFES & FURNISHINGS
No signs, advertisement or notice shall be inscribed, painted, affixed or
displayed on any part of the outside or the inside of the Building, except on
the directories and the doors of offices, and then only in such place, number,
size, material color and style as is approved by Lessor, and if any such sign,
advertisement or notice is exhibited, Lessor shall have the right to remove the
same and Lessee shall be liable for any and all expenses incurred by Lessor by
said removal, Lessee hereby agreeing to reimburse Lessor upon demand for all
such expenses incurred by Lessor. Any such permitted use, including directories
and name plates, shall be at the sole expense and cost of the Lessee. Lessor
shall have the right to prohibit any advertisement of Lessee which in its
opinion tends to impair the reputation of the Building or its desirability as a
high-quality office Building, and, upon written notice from Lessor, Lessee shall
immediately refrain from and discontinue any such advertisement Lessor shall
have the right to prescribe the weight and position of safes and other heavy
equipment or fixtures. Any and all damages or injury to the Demised Premises or
the Building caused by moving the property of Lessee into, or out of the Demised
Premises, or due to the same being on the Demised Premises, shall be repaired
by, and at the sole cost of, Lessee. No furniture, equipment or other bulky
matter of any description will be received into the Building or carried in the
elevators except as approved by Lessor. All moving of furniture, equipment and
other material within the public areas shall be subject to such conditions and
restrictions as may be imposed by Lessor, who shall, however, not be responsible
for any damage to or charges for moving the same. Lessee agrees promptly to
remove from the sidewalks adjacent to the Building any of the Lessee's
furniture, equipment or other material there delivered or deposited.
12. ENTRY FOR REPAIRS AND INSPECTIONS
Lessor hereby reserves the right, for itself and its agents, officers,
employees and contractors, to have access to the Demised Premises at all
reasonable times to examine, inspect, and protect the same and to prevent damage
or injury to the same; to make such alterations and repairs to the Demised
Premises, the Building or other premises as the Lessor may deem necessary; to
exhibit the same to potential or actual mortgagees or purchasers of said
Building; and during the last six (6) months of the Lease Term, to exhibit the
same to prospective tenants. No such access by Lessor or those claiming by or
through Lessor shall constitute a constructive eviction or a basis for an
abatement of Rent, nor shall Lessee be entitled to any compensation on account
thereof. Lessor shall exercise reasonable efforts to give Lessee prior notice of
such access, and, when making such access, to minimize the interference with
Lessee's business operations; provided, however, the foregoing shall not be
construed to require Lessor to limit such access to non-business hours or to
limit the number of persons permitted access to the Demised Premises hereunder.
13. INSURANCE RATING
Lessee will not conduct or permit to be conducted any activity, or place
any equipment in or about the Demised Premises, which will, in any way, increase
the rate of fire insurance or other insurance on the Building; and if any
increase in the rate of fire insurance or other insurance is stated by any
insurance company or by the applicable Insurance Rating Bureau to
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be due to activity or equipment in or about the Demised Premises, such statement
shall be conclusive evidence that the increase in such rate is due to such
activity or equipment and, as a result thereof, Lessee shall be liable for such
increase as additional Rent and upon notification thereof by Lessor shall
reimburse Lessor therefore.
14. LESSEE'S EQUIPMENT
Lessor acknowledges that Lessee shall have the right, subject to the terms
hereof, to install and operate telecommunications switching and routing
equipment, Internet and personal computers and servers, and related peripheral
equipment in the Demised Premises. Prior to Lessee installing in the Demised
Premises any electrically operated equipment or other machinery, Lessee shall
notify Lessor of the equipment to be installed and shall provide Lessor for
Lessor's approval detailed drawings of any required modifications to the
electrical system serving the Demised Premises or the structure of the Building
necessitated by such installation (such approval not to be unreasonably
withheld). Business machines and mechanical equipment belonging to Lessee which
cause interference, radiation, noise, vibration or other external effects that
may be transmitted to the structure of the Building or to any space in the
Building, or any equipment operated therein, shall be installed and maintained
by Lessee, at Lessee's expense, utilizing such shielding, sound attenuation,
vibration eliminators or other devices sufficient to eliminate such
interference, radiation, noise, vibration and other effects.
15. INDEMNITY
Lessee will defend, indemnify and hold harmless Lessor from and against
any loss, damage or liability (including attorneys fees) occasioned by or
resulting directly or indirectly from (i) the business conducted by Lessee in,
on or about the Demised Premises, and/or (ii) any default hereunder or any
willful or negligent act or omission on the part of Lessee or Lessee's Agents or
persons permitted in the Building or on the Demised Premises by Lessee.
16. SERVICES AND UTILITIES
Lessor shall have no obligation to furnish any service or utilities to the
Demised Premises. Lessee shall be solely responsible for furnishing to the
Demised Premises any and all services and utilities desired by Lessee,
including, but not limited to, electricity and water; provided that, Lessee
shall have the right, at Lessee's sole expense and subject to the availability
of capacity and the provisions hereof, to tap Lessor's water and electrical
supply lines and to tie into the Building fire annunciator panel, Lessee hereby
acknowledging that the plans and specifications for such connections shall be
subject, inter alia, to Lessor's prior written approval. Lessee shall, at
Lessee's sole expense, cause all such utilities to be separately metered or
sub-metered on a demand and consumption basis to the Demised Premises and shall
pay all charges therefor directly to the provider thereof (or, if sub-metered,
to reimburse Lessor for the same upon demand). Lessor agrees to permit Lessee to
utilize Lessor's dumpster, provided that Lessee reimburses Lessor upon demand
for any additional costs incurred by Lessor in order to accommodate Lessee's use
of such dumpster (including, but not limited to, costs of increasing the
capacity of Lessor's dumpster or the frequency of trash collection).
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<PAGE> 14
Failure of any such services, or any cessation thereof, shall not render Lessor
liable in any respect for damages to either person or property, nor be construed
as an eviction of Lessee, nor work an abatement of Rent, nor relieve Lessee from
fulfillment of any covenant or agreement hereof. Should any of the Building
equipment or machinery break down, or for any cause cease to function properly,
Lessor shall, upon receipt of notice from Lessee of the need therefore, use
reasonable diligence to repair the same promptly, but Lessee shall have no claim
for rebate of Rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Subject to the terms hereof, regular
maintenance and repairs, and circumstances and events beyond the reasonable
control of Lessor, Lessee and Lessee's employees shall have access to the
Building and the Demised Premises twenty-four (24) hours per day, three hundred
sixty-five (365) days per year.
17. RESPONSIBILITY FOR CERTAIN DAMAGE AND BREAKAGE
All breakage, damage and injury to the Demised Premises, and all breakage,
damage and injury to the Building of which the Demised Premises are a part
caused by or attributable to Lessee or Lessee's Agents, shall be repaired
promptly by the Lessee, at the expense of the Lessee. In the event that the
Lessee shall fail so to do, then the Lessor shall have the right to make
necessary repairs, alterations and replacements, structural, non-structural, or
otherwise, and any charge or cost so incurred by the Lessor shall be paid by the
Lessee with the right on the part of the Lessor to elect in its discretion to
regard the same as additional Rent, in which event such cost or charge shall
become additional Rent payable with the installment of Monthly Base Rent next
becoming due or thereafter falling due under the terms of this Lease. This
provision shall be construed as an additional remedy granted to the Lessor and
not in limitation of any other rights and remedies which the Lessor has or may
have in said circumstances. The exercising of Lessor's right to cure will not
excuse the failure of Lessee to perform its obligations hereunder.
In the event of any water leakage into the Demised Premises which is
caused by burst pipes or other breakage of Building systems and is not caused by
or reasonably attributable to the acts or omissions of Lessee or Lessee's
Agents, Lessor agrees to use commercially reasonable efforts to promptly repair
the source of such leak, but Lessor shall have no obligation to provide a
membrane or other waterproof barrier on the B-1 level of the Building above the
Demised Premises to act as a roof, or to otherwise alter, improve, modify or
retrofit the Building. Lessor agrees to permit Lessee to caulk or install other
waterproofing above the Demised Premises on the B-1 level of the Building, at
Lessee's sole expense and subject to Lessor's approval of Lessee's plans and
specifications therefor and the other terms and provisions hereof.
18. BANKRUPTCY
(a) If at any time during the Lease Term, a petition shall be filed,
either by or against the Lessee, in any Court or pursuant to any Federal, State,
or Municipal statute whether in bankruptcy, insolvency, for the appointment of a
receiver of the Lessee's property or because of any general assignment made by
the Lessee of the Lessee's property for the benefit of the Lessee's creditors,
then immediately upon the happening of any such event, and without any entry or
other act by the Lessor,
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<PAGE> 15
this Lease, at Lessor's option, shall cease and come to an end with the same
force and effect as if the date of the happening of any such event were the date
herein fixed for the expiration of the Lease Term. It is further stipulated and
agreed that, in the event of the termination of the Lease Term by the happening
of any such event, the Lessor shall forthwith, upon such termination, and any
other provisions of this Lease to the contrary notwithstanding, become entitled
to recover as and for liquidated damages caused by such breach of the provisions
of this Lease, an amount equal to the difference between the then cash value of
the Rent reserved hereunder for the unexpired portion of the term and the then
cash rental value of the Demised Premises for such unexpired portion of the
Lease Term hereby demised, unless the statute which governs or shall govern the
proceeding in which such damages are to be proved limits or shall limit the
amount of such claim capable of being so proved, in which case the Lessor shall
be entitled to prove as and for liquidated damages an amount equal to that
allowed by or under any such statute. The provisions of this Section of this
Lease shall be without prejudice to the Lessor's right to prove in full damages
for Rent accrued prior to the termination of this Lease, but not paid. This
provision of this Lease shall be without prejudice to any rights given to the
Lessor by any pertinent statute to prove any amounts allowed thereby.
(b) In making any such computation, the then cash rental value of
the Demised Premises shall be deemed prima-facie to be the present cash value
(utilizing a 6% discount rate) of rental realized upon any re-letting, if such
re-letting can be accomplished by the Lessor within a reasonable time after such
termination of this Lease, and the then present cash value of the future Rents
hereunder reserved to the Lessor for the unexpired portion of the term hereby
demised shall be deemed to be such sum, if invested at six per cent (6%) simple
interest, as will produce the future Rent over the period of time in question.
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON
All personal property of the Lessee, its employees, agents, business
invitees, licensees, customers, clients, family members, guests or trespassers
in and on said Demised Premises, shall be and remain at their sole risk, and
Lessor shall not be liable to them for any damage to, or loss of such personal
property arising from any act of negligence of any other persons nor from the
leaking of the roof, or from the bursting, leaking or overflowing of (water,
sewer or steam pipes, or from heating or plumbing fixtures, or from electrical
wires or fixtures, or from air-conditioning failure, or from any other cause
whatsoever, nor (to the extent permitted by applicable law) shall the Lessor be
liable for any personal or bodily injury to the Lessee, its employee, agents,
business invitees, licensees, contractors, customers, clients, family members,
guests or trespassers arising from the use, occupancy and condition of the
Demised Premises or Building (except to the extent arising directly from the
gross negligence or willful misconduct of Lessor), the Lessee especially
agreeing to defend, indemnify and save the Lessor harmless in all such cases
from and against any loss, damage, or liability (including attorney's fees)
arising from the use, occupancy or condition of the Demised Premises, or, to the
extent attributable to the acts or omissions of Lessee or Lessee's Agents, the
Property (exclusive of the Demised Premises). Lessee further acknowledges and
agrees that, notwithstanding any provision of this Lease to the contrary, in no
event shall the Lessor be liable for any interruption or loss to Lessee's
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<PAGE> 16
business arising from any act or cause whatsoever (whether or not Lessor has
been negligent in any regard).
20. DAMAGE TO THE DEMISED PREMISES
If the Demised Premises shall be damaged by fire or other cause without
the fault or neglect of Lessee, Lessor shall diligently and as soon as
practicable after such damage occurs (taking into account the time necessary to
effectuate a satisfactory settlement with any insurance company) repair such
damage (but excluding Lessee's furniture, fixtures, furnishings, equipment,
improvements and/or alterations) at the expense of the Lessor, and the Monthly
Base Rent shall be reduced in proportion to the extent the Demised Premises are
rendered untenantable, until such repairs are completed, provided, however, that
if the Building is damaged by fire or other cause to such extent that the damage
cannot be fully repaired within ninety (90) days from the date of such damage,
and further provided that Lessor terminates the lease(s) of any other premises
which are damaged by the same fire or cause to the extent that the damage cannot
be fully repaired within ninety (90) days from the date of such damage, Lessor
shall have the option of terminating this Lease by giving written notice to
Lessee of such decision and the Lease Term shall terminate on the day such
notice is given. Notwithstanding the foregoing, in the event the Building shall
be damaged or destroyed by fire or other casualty during the last twelve (12)
months of the Lease Term, Lessor shall have no obligation to rebuild the Demised
Premises, and upon giving Lessee notice of Lessor's election not to rebuild the
Demised Premises, this Lease shall cease and determine as fully as if the date
of such notice were the scheduled termination date of this Lease. No
compensation or claim or reduction of Rent will be allowed or paid Lessor by
reason of inconvenience, annoyance, or injury to business arising from the
necessity of repairing the Demised Premises or any portion of the Building
however the necessity may occur.
21. DEFAULT OF LESSEE
(a) The occurrence of any of the following shall be deemed an "event of
default":
(i) the failure to pay any monthly installment of Monthly Base Rent
or any other Rent as reserved hereunder when and as the same are due, although
no legal or formal demand shall have been made therefor;
(ii) the violation or failure to perform any of the other
conditions, covenants or agreements herein made or imposed upon Lessee, which
violation or failure shall continue for a period of ten (10) days after written
notice thereof to Lessee from Lessor; provided that, except as otherwise set
forth herein, for any default which cannot reasonably be cured within said ten
(10) day period, the cure period therefor shall be extended for such time as is
reasonably necessary to effect a cure of such default (but in no event beyond
sixty (60) days after delivery of notice of such default with regard to any
intentional or willful default by Lessee hereunder), on the conditions that
Lessee immediately commences and diligently pursues such cure to completion, and
that, promptly upon determining that the aforesaid ten (10) day cure period is
inadequate, Lessee shall deliver notice to Lessor of the steps being taken to
cure such default and the amount of time reasonably estimated by Lessee to
effect such cure. Notwithstanding anything herein contained, the
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<PAGE> 17
occurrence of any violation of the conditions, covenants, duties and/or
obligations of Tenant herein contained, or any failure or neglect by Tenant to
observe or perform any of said conditions, covenants duties or obligations,
which (A) by its nature cannot be cured (or cannot be cured within the aforesaid
sixty (60) day period), (B) constitutes a hazard to the health and/or safety of
any occupant of the Property, (C) has caused the insurer of any policy of
insurance on the Property to issue a notice of cancellation of such policy, (D)
subjects Landlord to the risk of civil or criminal liability, fine, penalty or
prosecution, or (E) is defined as an event of default hereby without notice or
cure period, then the occurrence of such violation, failure or neglect shall,
without demand or notice or cure period, be deemed an event of default;
(iii) if Lessee becomes "insolvent," as defined in Title 11 of the
United States Code, entitled "Bankruptcy," 11 U.S.C. Section 101, et seq. (the
"Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States of America ("Insolvency Laws");
(iv) if a receiver or custodian is appointed for any or all of
Lessee's property or assets, or if there is instituted a foreclosure action on
any of Lessee's property;
(v) if Lessee files a voluntary petition under the Bankruptcy Code
or any Insolvency Laws;
(vi) there is filed an involuntary petition against Lessee as the
subject debtor under Bankruptcy Code or any Insolvency Laws, which such petition
is not dismissed within thirty (30) days of filing or results in issuance of an
order for relief against the Lessee as debtor;
(vii) if Lessee makes or consents to an assignment of its assets, in
whole or in part, for the benefit of creditors, or a common law composition of
creditors; or
(viii) the Demised Premises being abandoned (i.e., Lessee has
departed the Demised Premises without intention of returning) or vacant (i.e.,
Lessee no longer has equipment in the Demised Premises), and remaining so for
five (5) or more days, or the Demised Premises being deserted or deserted (i.e.,
no personnel of Lessee have visited the Demised Premises for more than 45
consecutive days).
