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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 0-22967
NETWORK SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 52-1146119
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
505 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(703)742-0400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 10, 1999, the Registrant had 18,424,134 shares of Class A common
stock, $0.001 par value per share, issued and outstanding, and 14,850,000 shares
of Class B common stock, $0.001 par value per share, issued and outstanding.
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<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Financial Position as of December
31, 1998 and March 31, 1999 (Unaudited)................... 3
Unaudited Condensed Statements of Operations for the three
months ended March 31, 1998 and 1999...................... 4
Unaudited Condensed Statements of Changes in Stockholders'
Equity for the three months ended March 31, 1999.......... 5
Unaudited Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1999...................... 6
Notes to Condensed Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations................................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 26
Item 2. Changes in Securities and Use of Proceeds................... 27
Item 6. Exhibits and Reports on Form 8-K............................ 27
Signature ........................................................... 29
Index to Exhibits.................................................... 30
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NETWORK SOLUTIONS, INC.
CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,862,000 $ 26,954,000
Short-term investments.................................... 118,808,000 121,544,000
Accounts receivable, net.................................. 22,628,000 35,745,000
Prepaids and other assets................................. 4,001,000 5,889,000
Deferred tax asset........................................ 40,508,000 56,954,000
------------ ------------
Total current assets........................................ 198,807,000 247,086,000
Furniture and equipment, net................................ 16,005,000 31,224,000
Long-term investments....................................... 13,590,000 53,223,000
Deferred tax asset.......................................... 14,831,000 7,466,000
Goodwill, net............................................... 634,000 498,000
------------ ------------
Total Assets................................................ $243,867,000 $339,497,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 28,287,000 $ 29,350,000
Due to SAIC............................................... 4,766,000 4,578,000
Income taxes payable...................................... 5,409,000 29,345,000
Current portion of capital lease obligations.............. 834,000 761,000
Deferred revenue, net..................................... 93,720,000 119,912,000
------------ ------------
Total current liabilities................................... 133,016,000 183,946,000
Capital lease obligations................................... 247,000 100,000
Long-term deferred revenue, net............................. 35,474,000 48,450,000
------------ ------------
Total liabilities........................................... 168,737,000 232,496,000
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value, authorized 10,000,000
shares; none issued and outstanding in 1998 and 1999... -- --
Class A common stock, $.001 par value; authorized
100,000,000 shares; 9,140,372 and 18,390,684 issued and
outstanding in 1998 and 1999........................... 9,000 18,000
Class B common stock, $.001 par value; authorized
30,000,000 shares; 23,850,000 and 14,850,000 issued and
outstanding in 1998 and 1999........................... 24,000 15,000
Additional paid-in capital................................ 72,331,000 77,046,000
Retained earnings......................................... 2,407,000 7,205,000
Accumulated other comprehensive income.................... 359,000 22,717,000
------------ ------------
Total stockholders' equity.................................. 75,130,000 107,001,000
------------ ------------
Total Liabilities and Stockholders' Equity.................. $243,867,000 $339,497,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NETWORK SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net revenue................................................. $16,492,000 $38,132,000
Cost of revenue............................................. 7,348,000 14,541,000
----------- -----------
Gross profit................................................ 9,144,000 23,591,000
Research and development expenses........................... 725,000 2,035,000
Selling, general and administrative expenses................ 6,182,000 15,265,000
Interest income............................................. (1,327,000) (1,930,000)
Other expenses.............................................. 35,000 19,000
----------- -----------
Income before income taxes.................................. 3,529,000 8,202,000
Provision for income taxes.................................. 1,480,000 3,404,000
----------- -----------
Net income.................................................. $ 2,049,000 $ 4,798,000
=========== ===========
Earnings per common share:
Basic..................................................... $ 0.07 $ 0.14
=========== ===========
Diluted................................................... $ 0.06 $ 0.14
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NETWORK SOLUTIONS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL OTHER
-------------------- -------------------- PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME EARNINGS INCOME
---------- ------- ---------- ------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998.................. 9,140,000 $9,000 23,850,000 $24,000 $72,331,000 $ 359,000 $2,407,000 $ --
Issuance of common
stock pursuant to
stock plans........... 251,000 -- -- -- 1,809,000 -- -- --
Tax benefit associated
with stock plans...... -- -- -- -- 2,906,000 -- -- --
Conversion of Class B
Common Stock.......... 9,000,000 9,000 (9,000,000) (9,000) -- -- -- --
Comprehensive income:
Net income for the
period ended March 31,
1999.................. -- -- -- -- -- -- 4,798,000 4,798,000
Other comprehensive
income, net of tax:
Unrealized gains on
securities............ -- -- -- -- -- 22,358,000 -- 22,358,000
-----------
Comprehensive income... -- -- -- -- -- -- -- $27,156,000
---------- ------- ---------- ------- ----------- ----------- ---------- ===========
Balance, March 31,
1999.................. 18,391,000 $18,000 14,850,000 $15,000 $77,046,000 $22,717,000 $7,205,000
========== ======= ========== ======= =========== =========== ==========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31,
1998.................. $ 75,130,000
Issuance of common
stock pursuant to
stock plans........... 1,809,000
Tax benefit associated
with stock plans...... 2,906,000
Conversion of Class B
Common Stock.......... --
Comprehensive income:
Net income for the
period ended March 31,
1999.................. 4,798,000
Other comprehensive
income, net of tax:
Unrealized gains on
securities............ 22,358,000
Comprehensive income... --
------------
Balance, March 31,
1999.................. $107,001,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NETWORK SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,049,000 $ 4,798,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 717,000 1,474,000
Provision for uncollectible accounts receivable........ 2,168,000 --
Deferred income taxes.................................. (4,603,000) (25,271,000)
Tax benefit associated with stock plans................ -- 2,906,000
Change in operating assets and liabilities:
Increase in accounts receivable...................... (4,092,000) (13,117,000)
Increase in prepaids and other assets................ (126,000) (1,888,000)
Increase in accounts payable and accrued
liabilities....................................... 579,000 1,063,000
Increase in income taxes payable..................... 2,202,000 23,936,000
Increase in deferred revenue......................... 11,069,000 39,168,000
------------ ------------
Net cash provided by operating activities............ 9,963,000 33,069,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment....................... (622,000) (16,557,000)
Purchase of short-term investments, net................... (38,681,000) (1,821,000)
Purchase of long-term investments......................... (6,152,000) (2,000,000)
------------ ------------
Net cash used in investing activities................ (45,455,000) (20,378,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transactions with SAIC................................ 1,129,000 (188,000)
Repayment of capital lease obligations.................... (205,000) (220,000)
Issuance of common stock pursuant to stock plans.......... 253,000 1,809,000
------------ ------------
Net cash provided by financing activities............ 1,177,000 1,401,000
------------ ------------
Net increase (decrease) in cash and cash equivalents........ (34,315,000) 14,092,000
Cash and cash equivalents, beginning of period.............. 41,146,000 12,862,000
------------ ------------
Cash and cash equivalents, end of period.................... $ 6,831,000 $ 26,954,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NETWORK SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS
Network Solutions currently acts as the exclusive registry and registrar of
Internet domain names within the .com, .org, .net and .edu top level domains
pursuant to the Cooperative Agreement with the Department of Commerce. Domain
names are used to identify a unique site or presence on the Internet. As
registry and registrar for these top level domains, Network Solutions registers
new domain names and is responsible for the maintenance of the master file of
domain names through daily updates to the Internet. Network Solutions also
provides Internet Technology Services, focusing on architecture, implementation
and support services to help large enterprises and Internet service providers
improve their operational effectiveness.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by Network Solutions
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, financial statements
included in this report reflect all normal recurring adjustments which Network
Solutions considers necessary for fair presentation of the results of operations
for the interim periods covered and of the financial position of Network
Solutions at the date of the interim balance sheet. Certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, Network
Solutions believes that the disclosures are adequate for understanding the
information presented. The operating results for interim periods are not
necessarily indicative of the operating results for the entire year. These
interim financial statements should be read in conjunction with Network
Solutions' December 31, 1998 audited financial statements and notes thereto
included in Network Solutions' Form 10-K annual report for the year ended
December 31, 1998. Prior periods have been restated for comparative purposes.
NOTE 3 -- STOCK SPLIT AND SECONDARY STOCK OFFERING
STOCK SPLIT
On December 31, 1998, Network Solutions' board of directors approved a
two-for-one stock split of the shares of Class A common stock and Class B common
stock, to be effected in the form of a 100% stock dividend on shares of Class A
common stock and Class B common stock outstanding on February 26, 1999. The
stock dividend was distributed on March 23, 1999. Share and per share
information for all periods presented in the accompanying financial statements
have been adjusted to reflect the two-for-one stock split.
SECONDARY STOCK OFFERING
On February 12, 1999, Network Solutions completed a secondary stock
offering in which a total of 9,160,000 shares of Class A common stock were sold.