(b) Upon the occurrence of any event of default, this Lease shall, at the
option of Lessor, cease and terminate and shall operate as a notice to quit, ANY
NOTICE TO QUIT OR OF LESSOR'S INTENTION TO RE-ENTER BEING HEREBY EXPRESSLY
WAIVED, and Lessor may proceed to recover possession under and by virtue of the
provisions of the laws of the State of Virginia, or by such other proceedings,
including re-entry and possession, as may be applicable. If Lessor elects to
terminate this Lease, everything herein contained on the part of Lessor to be
done and performed shall cease without prejudice, however, to the right of
Lessor to recover from Lessee all Rent accrued up to the time of termination or
recovery of possession by Lessor, whichever is later. Upon the occurrence of an
event of default as aforesaid, at Lessor's option (either with or without
terminating this Lease), the Demised Premises may be relet by Lessor for such
Rent and upon such terms as Lessor, in Lessor's sole discretion, shall deem
appropriate under the circumstances, and, if the full Rent hereinabove provided
shall not be realized by Lessor, Lessee
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<PAGE> 18
shall be liable for all damages sustained by Lessor, including, without
limitation, deficiency in Rent, reasonable attorneys' fees, brokerage fees, and
expenses of placing the Demised Premises in first class rentable condition. Any
damage or loss of Rent sustained by Lessor may be recovered by Lessor at
Lessor's option, at the time of the re-letting, or in separate actions, from
time to time, as said damage shall have been made more easily ascertainable by
successive re-lettings, or, at Lessor's option, may be deferred until the
expiration of the Lease Term, in which event the cause of action shall not be
deemed to have accrued until the date of expiration of said Lease Term. If
Lessor should commence any summary proceeding for non-payment of Rent by Lessee
or to recover possession of the Demised Premises, Lessee shall not interpose any
counterclaim of any nature or description in any such proceeding. Upon the
occurrence (or continued existence) of any monetary event of default in two or
more months, or any material non-monetary default hereunder (which term shall
include, but not be limited to, each of the events of default described in the
last sentence of the preceding Section 21(a)(ii)), provided this Lease shall not
be terminated, Lessor shall, in addition, have the option to require Lessee to
deposit with Lessor an additional Security Deposit in an amount not to exceed
six (6) months' Monthly Base Rent. The provisions contained in this Section
shall be in addition to and shall not prevent the enforcement of any claim
Lessor may have against Lessee for anticipatory breach of the unexpired Lease
Term. In the event that Lessee continues to occupy the Demised Premises after
the expiration of the Lease Term, with the express or implied consent of Lessor,
such tenancy shall be from month to month and shall not be a renewal of the term
of this Lease or a tenancy from year to year. All rights and remedies of Lessor
under this Lease shall be cumulative and shall not be exclusive of any other
rights and remedies provided to Lessor under applicable law.
22. WAIVER
If under the provisions hereof Lessor shall institute proceedings and a
compromise or settlement thereof shall be made, the same shall not constitute a
waiver of any covenant herein contained nor of any of Lessor's rights hereunder.
No waiver by Lessor of any breach of any covenant, condition or agreement herein
contained shall operate as a waiver of such covenant, condition, or agreement
itself, or of any subsequent breach thereof. No payment by Lessee or receipt by
Lessor of a lesser amount than the Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent nor shall any endorsement
or statement on any check or letter accompanying a check for payment of Rent be
deemed an accord and satisfaction and Lessor may accept such check or payment
without prejudice to Lessor's right to recover the balance of such Rent or to
pursue any other remedy provided in this Lease. No re-entry by Lessor, and
acceptance by Lessor of keys from Lessee, shall be considered an acceptance of a
surrender of the Lease.
23. SUBORDINATION
This Lease is and shall automatically be subject and subordinate to the
lien of any and all mortgages (which term "mortgage" shall include both
construction and permanent financing and shall include deeds of trust and
similar security instruments) which may now or hereafter encumber or otherwise
affect the real estate (including the Building) of which the Demised Premises
form a part, or Lessor's interest therein, and
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to all and any renewals, extensions, modifications, recastings or refinancings
thereof. In confirmation of such subordination, Lessee shall, at Lessor's
request, promptly execute any requisite or appropriate certificate or other
document required by Lessor's lender on the Property, provided that such
document does not increase the payments due under the Lease or materially
diminish the rights of Lessee or obligations of Lessor hereunder. Lessee hereby
constitutes and appoints Lessor as Lessee's attorney-in-fact to execute any such
certificate or certificates for or on behalf of Lessee which Lessee fails to
execute and deliver to Lessor within five (5) days after Lessor's written
request therefor. Notwithstanding anything to the contrary set forth above, any
beneficiary under any mortgage shall have the right, at its election (which
election may be exercised unilaterally by said beneficiary executing and filing
a notice thereof for record with the Clerk of the Circuit Court of Fairfax
County, Virginia, at any time prior to said beneficiary commencing foreclosure
proceedings pursuant to such mortgage) to subordinate the lien of such mortgage
to the Lease to the extent set forth in such document and thereupon the Lease
shall be deemed prior to such mortgage to the extent set forth in such document
without regard to their respective dates of execution, delivery and/or
recording. In that event, to the extent set forth in such document, such
mortgage shall have the same rights with respect to this Lease as would have
existed if this Lease had been executed, and a memorandum thereof recorded prior
to the execution, delivery and recording of the mortgage. Lessee agrees that in
the event that any proceedings are brought for the foreclosure of any such
mortgage, Lessee shall, if requested to do so by the purchaser at foreclosure,
attorn to the purchaser at such foreclosure sale and to recognize such purchaser
as the Lessor under this Lease, and Lessee waives the provisions of any statute
or rule of law, now or hereafter in effect, which may give or purport to give
Lessee any right to terminate or otherwise adversely affect this Lease and the
obligations of Lessee hereunder in the event that any such foreclosure
proceeding is prosecuted or completed. Any mortgagee, purchaser at foreclosure,
or assignee of Lessor who requests such attornment shall not (a) be bound by any
prepayment of Rent for more than one (1) month in advance (Lessee hereby
acknowledging and agreeing that Lessee shall have no right to, and shall not,
prepay Rent more than one month in advance of its due date, and that Rent shall
be payable after any such foreclosure, purchase, or assignment, in case of a
requested attornment as aforesaid, in accordance with the provisions of this
Lease as if such prepayment of Rent for more than one (1) month in advance had
not been made), nor (b) to be bound by any amendment to this Lease which was not
approved by such mortgagee prior to the foreclosure or assignment, nor (c) be
subject to any defense which Lessee might assert against Lessor, nor (d) be
liable for any defaults (including defaults of a continuing nature) by any prior
landlord, including the Lessor, or for the return of any security deposit except
to the extent the mortgagee or such purchaser actually received the same, in
cash or in kind, and such security deposit has been segregated and identified as
such by Lessor in the ordinary course of business.
24. CONDEMNATION
If the whole or a substantial part of the Demised Premises shall be taken
or condemned (the terms "taken" and "condemned" as used herein being deemed to
include any deed given in lieu of or under threat of taking or condemnation) by
any governmental or quasi-governmental authority for any public or quasi-public
use
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<PAGE> 20
or purpose, then the Lease Term shall cease and terminate as of the date when
title vests in such condemning authority, and Lessee shall have no claim against
Lessor or the condemning authority for any portion of the amount that may be
awarded as damages as a result of such taking or condemnation or for the value
of any unexpired portion of the Lease Term; provided that, subject to the
foregoing, Lessee shall be entitled to institute a separate action against the
condemning authority to recover such damages as Lessee may be entitled pursuant
to the Uniform Relocation Assistance and Real Property Acquisition Policies Act
of, 1970, 42 U.S.C. Sections 4601 et. seq., upon the condition that such damages
do not diminish the amount of the award to which Lessor is otherwise entitled.
The Monthly Base Rent, however, shall be abated on the date when such title
vests in such condemning authority. If less than a substantial part of the
Demised Premises is taken or condemned by any governmental or quasi-governmental
authority for any public or quasi-public use or purpose, the Monthly Base Rent
shall be equitably adjusted on the date when title vests in such condemning
authority and the Lease shall otherwise continue in full force and effect. For
purpose of the Article, a substantial part of the Demised Premises shall be
considered to have been taken if more than fifty percent (50%) of the Demised
Premises are untenantable by Lessee.
25. RULES AND REGULATIONS
Lessee shall, and shall cause Lessee's Agents to, abide by and observe the
rules and regulations attached hereto as Exhibit C. Lessee and Lessee's Agents
shall abide by and observe such other rules or regulations as may be promulgated
from time to time by Lessor for the operation and maintenance of the Building
provided that the same are in conformity with common practice and usage in
similar buildings and are not inconsistent with the provisions of this Lease and
a copy thereof is sent to Lessee. Nothing contained in this Lease shall be
construed to impose upon Lessor any duty or obligation to enforce such rules and
regulations, or the terms, conditions or covenants contained in any other Lease
as against any other tenant, and Lessor shall not be liable to Lessee for
violation of the same by any other tenant, its employees, agents, business
invitees, licensees, customers, clients, family members or guests. Lessor hereby
agrees not to enforce the rules and regulations against Lessee in a
discriminatory manner.
26. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT
If Lessee defaults in the making of any payment or in the doing of any act
herein required to be made or done by Lessee, then Lessor may, but shall not be
required to, make such payment or do such act, and the amount of the expense
thereof if made or done by Lessor, with interest thereon at the rate of twelve
percent (12%) per annum from the date paid by Lessor, shall be paid by Lessee to
Lessor and shall constitute additional Rent hereunder due and payable with the
next monthly installment of Monthly Base Rent; but the making of such payment or
the doing of such act by Lessor shall not operate to cure such default or to
estop Lessor from the pursuit of any remedy to which Lessor would otherwise be
entitled. Any installment of Rent which is not paid by Lessee within ten (10)
days after the same becomes due and payable shall bear interest at the rate of
twelve percent (12%) per annum from the date such installment became due and
payable to the date of payment thereof by Lessee, plus a late charge of 10% of
the Rent payments not received by Lessor by the 10th of the month due, and such
interest and late charge shall constitute
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additional Rent hereunder due and payable with the next monthly installment of
Rent. The imposition of late charges or interest will not be deemed to excuse
the untimely payment of Rent.
27. NO PARTNERSHIP
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Lessor and Lessee, or to create any
other relationship between the parties hereto other than that of Lessor and
Lessee.
28. NO REPRESENTATIONS BY LESSOR
Neither Lessor nor any agent or employee of Lessor has made any
representations or promises with respect to the Demised Premises or the Building
except as herein expressly set forth, an no rights, privileges, easements or
licenses are granted to Lessee except as herein set forth. The Lessee, by taking
possession of the Demised Premises, shall accept the same "as is" and such
taking of possession shall be conclusive evidence that the Demised Premises and
the Building are in good and satisfactory condition at the time of such taking
of possession, as provided for in Exhibit D.
29. BROKERS
Lessor and Lessee each represent and warrant one to another that except
for Kimball Small Properties ("Kimball"), neither of them has employed any
broker in carrying on the negotiations relating to this Lease. Lessor shall
indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor
harmless, from and against any claim or claims for brokerage or other commission
arising from or out of any breach of the foregoing representation and warranty
by the respective indemnitor; provided that, Lessor shall pay to Kimball a
cooperating broker commission pursuant to a separate agreement.
30. WAIVER OF JURY TRIAL
Lessor and Lessee hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on or in
respect of any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Lessor and Lessee hereunder, Lessee's use or
occupancy of the Demised Premises, and/or claim of injury or damage.
31. NOTICES
All notices or other communications hereunder shall be in writing and
shall be deemed duly given when (a) if delivered in person or via
nationally-recognized overnight courier service (or attempted delivery of the
same if refused) as evidenced in writing, or (b) deposited in the U.S. mails by
certified or registered mail, return receipt requested, addressed first-class,
postage prepaid, (i) if to Lessor, attention: Barry R. Gosnell, Gosnell
Properties, Inc., 8130 Boone Boulevard, Vienna, Virginia 22182, and (ii) if to
Lessee, AboveNet Communications, Attention: Mr. Steve Belomy, at 50 W. San
Fernando Street, Suite 1010, San Jose, California 95113, unless notice of a
change of address is given pursuant to the provisions of this article.
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32. ESTOPPEL CERTIFICATES
Lessee agrees, at any time and from time to time, upon not less than five
(5) days prior written notice by Lessor, to execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the Lease is
in full force and effect as modified and stating the modifications), (ii)
stating the dates to which the Rent and other charges hereunder have been paid
by Lessee, (iii) stating whether or not to the best knowledge of Lessee, Lessor
is in default in the performance of any covenant, agreement or condition
contained in this Lease, and, if so, specifying each such default of which
Lessee may have knowledge, and (iv) stating the address to which notices to
Lessee should be sent and (v) such other information as Lessor may reasonably
request. Any such statement delivered pursuant hereto may be relied upon by any
owner of the Building any prospective purchaser of the Building, any mortgagee
or prospective mortgagee of the Building or of Lessor's interest, or any
prospective assignee of any such mortgagee. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to execute and deliver the aforesaid estoppel
certificate, in the event Lessee shall fail to deliver to Lessor the same to
Lessor within five (5) days of receipt of said written notice.
33. HOLDING OVER
In the event that Lessee shall not immediately surrender the Demised
Premises on the date of expiration of the term hereof, or any renewal term,
Lessee shall, by virtue of the provisions hereof, become a Lessee by the month
at the Monthly Base Rent in effect during the last month of the term of this
Lease plus twenty five percent (25%), which said monthly tenancy shall commence
with the first day next after the expiration of the Lease Term. The Lessee as a
monthly Lessee shall be subject to all of the conditions and covenants of this
Lease, except those provisions relating to Lessor funded tenant work, Rent
abatement or other Lessor funded allowances, as though the same had originally
been monthly tenancy. Lessee shall give to Lessor at least thirty (30) days'
written notice of any intention to quit the Demised Premises, and Lessee shall
be entitled to thirty (30) days' written notice to quit the Demised Premises,
EXCEPT IN THE EVENT OF NONPAYMENT OF RENT IN ADVANCE OR OF THE BREACH OF ANY
COVENANT BY THE LESSEE, IN WHICH EVENT LESSEE SHALL NOT BE ENTITLED TO ANY
NOTICE TO QUIT, THE USUAL THIRTY (30) DAYS NOTICE TO QUIT BEING HEREBY EXPRESSLY
WAIVED. Notwithstanding the foregoing provisions of this Section, in the event
that Lessee shall hold over the expiration of the Lease Term hereby created, and
if Lessor shall desire to regain possession of the Demised Premises promptly at
the expiration of the Lease Term, then at any time prior to Lessor's acceptance
of Rent from Lessee as a monthly tenant hereunder, Lessor, at its option, may
forthwith re-enter and take possession of the Demised Premises without process,
or by any legal process in force in the State of Virginia, and Lessee shall
remain liable for any and all claims, cost, damage, expense and liability which
Lessor may suffer, to the extent that the same shall be proximately caused by
Lessee's failure to surrender the Demised Premises as required hereunder.
34. INTENTIONALLY OMITTED
35. INTENTIONALLY OMITTED
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36. PUBLIC LIABILITY INSURANCE
Lessee shall obtain and maintain in effect at all times during the Lease
Term, a policy of comprehensive public liability insurance, naming Lessor, any
property management agent for the Building and any mortgagee of the Building as
additional insureds, protecting Lessor, Lessee, management agent and any such
mortgagee against any liability for bodily injury, death or property damage
occurring upon, in or about any part of the Building or the Demised Premises
arising from any of the items set forth herein against which Lessee is required
to indemnify Lessor, with such policies to afford protection to the limit of not
less than Three Million Dollars ($3,000,000) combined single limit. Lessor shall
have the right to require Lessee to increase the minimum limits of coverage set
forth above, from time to time, to the standard limits of coverage required in
comparable first class office Buildings in the Washington, D.C. area. Lessee, at
Lessee's sole cost and expense, shall obtain and maintain in effect commencing
with the Commencement Date and continuing through the Lease Term, insurance
policies providing for the following coverage: all risk and property insurance,
including (without limitation) coverage against fire, theft, vandalism,
malicious mischief, sprinkler leakage and such additional perils as now are or
hereafter may be included in a standard extended coverage endorsement from time
to time in general use in the Commonwealth of Virginia, insuring Lessee's
merchandise, trade fixtures, furnishings, equipment and all items of personal
property of Lessee located on or in the Demised Premises, in an amount equal to
not less than the full replacement value thereof. All proceeds of such
insurance, so long as the Lease shall remain in effect, shall be used only to
repair or replace the items so insured. Such insurance policies shall be issued
by responsible insurance companies licensed to do business in the State of
Virginia. Neither the issuance of any insurance policy required under this
Lease, nor the minimum limits specified herein with respect to Lessee's
insurance coverage, shall be deemed to limit or restrict in any way Lessee's
liability arising under or out of this Lease.
37. GENDER
Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution or
substitutions.
38. BENEFIT AND BURDEN
The provisions of this Lease shall be binding upon and shall inure to the
benefit of the parties hereto and each of their respective representatives,
successors and assigns (however, the foregoing shall not be deemed to permit any
assignment, sublet, encumbrance or other transfer in violation of Section 7
hereof). Lessor may freely and fully assign its interest hereunder.
39. INTENTIONALLY OMITTED
40. MISCELLANEOUS
(a) Recording. Neither this Lease nor any memorandum nor short form
hereof shall be recorded in the land or other records of the Commonwealth of
Virginia or Fairfax County, Virginia.
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(b) Survival of Obligations. If Lessee has failed to fulfill its
obligations under this Lease such obligations and Lessor's rights in respect
thereof shall remain in full force and effect notwithstanding the expiration of
the Term.
(c) Headings. The captions, section numbers and index appearing in
this Lease are inserted only as a matter of convenience and reference, and in no
way shall be held to explain, modify, amplify, define, limit, construe, or
describe the scope of intent of such sections of this Lease nor in any way add
to the interpretation, construction or meaning of any provision or otherwise
affect this Lease.
(d) Severability. If any covenant or agreement of this Lease or the
application thereof to any person or circumstance shall be held to be invalid or
unenforceable, then and in each such event the remainder of this Lease, or the
application of such covenant or agreement to any other person or any other
circumstance, as the case may be, shall not be thereby effected, and each
covenant and agreement of this Lease shall remain valid and enforceable to the
fullest extent permitted by law.
(e) Corporate or Partnership Authority:
(i) If Lessee executes this Lease as a corporation, each of
the persons executing this Lease on behalf of Lessee hereby covenants and
warrants: (1) that Lessee is a duly authorized and existing corporation,
qualified to do business in the Commonwealth of Virginia, with full right and
authority to enter into this Lease; (2) each of the persons executing this Lease
on behalf of Lessee possesses actual authority to do so; and (3) this Lease
constitutes a valid and legally binding obligation on Lessee, enforceable
according to the terms hereof.
(ii) If Lessee executes this Lease as a partnership, each of
the persons executing this Lease on behalf of Lessee hereby covenants and
warrants: (1) that Lessee is a duly authorized and existing partnership,
qualified to do business in the Commonwealth of Virginia, with full right and
authority to enter into this Lease; (2) each of the persons executing this Lease
on behalf of Lessee possesses actual authority to do so; and (3) this Lease
constitutes a valid and legally binding obligation on Lessee, enforceable
according to the terms hereof.
(f) Lessor's Liability. Notwithstanding any provision hereof to the
contrary, Lessee shall look solely to the estate and property of Lessor in and
to the Building (or the proceeds received by Lessor on a sale of such estate and
property but not the proceeds of any financing or refinancing thereof) in the
event of any claim or judgment against Lessor arising out of or in connection
with this Lease, the relationship of landlord and tenant or Lessee's use of the
Demised Premises, and Lessee agrees that the liability of Lessor arising out of
or in connection with this Lease, the relationship of landlord and tenant or
Lessee's use of the Demised Premises, shall be limited to such estate and
property of Lessor (or sale proceeds). No other properties or assets of Lessor
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any judgement (or other judicial process) or for the
satisfaction of any other remedy of Lessee arising out of or in connection with
this Lease, the relationship of landlord and tenant or Lessee's use of the
Demised Premises, and if Lessee shall acquire a lien on or
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<PAGE> 25
interest in any other properties or assets by judgment or otherwise, Lessee
shall promptly release such lien on or interest in such other properties and
assets by executing, acknowledging and delivering to Lesser an instrument to
that effect prepared by Lessor's attorneys. It is agreed that neither Lessor nor
any of its officers, directors or employees shall ever be personally liable for
any judgment against Lessor or any duty or liability of Lessor under this Lease.
Lessor shall have no liability to Lessee for failure to perform Lessor's
obligations hereunder where such failure(s) is due to causes beyond Lessor's
control, including without limitation acts of God, war, civil commotion,
strikes, and embargoes; nor shall any such failure entitle Lessee to any
abatement or reduction in Rent, except as may be expressly provided herein, or
any claim of actual or constructive eviction. Lessee shall not be entitled to
any compensation or reduction in Rent by reason of inconvenience or loss arising
from Lessor's entry onto the Demised Premises as authorized hereunder, nor by
reason of any repairs to the Demised Premises or the Building.
(q) Governing Law. This Lease shall be governed by the laws of
the Commonwealth of Virginia, without regard to the conflict of laws principles
thereof.
(h) Effective Date. For all purposes hereof, the "Effective
Date" of this Lease shall be the date upon which this Lease shall have been
executed by both parties and physically delivered by Lessor to Lessee or its
attorney. Prior to the Effective Date, neither this Lease nor anything hereunder
contained shall be legally binding on either Lessor or Lessee, and the
submission of this Lease by Lessor to Lessee prior to such Effective Date for
examination or consideration by Lessee or discussion between Lessor and Lessee
shall not constitute a reservation of or option for the Demised Premises or
create any legal obligation or liability whatsoever on Lessor.
41. WAIVER OF SUBROGATION
Notwithstanding any language to the contrary in this Lease, Lessee shall
not be responsible for damage to the Lessor's property caused by Lessee to the
extent the damage is covered by the Lessor's all risk property insurance policy.
Lessor agrees to maintain such a policy during the Lease Term and Lessor shall
obtain a waiver of subrogation under the policy in favor of the Lessee. Lessee
shall require its insurer(s) to include in all of Lessee's insurance policies
which could give rise to a claim against Lessor an endorsement whereby the
insurer(s) shall waive any rights of subrogation against Lessor. Lessee hereby
releases Lessor and its partners, officers, directors, agents and employees from
any and all liability and responsibility to Lessee or any person claiming by,
through or under Lessee, by way of subrogation or otherwise, for any injury,
loss or damage to Lessee's property covered by a valid and collectible fire
insurance policy with extended coverage endorsement. Lessee agrees to look to
its own fire and hazard insurance policies in the event of damage to Lessee's
personal property. The waivers of subrogation shall be made in writing and
delivered to the respective parties.
42. RENEWAL
(a) Provided Lessee is not in default, Lessee shall have the
subordinate option, upon the terms and conditions set forth herein, to extend
the Lease Term for one (1) additional four (4) year period (herein referred to
as the "Renewal Term").
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Lessee may exercise the renewal option only upon binding written notice
delivered to Lessor not later than six (6) months prior to the expiration of the
Initial Term. In the event Lessee does not timely exercise its option for the
Renewal Term, Lessee's rights under this Section 42 shall lapse. Lessee's notice
to renew shall, at Lessor's option, be deemed ineffective if Lessee is in
default on the date the notice is given or is in default on the date the Renewal
Term is to commence. The Renewal Term, if properly exercised, shall extend the
Lease Term accordingly, and, except as otherwise provided herein, shall be on
all of the same terms and conditions as the Initial Term except that the Monthly
Base Rent for the first (1st) year of the Renewal Term shall be one hundred six
percent (106%) of the Monthly Base Rent in effect immediately prior to the
expiration of the Initial Term, and shall thereafter be escalated in accordance
with Section 5(D), and there shall be no further Renewal Terms after the first
(1st) Renewal Term.
This Lease, together with Exhibits A, C and D attached hereto and made a
part hereof, contains and embodies the entire agreement of the parties hereto,
and no representations, inducements, or agreements, oral or otherwise between
the parties not contained and embodied in said Lease and Exhibits, shall be of
any force or effect, and that same may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by all parties hereto.
IN WITNESS WHEREOF, each of the parties hereto, respectively, has caused
these presents to be executed and attested by their duly authorized officers and
their seals affixed.
LESSOR:
GOSNELL PROPERTIES, INC.
ATTEST:
[SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
- ----------------------------------- ----------------------------------
LESSEE:
ATTEST: ABOVENET COMMUNICATIONS, INC.,
a California corporation
/s/ STEPHEN P. BELOMY By /s/ SHERMAN TUAN
- ----------------------------------- ----------------------------------
Stephen P. Belomy, Secretary Sherman Tuan, President
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<PAGE> 27
STATE OF VIRGINIA )
) ss:
COUNTY OF FAIRFAX )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that Barry R. Gosnell whose name as President of Gosnell
Properties, Inc., is signed to the writing above, bearing date on the 3rd day of
September, 1997, has acknowledged the same before me in the County of Fairfax.
Given under my hand and official seal this 3rd day of September, 1997. My
term of office expires on the 28th day of February, 1998.
/s/ [SIG]
----------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss:
COUNTY OF SANTA CLARA )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that SHERMAN TUAN whose name as PRESIDENT of ABOVENET
COMMUNICATIONS, INC., is signed to the writing above, bearing date on the 13 day
of August, 1997, has acknowledged the same before me in the County of Santa
Clara.
Given under my hand and official seal this 13 day of August, 1997. My
term of office expires on the 17 day of October, 1997.
/s/ SERINA M. MENDEZ
[SEAL] ----------------------------------
Notary Public
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<PAGE> 28
EXHIBIT "A"
FLOOR PLAN OF DEMISED PREMISES
[TO BE ATTACHED PRIOR TO EXECUTION]
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<PAGE> 29
EXHIBIT "B"
INTENTIONALLY OMITTED
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<PAGE> 30
EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
Lessee shall not be obstructed or encumbered by any Lessee or used for any
purpose other than ingress and egress to and from the Demised Premises. Lessor
shall have the right to control and operate the public portions of the Building,
and the facilities furnished for the common use of the Lessees, in such manner
as Lessor deems best for the benefit of the Lessees generally. No Lessee shall
permit the visit to the Demised Premises of persons in such numbers or under
such conditions as to interfere with the use and enjoyment by other Lessees of
the entrances, corridors, elevators and other public portions or facilities of
the Building.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Lessor. No
drapes, blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Lessor. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Lessor.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Lessee on any part of the
outside or inside of the Demised Premises or Building without the prior written
consent of the Lessor. In the event of the violation of the foregoing by any
Lessee, Lessor may remove same without any liability, and may charge the expense
incurred by such removal to the Lessee or Lessees violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Lessee by the Lessor at the expense of such Lessee, and shall be of a size,
color and style acceptable to the Lessor.
4. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the halls,
corridors or vestibules without the prior written consent of the Lessor.
5. The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were constructed, and
no sweepings, coffee grounds, rubbish, rags, or other substances shall be thrown
therein. All damages resulting from any misuse of the fixtures shall be borne by
the Lessee who, or whose servants, employees, agents, visitors or licensees,
shall have caused the same.
6. Except as part of the Tenant's Work approved by Lessor, there
shall be no marking, painting, drilling into or in any way defacing any part of
the Demised Premises or the Building. No boring, cutting or stringing of wires
shall be permitted. Lessee shall not construct, maintain, use or operate within
the Demised Premises or elsewhere within or on the outside of the Building, any
electric device, wiring or apparatus in connection with a loud speaker system or
other sound system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall
be brought into or kept in or about the Demised
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<PAGE> 31
Premises, and no cooking shall be done or permitted by any Lessee on said
Demised Premises. No Lessee shall cause or permit any unusual or objectionable
odors to be produced upon or permeate from the Demised Premises.
8. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
9. No Lessee shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises of those having business with them, whether by the use of
any musical instrument, radio, talking machines, unmusical noise, whistling,
singing, or in any other way. No Lessee shall throw anything out of the doors or
windows or down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or
substance shall be brought or kept upon the Demised Promises.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows by any Lessee, nor shall any changes be made in
existing locks or the mechanism thereof without the prior written consent of
Lessor; provided that, Lessor hereby agrees to permit Lessee to install, at
Lessee's sole expense, an electronic keycard access system for the Demised
Premises on the condition that each of the following conditions is satisfied at
Lessee's sole expense: (i) such system is Underwriters Laboratory-approved; (ii)
Lessee shall obtain Lessor's prior written consent to the plans and
specifications for such system and the installation thereof; (iii) such system
is designed and installed to permit a manual override by means of a master key;
(iv) such system is connected to the Building fire annunciator panel, and
provides for fire alarm override to the extent required pursuant to applicable
law; and (v) Lessee shall provided to Lessor not less than five (5) keycards to
any such system. All locks must be keyed to the Building's master key in the
possession of Lessor. In the case of rekeying, Lessee will provide Lessor, at no
cost to Lessor, six (6) copies of keys to said rekeyed locks. The doors leading
to the corridors or main halls shall be kept closed during business hours except
as they may be used for ingress or egress. Each Lessee shall, upon the
termination of his tenancy, restore to Lessor all keys of stores, offices,
storage, and toilet rooms either furnished to, or otherwise procured by, such
Lessee, and in the event of the loss of any keys, so furnished, such Lessee
shall pay to the Lessor the cost thereof and, if necessary, the cost of rekeying
the locks if Lessor does not have a copy of the lost key.
12. All removals or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Lessor or its Agent may determine from time to time. The Lessor
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
13. Any person employed by any Lessee to do janitor work within the
Demised Premises must obtain Lessor's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Lessee shall engage or pay
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<PAGE> 32
any employees on the Demised Premises, except those actually working for such
Lessee on said Demised Premises.
14. Deleted.
15. Lessor shall have the right to prohibit any advertising by any
Lessee which, in Lessor's opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Lessor, Lessee shall refrain from or discontinue such advertising.
16. The Lessor reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
Building management or watchman on duty. Lessor may at his option require all
persons admitted to or leaving the Building between the hours of 6 P.M. and 8
A.M., Monday through Saturday, Sundays and legal holidays to register. Each
Lessee shall be responsible for all persons for whom he authorizes entry into or
exit out of the Building, and shall be liable to the Lessor for all acts of such
persons. The Building main entrances will remain locked from 6 p.m. Friday
through 8 a.m. Monday. Any Lessee requiring entrance to the Building during the
above hours or after normal weekly business hours must use a key provided by
Lessor.
17. The Demised Premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
18. Intentionally Omitted.
19. The requirements of Lessees will be attended to only upon
application at the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the management of the Building.
20. Canvassing, soliciting and peddling in the Building is prohibited
and each Lessee shall cooperate to prevent the same.
21. No water cooler, plumbing or electrical fixtures shall be
installed by any Lessee.
22. There shall not be used in any space, or in the public halls of
the Building, either by any Lessee or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, or similar devices except those
equipped with rubber tires and rubber sideguards.
23. Access plates to underfloor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates.
24. Mats, trash or other objects shall not be placed in the public
corridors.
25. The Lessor does not maintain suite finishes which are
nonstandard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need for repairs arise, the Lessor will arrange for the work
to be done at the Lessee's expense.
26. Drapes installed by the Lessor for the use of the Lessee or
drapes installed by the Lessee, which are visible from
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the exterior of the Building must be cleaned by the Lessee at least once a year,
without notice, at said Lessee's own expense.
27. The Lessee will furnish and install all light bulbs for the
Demised Premises.
28. Any material violation of these rules and regulations, or any
amendments thereto, shall be a default under the Lease which, if not cured as
set forth in Section 21 of the Lease, shall be sufficient cause for termination
of this Lease at the option of the Lessor; provided that, any repetitive
violation of these rules and regulations (i.e., more than two (2) violations in
any period of twelve (12) consecutive months) shall, without notice or cure
period, be deemed an Event of Default.
29. The Lessor may, upon request by any Lessee, waive the compliance
by such Lessee of any of the foregoing rules and regulations, provided that (i)
no waiver shall be effective unless signed by Lessor or Lessor's authorized
agent, (ii) any such waiver shall not relieve such Lessee from the obligation to
comply with such rule or regulation in the future unless expressly consented to
by Lessor, and (iii) no waiver granted to any Lessee shall relieve any other
Lessee from the obligation of complying with the foregoing rules and regulations
unless such other Lessee has received a similar waiver in writing from Lessor.
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EXHIBIT "D"
DECLARATION BY LESSOR AND LESSEE AS TO
DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION OF DEMISED PREMISES
Attached to and made a part of the Lease Agreement, dated the _________
(_) day of August, 1997, entered into by and between GOSNELL PROPERTIES, INC.,
as Lessor, and ABOVENET COMMUNICATIONS, INC., as Lessee.
GOSNELL PROPERTIES, INC., as Lessor in the foregoing Lease Agreement and
ABOVENET COMMUNICATIONS, INC., as Lessee therein, do hereby declare and evidence
that possession of the Demised Premises was accepted by Lessee on the ( )
day of , 1997. The Building and other improvements required to be
constructed and finished by Lessor in accordance with provisions of this lease
have been satisfactorily completed by Lessor and accepted by Lessee and that the
Lease Agreement is now in full force and effect and for the purpose of this
Agreement the Lease commencement date is established as beginning on the
fifteenth (15th) day of September, 1997, and the Lease expiration date being on
the fourteenth (14th) day of September, 2003 (subject to Lessee's renewal
option), and, as of the date of the acceptance as herein set forth, there is no
right of set off against Rents claimed by Lessee against Lessor.
LESSEE: LESSOR:
ABOVENET COMMUNICATIONS, INC. GOSNELL PROPERTIES, INC.