Concurrent with the offering, Science Applications International Corporation,
commonly known as "SAIC", converted 9,000,000 shares of Class B common stock
into 9,000,000 shares of Class A common stock sold in the offering. The
remaining 160,000 shares of Class A common stock were sold by other selling
stockholders after they exercised the applicable stock options simultaneously
with the closing of the offering. Network Solutions was not a selling
stockholder, and, therefore, did not receive any proceeds from the stock
offering other than proceeds from options exercised as part of the offering.
After the offering, SAIC owns approximately 89% of the combined voting power and
approximately 45% of the economic interest of the outstanding common stock.
By May 31, 1999, SAIC intends to convert all of the remaining Class B
common stock into an identical number of shares of Class A common stock. After
that conversion, Class A common stock will be the only
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class of common stock outstanding and SAIC will own approximately 45% of the
voting power and economic interest of Network Solutions' outstanding common
stock.
NOTE 4 -- COMPUTATION OF EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator used in
the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Basic.................................. $2,049,000 31,453,000 $0.07
=====
Dilutive securities:
Outstanding options.................. -- 824,000
---------- ----------
Diluted................................ $2,049,000 32,277,000 $0.06
========== ========== =====
THREE MONTHS ENDED MARCH 31, 1999
Basic.................................. $4,798,000 33,121,000 $0.14
=====
Dilutive securities:
Outstanding options.................. -- 1,614,000
---------- ----------
Diluted................................ $4,798,000 34,735,000 $0.14
========== ========== =====
</TABLE>
Common shares issued are weighted for the period the shares were
outstanding and incremental shares assumed issued under the treasury stock
method for diluted EPS are weighted for the period the underlying options were
outstanding.
NOTE 5 -- ACCUMULATED OTHER COMPREHENSIVE INCOME BALANCES
The changes in the components of accumulated other comprehensive income are
reported net of income taxes for the three months ended March 31, 1999 as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
UNREALIZED GAINS COMPREHENSIVE
ON SECURITIES INCOME
---------------- -------------
<S> <C> <C>
Pre-tax amount.......................... $38,547,000 $38,547,000
Income taxes............................ 16,189,000 16,189,000
----------- -----------
Net of tax amount....................... $22,358,000 $22,358,000
=========== ===========
</TABLE>
NOTE 6 -- SUBSEQUENT EVENTS
LITIGATION
On May 14, 1999, the U.S. Court of Appeals for the District of Columbia
Circuit unanimously affirmed Federal District Court Judge Thomas F. Hogan's
decision in Thomas v. Network Solutions and the National Science Foundation,
thus affirming the validation of Network Solutions' role in providing domain
name registration services and charging fees for such services. The lawsuit,
which had been filed in October 1997, named the National Science Foundation and
Network Solutions as defendants, and alleged that the National Science
Foundation lacked authority to permit Network Solutions to charge for Internet
registration services, and to set aside 30 percent of all fees for the
preservation and enhancement of the Internet's infrastructure. The suit further
had charged that the National Science Foundation had created an illegal monopoly
in Internet registration services and that Network Solutions had illegally
precluded competition.
On May 7, 1999, in the case of Bruce Watts v. Network Solutions, Inc., U.S.
District Court Judge Hamilton of the Southern District of Indiana granted
Network Solutions' motion to dismiss allegations of
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antitrust liability under the Sherman Act and also granted Network Solutions'
motion for summary judgment on allegations of contributory trademark
infringement under the Lanham Act. Watts had challenged Network Solutions'
first-come, first-served domain name registration policy, alleging that Network
Solutions failed to stop cybersquatting and violated the Sherman Act and Lanham
Act and the common law of unfair uncompetition.
On April 26, 1999, the Pennsylvania Attorney General dismissed Network
Solutions from a suit brought by the Pennsylvania Attorney General's Office
against a domain holder who was alleged to have used his domain name in
connection with a web site promoting white supremacy and threatening certain
state employees. Named in the suit were all of the communications companies in
any way connected with the domain name or web site.
STATUS OF COOPERATIVE AGREEMENT
On January 1, 1993, we initiated phase-in of a Cooperative Agreement with
the National Science Foundation. The three-month phase-in was followed by a
five-year operations period, commencing April 1, 1993 and ending March 31, 1998,
and a six-month flexibility period through September 1998. Effective in
September 1998, the responsibility for the Cooperative Agreement was transferred
to the Department of Commerce. In October 1998, the Cooperative Agreement was
amended to extend the flexibility period through September 30, 2000 and to
transition to a shared registration system.
In accordance with the terms of the October 1998 amendment to the
Cooperative Agreement, as amended in March 1999, we have developed a protocol
and associated software to support a Shared Registration System which will
permit multiple registrars to provide registration services within the top level
domains for which we will act as registry. Network Solutions has deployed its
proprietary Shared Registration System on schedule by establishing a test bed to
support actual registrations by five new registrars. We have entered into
license agreements with the five new registrars to provide access to the Shared
Registration System, permitting them to directly register and maintain actual
domain names.
During the current 60-day test bed period, we have agreed to charge the new
registrars an interim registry fee of $18 for each new two-year registration. To
date, none of the new test bed registrars have completed their systems
development and testing to enable them to register actual names within the
Shared Registration System.
Network Solutions continues to work with the U.S. Government in
establishing the post-test bed registry price and other issues surrounding the
registry operations in a competitive environment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This quarterly report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Statements
regarding the intent, belief or current expectations of Network Solutions are
intended to be forward-looking statements which may involve risk and
uncertainty. There are a number of factors that could cause Network Solutions
actual results to differ materially from those indicated by such forward-looking
statements, including, but not limited to, those discussed in "Part I -- Item 1
- -- Business -- Risk Factors" and "Part II -- Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors
Affecting Operating Results" contained in Network Solutions' 1998 Form 10-K, as
filed with the Securities and Exchange Commission on March 30, 1999. In
addition, set forth below under the heading "Factors Affecting Operating
Results" is a further discussion of certain of those risks as they relate to the
period covered by this report, Network Solutions' near term outlook with respect
thereto, and the forward-looking statements set forth herein; however, the
absence in this quarterly report of a complete recitation of or update to all
risk factors identified in the 1998 Form 10-K should not be interpreted as
modifying or superseding any such risk factors, except to the extent set forth
below. Investors should review this quarterly report in combination with Network
Solutions' 1998 Form 10-K in order to have a more
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complete understanding of the principal risks associated with an investment in
Network Solutions' common stock.
OVERVIEW
Network Solutions currently acts as the registry and exclusive registrar of
Internet domain names within the .com, .net, .org and .edu top level domains
pursuant to the Cooperative Agreement with the Department of Commerce. Domain
names are used to identify a unique site or presence on the Internet. As
registry and registrar for these top level domains, Network Solutions registers
new domain names, maintains the master file of domain names and updates that
master file to the Internet daily. Network Solutions also provides Internet
Technology Services, focusing on network engineering, network and systems
security and network management solutions.
Registration Services. In December 1992, Network Solutions entered into
the Cooperative Agreement with the National Science Foundation under which
Network Solutions was to provide Internet domain name registration services for
five top level domains: .com, .org, .net, .edu and .gov. These registration
services include the initial two year domain name registration and annual
re-registration, and throughout the registration term, maintenance of and
unlimited modifications to individual domain name records and updates to the
master file of domain names. The Cooperative Agreement became effective January
1, 1993. It included a three-month phase-in period, a five-year operational
period, commencing April 1, 1993 and ending March 31, 1998, and a six-month
flexibility period through September 30, 1998. Effective September 9, 1998, the
Department of Commerce took over the administration of the Cooperative Agreement
from the NSF. In October 1998, the Cooperative Agreement was amended to extend
the flexibility period until September 30, 2000 and to transition to a shared
registration system.
The original terms of the Cooperative Agreement provided for a cost
reimbursement plus fixed-fee contract. Effective September 14, 1995, the
National Science Foundation and Network Solutions amended the Cooperative
Agreement to require Network Solutions to begin charging end users a services
fee of $50 per year for each domain name in the .com, .org and .net top level
domains. Prior to April 1, 1998, registrants paid a services fee of $100 for two
years of domain name services upon each initial registration and an annual re-
registration fee of $50 per year thereafter. The National Science Foundation
paid the registration fees for domain names within the .edu and .gov top level
domains through March 31, 1997. Commencing April 1, 1997, Network Solutions
agreed with the National Science Foundation to provide domain name services
within the .edu and .gov top level domains free of charge. As of October 1,
1997, Network Solutions no longer registers or administers domain names in the
.gov top level domain.