BY BY
------------------------------ --------------------------------------
SHERMAN TUAN, PRESIDENT
ATTEST: ATTEST:
- --------------------------------- ------------------------------------------
STEPHEN P. BELOMY, Secretary Secretary
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EXHIBIT 10.25
DEED OF LEASE
8100 Boone Boulevard
Vienna, Virginia 22182
THIS DEED OF LEASE made and entered into on this the thirtieth (30th) day
of January, 1998, by and between GOSNELL PROPERTIES, INC. whose address for
purposes hereof is 8130 Boone Boulevard, Vienna, Virginia 22182 hereinafter
called "Lessor", and ABOVENET COMMUNICATIONS, INC., a California corporation
hereinafter called "Lessee".
WITNESSETH, that for and in consideration of the rents, mutual covenants
and agreements hereinafter set forth, the parties hereto do hereby mutually
agree as follows:
1. DEMISED PREMISES
The Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, for the term and upon the conditions hereinafter provided,
approximately two thousand twenty-one (2,021) square feet of rentable area
(including an allowance for core factor) on the first (1st) floor of the office
building (the "Building") situated on that certain parcel of real estate (the
"Land") at 8100 Boone Boulevard, Vienna, Virginia 22182 (such space being
hereinafter referred to as the "Demised Premises"), the Land and Building being
herein referred to as the "Property." The Demised Premises have been assigned
Suite #110, and are outlined in red on the plan attached hereto and made a part
hereof as Exhibit A.
2. TERM
Subject to and upon the terms and conditions set forth herein, or in any
exhibit or addendum hereto, this Lease shall continue in force for a term of
five (5) years, seven (7) months, beginning on the fifteenth (15th) day of
February, 1998 (the "Commencement Date"), and ending (subject to the terms
hereof) on the fourteenth (14th) day of September, 2003, (the "Initial Term",
the Initial Term being also herein referred to as the "Lease Term").
3. USE
Lessee will use and occupy the Demised Premises solely for general office
purposes only and for no other purpose whatsoever. Lessee will not use the
Demised Premises in any manner which will annoy or interfere with other tenants
in the Building and will comply with the Rules and Regulations listed under
Exhibit C. Lessee will not use or occupy the Demised Premises for any unlawful
purpose, and will comply with all present and future laws, ordinances,
regulations, and orders of the United States of America, the State of Virginia,
the Fire Marshall and any other public authority having jurisdiction over the
Demised Premises that may affect the Demised Premises or Lessee's use and/or
occupancy thereof. In no event shall Lessee generate, manufacture, prepare,
use, store, treat or dispose of any polychlorinated biphenyls ("PCB's"),
petroleum products or asbestos, or any hazardous, radioactive, carcinogenic, or
toxic chemicals, substances pollutants, contaminants, materials or waste,
including storage tanks and/or containers thereof, as such terms are defined
under applicable Federal, state and local laws, ordinances or regulations, in
or on the Demised Premises or the Building on the Property upon which the
Demised Premises is located or any portion thereof, nor shall Lessee use, or
suffer the Demised Premises to be used, for industrial or manufacturing
purposes. In the event of any breach of this Section 3, Lessee agrees to
defend, indemnify and hold Lessor harmless from and against any and all claims,
damages, expense and liability incurred as a result, including, but not limited
to, costs and attorneys' fees incurred by or on behalf of Lessor to (i) cure
Lessee's breach of this Section 3, (ii) remediate the effects of Lessee's
breach, or (iii) to bring Lessee into compliance with any and all federal,
state and municipal orders, ordinances, laws, and regulations. The foregoing
indemnity shall be deemed to survive the expiration of this Lease.
4. RENTAL
The monthly Rent to be paid for the Demised Premises during the Lease
Term, which Lessee hereby agrees to pay to Lessor in advance, and Lessor hereby
agrees to accept, shall be the sum of Four Thousand Eight Hundred Eighty-Four
and nine/one hundredths Dollars ($4,884.09) per month, payable on the first day
of each calendar month during the Lease Term commencing with the Commencement
Date. Monthly rent payable under this Section 4 shall be hereinafter referred to
as "Monthly Base Rent." Such Monthly
<PAGE> 2
Base Rent shall be subject to escalation as hereinafter provided. If the
obligation of the Lessee to pay Rent hereunder begins on a day other than on
the first day of a month, Rent from such date until the first day of the
following month shall be prorated at the rate of one-thirtieth (1/30) of the
Monthly Base rent for each day payable in advance. The Lessee will pay Rent
without demand, by check to the Lessor or to such other party or to such other
address as Lessor may designate from time to time by written notice to Lessee,
without demand and without deduction, set-off or counterclaim. If Lessor shall
at any time or times accept said Rent after it shall become due and payable,
such acceptance shall not excuse delay upon subsequent occasions, or
constitute, or be construed as, a waiver of any or all of the Lessor's rights
hereunder. The term "Rent" as used herein shall mean each installment of
Monthly Base Rent payable hereunder, all additional Rent plus all other sums
payable by Lessee to Lessor hereunder (including, but not limited to, late
charges and interest.
5. BASE MONTHLY RENTAL RATE ESCALATION, BASED UPON INCREASES IN REAL
ESTATE TAXES, OPERATING COST AND ANNUAL ESCALATION.
A. Definitions
1. Real Estate Taxes shall mean the aggregate amount of real
estate taxes and assessments, general and special, ordinary and extraordinary,
foreseeable or unforeseen, including assessments for public improvements and
betterments, real estate taxes upon any "air rights", front foot benefit
assessments, vault rents, sewer assessments, and special area taxes assessed,
levied or imposed with respect to the Land and the improvements located on the
Land in the manner in which such taxes and assessments are imposed, as of the
Commencement Date provided, that if because of any change in the taxation of
real estate or other tax assessment (including, without limitation, any
occupancy, gross receipts or rental tax) is imposed upon Lessor or the owner of
the Land and/or Building, or upon or with respect to the Land and/or Building,
or the occupancy, rents or income therefrom, in substitution for, or in addition
to, any of the foregoing Taxes, such other tax or assessment shall be deemed
part of the Taxes. Real Estate Taxes shall not include any sales tax or excise
tax imposed by any governmental authority upon the Rent payable by Lessee
hereunder, and in the event that any sales tax or excise tax is imposed by any
governmental authority on the Rent payable by Lessee hereunder, such sales tax
or excise tax shall be paid by Lessee.
2. Monthly Base Rent shall mean the rate of Monthly Base Rent
originally fixed in Section 4 of this Lease on the date of execution thereof,
as such rate may be subsequently modified or supplemented in any way other than
under the provisions of Sections 5B and 5C hereof.
3. Lease Term shall be deemed to mean the period beginning
with the Commencement Date in accordance with Exhibit D and ending with the
date of the expiration in accordance with Exhibit D or sooner termination of
this Lease subject to the terms of this Lease.
4. Operating Costs of the Building shall mean the costs of all
heat, cooling, utilities, insurance, janitorial and cleaning service, security
services, rental, monitoring and maintenance expenses associated with security
equipment, salaries, wages and other personnel costs of engineering,
superintendents, watchmen and other Building employees, charges by an
independent CPA firm to prepare the Expense Statement, charges under
maintenance and service contracts for chillers, boilers, controls and/or
elevators, exterior and interior window cleaning, alarm systems and Building
and grounds maintenance, management fees (including management fees by Gosnell
Properties), leasing expenses for the lease of equipment designed to decrease
operating expenses, all maintenance and repair expenses and supplies which are
deducted for such calendar year (and not capitalized) for federal income tax
purposes, and all other costs and expenses of operating the office area, common
area and garage associated with the Building; provided, however, that Operating
Costs of the Building shall not include (i) leasing commissions and (ii)
payments of principal and interest on any mortgages, deeds of trust or other
encumbrances upon the Building. Operating Costs of the Building shall include,
in addition to the above, the cost of any capital improvements designed to
decrease operating expenses and any improvements required by law after the
initial occupancy. The cost of capital
<PAGE> 3
improvements designed to decrease operating expenses shall be amortized over
the life of the particular asset and, to this extent, shall be included in
Operating Costs of the Building.
5. Base Year shall be the period January 1, 1997 to
December 31, 1997.
6. Comparison Year shall mean any twelve month period
after the Base Year which begins with the same first month as the Base Year.
7. Real Estate Tax Fiscal Year shall mean the period
January 1 to December 31 (or such other period as hereafter may be duly
adopted by the State of Virginia and/or Fairfax County, Virginia, as the fiscal
year for real estate tax purposes; and wherever reference is hereinafter made
to January 1, it shall mean, in the case of such other fiscal year, the first
day thereof).
8. Base Tax Year shall mean the Real Estate Tax Fiscal
Year commencing January 1, 1997 and ending December 31, 1997.
9. Base Real Estate Taxes shall mean the taxes payable for
the Base Tax Year.
10. Lessee's Proportionate Percentage shall mean one and
fifty-eight/one hundredths percent (1.58%) and shall represent the agreed
percentage of the Building for purposes of computing Lessee's allocable share of
any change in Real Estate Taxes or Operating Costs provided hereunder.
B. Increase in Real Estate Taxes
During the Lease Term, Lessee shall pay to Lessor, as additional Rent,
Lessee's Proportionate Percentage of any increase during the Lease Term in Real
Estate Taxes levied on the Building and the Land on which the Building is
situated over the Base Real Estate Taxes. Lessor shall submit to Lessee a
Statement of such tax increase and Lessee shall pay to Lessor its aforesaid
percentage share of such tax increase for the Real Estate Tax Fiscal Year of
Fairfax County, Virginia (currently January 1 to December 31) for which such
tax increase is effective and shall, commencing with the first monthly
installment of Rent which is due during such Real Estate Tax Fiscal Year, pay to
Lessor as additional monthly Rent, together with such monthly installment of
Rent an amount equal to one-twelfth (1/12) of Lessee's aforesaid percentage
share of such annual increase in Real Estate Taxes to be applied to Lessee's
obligation thereafter accruing under this Section. If the expiration date of
this Lease does not coincide with the last day of the Real Estate Tax Fiscal
Year, the portion of the increase in Real Estate Taxes payable by Lessee
hereunder for the Real Estate Tax Fiscal Year in which the expiration date
occurs, shall be appropriately adjusted and pro-rated between the Lessor and
Lessee, based upon the respective number of days in such Real Estate Fiscal
Year prior to and after the expiration date.
C. Increase in Operating Costs
(i) For each Comparison Year after the Base Year, as herein defined,
Lessee shall pay to Lessor as additional Rent Lessee's Proportionate Percentage
of the increase (if any) in the Operating Costs of the Building as herein
defined, for such Comparison Year over the Operating Costs of the Building for
the Base Year as herein defined. Within one hundred eighty (180) days after the
expiration of each Comparison Year during the Lease Term, or as soon thereafter
as is reasonably possible, a certified public accountant selected by Lessor
shall audit the books and records of Lessor and shall make a determination of
the increase in the Operating Costs of the Building for such Comparison Year
over the Operating Costs of the Building for the Base Year. Lessor shall submit
to Lessee a statement (the "Expense Statement") of the aforesaid determination,
including Lessee's Proportionate Percentage of such increase ("Lessee's Expense
Increase Share"). Within fifteen (15) days after the delivery of the Expense
Statement, Lessee shall pay to Lessor Lessee's Expense Increase Share. In the
event Lessee fails to dispute any such Expense Statement within thirty (30)
days following delivery of such Expense Statement, such Expense Statement shall
be deemed final and conclusive against Lessee.
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<PAGE> 4
(ii) In order to provide for payment by Lessee of Lessee's Anticipated
Expense Increase Share for each Comparison Year on an estimated monthly
installment basis during each Comparison Year, said installments due with the
Monthly Base Rent, Lessee agrees that commencing with the first month of the
first Comparison Year of the Lease, Lessee shall pay to Lessor an amount equal
to one-twelfth (1/12) of Lessee's Anticipated Expense Increase Share, which
amount shall be 3% of the previous year's Monthly Base Rent, plus Lessee's
Proportionate Percentage of any actual increase, if any, in the Operating Costs
of the Building for the prior Comparison Year over the Operating Costs of the
Building for the Base Year, which additional monthly payment shall be applied
as a credit against Lessee's Expense Increase Share for such Comparison Year.
In the event that after the operating expenses for such Comparison Year have
been determined and such additional monthly payments for Lessee's Anticipated
Expense Increase Share are in excess of Lessee's Expense Increase Share for
such Comparison Year, Lessor shall promptly refund such excess to Lessee. In
the event that the amount of such monthly payment is insufficient to pay the
full amount of Lessee's Expense Increase Share for such Comparison Year, Lessee
shall pay to Lessor, within fifteen (15) days after the delivery of the Expense
Statement, the entire amount of such deficiency. If this Lease expires on other
than the last day of the Comparison Year, Lessee's Expense Increase Share shall
be equitably adjusted to exclude the portion of such Comparison Year during
which this Lease is not in effect.
(iii) In the event that the Building is less than 90% occupied for a
period exceeding ninety (90) days during any Comparison Year of this Lease,
then those components of Operating Costs during the Comparison Year which vary
according to the level of occupancy of the Building (e.g. as the case may be,
electricity, gas, trash, etc.) will be adjusted as reasonably estimated by
Lessor to reflect the Building as 90% occupied for purpose of determining
Lessee's Expense Increase Share and Lessee's Anticipated Expense Increase
Share. It is recognized, however, that the level of said variable expenses does
not necessarily vary on a linear basis relative to the occupancy level.
Expenses which do not normally vary according to the level of occupancy of the
Building, such as Building Engineer expenses, shall not be adjusted.
D. BASE RENTAL ADJUSTMENT
Commencing with the first anniversary of the Commencement Date and on
each anniversary thereof throughout the term, Lessee's Monthly Base Rent shall
be increased by three percent (3%) of the previous year's Monthly Base Rent.
Lessee shall pay such increased Rent in monthly installments commencing with
the Monthly Base Rent payment then due.
E. PERSONAL PROPERTY TAXES
Lessee shall pay before delinquency all taxes, assessments, license fees,
and other charges that are levied and assessed against Lessee's personal
property installed or located in or on the Demised Premises, and that become
payable during the term. On demand by Lessor, Lessee shall furnish Lessor with
satisfactory evidence of these payments.
If any taxes on Lessee's personal property are levied against Lessor or
Lessor's property, or if the assessed value of the Building and other
improvements in which the Demised Premises are located is increased by the
inclusion of a value placed on Lessee's personal property, and if Lessor pays
the taxes on any of these items or the taxes based on the increased assessment
of these items, Lessee, on demand, shall immediately reimburse Lessor for the
sum of the taxes levied against Lessor, or the proportion of the taxes
resulting from the increase in Lessor's assessment. Lessor shall have the right
to pay these taxes regardless of the validity of the levy.
In the event that any sales tax or exercise tax is imposed by any
governmental authority on either the Rent payable by Lessee hereunder or on the
services provided under the Lease hereunder, such sales tax or exercise tax
shall be paid by Lessee.
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<PAGE> 5
6. DEPOSIT
Simultaneously with the execution of this Lease, Lessee shall
deposit with Lessor the sum of Nine Thousand Seven Hundred Sixty-Eight and
18/100 Dollars ($9,768.18), as a security deposit for the performance by Lessee
of the provisions of this Lease. Such deposit shall be considered as security
for the payment and performance by Lessee of all Lessee's obligations,
covenants, conditions and agreements under this Lease. In the event of any
default by Lessee hereunder, Lessor shall have the right, but shall not be
obligated, to apply all or any portion of the deposit to cure such default, in
which event Lessee shall be obligated to promptly deposit with Lessor the
amount necessary to restore the deposit to its original amount provided,
however, such defaults and Lessee's liability under this Lease shall thereby be
discharged only pro tanto and Lessee shall remain liable for any amounts that
said Security Deposit shall be insufficient to pay. If Lessee is not in default
at the expiration or termination of this Lease, Lessor shall return the
security deposit to Lessee. Lessor shall not be required to pay Lessee interest
on the security deposit. Notwithstanding the foregoing, in the event of the
sale or transfer of Lessor's interest in the Demised Premises or this Lease,
Lessor shall have the right to transfer the Security Deposit to the purchaser
or transferee provided that the purchaser or transferee shall agree to hold the
same in accordance with the terms hereof, in which event Lessee shall look only
to the new landlord for the return of the Security Deposit and Lessor shall
thereupon be released from all liability to Lessee for the return of such
Security Deposit.
7. ASSIGNMENT AND SUBLETTING
(a) Lessee will not mortgage or encumber this Lease. lessee shall
not assign or transfer this Lease, or grant any license or concession
hereunder, or sublet or permit the occupancy or use of the Demised Premises, or
any part thereof (each of the foregoing herein referred to as a "Transfer", and
any person or entity to whom a Transfer is made or proposed to be made being
herein referred to as a "Transferee"), by any person or entity other than
Lessee and its employees, or cause, permit or suffer any Transfer to occur by
operation of law or otherwise, without obtaining the prior written consent of
Lessor. In no event shall Lessee grant any partial assignment of Lessee's
interest in this Lease. Lessee shall deliver not less than thirty (30) days
prior written notice of any proposed Transfer, said notice to further specify
the identity of the proposed Transferee, the terms of the proposed Transfer and
such other information as Lessor may reasonably request. Any costs and
expenses, including, but not limited to, attorney's fees (which shall include
the cost of any time expended by Lessor or Lessor's attorneys including
in-house counsel, such reasonable costs as may be incurred by Lessor in the
review of the proposed sublessee credentials, financial information and other
information required by Lessor) incurred by Lessor in connection with any
proposed Transfer shall be borne by Lessee and shall be payable to Lessor as
additional Rent.
(b) Subject to the other provisions of this Section 7, and provided
that (i) Lessee is not and has not been in default hereunder and (ii) Lessee
will remain in possession of in excess of fifty percent (50%) of the Demised
Premises, Lessor agrees that it will not unreasonably withhold or delay its
consent to a proposed sublease or assignment; provided that, notwithstanding the
foregoing, it shall be deemed reasonable for Lessor to withhold its consent to
a proposed Transfer if Lessor determines that: (A) the proposed Transferee or
its business is not of a type and quality suitable for a first-class office
building, (B) the proposed Transferee is a governmental or quasi-governmental
authority, a foreign government or international agency or other organization
entitled to sovereign or other immunity, (C) the proposed assignment or
sub-tenancy or the proposed assignee or subtenant would adversely affect the
other tenants of the Building or would impose an additional, material burden
upon Lessor in its operation of the Building, (D) the proposed Transfer would
impair the reputation of the Building as a first-class office building, (E) the
proposed Transferee has not been demonstrated to lessor's satisfaction to have
sufficient financial capability and stability to perform its obligations under
this Lease and under such proposed assignment or sublease (as the case may be),
(F) the proposed Transfer would result in more than one (1) sublease being in
effect, (G) the Lease has previously been Transferred, (H) the proposed
Transferee is proposing to engage in a use which (i) is not permitted pursuant
to Section 3 hereof, (ii) is not permitted pursuant to applicable law to be
conducted by the proposed Transferee or within the Demised Premises (or such
lesser portion as is being sublet) or both, (iii) will violate any covenant,
condition, restriction or other matter of record affecting title to the
Building, or any other matter of record affecting title to the Building, or any
other agreement, judgment or
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<PAGE> 6
law by which Lessor or the Building is bound, or (iv) will violate any
"exclusive use" or other restrictive covenant of any other lease of any portion
of the Building, (I) the proposed Transferee is proposing to manufacture, use,
store or dispose of Hazardous Materials in, on or upon the Demised Premises (or
such lesser portion as is being sublet), (J) the rent to be paid in connection
with such Transfer is less than the comparable rents then being charged for
similar space in the Building, or (K) Lessor's lender shall refuse to grant its
consent to such Transfer (if required). Notwithstanding anything herein
contained, Lessee shall have no right to make any Transfer to any person or
entity with whom Lessor is negotiating to lease space in the Building, or to
any existing tenant or other occupant of the Building.
(C) The consent by Lessor to any Transfer shall not be construed
as a waiver or release of lessee from the terms of any covenant or obligation
under this Lease, nor shall the collection or acceptance of Rent from any
Transferee constitute a waiver or release of Lessee of any covenant or
obligation contained in this Lease, nor shall any such transfer be construed to
relieve Lessee from giving Lessor said thirty (30) days notice or from obtaining
the consent in writing of Lessor to any further Transfer. Lessee hereby assigns
to lessor the rent due from any Transferee and hereby authorizes each such
Transferee to pay said rent directly to Lessor; provided that, so long as Lessee
is not in default hereunder, Lessee shall be authorized to collect the rent from
each such Transferee. Any costs and expenses, including, but not limited to,
reasonable attorney's fees (which shall include the cost of any time expended by
Lessor's attorneys including in-house counsel) incurred by Lessor in connection
with any proposed or purported Transfer shall be borne by Lessee and shall be
payable to Lessor as additional Rent.
(d) Without conferring any rights upon Lessee not otherwise
provided in this Section 7, in the event of a Transfer fifty percent (50%) of
the excess of any monthly base rent or other payment or consideration accruing
to the Lessee as a result of such Transfer (including, but not limited to, any
lump sum or periodic payment in any manner relating to such Transfer) above the
Monthly Base Rent payable by Lessee with respect to that portion of the Demised
Premises, shall, after deduction of Lessee's reasonable out-of-pocket costs for
brokerage commissions and tenant improvements paid by Lessee in connection with
such Transfer (such costs to be amortized on a straight-line basis over the term
of any sublease), be paid by Lessee to Lessor within ten (10) days following
receipt thereof by Lessee, as additional Rent.
(e) If Lessee is a corporation, then the sale, issuance or
transfer of any voting capital stock of Lessee or of any corporate entity which
directly or indirectly controls Lessee (unless Lessee is a corporation whose
stock is traded on the New York Stock Exchange or the American Stock Exchange or
a recognized national "over-the-counter" exchange) which shall result in a
change in the voting control of Lessee or the corporate entity which controls
Lessee shall be deemed to be an assignment of this Lease within the meaning of
this Section 7; provided that, so long as Lessee is not in default hereunder,
neither (i) the issuance of voting stock of Lessee through an initial public
offering on a nationally-recognized exchanged, or (ii) the issuance of voting
stock of Lessee to raise venture capital for Lessee's business, which does not
result in a change in the managerial control of Lessee, shall be deemed to be an
assignment of this Lease within the meaning of this Section 7. If Lessee is a
partnership or an unincorporated association, then the sale, issuance or
transfer of a majority interest therein, or the transfer of a majority interest
in or a change in the voting control of any partnership or unincorporated
association or corporation which directly or indirectly controls Lessee, or the
transfer of any portion or all of any general partnership or managing
partnership interest, shall be deemed to be an assignment of this Lease within
the meaning of this Section 7. Any attempted or purported Transfer in violation
of the foregoing, whether voluntary or involuntary or by operation of law or
otherwise, shall be null and void and shall not confer any rights upon any
purported Transferee, and shall, at Lessor's option, terminate this Lease
without relieving Lessee of any of its obligations hereunder for the balance of
the stated Term.
8. MAINTENANCE BY LESSEE
Lessee, subject to Section 9, 10, and 20, at its cost shall keep the
Demised Premises and the fixtures and equipment therein in clean, safe and
sanitary condition, will take good care thereof, will suffer no waste or injury
thereto, and will, at the expiration or other termination of the term of this
Lease, surrender the same, broom clean, in the same order and condition in
which they are on the Commencement Date, ordinary wear and tear and
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<PAGE> 7
damage by the elements, fire and other casualty not due to the intentional or
negligent acts or omissions of Lessee or Lessee's agents, employees,
contractors, licensees or invitees (collectively, "Lessee's Agents") excepted;
and upon such termination of this Lease, Lessor shall have the right to re-enter
and resume possession of the Demised Premises. It is hereby understood and
acknowledged by the parties hereto that, except as expressly set forth in the
Lease, Lessor is leasing the Demised Premises to Lessee in "as is" condition
with all faults, and that Lessor has made no representations respecting the
condition or suitability of the Demised Premises or the Property not expressly
contained herein. Except as expressly set forth herein, Lessor shall have no
liability to Lessee or any of Lessee's Agents arising from the condition of the
Property or the Demised Premises, and Lessee shall defend, indemnify and hold
Lessor harmless from and against any claims, causes of action, damages and
liability arising from the condition of the Demised Premises or, to the extent
caused by Lessee or Lessee's Agents, the Property (exclusive of the Demised
Premises). The foregoing indemnity shall be deemed to survive the expiration of
this Lease.
9. ALTERATIONS
(a) Lessee will not make or permit any alterations, decorations, additions
or improvements, structural or otherwise, in or to the Demised Premises or the
Building, without the prior written consent of Lessor, which consent may be
conditioned, inter alia, upon Lessee's agreement to remove the same and restore
the Demised Premises to its condition prior to the making of such alterations,
at Lessee's sole cost and expense, upon the expiration or sooner termination of
this Lease. All alterations, decorations, additions or improvements, structural
or otherwise, in or to the Demised Premises or the Building shall be performed
by Lessor's designated contractor.
(b) If any mechanic's lien is filed against the Demised Premises, or the
real property of which the Demised Premises are a part, for work claimed to have
been done for, or materials claimed to have been furnished to, Lessee, such
mechanic's lien shall be discharged by Lessee within ten (10) days thereafter,
at Lessee's sole cost and expense, by the payment thereof or by filing any bond
required by law. Lessee shall promptly inform Lessor upon receipt, by Lessee, of
any notice of the filing of any such mechanics lien(s). If Lessee shall fail to
discharge any such mechanic's lien, Lessor may, at its option and without
inquiring into the validity thereof discharge the same and treat the cost
thereof as additional Rent payable with the monthly installment of Rent next
becoming due; it being hereby expressly covenanted and agreed that such
discharge by Lessor shall not be deemed to waive, or release, the default of
Lessee in not discharging the same. Lessee hereby covenants and agrees to
defend, indemnify and hold Lessor, the Demised Premises and the property upon
which the Demised Premises is constructed, harmless from and against any and all
claims, damages, cost, expense, liability, liens and other detriment which they
may suffer or which may arise by reason of the making of any such alterations,
decorations, additions or improvements. If any such alteration, decoration,
addition or improvement is made without the prior written consent of Lessor,
Lessor may correct or remove the same, and Lessee shall be liable for any and
all expenses incurred by Lessor in the performance of this work. All
alterations, decorations, additions or improvements in or to the Demised
Premises made by either party shall immediately become the property of Lessor
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the Lease Term without disturbance, molestation or injury;
provided, however, that if Lessee is not in default in the performance of any of
its obligations under this Lease, Lessee shall have the right to remove, prior
to the expiration or termination of the Lease Term, movable furniture,
furnishings or equipment installed in the Demised Premises at the expense of
Lessee, so long as at all times the fair market value of the personal property
of Lessee remaining upon the Demised Premises shall equal not less than one
hundred fifty percent (150%) of the value of the remaining rental obligations of
Lessee hereunder, and if such property of Lessee is not removed by Lessee prior
to the expiration or termination of this Lease the same shall become the
property of Lessor and shall be surrendered with the Demised Premises as a part
thereof. Should the Lessor elect that alterations, decorations, and additions or
improvements upon the Demised Premises be removed, upon termination of this
Lease or upon termination of any renewal period hereof, Lessee hereby agrees to
cause same to be removed at Lessee's sole cost and expense and should Lessee
fail to remove the same, then and in such event, the Lessor shall cause same to
be removed at the Lessee's expense and the Lessee hereby agrees to reimburse the
Lessor for the cost of such removal
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<PAGE> 8
together with any and all damages which the Lessor may suffer and sustain by
reason of the failure of Lessee to remove the same.
10. TENANT WORK
(a) Lessee agrees to accept possession of the Demised Premises in its
"as-is" condition, with all faults.
(b) Lessee may undertake to have tenant work performed at its own expense,
provided, that (i) the design of all such work and installations shall be
subject to the prior written approval of Lessor and Lessor's architect or
supervising engineer (which approval may be withheld or conditioned in Lessor's
sole discretion), (ii) no work may be commenced until the written approval of
Lessor is obtained, (iii) all work must be performed in accordance with tenant
work procedures promulgated by Lessor, (iv) Lessee shall have no right to make
any structural modifications, (v) Lessee will obtain a building permit for said
work and will deliver one set of approved plans as well as final inspection
stickers and occupancy certificate to Lessor, (vi) all work must be performed by
Lessor's designated contractor, and (vii) Lessee shall comply with all such
other reasonable restrictions and conditions as Lessor may impose.
11. SIGNS, SAFES & FURNISHINGS
No signs, advertisement or notice shall be inscribed, painted, affixed or
displayed on any part of the outside or the inside of the Building, except on
the directories and the doors of offices, and then only in such place, number,
size, material color and style as is approved by Lessor, and if any such sign,
advertisement or notice is exhibited, Lessor shall have the right to remove the
same and Lessee shall be liable for any and all expenses incurred by Lessor by
said removal, Lessee hereby agreeing to reimburse Lessor upon demand for all
such expenses incurred by Lessor. Any such permitted use, including directories
and name plates, shall be at the sole expense and cost of the Lessee. Lessor
shall have the right to prohibit any advertisement of Lessee which in its
opinion tends to impair the reputation of the Building or its desirability as a
high-quality office Building, and, upon written notice from Lessor, Lessee shall
immediately refrain from and discontinue any such advertisement. Lessor shall
have the right to prescribe the weight and position of safes and other heavy
equipment or fixtures. Any and all damages or injury to the Demised Premises or
the Building caused by moving the property of Lessee into, or out of the Demised
Premises, or due to the same being on the Demised Premises, shall be repaired
by, and at the sole cost of, Lessee. No furniture, equipment or other bulky
matter of any description will be received into the Building or carried in the
elevators except as approved by Lessor. All moving of furniture, equipment and
other material within the public areas shall be subject to such conditions and
restrictions as may be imposed by Lessor, who shall, however, not be responsible
for any damage to or charges for moving the same. Lessee agrees promptly to
remove from the sidewalks adjacent to the Building any of the Lessee's
furniture, equipment or other material there delivered or deposited.
12. ENTRY FOR REPAIRS AND INSPECTIONS
Lessor hereby reserves the right, for itself and its agents, officers,
employees and contractors, to have access to the Demised Premises at all
reasonable times to examine, inspect, and protect the same and to prevent damage
or injury to the same; to make such alterations and repairs to the Demised
Premises, the Building or other premises as the Lessor may deem necessary; to
exhibit the same to potential or actual mortgagees or purchasers of said
Building; and during the last six (6) months of the Lease Term, to exhibit the
same to prospective tenants. No such access by Lessor or those claiming by or
through Lessor shall constitute a constructive eviction or a basis for an
abatement of Rent, nor shall Lessee be entitled to any compensation on account
thereof. Lessor shall exercise reasonable efforts to give Lessee prior notice of
such access, and, when making such access, to minimize the interference with
Lessee's business operations; provided, however, the foregoing shall not be
construed to require Lessor to limit such access to non-business hours or to
limit the number of persons permitted access to the Demised Premises hereunder.
13. INSURANCE RATING
Lessee will not conduct or permit to be conducted any activity, or place
any equipment in or about the Demised Premises, which will, in any way, increase
the rate of
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fire insurance or other insurance on the Building; and if any increase in the
rate of fire insurance or other insurance is stated by any insurance company or
by the applicable Insurance Rating Bureau to be due to activity or equipment, in
or about the Demised Premises, such statement shall be conclusive evidence that
the increase in such rate is due to such activity or equipment and, as a result
thereof, Lessee shall be liable for such increase as additional Rent and upon
notification thereof by Lessor shall reimburse Lessor therefore.
14. LESSEE'S EQUIPMENT
Lessee will not install or operate in the Demised Premises any electrically
operated equipment or other machinery, other than electric typewriters, adding
machines, radios, televisions, tape recorders, dictaphones, bookkeeping
machines, telefax machines, personal computers and associated peripheral
equipment, copy machines, coffee machines, microwave ovens and clocks, without
first obtaining the prior written consent of Lessor who may condition such
consent upon the payment by Lessee of additional Rent in compensation for such
excess consumption of the utilities, for additional wear, tear or depreciation
to base Building equipment occasioned from such usage, and for the cost of
additional wiring as may be occasioned by the operation of said equipment of a
kind or nature whatsoever which will or may necessitate any changes,
replacements or additions to, or in the use, the water system, heating system,
plumbing system, air-conditioning system, or electrical system of the Demised
Premises or the Building. Business machines and mechanical equipment belonging
to Lessee which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein to such a degree as to be
objectionable to Lessor or to any tenant in the Building shall be installed and
maintained by Lessee, at Lessee's expense, on vibration eliminators or other
devices sufficient to eliminate such noise and vibration.