Under the terms of the September 14, 1995 amendment to the Cooperative
Agreement, 30% of the registration fees collected by Network Solutions was
required to be set aside for the enhancement of the intellectual infrastructure
of the Internet and, as such, was not recognized as revenue by Network
Solutions. The set aside funds, plus any interest earned, were disbursed at the
direction of the National Science Foundation. As of December 31, 1998, the
Company had cumulatively disbursed all set aside funds collected and associated
interest earned for a total of $62.3 million to the National Science Foundation
at their direction.
On March 12, 1998, the NSF and Network Solutions amended the Cooperative
Agreement to eliminate the 30% set aside requirement effective April 1, 1998 and
to reduce the registration fees by a corresponding amount. Initial registrations
on and after April 1, 1998 are charged $70 for two years of registration
services and an annual renewal fee of $35 per year thereafter. This amendment
had no effect on the revenue recognized on each registration ($70 for initial
registrations and $35 for renewals), since Network Solutions previously did not
recognize revenue on the 30% set aside funds. Accordingly, while the revenue to
Network Solutions on a per registration basis did not change, the amount charged
to customers declined.
In order to provide prompt access to new domain names on the Internet,
Network Solutions generally invoices customers and permits them to pay their
registration fees after their domain names are registered. Network Solutions'
experience has been that, for the period from September 1995 through March 1999,
approximately 34% of registrations have ultimately been deactivated for
non-payment. Network Solutions
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believes that this level of uncollectible receivables is due to, among other
factors, the large number of individuals and corporations that have registered
multiple domain names with the apparent intention of reselling such names at a
profit. Such resellers have a greater tendency than other customers to default
on their registration fees. As a consequence, Network Solutions has recorded a
comparable provision for uncollectible accounts in determining net registration
revenue.
Registration fees charged to end users for registration services, net of
any 30% set aside funds, are recognized as revenue evenly over the registration
term. Accordingly, Network Solutions recognizes $70 on a straight-line basis
over the two-year services period for each initial domain name registration,
equivalent to $35 per year. Annual re-registrations of domain name registrations
are recorded as revenue based upon $35 recognized on a straight-line basis over
the one-year services period. This subscription-based model defers revenue
recognition until Network Solutions provides the registration services,
including maintenance of and unlimited modifications to individual domain name
records, over the respective registration terms. At March 31, 1999, Network
Solutions had net deferred revenue of $168.4 million.
Internet Technology Services. Substantially all of Network Solutions'
Internet Technology Services revenue is derived from professional services which
are generally provided to clients on a time and expense basis and is recognized
as services are performed.
The majority of Network Solutions' Internet Technology Services are
provided to customers in the financial services industry. Citicorp is currently
Network Solutions' largest Internet Technology Services client, accounting for
45.2% of Network Solutions' Internet Technology Services business net revenue
and 3.9% of Network Solutions' total net revenue for the three months ended
March 31, 1999. Citicorp originally contracted with Network Solutions in August
1998 and Network Solutions currently provides network design and engineering
services as well as a variety of project specific services under the contract.
RESULTS OF OPERATIONS
Net Revenue. Net revenue increased 131% from $16.5 million for the three
months ended March 31, 1998 to $38.1 million for the three months ended March
31, 1999. This increase in net revenue was primarily attributable to the
increase in the number of domain name registrations, principally in the .com top
level domain. Net revenue from registration services increased 125% from $15.5
million for the three months ended March 31, 1998 to $34.8 million for the three
months ended March 31, 1999. Net new registrations increased 171% from 340,000
for the three months ended March 31, 1998 to 922,000 for the three months ended
March 31, 1999. This also represents a 49% increase over the 621,000 net new
registrations for the three months ended December 31, 1998. Growth in net
registrations continues to be driven by the widespread use and adoption by
businesses of the Internet and Intranets on a global basis. Cumulative net
registrations as of March 31, 1998 were 1,862,000 as compared to 4,225,000 as of
March 31, 1999, for a 127% increase. In addition, this growth in cumulative net
registrations is a 26% increase in Network Solutions' entire customer base since
December 31, 1998.
Net revenue from Internet Technology Services increased 230% from $1.0
million for the three months ended March 31, 1998 to $3.3 million for the three
months ended March 31, 1999. Citicorp accounted for $1.5 million or 3.9% of
Network Solutions' total net revenue for the three months ended March 31, 1999.
Cost of Revenue. Cost of revenue consists primarily of salaries and
employee benefits, fees paid to subcontractors for work performed in connection
with revenue producing projects, depreciation and equipment costs, lease costs
of the operations infrastructure and the associated operating overhead. Cost of
revenue increased 98% from $7.3 million for the three months ended March 31,
1998 to $14.5 million for the three months ended March 31, 1999. The increase
was primarily driven by the growth of Network Solutions' registration business
which experienced additional outsourcing costs of $3.5 million in support of
invoicing, collection and processing activities and additional direct labor
charges of $1.3 million related to systems engineering and operations. Further,
direct labor and subcontractor costs attributable to Internet Technology
Services increased $1.4 million.
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As a percentage of net revenue, cost of revenue decreased from 44.6% for
the three months ended March 31, 1998 to 38.1% for the three months ended March
31, 1999. This decrease primarily reflects economies of scale that Network
Solutions has continued to achieve due to the growth of its subscription-based
domain name registration business. In the near term, the continued need for back
office investments is expected to partially offset future margin improvements
arising from economies of scale.
Research and Development Expenses. Research and development expenses
consist primarily of compensation expenses to support the creation, development
and enhancement of Network Solutions' products and technologies. Research and
development expenses increased 181% from $725,000 for the three months ended
March 31, 1998 to $2,035,000 for the three months ended March 31, 1999. Network
Solutions expects that the level of research and development expenses will
continue to increase in the near future in absolute dollars as Network Solutions
invests in developing new product and service offerings. As a percentage of net
revenue, research and development expenses were 4.4% for the three months ended
March 31, 1998 and 5.3% for the three months ended March 31, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries of business development,
general management, administrative and financial personnel, marketing expenses,
corporate services from SAIC, legal and other professional costs and
amortization of goodwill associated with Network Solutions' 1995 acquisition by
SAIC. Selling, general and administrative expenses increased 147% from $6.2
million for the three months ended March 31, 1998 to $15.3 million for the three
months ended March 31, 1999. The increase was attributable to a $7.3 million
increase in marketing and business development expenses including television,
Internet banner advertising and targeted direct mail campaigns, and increased
staffing expenses of $1.0 million. As a percentage of net revenue, selling,
general and administrative expenses increased from 37.5% for the three months
ended March 31, 1998 to 40.0% for the three months ended March 31, 1999. Network
Solutions expects that the level of selling, general and administrative expenses
will continue to increase significantly in the near future in terms of absolute
dollars as operations continue to expand. In particular, sales, marketing and
business development expenses will increase as Network Solutions continues to
promote the value of a .com web address and other new Internet-based value-added
services. Network Solutions also plans to continue to develop and enhance its
distribution channels, both domestically and internationally.
Interest Income. Network Solutions had net interest income of $1.3 million
for the three months ended March 31, 1998 as compared to $1.9 million for the
three months ended March 31, 1999. The increase is attributable to the
investment of the positive cash flow resulting primarily from increasing domain
name registrations.
Income Taxes. The provision for income taxes was 42% of pretax earnings,
or $1.5 million for the three months ended March 31, 1998, and 42% or $3.4
million for the three months ended March 31, 1999. The difference between the
effective rate for both periods presented and the statutory rate is principally
attributable to the relative impact that non-deductible goodwill had on pretax
operating income. Goodwill is being amortized by Network Solutions over five
years and is associated with the acquisition of Network Solutions by SAIC in
1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Network Solutions' principal source of liquidity was its
cash and cash equivalents of $26.9 million and its short-term investments of
$121.5 million, which when combined represent an increase of $16.8 million from
its December 31, 1998 balances in those accounts.
At March 31, 1999, Network Solutions' cumulative net obligation to SAIC for
intercompany activity was $4.6 million, a decrease of $0.2 million for the
quarter. Intercompany activity is primarily comprised of salaries and benefits
paid by SAIC on behalf of Network Solutions. Network Solutions currently
reimburses SAIC for intercompany activity on a monthly basis. Pursuant to the
Tax Sharing Agreement dated September 26, 1997, Network Solutions now generally
remits income tax payments directly to tax authorities as it no longer is part
of SAIC's consolidated group for federal income tax purposes.
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Cash provided by operations was $33.0 million for the three months ended
March 31, 1999. This amount is principally attributed to net income plus the
increase in deferred revenue reflecting cash collected in advance of
registration services revenue recognition which occurs ratably over the two- and
one-year registration terms. Partially offsetting this amount is an increase in
deferred tax assets resulting from accelerated revenue recognition for tax
purposes and the associated tax liabilities, generally paid on a quarterly
basis.
Investing activities totaled $20.4 million for the three months ended March
31, 1999, of which $3.8 million was net purchases of short and long-term
investments. Included in the investments purchased during the period was a $2.0
million investment in a strategic business partner which subsequently
consummated its initial public offering during the three month period ended
March 31, 1999.