15. INDEMNITY
Lessee will defend, indemnify and hold harmless Lessor from and against any
loss, damage or liability (including attorneys fees) occasioned by or resulting
directly or indirectly from (i) the business conducted by Lessee in, on or about
the Demised Premises, and/or (ii) any default hereunder or any willful or
negligent act or omission on the part of Lessee or Lessee's Agents, or persons
permitted in the Building, on the Property or in the Demised Premises by Lessee
or Lessee's Agents
16. SERVICES AND UTILITIES
Lessor shall furnish reasonably adequate electricity, water, lavatory
supplies, and automatically operated elevator service and normal and customary
cleaning and char service (on a five (5) day week basis exclusive of legal
holidays) after business hours. Lessor shall furnish hot and cold water at those
points of supply provided for general use of other tenants in the Building,
central heat and air-conditioning in season, at such times as Lessor normally
furnishes these services to other tenants in the Building, and at such
temperatures and in such amounts as are considered by Lessor to be standard,
Monday through Friday, from 8 a.m. to 6 p.m. and on Saturday from 8 a.m. to 1
p.m. exclusive of Sundays and holidays during such seasons of the year when such
services are normally and usually furnished in the modern office buildings in
the Washington, D.C. metropolitan area; routine maintenance, painting and
electric lighting service for all public areas, garage and special service areas
of the Building in the manner and to the extent deemed by lessor to be standard;
proper electrical facilities to furnish sufficient power to machines of low
electrical consumption provided, however, that, except for reasonable quantities
of low electrical consumption equipment which Lessee is permitted to install in
the Demised Premises pursuant to Section 14 without Lessor's consent, Lessee
shall bear the utility costs occasioned by electro-data processing machines,
including air-conditioning costs therefor, mini computers, mainframe computers
and similar machines of high electrical consumption; all subject to Federal,
State and County governmental controls and regulations; but failure by Lessor to
any extent to furnish these defined services, or any cessation thereof,
resulting from causes beyond the control of Lessor, shall not render Lessor
liable in any respect for damages to either person or property, nor be construed
as an eviction of Lessee, nor work an abatement of Rent, nor relieve Lessee from
fulfillment of any covenant or agreement hereof. Should any of the Building
equipment or machinery break down, or for any cause cease to function properly,
Lessor shall, upon receipt of notice
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from Lessee of the need therefore, use reasonable diligence to repair the same
promptly, but Lessee shall have no claim for rebate of Rent or damages on
account of any interruptions in service occasioned thereby or resulting
therefrom. Subject to the terms hereof, regular maintenance and repairs, and
circumstances and events beyond the reasonable control of Lessor, Lessee and
Lessee's employees shall have access to the Building and the Demised Premises
twenty-four (24) hours per day, three hundred sixty-five (365) days per year.
Subject to the terms hereof, regular maintenance and repairs, and
circumstances and events beyond the reasonable control of Lessor, Lessor shall
provide heat and air conditioning at times in addition to those specified
above, at Lessee's expense upon not less than twenty-four (24) hours written
notice from Lessee, but in not event shall notice be provided later than 11:00
a.m. on a Friday for weekend or holiday overtime operation. Lessee shall pay
Lessor for said after-hours service based upon Lessor's building standard
service charge then-in effect and subject to change from time to time.
17. RESPONSIBILITY FOR CERTAIN DAMAGE AND BREAKAGE
All breakage, damage and injury to the Demised Premises, and all breakage,
damage and injury to the Building of which the Demised Premises are a part or
the Property caused by or attributable to Lessee or Lessee's Agents, shall be
repaired promptly by the Lessee, at the expense of the Lessee. In the event
that the Lessee shall fail so to do, then the Lessor shall have the right to
make necessary repairs, alterations and replacements, structural,
non-structural, or otherwise, and any charge or cost so incurred by the Lessor
shall be paid by the Lessee with the right on the part of the Lessor to elect
in its discretion to regard the same as additional Rent, in which event such
cost or charge shall become additional Rent payable with the installment of
Monthly Base Rent next becoming due or thereafter falling due under the terms
of this Lease. This provision shall be construed as an additional remedy
granted to the Lessor and not in limitation of any other rights and remedies
which the Lessor has or may have in said circumstances. The exercising of
Lessor's right to cure will not excuse the failure of Lessee to perform its
obligations hereunder.
18. BANKRUPTCY
(a) If at any time during the Lease Term, a petition shall be filed,
either by or against the Lessee, in any Court or pursuant to any Federal,
State, or Municipal statute whether in bankruptcy, insolvency, for the
appointment of a receiver of the Lessee's property or because of any general
assignment made by the Lessee of the Lessee's property for the benefit of the
Lessee's creditors, then immediately upon the happening of any such event, and
without any entry or other act by the Lessor, this Lease, at Lessor's option,
shall cease and come to an end with the same force and effect as if the date of
the happening of any such event were the date herein fixed for the expiration
of the Lease Term. It is further stipulated and agreed that, in the event of
the termination of the Lease Term by the happening of any such event, the
Lessor shall forthwith, upon such termination, and any other provisions of this
Lease to the contrary notwithstanding, become entitled to recover as and for
liquidated damages caused by such breach of the provisions of this Lease, an
amount equal to the difference between the then cash value of the Rent reserved
hereunder for the unexpired portion of the term and the then cash rental value
of the Demised Premises for such unexpired portion of the Lease Term hereby
demised, unless the statute which governs or shall govern the proceeding in
which such damages are to be proved limits or shall limit the amount of such
claim capable of being so proved, in which case the Lessor shall be entitled to
prove as and for liquidated damages an amount equal to that allowed by or under
any such statute. The provisions of this Section of this Lease shall be without
prejudice to the Lessor's right to prove in full damages for Rent accrued prior
to the termination of this Lease, but not paid. This provision of this Lease
shall be without prejudice to any rights given to the Lessor by any pertinent
statute to prove any amounts allowed thereby.
(b) In making any such computation, the then cash rental value of
the Demised Premises shall be deemed prima-facie to be the present cash value
(utilizing a 6% discount rate) of rental realized upon any re-letting, if such
re-letting can be accomplished by the Lessor within a reasonable time after
such termination of this Lease, and the then present cash value of the future
Rents hereunder reserved to the Lessor for the unexpired
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portion of the term hereby demised shall be deemed to be such sum, if invested
at six percent (6%) simple interest, as will produce the future Rent over the
period of time in question.
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON
All personal property of the Lessee, its employees, agents, business
invitees, licensees, customers, clients, family members, guests or trespassers
in and on said Demised Premises, shall be and remain at their sole risk, and
Lessor shall not be liable to them for any damage to, or loss of such personal
property arising from any act of negligence of any other persons nor from the
leaking of the roof, or from the bursting, leaking or overflowing of water,
sewer or steam pipes, or from heating or plumbing fixtures, or from electrical
wires or fixtures, or from air-conditioning failure, or from any other cause
whatsoever, nor (to the extent permitted by applicable law) shall the Lessor be
liable for any personal or bodily injury to the Lessee, its employee, agents,
business invitees, licensees, contractors, customers, clients, family members,
guests or trespassers arising from the use, occupancy and condition of the
Demised Premises or Building (except to the extent arising directly from the
gross negligence or willful misconduct of Lessor), the Lessee especially
agreeing to defend, indemnify and save the Lessor harmless in all such cases
from and against any loss, damage, or liability (including attorney's fees)
arising from the use, occupancy or condition of the Demised Premises, or, to the
extent attributable to the acts or omissions of Lessee or Lessee's Agents, the
Property (exclusive of the Demised Premises). Lessee further acknowledges and
agrees that, notwithstanding any provision of this Lease to the contrary, in no
event shall the Lessor be liable for any interruption or loss to Lessee's
business arising from any act or cause whatsoever (whether or not Lessor has
been negligent in any regard).
20. DAMAGE TO THE DEMISED PREMISES
If the Demised Premises shall be damaged by fire or other cause without the
fault or neglect of Lessee, Lessor shall diligently and as soon as practicable
after such damage occurs (taking into account the time necessary to effectuate a
satisfactory settlement with any insurance company) repair such damage (but
excluding Lessee's furniture, fixtures, furnishings, equipment, improvements
and/or alterations) at the expense of the Lessor, and the Monthly Base Rent
shall be reduced in proportion to the extent the Demised Premises are rendered
untenantable, until such repairs are completed, provided, however, that if the
Building is damaged by fire or other cause to such extent that the damage cannot
be fully repaired within ninety (90) days from the date of such damage, and
further provided that Lessor terminates the lease(s) of any other premises which
are damaged by the same fire or cause to the extent that the damage cannot be
fully repaired within ninety (90) days from the date of such damage, Lessor
shall have the option of terminating this Lease by giving written notice to
Lessee of such decision and the Lease Term shall terminate on the day such
notice is given. Notwithstanding the foregoing, in the event the Building shall
be damaged or destroyed by fire or other casualty during the last twelve (12)
months of the Lease Term, Lessor shall have no obligation to rebuild the Demised
Premises, and upon giving Lessee notice of Lessor's election not to rebuild the
Demised Premises, this Lease shall cease and determine as fully as if the date
of such notice were the scheduled termination date of this Lease. No
compensation or claim or reduction of Rent will be allowed or paid Lessor by
reason of inconvenience, annoyance, or injury to business arising from the
necessity of repairing the Demised Premises or any portion of the Building
however the necessity may occur.
21. DEFAULT OF LESSEE
(a) The occurrence of any of the following shall be deemed an "event of
default":
(i) the failure to pay any monthly installment of Monthly Base Rent or
any other Rent as reserved hereunder when and as the same are due, although no
legal or formal demand shall have been made therefor;
(ii) the violation or failure to perform any of the other conditions,
covenants or agreements herein made or imposed upon Lessee, which violation or
failure shall continue for a period of ten (10) days after written notice
thereof to Lessee from Lessor; provided that, except as otherwise set forth
herein, for any default which cannot reasonably
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be cured within said ten (10) day period, the cure period therefor shall be
extended for such time as is reasonably necessary to effect a cure of such
default (but in no event beyond sixty (60) days after delivery of notice of such
default with regard to any intentional or willful default by Lessee hereunder),
on the conditions that Lessee immediately commences and diligently pursues such
cure to completion, and that, promptly upon determining that the aforesaid ten
(10) day cure period is inadequate, Lessee shall deliver notice to Lessor of the
steps being taken to cure such default and the amount of time reasonably
estimated by Lessee to effect such cure. Notwithstanding anything herein
contained, the occurrence of any violation of the conditions, covenants, duties
and/or obligations of Lessee herein contained, or any failure or neglect by
Lessee to observe or perform any of said conditions, covenants duties or
obligations, which (A) by its nature cannot be cured (or cannot be cured within
the aforesaid sixty (60) day period), (B) constitutes a potential or actual
hazard to the health and/or safety of any occupant of the Property, (C) has
caused the insurer of any policy of insurance on the Property to issue a notice
of cancellation of such policy, (D) subjects Lessor to the risk of civil or
criminal liability, fine, penalty or prosecution, or (E) is defined as an event
of default hereby without notice or cure period, then the occurrence of such
violation, failure or neglect shall, without demand or notice or cure period, be
deemed an event of default;
(iii) if Lessee becomes "insolvent," as defined in Title 11 of
the United States Code, entitled "Bankruptcy," 11 U.S.C. Section 101, et. seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States of America ("Insolvency Laws");
(iv) if a receiver or custodian is appointed for any or all of
Lessee's property or assets, or if there is instituted a foreclosure action on
any of Lessee's property;
(v) if Lessee files a voluntary petition under the Bankruptcy
Code or any Insolvency Laws;
(vi) there is filed an involuntary petition against Lessee as
the subject debtor under Bankruptcy Code or any Insolvency Laws, which such
petition is not dismissed within thirty (30) days of filing or results in
issuance of an order for relief against the Lessee as debtor;
(vii) if Lessee makes or consents to an assignment of its assets,
in whole or in part, for the benefit of creditors, or a common law composition
of creditors;
(viii) the Demised Premises being abandoned, vacant or deserted
and remaining so for five (5) days; or
(ix) any default under the terms of Lessee's Existing Lease with
Lessor (as hereinafter defined).
(b) Upon the occurrence of any event of default, this Lease shall, at
the option of Lessor, cease and terminate and shall operate as a notice to
quit. ANY NOTICE TO QUIT OR OF LESSOR'S INTENTION TO RE-ENTER BEING HEREBY
EXPRESSLY WAIVED, and Lessor may proceed to recover possession under and by
virtue of the provisions of the laws of the State of Virginia, or by such other
proceedings, including re-entry and possession, as may be applicable. If Lessor
elects to terminate this Lease, everything herein contained on the part of
Lessor to be done and performed shall cease without prejudice, however, to the
right of Lessor to recover from Lessee all Rent accrued up to the time of
termination or recovery of possession by Lessor, whichever is later. Upon the
occurrence of an event of default as aforesaid, at Lessor's option (either with
or without terminating this Lease), the Demised Premises may be relet by Lessor
for such Rent and upon such terms as Lessor, in Lessor's sole discretion, shall
deem appropriate under the circumstances, and, if the full Rent hereinabove
provided shall not be realized by Lessor, Lessee shall be liable for all
damages sustained by Lessor, including, without limitation, deficiency in Rent,
reasonable attorneys' fees, brokerage fees, and expenses of placing the Demised
Premises in first class rentable condition. Any damage or loss of Rent
sustained by Lessor may be recovered by Lessor at Lessor's option, at the time
of the re-letting, or in separate actions, from time to time, as said damage
shall have been made more easily ascertainable by successive re-lettings, or,
at Lessor's option, may be deferred until the expiration of the Lease Term, in
which event the cause of action shall not be deemed to
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have accrued until the date of expiration of said Lease Term. If Lessor should
commence any summary proceeding for non-payment of Rent by Lessee or to recover
possession of the Demised Premises, Lessee shall not interpose any counterclaim
of any nature or description in any such proceeding. Upon the occurrence (or
continued existence) of any monetary event of default in two or more months, or
any material non-monetary default hereunder (which term shall include, but not
be limited to, each of the events of default described in the last sentence of
the preceding Section 21(a)(ii)), provided this Lease shall not be terminated,
Lessor shall, in addition, have the option to require Lessee to deposit with
Lessor an additional Security Deposit in an amount not to exceed six (6)
months' Monthly Base Rent. The provisions contained in this Section shall be in
addition to and shall not prevent the enforcement of any claim Lessor may have
against Lessee for anticipatory breach of the unexpired Lease Term. In the
event that Lessee continued to occupy the Demised Premises after the expiration
of the Lease Term, with the express or implied consent of Lessor, such tenancy
shall be from month to month and shall not be a renewal of the term of this
Lease or a tenancy from year to year. All rights and remedies of Lessor under
this Lease shall be cumulative and shall not be exclusive of any other rights
and remedies provided to Lessor under applicable law.
22. WAIVER
If under the provisions hereof Lessor shall institute proceedings and a
compromise or settlement thereof shall be made, the same shall not constitute a
waiver of any covenant herein contained nor of any of Lessor's rights
hereunder. No waiver by Lessor of any breach of any covenant, condition or
agreement herein contained shall operate as a waiver of such covenant,
condition or agreement itself, or of any subsequent breach thereof. No payment
by Lessee or receipt by Lessor of a lesser amount than the Rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated Rent nor shall any endorsement or statement on any check or letter
accompanying a check for payment of Rent be deemed an accord and satisfaction
and Lessor may accept such check or payment without prejudice to Lessor's right
to recover the balance of such Rent or to pursue any other remedy provided in
this Lease. No re-entry by Lessor, and acceptance by Lessor of keys from
Lessee, shall be considered an acceptance of a surrender of the Lease.
23. SUBORDINATION
This Lease is and shall automatically be subject and subordinate to the
lien of any and all mortgages (which term "mortgage" shall include both
construction and permanent financing and shall include deeds of trust and
similar security instruments) which may now or hereafter encumber or otherwise
affect the real estate (including the Building) of which the Demised Premises
form a part, or Lessor's interest therein, and to all and any renewals,
extensions, modifications, recastings or refinancings thereof. In confirmation
of such subordination, Lessee shall, at Lessor's request, promptly execute any
requisite or appropriate certificate or other document required by Lessor's
lender on the Property, provided that such document does not increase the
payments due under the Lease or materially diminish the rights of Lessee or
obligations of Lessor hereunder. Lessee hereby constitutes and appoints Lessor
as Lessee's attorney-in-fact to execute any such certificate or certificates
for or on behalf of Lessee which Lessee fails to execute and deliver to Lessor
within five (5) days after Lessor's written request therefor. Notwithstanding
anything to the contrary set forth above, any beneficiary under any mortgage
shall have the right, at its election (which election may be exercised
unilaterally by said beneficiary executing and filing a notice thereof for
record with the Clerk of the Circuit Court of Fairfax County, Virginia, at any
time prior to said beneficiary commencing foreclosure proceedings pursuant to
such mortgage) to subordinate the lien of such mortgage to the Lease to the
extent set forth in such document and thereupon the Lease shall be deemed prior
to such mortgage to the extent set forth in such document without regard to
their respective dates of execution, delivery and/or recording. In that event,
to the extent set forth in such document, such mortgage shall have the same
rights with respect to this Lease as would have existed if this Lease had been
executed, and a memorandum thereof recorded prior to the execution, delivery
and recording of the mortgage. Lessee agrees that in the event that any
proceedings are brought for the foreclosure of any such mortgage, Lessee
shall, if requested to do so by the purchaser at foreclosure, attorn to the
purchaser at such foreclosure sale and to recognize such purchaser as the
Lessor under this Lease, and Lessee waives the provisions of any statute or
rule of law, now or hereafter in effect, which may give or purpose to give
Lessee any right to terminate or otherwise adversely affect this
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Lease and the obligations of Lessee hereunder in the event that any such
foreclosure proceeding is prosecuted or completed. Any mortgagee, purchaser at
foreclosure, or assignee of Lessor who requests such attornment shall not (a)
be bound by any prepayment of Rent for more than one (1) month in advance
(Lessee hereby acknowledging and agreeing that Lessee shall have no right to,
and shall not, prepay Rent more than one month in advance of its due date, and
that Rent shall be payable after any such foreclosure, purchase, or assignment,
in case of a requested attornment as aforesaid, in accordance with the
provisions of this Lease as if such prepayment of Rent for more than one (1)
month in advance had not been made), nor (b) to be bound by any amendment to
this Lease which was not approved by such mortgagee prior to the foreclosure or
assignment, nor (c) be subject to any defense which Lessee might assert against
Lessor, nor (d) be liable for any defaults (including defaults of a continuing
nature) by any prior landlord, including the Lessor, or for the return of any
security deposit except to the extent the mortgagee or such purchaser actually
received the same, in cash or in kind, and such security deposit has been
segregated and identified as such by Lessor in the ordinary course of business.