Capital expenditures were $16.6 million for the quarter, primarily for
computer equipment and software. Network Solutions will continue to invest in
the back office infrastructure in advance of continued growth in domain name
registrations and as Network Solutions designs and builds the shared
registration system in accordance with the Cooperative Agreement.
Network Solutions believes that its existing cash balance, investments and
cash flows expected from future operations will be sufficient to meet Network
Solutions' capital requirements for at least the next 12 months.
FACTORS AFFECTING OPERATING RESULTS
INDUSTRY RISKS
Ongoing privatization of Internet administration could harm our registration
business
Within the U.S. Government, leadership for the continued privatization of
Internet administration is currently provided by the Department of Commerce.
After a series of draft proposals and public comment periods, on June 10, 1998,
the Department of Commerce published in the Federal Register a plan referred to
as the Statement of Policy or "White Paper," calling for the formation of a
not-for-profit corporation to assume certain responsibilities relating to the
domain name system, but not to perform actual registration of domain names
either as a registrar or registry. The Statement of Policy called for increased
competition and invited private sector Internet stakeholders to work together to
form a new private, not-for-profit corporation to oversee policy for the
Internet name and address system.
The Statement of Policy distinguished between the registry and registrar
functions of the domain name system, both of which functions are currently
performed exclusively by us in the .com, .org, .net and .edu top level domains.
The technical structure of the Internet only permits one registry for each top
level domain. A registrar acts as the interface between the registry and the
end-user domain name holders. Registrars submit to the registry certain limited
information for each of their customers that has a second level domain name in
that top level domain. A registrar can provide value-added products and services
in addition to its basic registration service. Numerous registrars will be able
to operate within each top level domain.
As part of the process initiated by the Statement of Policy, several
proposals were put forward to the Department of Commerce on the establishment
and governance of the not-for-profit corporation. The proposals differed in
several respects including, among others, their approaches to the following
issues: place and form of incorporation; method for selection of the interim and
permanent board of directors; who should be eligible to become a member and on
what questions should the members vote; what authority should be granted to the
board of directors and what authority should be reserved to the members, if any;
and whether there should be separate supporting organizations and, if so, what
authority these organizations should have. A U.S. based private not-for-profit
corporation with an international board of directors, denoted the Internet
Corporation for Assigned Names and Numbers, or "ICANN," submitted various
proposals which formed the basis of discussion at a number of public and private
meetings. As a result of these and other meetings and private negotiations, the
process initiated by the Statement of Policy has resulted in the entry by the
U.S. Government into a Memorandum of Understanding, or "MOU," with ICANN. Under
the MOU, the parties will jointly design, develop and test the mechanisms,
methods and procedures that should be in place
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and the steps necessary to transition management responsibility for certain
domain name system functions to a private-sector not-for-profit entity. The MOU
provides that once testing is successfully completed, it is contemplated that
management of certain domain name system functions will be transitioned to the
mechanisms, methods and procedures designed and developed in this joint project.
The U.S. Government has sent us a letter directing us to treat ICANN as the
not-for-profit corporation identified in the October amendment to the
Cooperative Agreement, in the performance of ICANN's obligations under the MOU
and until such time as the MOU is terminated. We have not yet responded to that
letter.
ICANN's bylaws call for the creation of supporting organizations that will
select some ICANN board members and provide policy recommendations in particular
areas. ICANN called for submission by February 5, 1999 of applications from
groups urging "recognition" of a domain name supporting organization that would
be charged with developing recommendations for policies ICANN might apply when,
and if, it begins exercising responsibility over certain domain name system
functions. Those responsibilities could include entering into contracts with
registries for all top level domains and adding new top level domains. We
submitted comments regarding the structure and function of such a domain name
supporting organization. On March 4, 1999, the ICANN Board adopted a domain name
supporting organization formation concept statement reflecting some, but not all
of our comments. On March 15, 1999, ICANN released a staff draft of amendments
to its bylaws based on the formation concept statement to establish a domain
name supporting organization that will first meet in May 1999. On March 31,
1999, the ICANN Board adopted bylaw changes to govern establishment of the
domain name supporting organization. We have proposed to organize a global top
level domain registry constituency for the domain name supporting organization
and may join other constituencies. We believe that further organizational steps
are planned for the next ICANN meeting in late May 1999.
We cannot be sure that ICANN will take positions favorable to us in the
process of implementing the final bylaws, recognizing domain name supporting
constituencies or in its further policy development or contract formation.
The Statement of Policy calls for a phased transition of the Department of
Commerce's responsibilities for the domain name system to a not-for-profit
corporation by September 30, 2000. We face risks from this transition,
including:
- failure to achieve consensus on the many issues relating to the
functioning and governance of the not-for-profit corporation could result
in instability in domain name system administration,
- the not-for-profit corporation could fail to gain legitimacy resulting in
instability in domain name system administration,
- the U.S. Government could refuse to transfer certain responsibilities for
domain name system administration to the not-for-profit corporation due
to security, stability or other reasons resulting in fragmentation or
other instability in domain name system administration, and
- the not-for-profit corporation could adopt or promote policies,
procedures or programs that are unfavorable to our role in the
registration of domain names or that are not consistent with our current
or future plans.
Despite the significant efforts undertaken to date, it is impossible to
predict at this time whether or when the process initiated by the Statement of
Policy will result in the full transition to the not-for-profit corporation of
domain name system responsibilities as and to the extent contemplated in the
Statement of Policy and, if it does, the effect on us of such transition.
Operations under, changes to or disputes under the cooperative agreement could
harm our business
As the U.S. Government transitions certain responsibilities for domain name
system administration to the not-for-profit corporation, corresponding
obligations under the Cooperative Agreement may be terminated and, as
appropriate, covered in a contract between the not-for-profit corporation and
us. The U.S. Government sent us a letter directing us to treat ICANN as the
not-for-profit corporation identified in the amended
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Cooperative Agreement in the performance of ICANN's obligations under the MOU
and until such time as the MOU is terminated. We have not yet responded to that
letter. We have not yet reached agreement with the U.S. Government or ICANN with
respect to the terms of the transition. We may not be able to reach agreement
and either ICANN or the U.S. Government may take positions that adversely affect
us.
We held two meetings of a technical advisory group to comment on and
participate in testing of our shared registration system and a third meeting is
scheduled for late May 1999. The group included members suggested by ICANN to
the Department of Commerce and other individuals.
In the transition to a shared registration system under the Cooperative
Agreement, we are operationally separating our registry business from our
registrar business. Additional, competing registrars will be able to market
registration services in the .com, .net and .org top level domains, with the
domain names registered through the registry that we maintain for each of those
top level domains. Accordingly, persons registering second level domain names
will be able to choose among a number of different registrars, including us. We
began this transition on schedule, with the launch of a testbed phase involving
the following five registrars accredited by ICANN: America Online, Inc., CORE or
"Internet Council of Registrars", France Telecom/ Oleane, Melbourne IT and
Register.com. As the registry, we have contracts with each of these registrars
allowing them to directly register names through our registry services division
using our proprietary Shared Registration System. Registrations of domain names
by these five testbed registrars have not as yet commenced. ICANN also
accredited 29 additional registrars to begin offering registration services
after the testbed. The proposed accreditation contract between the registrars
and ICANN would require payment of fees to ICANN and would impose special
restrictions on a registrar also acting as the registry. We filed substantial
comments with ICANN objecting to various aspects of the proposed accreditation
approach. Our registry services under the Cooperative Agreement will be subject
to a price cap. During the testbed phase, the cap was set at $18 for a two-year
registration and $9 for a one-year re-registration and our Registrar License and
Agreement under which we, as the registry, grant a license to use the Shared
Registration System, was approved for use by agreement with the Department of
Commerce under Amendment 13 to the Cooperative Agreement. Registrar services,
once competitive, may be priced in different ways by us and competing
registrars.
Termination, or a change in the terms, of the Cooperative Agreement could
harm our business. While the Cooperative Agreement by its terms expires in
September 2000, it may be terminated earlier. We are currently in discussions
with the U.S. Government regarding adequate testing and full implementation of
the Shared Registration System and a wide range of contractual issues. The
Department of Commerce's interpretation of certain provisions of the Cooperative
Agreement could differ from ours. For example, the Department of Commerce has
publicly expressed concerns about our use of the WHOIS service, the internic.net
website and our access policy to our top level domain name zone file. We have
reached agreements with the U.S. Government concerning the temporary provision
of access to the top level domain zone file, operation of the WHOIS service and
use of the internic.net website. Nevertheless, some differences of opinion or
interpretation remain to be addressed. These differences in interpretation or
opinion could lead to disputes between us and the Department of Commerce or the
not-for-profit corporation, which may or may not be resolved in our favor.