24. CONDEMNATION
If the whole or a substantial part of the Demised Premises shall be taken
or condemned (the terms "taken" and "condemned" as used herein being deemed to
include any deed given in lieu of or under threat of taking or condemnation) by
any governmental or quasi-governmental authority for any public or quasi-public
use or purpose, then the Lease Term shall cease and terminate as of the date
when title vests in such condemning authority, and Lessee shall have no claim
against Lessor or the condemning authority for any portion of the amount that
may be awarded as damages as a result of such taking or condemnation or for the
value of any unexpired portion of the Lease Term; provided that, subject to the
foregoing, Lessee shall be entitled to institute a separate action against the
condemning authority to recover such damages as Lessee may be entitled pursuant
to the Uniform Relocation Assistance and Real Property Acquisition Policies Act
of 1970, 42 U.S.C. Sections 4601 et. seq., upon the condition that such damages
do not diminish the amount of the award to which Lessor is otherwise entitled.
The Monthly Base Rent, however, shall be abated on the date when such title
vests in such condemning authority. If less than a substantial part of the
Demised Premises is taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose, the
Monthly Base Rent shall be equitably adjusted on the date when title vests in
such condemning authority and the Lease shall otherwise continue in full force
and effect. For purpose of the Article, a substantial part of the Demised
Premises shall be considered to have been taken if more than fifty percent
(50%) of the Demised Premises are untenantable by Lessee.
25. RULES AND REGULATIONS
Lessee shall, and shall cause Lessee's Agents to, abide by and observe the
rules and regulations attached hereto as Exhibit C. Lessee and Lessee's Agents
shall abide by and observe such other rules or regulations as may be
promulgated from time to time by Lessor for the operation and maintenance of
the Building provided that the same are in conformity with common practice and
usage in similar buildings and are not inconsistent with the provisions of this
Lease and a copy thereof is sent to Lessee. Nothing contained in this Lease
shall be construed to impose upon Lessor any duty or obligation to enforce such
rules and regulations, or the terms, conditions or covenants contained in any
other Lease as against any other tenant, and Lessor shall not be liable to
Lessee for violation of the same by any other tenant, its employees, agents,
business invitees, licensees, customers, clients, family members or guests.
Lessor hereby agrees not to enforce the rules and regulations against Lessee in
a discriminatory manner.
26. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT
If Lessee defaults in the making of any payment or in the doing of any act
herein required to be made or done by Lessee, then Lessor may, but shall not be
required to, make such payment or do such act, and the amount of the expense
thereof, if made or done by Lessor, with interest thereon at the rate of twelve
percent (12%) per annum from the date paid by Lessor, shall be paid by Lessee
to Lessor and shall constitute additional Rent hereunder due and payable with
the next monthly installment of Monthly Base Rent; but the making of such
payment or the doing of such act by Lessor shall not operate to cure such
default or to estop Lessor from the pursuit of any remedy to which Lessor would
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otherwise be entitled. Any installment of Rent which is not paid by Lessee
within ten (10) days after the same becomes due and payable shall bear interest
at the rate of twelve percent (12%) per annum from the date such installment
became due and payable to the date of payment thereof by Lessee, plus a late
charge of 10% of the Rent payments not received by Lessor by the 10th of the
month due, and such interest and late charge shall constitute additional Rent
hereunder due and payable with the next monthly installment of Rent. The
imposition of late charges or interest will not be deemed to excuse the
untimely payment of Rent.
27. NO PARTNERSHIP
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Lessor and Lessee, or to create any
other relationship between the parties hereto other than that of Lessor and
Lessee.
28. NO REPRESENTATIONS BY LESSOR
Neither Lessor nor any agent or employee of Lessor has made any
representations or promises with respect to the Demised Premises or the Building
except as herein expressly set forth, and no rights, privileges, easements or
licenses are granted to Lessee except as herein set forth. The Lessee, by taking
possession of the Demised Premises, shall accept the same "as is", and such
taking of possession shall be conclusive evidence that the Demised Premises and
the Building are in good and satisfactory condition at the time of such taking
of possession, as provided for in Exhibit D.
29. BROKERS
Lessor and Lessee each represent and warrant one to another that neither
of them has employed any broker in carrying on the negotiations relating to this
Lease. Lessor shall indemnify and hold Lessee harmless, and Lessee shall
indemnify and hold Lessor harmless, from and against any claim or claims for
brokerage or other commission arising from or out of any breach of the foregoing
representation and warranty by the respective indemnitor.
30. WAIVER OF JURY TRIAL
Lessor and Lessee hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on or in
respect of any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Lessor and Lessee hereunder, Lessee's use or
occupancy of the Demised Premises, and/or claim of injury or damage.
31. NOTICES
All notices or other communications hereunder shall be in writing and
shall be deemed duly given when (a) if delivered in person or via
nationally-recognized overnight courier service (or attempted delivery of the
same if refused) as evidenced in writing, or (b) deposited in the U.S. mails by
certified or registered mail, return receipt requested, addressed first-class,
postage prepaid, (i) if to Lessor, attention: Barry R. Gosnell, Gosnell
Properties, Inc., 8130 Boone Boulevard, Vienna, Virginia 22182, and (ii) if to
Lessee, AboveNet Communications, Attention: Mr. Steve Belomy, at 50 W. San
Fernando Street, Suite 1010, San Jose, California 95113, unless notice of a
change of address is given pursuant to the provisions of this article.
32. ESTOPPEL CERTIFICATES
Lessee agrees, at any time and from time to time, upon not less than five
(5) days prior written notice by Lessor, to execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the Lease is
in full force and effect as modified and stating the modifications), (ii)
stating the dates to which the Rent and other charges hereunder have been paid
by Lessee, (iii) stating whether or not to the best knowledge of Lessee, Lessor
is in default in the performance of any covenant, agreement or condition
contained in this Lease, and, if so, specifying each such default of which
Lessee may have knowledge,
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and (iv) stating the address to which notices to Lessee should be sent and (v)
such other information as Lessor may reasonably request. Any such statement
delivered pursuant hereto may be relied upon by any owner of the Building, any
prospective purchaser of the Building, any mortgagee or prospective mortgagee of
the Building or of Lessor's interest, or any prospective assignee of any such
mortgagee. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to execute
and deliver the aforesaid estoppel certificate, in the event Lessee shall fail
to deliver to Lessor the same to Lessor within five (5) days of receipt of said
written notice.
33. HOLDING OVER
In the event that Lessee shall not immediately surrender the Demised
Premises on the date of expiration of the term hereof, or any renewal term,
Lessee shall, by virtue of the provisions hereof, become a Lessee by the month
at the Monthly Base Rent in effect during the last month of the term of this
Lease plus twenty five percent (25%), which said monthly tenancy shall commence
with the first day next after the expiration of the Lease Term. The Lessee as a
monthly Lessee shall be subject to all of the conditions and covenants of this
Lease, except those provisions relating to Lessor funded tenant work, Rent
abatement or other Lessor funded allowances, as though the same had originally
been monthly tenancy. Lessee shall give to lessor at least thirty (30) days'
written notice of any intention to quit the Demised Premises, and Lessee shall
be entitled to thirty (30) days' written notice to quit the Demised Premises,
EXCEPT IN THE EVENT OF NONPAYMENT OF RENT IN ADVANCE OR OF THE BREACH OF ANY
COVENANT BY THE LESSEE, IN WHICH EVENT LESSEE SHALL NOT BE ENTITLED TO ANY
NOTICE TO QUIT, THE USUAL THIRTY (30) DAYS' NOTICE TO QUIT BEING HEREBY
EXPRESSLY WAIVED. Notwithstanding the foregoing provisions of this Section, in
the event that Lessee shall hold over the expiration of the Lease Term hereby
created, and if Lessor shall desire to regain possession of the Demised Premises
promptly at the expiration of the Lease Term, then at any time prior to Lessor's
acceptance of Rent from Lessee as a monthly tenant hereunder, Lessor, at its
option, may forthwith re-enter and take possession of the Demised Premises
without process, or by any legal process in force in the State of Virginia,
LESSEE HEREBY WAIVING ANY NOTICE TO PAY OR QUIT THE DEMISED PREMISES PROVIDED BY
CURRENT OR FUTURE LAW, and Lessee shall remain liable for any and all claims,
cost, damage, expense and liability which Lessor may suffer (including, but not
limited to, reasonable attorneys' fees), to the extent that the same shall be
proximately caused by Lessee's failure to surrender the Demised Premises as
required hereunder.
34. INTENTIONALLY OMITTED
35. LIEN FOR RENT
In consideration of the mutual benefits arising under this Lease, Lessee
hereby grants to Lessor a lien on all property of Lessee now or hereafter placed
in or on the Demised Premises (except such part of any property as may be
exchanged, replaced, or sold from time to time in the ordinary course of
business operation or trade) and such property shall be and remain subject to
such lien of Lessor for payment of all Rent and other sums agreed to be paid by
Lessee herein. Lessee hereby covenants and agrees to execute and deliver to
Lessor, upon Lessor's request, a financing statement in form sufficient to
perfect the Lessor's security interest, as granted pursuant to this Section 35,
in the aforementioned property and proceeds pursuant to the provisions of the
Uniform Commercial Code as enacted in the Commonwealth of Virginia. Said lien
shall be in addition to and cumulative upon the Lessor's liens provided by law.
36. PUBLIC LIABILITY INSURANCE
Lessee shall obtain and maintain in effect at all times during the Lease
Term, a policy of comprehensive public liability insurance, naming Lessor, any
property management agent for the Building and any mortgagee of the Building as
additional insureds, protecting Lessor, Lessee, management agent and any such
mortgagee against any liability for bodily injury, death or property damage
occurring upon, in or about any part of the Building or the Demised Premises
arising from any of the items set forth herein against which Lessee is required
to indemnify Lessor, with such policies to afford protection to the limit of
not less than Three Million Dollars ($3,000,000) combined single limit.
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<PAGE> 17
Lessor shall have the right to require Lessee to increase the minimum limits of
coverage set forth above, from time to time, to the standard limits of coverage
required in comparable first class office Buildings in the Washington, D.C.
area. Lessee, at Lessee's sole cost and expense, shall obtain and maintain in
effect commencing with the Commencement Date and continuing through the Lease
Term, insurance policies providing for the following coverage: all risk and
property insurance, including (without limitation) coverage against fire,
theft, vandalism, malicious mischief, sprinkler leakage and such additional
perils as now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the Commonwealth of Virginia,
insuring Lessee's merchandise, trade fixtures, furnishings, equipment and all
items of personal property of Lessee located on or in the Demised Premises, in
an amount equal to not less than the full replacement value thereof. All
proceeds of such insurance, so long as the Lease shall remain in effect, shall
be used only to repair or replace the items so insured. Such insurance policies
shall be issued by responsible insurance companies licensed to do business in
the State of Virginia. Neither the issuance of any insurance policy required
under this Lease, nor the minimum limits specified herein with respect to
Lessee's insurance coverage, shall be deemed to limit or restrict in any way
liability arising under or out of this Lease.
37. GENDER
Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number,
in any place or places herein in which the context may require such
substitution or substitutions.
38. BENEFIT AND BURDEN
The provisions of this Lease shall be binding upon and shall inure to the
benefit of the parties hereto and each of their respective representatives,
successors and assigns (however, the foregoing shall not be deemed to permit
any assignment, sublet, encumbrance or other transfer in violation of Section 7
hereof). Lessor may freely and fully assign its interest hereunder.
39. PARKING
During the initial term Lessee shall have the right, subject to Lessor's
regulations and restrictions with respect thereof, to obtain 3.65 parking
passes for each initial 1000 square feet of space leased, rounded to the
closest number (7 spaces), to allow Lessee to park one (1) automobile per
permit in the on-site garage and surface parking lot adjacent to the Building
on an unreserved, non-exclusive basis. Lessor will issue Lessee seven (7)
plastic (permanent) parking passes to be placed, facing out, on the rear view
mirror of Lessee's vehicles. Replacement parking passes for lost permanent
parking passes shall only be issued upon Lessee's agreement to either (i) bear
the cost of replacing all permanent parking passes for the Project, or (ii) pay
the then-current monthly rate for each such lost permanent parking pass (in
which event, a monthly pass shall be issued as such replacement). Other than
vehicles of bona fide visitors in bona fide visitor parking spaces, vehicles
without Lessor-provided parking passes may be subject to towing, booting or
parking charge without prior notice at the sole risk and expense of the vehicle
owner, in Lessor's sole discretion. The foregoing parking rights shall be free
of charge and without cost to Lessee (except as otherwise provided in this
Section 39 or in Section 5 hereof).
40. MISCELLANEOUS
(a) Recording. Neither this Lease nor any memorandum nor short form
hereof shall be recorded in the land or other records of the Commonwealth of
Virginia or Fairfax County, Virginia.
(b) Survival of Obligations. If Lessee has failed to fulfill its
obligations under this Lease such obligations and Lessor's rights in respect
thereof shall remain in full force and effect notwithstanding the expiration of
the Term.
(c) Headings. The captions, section numbers and index appearing in
this Lease are inserted only as a matter of convenience and reference, and in
no way shall be held to explain, modify, amplify, define, limit, construe, or
describe the scope of intent of
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<PAGE> 18
such sections of this Lease nor in any way add to the interpretation,
construction or meaning of any provision or otherwise affect this Lease.
(d) Severability. If any covenant or agreement of this Lease or the
application thereof to any person or circumstance shall be held to be invalid
or unenforceable, then and in each such event the remainder of this Lease, or
the application of such covenant or agreement to any other person or any other
circumstance, as the case may be, shall not be thereby effected, and each
covenant and agreement of this Lease shall remain valid and enforceable to the
fullest extent permitted by law.
(e) Corporate or Partnership Authority:
(i) If Lessee executes this Lease as a corporation, each of the
persons executing this Lease on behalf of Lessee hereby covenants and warrants:
(1) that Lessee is a duly authorized and existing corporation, qualified to do
business in the Commonwealth of Virginia, with full right and authority to
enter into this Lease; (2) each of the persons executing this Lease on behalf
of Lessee possesses actual authority to do so; and (3) this Lease constitutes a
valid and legally binding obligation on Lessee, enforceable according to the
terms hereof.
(ii) If Lessee executes this Lease as a partnership, each of the
persons executing this Lease on behalf of Lessee hereby covenants and warrants:
(1) that Lessee is a duly authorized and existing partnership, qualified to do
business in the Commonwealth of Virginia, with full right and authority to
enter into this Lease; (2) each of the persons executing this Lease on behalf
of Lessee possesses actual authority to do so; and (3) this Lease constitutes a
valid and legally binding obligation on Lessee, enforceable according to the
terms hereof.
(f) Lessor's Liability. Notwithstanding any provision hereof to the
contrary, Lessee shall look solely to the estate and property of Lessor in and
to the Building (or the proceeds received by Lessor on a sale of such estate
and property but not the proceeds of any financing or refinancing thereof) in
the event of any claim or judgment against Lessor arising out of or in
connection with this Lease, the relationship of landlord and tenant or Lessee's
use of the Demised Premises, and Lessee agrees that the liability of Lessor
arising out of or in connection with this Lease, the relationship of landlord
and tenant or Lessee's use of the Demised Premises, shall be limited to such
estate and property of Lessor (or sale proceeds). No other properties or assets
of Lessor shall be subject to levy, execution or other enforcement procedures
for the satisfaction of any judgment (or other judicial process) or for the
satisfaction of any other remedy of Lessee arising out of or in connection with
this Lease, the relationship of landlord and tenant or Lessee's use of the
Demised Premises, and if Lessee shall acquire a lien on or interest in any
other properties or assets by judgment or otherwise, Lessee shall promptly
release such lien on or interest in such other properties and assets by
executing, acknowledging and delivering to Lessor an instrument to that effect,
prepared by Lessor's attorneys. It is agreed that neither Lessor nor any of its
officers, directors or employees shall ever be personally liable for any
judgment against Lessor or any duty or liability of Lessor under this Lease.