Certain aspects of implementation of the Cooperative Agreement also remain to be
fully negotiated, including the maximum price we will charge after the testbed
period for registry services in the top level domains for which we now act as
registry. If we are unsuccessful in negotiating acceptable terms of
implementation, the costs of implementation of the Cooperative Agreement, our
relationship with the not-for-profit corporation and other matters affecting our
position in a more competitive domain name system environment could be harmed.
Challenges to authority over domain name administration could harm our business
Withdrawal of or challenges to the U.S. Government's sponsorship or
authorization of certain functions that we perform could create a public
perception or result in a legal finding that we lack authority to continue in
our current role as registry or registrar within the .com, .org, .net and .edu
top level domains. The legal authority underlying the roles of the Department of
Commerce and the not-for-profit corporation with regard
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to the domain name system also could be challenged. The impact, if any, of any
such public perception or finding is unknown, but it could be harmful to our
business.
We may not be able to compete effectively due to increased competition in the
domain name registration business
The introduction of additional competition into the domain name
registration business could be harmful to our business. This includes, in
particular, competition among registrars within a single top level domain, like
.com, and competition among registrars and registries of existing and potential
new top level domains. We already face competition in the domain name
registration business from registries for country code top level domains, third
level domain name providers such as Internet access providers and registrars and
registries of top level domains other than those top level domains which we
currently register. A number of entities have already begun to offer competing
registration services using other top level domains. Our shared registration
system is now available to the five testbed registrars in the .com, .org and
.net top level domains. More competing registrars are scheduled to offer
competing registration services in these top level domains in the near future.
Future competition in the domain name registration business as a registry
or registrar could come from many different companies, including:
- domain name registration resellers,
- country code registries,
- Internet access providers, and
- major telecommunications firms.
Many of these entities have core capabilities to deliver registry and/or
registrar services, such as help desks, billing services and network management,
along with strong name recognition and Internet industry experience. Our revenue
could be reduced due to increased competition, pricing pressures or a
modification of billing practices. For example, other entities may bundle domain
name registrations with other products or services.
We depend on future growth of the Internet and Internet infrastructure
Our future success substantially depends on the continued growth in the use
of the Internet. If the use of and interest in the Internet does not continue to
grow, our business would be harmed. Continued growth of the Internet could be
slowed by:
- inadequate infrastructure,
- lack of availability of cost-effective, high speed systems and service,
- delays in developing or adopting new standards and protocols to handle
increased levels of Internet activity, or
- government regulation.
We rely on third parties who maintain and control root zone and top level domain
zone servers
We currently administer and operate only two of the 13 root zone servers
and four top level domain zone servers. The others are administered and operated
by independent operators on a volunteer basis. Because of the importance to the
functioning of the Internet of these root zone servers and top level domain zone
servers, our registration business could be harmed if these volunteer operators
fail to properly maintain such servers or abandon such servers.
Further, our registration business could be harmed if any of these
volunteer operators fail to include or provide accessibility to the data that we
maintain in the root zone servers and the top level domain zone servers that we
control.
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We rely on Internet service providers
Our registration business could be harmed if enough Internet service
providers decided not to route Internet communications to or from domain names
registered by us or if enough Internet service providers decided to provide
routing to a set of domain name servers which did not point to our top level
domain zone servers.
System failure or interruption, security breaches or our failure to meet
increasing demands on our systems could harm our business
Any significant problem with our systems or operations could result in lost
revenue, customer dissatisfaction or lawsuits against us. A failure in the
operation of our registration system or other events could result in deletion of
one or more domain names from the Internet for a period of time. A failure in
the operation or update of the master database that we maintain could result in
deletion of one or more top level domains from the Internet and the
discontinuation of second level domain names in those top level domains for a
period of time. The inability of our registration system, including our back
office billing and collections infrastructure, and telecommunications systems to
meet the demands of the increasing number of domain name registration requests
and corresponding customer e-mails and telephone calls could result in
substantial degradation in our customer support service and our ability to
process, bill and collect registration requests in a timely manner.
Our operations depend on our ability to maintain our computer and
telecommunications equipment in effective working order and to reasonably
protect our systems against interruption. The root zone servers and top level
domain zone servers that we operate are critical hardware to our operations.
Interruptions could result from:
- fire, natural disaster, sabotage, power loss, telecommunication failure,
human error or similar events,
- computer viruses, hackers or similar disruptive problems caused by
employees, customers or other Internet users, and
- systems strain caused by the growth of our customer base and our
inability to sufficiently maintain or upgrade our systems.
We may lose revenue or incur significant costs if Year 2000 compliance issues
are not properly addressed
Our failure, or the failure of third parties on which we rely, to
adequately address Year 2000 compliance issues may cause us to lose revenue or
to incur significant costs. The primary risks that we face with regard to Year
2000 failures are those which impact our domain name registration business.
These risks include:
- significant and protracted interruption of electrical power to data and
systems in our engineering and customer service facilities,
- significant and protracted interruption of telecommunications and data
network services in any of our headquarters, engineering or customer
service facilities,
- the failure of components of our current back office and domain name
registration related systems, and
- the occurrence of a Year 2000 problem with respect to third-party
suppliers', vendors' and outsourcing service providers' products and
services.
If we fail to solve a Year 2000 compliance problem with our mission
critical business systems and processes, including the domain name servers under
our control, telecommunications systems, facilities, data-networking
infrastructure, commercial-off-the-shelf hardware or software and components
used by our employees, the result could be a failure of or interruption to
normal business operations. Furthermore, our business depends on the continued
operation of, and widespread access to, the Internet. This, in turn, depends to
a large extent on the software and systems of third parties on which our systems
rely or to which they are connected. These third parties include, among others,
Internet-related companies, including Internet web hosting companies, Internet
access providers and Internet domain name server operators.
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We have no responsibility for, nor control over, other Internet domain name
server operators that are critical to the efficient operation of the Internet.
We do not know whether such domain name server operators have hardware, software
or firmware that is Year 2000 compliant.
COMPANY RISKS
Our search for a new chief executive officer presents risks and uncertainties
On November 16, 1998, we announced the resignation of Gabriel A. Battista
from his positions as Chief Executive Officer and director. We cannot reasonably
estimate at this time the potential impact on us of the hiring of a new Chief
Executive Officer. While we conduct a search for a new Chief Executive Officer,
Michael A. Daniels, our Chairman of the Board, is acting as the Chief Executive
Officer and assuming the executive responsibilities previously performed by Mr.
Battista. In addition, Robert J. Korzeniewski, our Chief Financial Officer, is
also acting as our Chief Operating Officer, assuming responsibility for
day-to-day operations. We cannot be certain of the timing of our hiring of a new
Chief Executive Officer or the effect of any delays in our hiring of a new Chief
Executive Officer on the development or implementation of our strategic plan.
We must attract, integrate, train and retain key personnel knowledgeable about
our business
Given the relative "newness" and rapid growth of the Internet, there is
intense competition for the limited supply of people qualified to work for us.
Our future success depends on the continued service of key engineering, sales,
marketing, executive and administrative personnel, and our ability to attract,
hire, integrate, train and retain such personnel. Competition for engineering,
sales, marketing and executive personnel is intense, particularly in the
technology and Internet sectors and in the regions where our facilities are
located. We cannot be certain that we will be able to retain existing personnel
or attract, hire or retain additional qualified personnel. The loss of the
services of any of our senior management team or other key employees or our
failure to attract, integrate, train and retain additional key employees could
harm our business.
Our near term success depends on the growth of our domain name registration
business
We may not be able to sustain the revenue growth we have experienced in
recent periods. In addition, past revenue growth may not be indicative of future
operating results. If we do not successfully maintain our current position as a
leading provider of domain name registration services or develop or market
additional services, our business could be harmed.
Our domain name registration services business generates over 90% of our
revenue and is expected to continue to account for a very significant portion of
our revenue in at least the near term. Our future success will depend largely
on:
- the continued increase in domain name registrations,
- re-registration rates of our customers,
- our ability to maintain our current position as a leading registrar of
domain names, and
- the successful development, introduction and market acceptance of new
services that address the demands of Internet users.
We must effectively manage our marketing organization and establish and maintain
distribution channels
We will need to effectively manage our growing sales and marketing
organization if we want to achieve future revenue growth. We do not know if we
will be able to identify, attract and retain experienced sales and marketing
personnel with relevant experience. Further, our sales and marketing
organization may not be able to successfully compete against the significantly
more extensive and well-funded sales and marketing operations of our current or
potential competitors for registration or consulting services.
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Our ability to achieve future revenue growth will also depend on our
ability to continue to establish direct sales channels and to develop multiple
distribution channels. To do this we must maintain relationships with Internet
access providers and other third parties.
We have a high level of uncollectible receivables
Because of our high level of uncollectible receivables, we continually
review our billing practices. Any modifications that we implement as a result of
these reviews could have unanticipated harmful consequences to our business. We
believe we have experienced a high level of uncollectible receivables due to,
among other factors, the large number of individuals and corporations that have
registered multiple domain names with the apparent intention of transferring
such names at a profit. Our experience has been that such resellers have a
greater tendency than other customers to default on their services fees. We have
established a provision for uncollectible accounts which we believe to be
adequate to cover anticipated uncollectible receivables; however, actual results
could differ from our estimates.
We are party to several legal proceedings which could have a negative financial
impact on us
We are involved in several legal proceedings. We cannot reasonably estimate
the potential impact of any of these proceedings. An adverse determination in
any of these proceedings, however, could harm our business. Legal proceedings in
which we are involved are expensive and divert our personnel. See
"Part II -- Item 1 -- Legal Proceedings."
We may not be able to protect our intellectual property rights and proprietary
information
We rely on a combination of nondisclosure and other contractual
arrangements with the U.S. government, our employees, and third parties, as well
as privacy and trade secret laws, to protect and limit the distribution of our
proprietary data, computer software, documentation, and processes used in
conducting our domain name registration business. If we fail to adequately
protect our intellectual property rights and proprietary information, or if we
are subject to adverse results in litigation relating to our intellectual
property rights and proprietary information, our business could be harmed. Any
actions we take may not be adequate to protect our intellectual property rights
and proprietary information. Other companies may develop competing technology
that is similar or superior to our technology. The U.S. government could take
positions adverse to our claims regarding proprietary rights and/or could
attempt to require us to enter into agreements limiting such claims. Although we
have no reason to believe that our domain name registration business activities
infringe on the intellectual property rights of others, and we believe that we
have all rights needed to conduct our business, it is possible that we could
become subject to claims alleging infringement of third party intellectual
property rights. Any such claims could subject us to costly litigation, and any
adverse final rulings on any such claims could require us to pay damages, seek
to develop alternative technology, and/or seek to acquire licenses to the
intellectual property that is the subject of any such alleged infringement, and
any such rulings could have a material adverse effect on our business.
Unsuccessful future acquisitions and investments could decrease operating
income, cause operational problems or otherwise disrupt our business
We evaluate potential acquisitions and investments on an ongoing basis for
various reasons including, among others, diversification of our domain name
registration and consulting businesses. Our acquisition and investment strategy
poses many risks, including:
- we may not be able to compete successfully for available acquisition
candidates, complete future acquisitions and investments or accurately
estimate the financial effect on our company of any businesses we acquire
or investments we make,
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- future acquisitions and investments may require us to spend significant
cash amounts or may decrease our operating income,
- we may have trouble integrating the acquired business and retaining
personnel,
- acquisitions or investments may disrupt our business and distract our
management from other responsibilities, and
- to the extent that any of the companies which we acquire or in which we
invest fail, our business could be harmed.
Whether or when pooling of interests accounting for acquisitions might
become available to us depends on many factors beyond our control.
We face increasing risks associated with our international business
While substantially all of our operations, facilities, and personnel are
located within the United States, our revenues from sources outside the U.S.
have increased significantly and may continue to increase in the future. As a
result, we are subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements, competition from
foreign companies, fluctuations in the U.S. dollar, tariffs and other barriers
and restrictions and the burdens of complying with a variety of foreign laws. We
do not know what the impact of such regulatory, geopolitical and other factors
will be on our business in the future or if we will have to modify our business
practice. In addition, the laws of certain foreign countries may not protect our
proprietary rights to the same extent as do the laws of the United States.
Our quarterly operating results may fluctuate; our future revenue and
profitability are uncertain
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors, some of which are beyond our control. Factors that
may affect our revenue include:
- variations in the number of requests for domain name registrations or
demand for our services,
- successful competition by others,
- termination or completion of contracts in our Internet Technology
Services business or failure to obtain additional contracts in that
business, and
- market acceptance of new service offerings.
In addition, we expect a significant increase in our operating expenses as
we:
- increase our sales and marketing operations and activities, and
- continue to update our systems and infrastructure.
If the increase in our expenses is not followed by an increase in our
revenue, our operating results will be harmed. The fact that in the past our
revenues have increased and we have been profitable on a quarterly and annual
basis is not indicative of whether our revenues will increase or whether we will
be profitable on a quarterly or annual basis in the future.
INVESTMENT RISKS
Our stock price, like that of many Internet companies, is highly volatile
The market price of our Class A common stock has been and is likely to
continue to be highly volatile and significantly affected by factors such as:
- general market and economic conditions and market conditions affecting
technology and Internet stocks generally,
- actual or anticipated fluctuations in our quarterly or annual
registrations or operating results,
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- announcements of technological innovations, acquisitions or investments,
developments in Internet governance or corporate actions such as stock
splits, and
- industry conditions and trends.
The stock market has experienced significant price and volume fluctuations
that have particularly affected the market prices of the stocks of technology
companies, especially Internet-related companies. These broad market or
technology or Internet sector fluctuations may adversely affect the market price
of our Class A common stock. Recently, the market price of our Class A common
stock, like that of many Internet-related companies, has experienced significant
fluctuations. For instance, from January 1, 1999 through May 10, 1999, the
reported sales price for our Class A common stock ranged from $60 per share to
$144 per share. On May 10, 1999, the reported last sale price of our Class A
common stock was $67.688 per share.
The market price of our Class A common stock also has been and is likely to
continue to be significantly affected by expectations of analysts and investors.
Reports and statements of analysts do not necessarily reflect our views. The
fact that we have in the past met or exceeded analyst or investor expectations
does not necessarily mean that we will do so in the future.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought. Such litigation could result in substantial costs and a diversion
of our management's attention and resources.
Future sales of common stock could affect our stock price
SAIC owns 14,850,000 of the outstanding shares of our common stock. A
decision by SAIC to sell such stock could depress the market price of the Class
A common stock.
SAIC may maintain significant influence over us
Because it holds a significant number of shares of our Class B common
stock, which have ten votes per share, SAIC controls 89% of the combined voting
power of the Class A and Class B common stock and, therefore, effectively
controls all matters requiring approval by our stockholders including the
election of members of our board of directors, changes in the size and
composition of the board of directors and a change in control. We do not have an
agreement with SAIC which restricts its rights to convert, distribute or sell
its shares of our common stock.
If SAIC converts all of its remaining shares of Class B common stock into
Class A common stock its economic interest and voting power will be below 50% of
the total economic interest and voting power of our common stock after such
conversion. Nonetheless, SAIC will remain our largest stockholder and may be
able to exercise significant influence over us.
Certain directors may have conflicts of interest
Certain of our directors currently serve as directors, officers and
employees of SAIC. Therefore, there may be various conflicts of interest or
conflicting duties for these individuals. Since our directors and officers may
also own stock of SAIC, there may be conflicts of interest when directors and
officers are faced with decisions that could have different implications for us
and SAIC.
We rely on SAIC for certain corporate services and employee benefits
We currently receive corporate services under an agreement with SAIC. Were
SAIC to terminate these services, we may not be able to secure alternative
sources for such services or such services may only be available to us at prices
higher than those charged by SAIC.
Our employees are currently eligible to participate in certain SAIC
employee benefit plans. If SAIC converts its remaining shares of Class B common
stock to Class A common stock, we will have to establish certain employee
benefit plans of our own which could result in incremental costs to us.
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<PAGE> 22
Our certificate of incorporation contains provisions relating to SAIC that may
adversely affect us or our stockholders
Our certificate of incorporation includes provisions relating to
competition by SAIC with us, allocations of corporate opportunities,
transactions with interested parties and intercompany agreements and provisions
limiting the liability of certain people. It is unclear whether such provisions
are enforceable under Delaware corporate law. Our certificate of incorporation
provides that any person purchasing or acquiring an interest in shares of our
capital stock shall be deemed to have consented to the provisions in the
certificate of incorporation relating to competition with SAIC, conflicts of
interest, corporate opportunities and intercompany agreements, and such consent
may restrict such person's ability to challenge transactions carried out in
compliance with such provisions. The corporate charter of SAIC does not include
similar provisions. Therefore, persons who are directors and/or officers of ours
and who are also directors and/or officers of SAIC may choose to take action in
reliance on such provisions rather than act in a manner that might be favorable
to us but adverse to SAIC.
YEAR 2000 COMPLIANCE
Network Solutions is continually assessing the potential effects of the
"Year 2000" millennium change on Network Solutions' business systems and
processes, including the Internet domain name servers under Network Solutions'
control, telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its employees
and its outsourcing vendors. Network Solutions' Year 2000 project is proceeding
on schedule. The project goal is to ensure that Network Solutions' business is
not impacted by the date transitions associated with the Year 2000.