Lessor shall have no liability to Lessee for failure to perform Lessor's
obligations hereunder where such failure(s) is due to causes beyond Lessor's
control, including without limitation acts of God, war, civil commotion,
strikes, and embargoes; nor shall any such failure entitle Lessee to any
abatement or reduction in Rent, except as may be expressly provided herein, or
any claim of actual or constructive eviction. Lessee shall not be entitled to
any compensation or reduction in Rent by reason of inconvenience or loss
arising from Lessor's entry onto the Demised Premises as authorized hereunder,
nor by reason of any repairs to the Demised Premises or the Building.
(g) Governing Law. This Lease shall be governed by the laws of the
Commonwealth of Virginia, without regard to the conflict of laws principles
thereof.
(h) Effective Date. For all purposes hereof, the "Effective Date" of
this Lease shall be the date upon which this Lease shall have been executed by
both parties and physically delivered by Lessor to Lessee or its attorney.
Prior to the Effective Date, neither this Lease nor anything hereunder
contained shall be legally binding on either Lessor or Lessee, and the
submission of this Lease by Lessor to Lessee prior to such Effective Date for
examination or consideration by Lessee or discussion between Lessor and Lessee
shall
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<PAGE> 19
not constitute a reservation of or option for the Demised Premises or create any
legal obligation or liability whatsoever on Lessor.
(i) Attorneys' Fees. Lessee shall pay all of Lessor's costs, charges and
expenses (including, but not limited to, court costs and attorneys' fees)
incurred (i) in enforcing Lessee's obligations under this Lease, (ii) in any
action brought by Lessee in which Lessor is the prevailing party, and (iii) in
any litigation, negotiation or transaction in which Lessor, without Lessor's
fault, becomes involved or concerned as a consequence of Lessee's acts or
omissions, whether such costs, charges or expenses are incurred in court
(whether at the administrative, trial or appellate levels) or out of court. For
purposes of this Section 40(i), Lessor shall be deemed to be the prevailing
party with respect to any suit or action where, upon resolution of the claim
(whether by voluntary withdrawal by Lessee, unilateral action, mutual
settlement, dismissal or judgment), Lessor has substantially prevailed in the
assertion of its claims or the assertion of its defenses, as the case may be;
provided that, Lessor shall in all events be deemed to be the prevailing party
in any action in which Lessor is granted a judgment for possession of the
Demised Premises or possession of the Demised Premises is surrendered to Lessor.
41. WAIVER OF SUBROGATION
Notwithstanding any language to the contrary in this Lease, Lessee shall
not be responsible for damage to the Lessor's property caused by Lessee to the
extent the damage is covered by the Lessor's all risk property insurance policy.
Lessor agrees to maintain such a policy during the Lease Term and Lessor shall
obtain a waiver of subrogation under the policy in favor of the Lessee. Lessee
shall require its insurer(s) to include in all of Lessee's insurance policies
which could give rise to a claim against Lessor an endorsement whereby the
insurer(s) shall waive any rights of subrogation against Lessor. Lessee hereby
releases Lessor and its partners, officers, directors, agents and employees from
any and all liability and responsibility to Lessee or any person claiming by,
through or under Lessee, by way of subrogation or otherwise, for any injury,
loss or damage to Lessee's property covered by a valid and collectible fire
insurance policy with extended coverage endorsement. Lessee agrees to look to
its own fire and hazard insurance policies in the event of damage to Lessee's
personal property. The waivers of subrogation shall be made in writing and
delivered to the respective parties.
42. EXISTING LEASE
Lessor and Lessee hereby acknowledge and agree that they are the landlord
and tenant, respectively, under that certain Deed of Lease dated September 3,
1997 (the "Existing Lease") pursuant to which Lessor demised certain premises on
level B-2 of the Building to Lessee (the "Original Premises"). Nothing herein
contained shall be deemed to amend or modify the Existing Lease, or to waive any
sums due or to become due to Lessor thereunder. This Lease, together with
Exhibits A and C attached hereto and made a part hereof, contains and embodies
the entire agreement of the parties hereto with respect to the Demised Premises,
and no representations, inducements, or agreements, oral or otherwise between
the parties not contained and embodied in said Lease and Exhibits, shall be of
any force or effect, and that same may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by all parties hereto.
43. OPTION TO RENEW
(a) Provided Lessee is not in default, Lessee shall have the option, upon
the terms and conditions set forth herein, to extend the Lease Term for one (1)
additional four (4) year period (herein referred to as the "Renewal Term").
Lessee may exercise the renewal option only upon binding written notice
delivered to Lessor not later than six (6) months prior to the expiration of the
Initial Term. In the event Lessee does not timely exercise its option for the
Renewal Term, Lessee's rights under this Section 43 shall lapse. Lessee's notice
to renew shall, at Lessor's option, be deemed ineffective if Lessee is in
default on the date the notice is given or is in default on the date the Renewal
Term is to commence. The Renewal Term, if properly exercised, shall extend the
Lease Term accordingly, and shall be on all of the same terms and conditions as
the Initial Term, except that (i) the Monthly Base Rent shall be as determined
pursuant to sub-paragraph (b), and (ii) there shall be no further Renewal Terms
after the first (1st) Renewal Term.
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<PAGE> 20
(b) The Monthly Base Rent payable by Lessee during the Renewal Term
shall be one hundred percent (100%) of the prevailing market rental rate for
comparable first-class office space in first-class buildings in the Tysons
Corner area, but in no event shall the Monthly Base Rent payable during the
first (1st) year of the Renewal Term be less than the Monthly Base Rent and all
additional Rent (as required under Sections 5B, 5C and 5D) accrued with respect
to the last full month preceding the commencement date of the Renewal Term. The
Monthly Base Rent payable during the Renewal Term shall be increased annually,
on each anniversary date of the commencement of the Renewal Term, in accordance
with Section 5D. Promptly following delivery of Lessee's notice of the exercise
of the renewal option, Lessor and Lessee shall meet and negotiate in good faith
toward agreement on the prevailing market rental rate for Demised Premises In
the event that Lessor and Lessee are unable to agree in good faith on the
then-prevailing market rental rate as above described within sixty (60) days
after the Lessee gives a valid notice of the exercise of its option for the
Renewal Term. Lessee's option for the Renewal Term and any purported exercise
thereof shall be null and void and this Section 43 shall be of no further force
or effect.
IN WITNESS WHEREOF, each of the parties hereto, respectively, has caused
these presents to be executed and attested by their duly authorized officers and
their seals affixed.
LESSOR:
GOSNELL PROPERTIES, INC.
ATTEST:
[SIG] By: [SIG]
- ----------------------------- --------------------
LESSEE:
ATTEST: ABOVENET COMMUNICATIONS, INC., a
California corporation
/s/ STEPHEN P. BELOMY By /s/ SHERMAN TUAN
- ----------------------------- --------------------
Stephen P. Belomy, Secretary, Sherman Tuan, CEO
Exec. V.P. & CFO
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<PAGE> 21
STATE OF VIRGINIA )
) ss:
COUNTY OF Fairfax )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that Barny R. Gosnell whose name as President of
Gosnell Properties, Inc., is signed to the writing above, bearing date on the
30th day of January, 1998, has acknowledged the same before me in the County of
Fairfax.
Given under my hand and official seal this 26th day of February, 1998. My
term of office expires on the 28th day of February 1998.
[SIG]
------------------------------
Notary Public
STATE OF Virginia )
) ss:
COUNTY OF Fairfax )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that SHERMAN TUAN whose name as PRESIDENT of ABOVENET
COMMUNICATIONS, INC. is signed to the writing above, bearing date on the 30th
day of January, 1998 has acknowledged the same before me in the County of
Fairfax.
Given under my hand and official seal this 18th day of March, 1998. My
term of office expires on the 28th day of February, 2002.
[SIG]
------------------------------
Notary Public
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<PAGE> 22
INTERNATIONAL GATEWAY
FIRST FLOOR
EXHIBIT "A"
<PAGE> 23
EXHIBIT "B"
INTENTIONALLY OMITTED
-23-
<PAGE> 24
EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
Lessee shall not be obstructed or encumbered by any Lessee or used for any
purpose other than ingress and egress to and from the Demised Premises. Lessor
shall have the right to control and operate the public portions of the Building,
and the facilities furnished for the common use of the Lessees, in such manner
as Lessor deems best for the benefit of the Lessees generally. No Lessee shall
permit the visit to the Demised Premises of persons in such numbers or under
such conditions as to interfere with the use and enjoyment by other Lessees of
the entrances, corridors, elevators and other public portions or facilities of
the Building.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of the Lessor. No drapes,
blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Lessor. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Lessor.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside or inside
of the Demised Premises or Building without the prior written consent of the
Lessor. In the event of the violation of the foregoing by any Lessee, Lessor may
remove same without any liability, and may charge the expense incurred by such
removal to the Lessee or Lessees violating this rule. Interior signs on doors
and directory tablet shall be inscribed, painted or affixed for each Lessee by
the Lessor at the expense of such Lessee, and shall be of a size, color and
style acceptable to the Lessor.
4. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules without the prior written consent of the Lessor.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, coffee grounds, rubbish, rags, or other substances shall be thrown
therein. All damages resulting from any misuse of the fixtures shall be borne by
the Lessee who, or whose servants, employees, agents, visitors or licensees,
shall have caused the same.
6. There shall be no marking, painting, drilling into or in any way
defacing any part of the Demised Premises or the Building. No boring, cutting or
stringing of wires shall be permitted. Lessee shall not construct, maintain, use
or operate within the Demised Premises or elsewhere within or on the outside of
the Building, any electric device, wiring or apparatus in connection with a loud
speaker system or other sound system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into or kept in or about the Demised Premises, and no cooking shall be
done or permitted by any Lessee on said Demised Premises. No Lessee shall cause
or permit any unusual or objectionable odors to be produced upon or permeate
from the Demised Premises.
8. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
9. No Lessee shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises of those having business with them, whether by the use of any
musical instrument, radio, talking machines, unmusical noise, whistling,
singing, or in any other way. No Lessee shall throw anything out of the doors or
windows or down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or substance
shall be brought or kept upon the Demised Premises.
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<PAGE> 25
11. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows by any Lessee, nor shall any changes be made in
existing locks or the mechanism thereof without the prior written consent of
Lessor. All locks must be keyed to the Building's master key in the possession
of Lessor. In the case of rekeying, Lessee will provide Lessor, at no cost to
Lessor, six (6) copies of keys to said rekeyed locks. The doors leading to the
corridors or main halls shall be kept closed during business hours except as
they may be used for ingress or egress. Each Lessee shall, upon the termination
of his tenancy, restore to Lessor all keys of stores, offices, storage, and
toilet rooms either furnished to, or otherwise procured by, such Lessee, and in
the event of the loss of any keys, so furnished, such Lessee shall pay to the
Lessor the cost thereof and, if necessary, the cost of rekeying the locks if
Lessor does not have a copy of the lost key.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Lessor or its Agent may determine from time to time. The Lessor
reserves the right to inspect all freight to be brought into the Building and
to exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
13. Any person employed by any Lessee to do janitor work within the
Demised Premises must obtain Lessor's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Lessee shall engage or pay any
employees on the Demised Premises, except those actually working for such
Lessee on said Demised Premises.
14. Deleted.
15. Lessor shall have the right to prohibit any advertising by any
Lessee which, in Lessor's opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Lessor, Lessee shall refrain from or discontinue such advertising.
16. The Lessor reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
Building management or watchman on duty. Lessor may at his option require all
persons admitted to or leaving the Building between the hours of 6 P.M. and 8
A.M., Monday through Saturday, Sundays and legal holidays to register. Each
Lessee shall be responsible for all persons for whom he authorizes entry into
or exit out of the Building, and shall be liable to the Lessor for all acts of
such persons. The Building main entrances will remain locked from 6 p.m. Friday
through 8 a.m. Monday. Any Lessee requiring entrance to the Building during the
above hours or after normal weekly business hours must use a key provided by
Lessor.
17. The Demised Premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
18. Each Lessee, before closing and leaving the Demised Premises at
any time, shall see that all lights are turned off.
19. The requirements of Lessees will be attended to only upon
application at the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the management of the Building.
20. Canvassing, soliciting and peddling in the Building is prohibited
and each Lessee shall cooperate to prevent the same.
21. No water cooler, plumbing or electrical fixtures shall be
installed by any Lessee.
22. There shall not be used in any space, or in the public halls of
the Building, either by any Lessee or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, or similar devices except those
equipped with rubber tires and rubber sideguards.
-25-
<PAGE> 26
23. Access plates to underfloor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around these access plates.
24. Mats, trash or other objects shall not be placed in the public
corridors.
25. The Lessor does not maintain suite finishes which are
nonstandard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need for repairs arise, the Lessor will arrange for the
work to be done at the Lessee's expense.
26. Drapes installed by the Lessor for the use of the Lessee or drapes
installed by the Lessee, which are visible from the exterior of the Building
must be cleaned by the Lessee at least once a year, without notice, at said
Lessee's own expense.
27. The Lessor will furnish and install the light bulbs for the
Building standard fixtures only. For special fixtures the Lessee will stock his
own bulbs, which will be installed by the Lessor when so requested by the
Lessee.
28. Any material violation of these rules and regulations, or any
amendments thereto, shall be a default under the Lease which, if not cured as
set forth in Section 21 of this Lease, shall be sufficient cause for
termination of this Lease at the option of the Lessor; provided that, any
repetitive violation of these rules and regulations (i.e., more than two (2)
violations in any period of twelve (12) consecutive months) shall, without
notice or cure period, be deemed an Event of Default.
29. The Lessor may, upon request by any Lessee, waive the compliance
by such Lessee of any of the foregoing rules and regulations, provided that (i)
no waiver shall be effective unless signed by Lessor or Lessor's authorized
agent, (ii) any such waiver shall not relieve such Lessee from the obligation
to comply with such rule or regulation in the future unless expressly consented
to by Lessor, and (iii) no waiver granted to any Lessee shall relieve any other
Lessee from the obligation of complying with the foregoing rules and
regulations unless such other Lessee has received similar waiver in writing
from Lessor.
-26-
<PAGE> 1
EXHIBIT 16.1
September 8, 1998
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read first three sentences of the paragraph comprising Change in
Accountants included in the Form S-1 (Registration No. 333-____) of AboveNet
Communications Inc. to be filed with the Securities and Exchange Commission on
or about September 8, 1998 and are in agreement with the statements contained
therein.
Very truly yours,
ARTHUR ANDERSEN LLP
cc: Mr. Stephen P. Belomy, CFO, AboveNet Communications Inc.
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders of AboveNet Communications Inc.
Our audits of the financial statements of AboveNet Communications, Inc. for
the period from March 8, 1996 (inception) to June 30, 1996 and for the years
ended June 30, 1997 and 1998 also include the financial statement schedule of
AboveNet Communications, Inc., listed in Item 16. (b). The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
San Jose, California
August 7, 1998
To the Board of Directors and Stockholders of
AboveNet Communications Inc.:
The financial statements/schedule included herein reflect the approval by
the Company's stockholders to the reincorporation of the company in the State of
Delaware and the associated exchange of one share of common stock and preferred
stock of the Company for every two and one-half shares of common stock and
preferred stock, as the case may be, of the Company's California predecessor
entity as described in Note 12 to the financial statements. The above report is
in the form that will be signed by Deloitte & Touche LLP upon the effectiveness
of such events assuming that from August 7, 1998 to the effective date of such
events, no other events shall have occurred that would affect the accompanying
financial statements or notes thereto.
Deloitte & Touche LLP
San Jose, California
September 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 8,141,200
<SECURITIES> 0
<RECEIVABLES> 417,000
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,767,800
<PP&E> 5,095,900
<DEPRECIATION> 659,800
<TOTAL-ASSETS> 13,693,300
<CURRENT-LIABILITIES> 3,706,600
<BONDS> 0
0
6,606,500
<COMMON> 38,900
<OTHER-SE> 1,321,400
<TOTAL-LIABILITY-AND-EQUITY> 13,693,300
<SALES> 3,436,400
<TOTAL-REVENUES> 3,436,400
<CGS> 4,202,800
<TOTAL-COSTS> 4,560,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,800
<INCOME-PRETAX> (5,425,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,425,000)
<EPS-PRIMARY> (12.93)<F1>
<EPS-DILUTED> (12.93)
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