Network Solutions' Year 2000 project plan is coordinated by a team that
reports directly to senior management. The project team is evaluating the Year
2000 compliance of Network Solutions' business systems and processes, including
the Internet domain name servers under Network Solutions' control,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its employees
and its outsourcing vendors whom provide services relating to Network Solutions'
domain name registration business. Network Solutions' Year 2000 project is
comprised of the following parallel phases:
- Phase 1 -- Inventory all of Network Solutions' business systems and
processes, including the Internet domain name servers under Network
Solutions' control, telecommunications systems, facilities,
data-networking infrastructure, commercial-off-the-shelf hardware,
software and components used by its employees in order to assign
priorities to potentially impacted systems and services. This phase has
been completed;
- Phase 2 -- Assess the Year 2000 compliance of all inventoried business
systems and processes, including the Internet domain name servers under
Network Solutions' control, telecommunications systems, facilities,
data-networking infrastructure, commercial-off-the-shelf hardware,
software and components used by its employees and determine whether to
renovate or replace any non-Year 2000 compliant systems and services. The
assessment of mission critical systems has been completed; however,
assessment continues as a life cycle development activity;
- Phase 3 -- Complete remediation of any non-Year 2000 compliant business
systems and processes, including the Internet domain name servers under
Network Solutions' control, telecommunications systems, facilities,
data-networking infrastructure, commercial-off-the-shelf hardware,
software and components used by its employees. Conduct procurements to
replace any other non-Year 2000 compliant business systems and processes,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its
employees that will not be remediated. All remediation efforts are
expected to be completed by June 30, 1999;
- Phase 4 -- Test and validate remediated systems to ensure inter-system
compliance and mission critical system functionality. The testing will
begin in parallel as software is remediated. As remediated
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<PAGE> 23
code is successfully tested, it will be released into production
incrementally, a process which will last until October 30, 1999;
- Phase 5 -- Deploy and implement remediated and replacement systems after
the completion of successful testing and validation. The deployment and
implementation of the remediated or replacement systems are expected to
be completed by October 30, 1999; and
- Phase 6 -- Design contingency and business continuation plans in the
event of the failure of business systems and processes,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by
Network Solutions' employees due to the Year 2000 millennium change. The
initial contingency and business continuation plan has been developed.
The final contingency plan will be completed during the second quarter of
1999 and it will be updated throughout the year as appropriate.
Based on its inventory and assessment, Network Solutions has found that
less than one-half of one percent of the software code of its mission critical
systems needs to be remediated to be made Year 2000 compliant. However, Network
Solutions, in its normal course of business, anticipates replacing or upgrading,
prior to the millennium change, portions of these systems with new systems which
will also be Year 2000 compliant. Currently, Network Solutions is enhancing its
"back-office" and registration-related systems and the software relating to its
core domain name registration services business. When complete in 1999, this
enhancement effort will result in replacing portions of the existing
registration-related systems which will be procured from vendors as Year 2000
compliant and will be subjected to both component and end-to-end testing and
validation to determine the Year 2000 compliance of such systems prior to
acceptance and deployment in Network Solutions' business. This enhancement
effort is a function of Network Solutions' business growth and not a Year 2000
remediation effort.
Based on its inventory and assessment, Network Solutions has found no
material Year 2000 problems with its facilities and telecommunications systems.
Network Solutions has conducted detailed assessments of the components of its
telecommunications infrastructure and is working to identify appropriate system
testing guidelines. In addition, Network Solutions is seeking assurances from
its facilities' landlords and telecommunications equipment vendors and data
circuit providers regarding the Year 2000 compliance of their facilities and
equipment. In the event of electrical power interruption outside of Network
Solutions' control, Network Solutions has deployed back-up power systems capable
of operating its core business indefinitely.
Network Solutions is now in the remediation and testing phases of its
project cycle. At this time, Network Solutions believes that its incremental
remediation costs needed to make its current business systems and processes,
including the Internet domain name servers under Network Solutions' control,
telecommunications systems, facilities, data-networking infrastructure,
commercial-off-the-shelf hardware, software and components used by its employees
Year 2000 compliant are not material. While Network Solutions is incurring some
incremental costs directly relating to staff augmentation for the Year 2000
program management and technical assessment, the costs expended by Network
Solutions through March 31, 1999 are less than $500,000. Network Solutions'
expected total costs, including remediation and replacement costs, are estimated
to be between $2,000,000 and $2,375,000 over the life of the Year 2000 project.
Since portions of the mission critical "back office" and domain name
registration-related systems will generally be replaced as a function of
business growth, the labor and capital costs associated with such replacement
systems are not directly attributed to achieving Year 2000 compliance. Network
Solutions will also incur costs for extending its software testing architecture
which, in addition to testing remediated systems, will be used as a normal
component of Network Solutions quality assurance infrastructure. As such these
costs are not directly categorized as Year 2000 project costs but as normal
business development and engineering costs.
Network Solutions is contacting its hardware and software vendors,
significant suppliers, outsourcing service providers and contracting parties to
determine the extent to which Network Solutions is vulnerable to any such third
party's failure to achieve Year 2000 compliance for their own systems. At the
present time, Network Solutions does not expect Year 2000 issues of any such
third parties to materially affect Network Solutions' business. Furthermore,
Network Solutions' business depends on the continued operation of, and
widespread access to, the Internet. This, in turn, depends to a large extent on
the software and systems of third
23
<PAGE> 24
parties on which Network Solutions' systems rely or to which they are connected.
These third parties include, among others, Internet-related companies, including
Internet web hosting companies, Internet access providers and Internet domain
name server operators. Network Solutions can give no assurances that the
software or systems of such third parties will be Year 2000 compliant or that
the failure of such third parties to achieve Year 2000 compliance will not have
a material adverse effect on Network Solutions. To the extent that the normal
operation of the Internet is disrupted by the Year 2000 millennium change,
Network Solutions' business, financial condition or results of operations could
be materially and adversely affected.
Should Network Solutions fail to solve a Year 2000 compliance problem to
its mission critical business systems and processes, including the Internet
domain name servers under Network Solutions' control, telecommunications
systems, facilities, data-networking infrastructure, commercial-off-the-shelf
hardware, software and components used by its employees, the result could be a
failure or interruption to normal business operations. Network Solutions
believes that, with the deployment of the new "back office" and domain name
registration related systems in 1999, the potential for significant
interruptions to normal operations should be minimized. Network Solutions'
primary risks with regard to Year 2000 failures are those which impact its
domain name registration business. The reasonably likely worst case risks
inherent in Network Solutions' business are as follows:
- Significant and protracted interruption of electrical power to data and
systems in Network Solutions' engineering and customer support facilities
could materially and negatively impact Network Solutions' ability to
provide data and call-center operations. To mitigate this risk, Network
Solutions has deployed back-up power systems capable of operating
indefinitely. However, electrical power interruptions that impact
Internet connectivity providers could adversely impact Network Solutions
because of Network Solutions' reliance upon Internet-based operations for
its day to day business.
- Significant and protracted interruption of telecommunications and data
network services in any of Network Solutions' headquarters, engineering
or customer support facilities could materially and negatively impact
Network Solutions' ability to provide data and call-center operations.
Network Solutions has conducted detailed assessments of the components of
its telecommunications infrastructure and is working to identify
appropriate system testing guidelines. As part of its technical
assessment, Network Solutions identified the compliance status of its
data networking infrastructure and developed plans for remediation.
Finally, Network Solutions has plans to seek additional assurances and a
better understanding of the compliance programs of its telecommunications
and data circuit providers.
- The failure of components of Network Solutions' current "back office" and
domain name registration related systems could materially and negatively
impact Network Solutions' business. However, as a function of business
growth, these systems are planned to be retired before the end of 1999.
As a contingency planning measure, Network Solutions has conducted a
technical assessment of the current systems and their software
applications and is currently remediating and testing such systems.
- Despite the assurances of Network Solutions' third-party suppliers,
hardware and software vendors, and outsourcing service providers
regarding the Year 2000 compliance of their products and services, the
potential exists that a Year 2000 problem relating to such third-party
suppliers, vendors and outsourcing service providers' products and
services could have a material impact on Network Solutions' business.
Network Solutions is conducting monthly discussions with its mission
critical outsourcing service providers to determine the progress of their
Year 2000 compliance programs.
Although Network Solutions has found that it only has to remediate a small
portion of its software code in its internal mission critical systems and
despite Network Solutions' expectation that its enhancement effort will result
in Year 2000 compliant "back-office" and registration-related systems and
software relating to its core domain name registration services business,
Network Solutions is currently developing a business continuation contingency
plan and is performing a test on the existing core registration-related systems
that are being replaced. Network Solutions finalized its initial contingency
plan and completed testing of all existing systems. The final business
continuation plan will be completed during the second quarter of 1999 and will
be updated as appropriate throughout the year.
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<PAGE> 25
Although Network Solutions is taking appropriate steps so that Network
Solutions' business is not impacted by the date transitions associated with the
Year 2000, Network Solutions has no responsibility for, nor control over other
Internet domain name server operators or tens of thousands of lower level domain
name system server operators that are critical to the efficient operation of the
Internet. Network Solutions has not determined whether such domain name server
operators or other server operators have hardware, software or firmware that is
Year 2000 compliant. Network Solutions has notified the Department of Commerce
of this issue.
Forward-Looking Statements
The foregoing Year 2000 discussion and the information contained herein is
provided as a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat.
2386) enacted on October 19, 1998 and contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which Network Solutions expects to complete certain actions, are based on
management's best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued availability of certain
resources, representations received from third parties and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
ability to identify and remediate all relevant systems, results of Year 2000
testing, adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are outsourcing service providers,
suppliers, and vendors of Network Solutions, unanticipated system costs, the
adequacy of and ability to implement contingency plans and similar
uncertainties. The "forward-looking statements" made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and
Network Solutions undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Network Solutions is exposed to the impact of interest rate changes and
change in the market values of its investments.
Interest Rate Risk. Network Solutions' exposure to market rate risk for
changes in interest rates relates primarily to the Company's investment
portfolio. Network Solutions has not used derivative financial instruments in
its investment portfolio. Network Solutions invests its excess cash in debt
instruments of the U.S. Government and its agencies, and in high-quality
corporate issuers and, by policy, limits the amount of credit exposure to any
one issuer. The Company protects and preserves its invested funds by limiting
default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have declined
in market value due to changes in interest rates.
Investment Risk. The Company has invested in the equity instruments of a
privately-held, information technology company for business and strategic
purposes. This investment is included in other long-term assets and is accounted
for under the cost method which approximates fair value. Network Solutions is
also exposed to equity price risks on the marketable portion of its equity
securities. Network Solutions' available-for-sale securities include investments
in publicly-held companies in the Internet industry sector, many of which have
experienced significant historical volatility in their stock prices.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of April 30, 1999, we were a defendant in two active lawsuits involving
domain name disputes between trademark owners and domain name holders. We are
drawn into such disputes, in part, as a result of claims by trademark owners
that we are legally required, upon request by a trademark owner, to terminate
the right we granted to a domain name holder to register a domain name which is
alleged to be similar to the trademark in question. The holders of the domain
name registrations in dispute have, in turn, questioned our right, absent a
court order, to take any action which suspends their use of the domain names in
question. Although 49 out of approximately 6,000 of these situations have
resulted in suits actually naming us as a defendant, as of April 30, 1999, no
adverse judgment has been rendered and no award of damages has ever been made
against us. We believe that we have meritorious defenses and vigorously defend
ourselves against these claims.
On March 20, 1997, PG Media, Inc., a New York-based corporation filed a
lawsuit against us in the United States District Court, Southern District of New
York alleging that we had restricted access to the Internet by not adding PG
Media's requested top level domains to the Internet root zone system in
violation of the Sherman Act. In its complaint, PG Media, in addition to
requesting damages, asked that we be ordered to include reference to PG Media's
top level domains and name servers in the root zone file administered by us
under the Cooperative Agreement. In June 1997, we received written direction
from the National Science Foundation not to take any action which would create
additional top level domains or to add any new top level domains to the Internet
root zone until the National Science Foundation provides further guidance. On
September 17, 1997, PG Media filed a Second Amended Complaint adding the
National Science Foundation as a defendant. On May 14, 1998, PG Media served us
with a motion for a preliminary injunction against both defendants to compel
both defendants to add PG Media's top level domains to the Internet root zone
within 30 days. In response, both defendants filed cross-motions for summary
judgment against PG Media. On July 20, 1998, a hearing on all parties' motions
occurred. The basic issue before the court is the National Science Foundation's
authority to control the Internet's root zone system. On March 16, 1999, the
court granted both our and the National Science Foundation's motions for summary
judgment, holding that the National Science Foundation does have authority over
the root zone system and that the federal instrumentality immunity doctrine
immunizes us against liability under both sections 1 and 2 of the Sherman Act.
PG Media noticed its appeal on April 15, 1999. While we cannot reasonably
estimate the potential impact of the claims advanced in this lawsuit, a
successful claim could harm our business.
On October 17, 1997, a group of six plaintiffs filed the Thomas suit
against us and the National Science Foundation in the United States District
Court, District of Columbia, challenging the legality of fees defendants charge
for the registration of domain names on the Internet and seeking restitution of
fees collected from domain name registrants in an amount in excess of $100
million, damages, and injunctive and other relief. Plaintiffs alleged violations
of the Sherman Act, the U.S. Constitution, the Administrative Procedures Act and
the Independent Offices Appropriations Act. On February 10, 1998, the plaintiffs
filed a motion for preliminary injunction against us seeking several items of
relief. On April 6, 1998, the Court issued its opinion granting summary judgment
in favor of the plaintiffs on the Intellectual Infrastructure Fund, ruling it an
"unlawful tax." The court also granted our motion to dismiss all other counts
(II through X) and simultaneously denied the plaintiffs' preliminary injunction
motion against us. On April 30, 1998, Congress passed H.R. 3579 which was signed
into law by the President on May 1, 1998. Section 8003 of H.R. 3579 legalized,
ratified and confirmed the entire Intellectual Infrastructure Fund and
authorized and directed the National Science Foundation to deposit the entire
fund into the U.S. Treasury. On August 28, 1998, the District Court dismissed
the entire case, issuing a final judgment in the matter. In October 1998, the
plaintiffs appealed the court's dismissal of their claims, and oral argument
occurred on February 25, 1999. On May 14, 1999, the Court of Appeals ruled in
favor of Network Solutions by unanimously affirming the District Court's
decision.
On October 20, 1998, we were included as a defendant in a suit brought by
the Pennsylvania Attorney General's office against a domain name holder who was
alleged to have used his domain name in connection with a web site promoting
white supremacy and threatening certain state employees. The Pennsylvania
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<PAGE> 27
Attorney General named all of the communications companies in any way connected
with the domain name or web site. The Pennsylvania Attorney General seeks to
permanently enjoin these entities, including us, from providing services to this
domain name holder in the event that the domain name holder fails to comply with
the order of the court. We have answered the complaint denying any knowledge or
participation in the actions of the primary defendant. The Attorney General
dismissed the case against us on April 26, 1999.
On June 27, 1997, SAIC received a Civil Investigative Demand, or "CID,"
from the U.S. Department of Justice issued in connection with an investigation
to determine whether there is, has been, or may be any antitrust violation under
the Sherman Act relating to Internet registration products and services. The CID
sought documents and information from SAIC and us relating to our Internet
registration business. On April 29, 1999, we received a second CID seeking
additional information and documents relating to our ownership rights in,
policies relating to access to, and our use of, data that we compile in the
course of operating our Internet registration business. We are providing
information responsive to the CID. Because the investigation, as currently
focused, is still at a preliminary stage, we cannot reasonably estimate the
potential impact of the investigation nor can we predict whether a civil action
might ultimately be filed by the Department of Justice or the form of relief
that might be sought. Any such relief from such a suit could have a harmful
effect on our business.
On August 17, 1998, we received notice from the Commission of the European
Communities, or "EC," of an investigation concerning the Company's Premier
Program agreements in Europe. The EC requested production of these agreements
and related materials for review and we complied. We cannot reasonably estimate
the potential impact of the investigation nor can we predict whether an action
will ultimately be brought by the EC or the form of relief that might be sought.
Any such relief could harm our business.
We are involved in various other investigations, claims and lawsuits
arising in the normal conduct of our business, none of which, in our opinion
will harm our business.
Legal proceedings in which we are involved have resulted and likely will
result in, and any future legal proceedings can be expected to result in,
substantial legal and other expenses and a diversion of the efforts of our
personnel.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company's Registration Statement on Form S-1 (Registration No.
333-30705) was declared effective September 25, 1997 by the Securities and
Exchange Commission. The managing underwriters of the Class A common stock
offering commencing September 26, 1997 were Hambrecht & Quist, J.P. Morgan & Co.
and PaineWebber Incorporated. The Company registered and sold 3,220,000 shares
for its own account at an aggregate price of $57,960,000 and the selling
stockholder (SAIC) registered and sold 575,000 shares for its account at an
aggregate price of $10,350,000, for a combined total of 3,795,000 shares at an
aggregate price of $68,310,000. The offering has since terminated.
The total amount of expenses incurred for the Company's account in
connection with the offering were $5,555,200, which is comprised of $4,057,200
for underwriting discounts and commissions and $1,498,000 of other expenses. No
expenses were paid to directors, officers or persons owning more than ten
percent of any class of the Company's equity securities. The resultant Company's
net offering proceeds were $52,404,800. The net proceeds to SAIC for its account
were $9,625,500 after deducting the associated underwriting discounts and
commissions of $724,500.
On October 1, 1997, the Company received the offering proceeds from which a
$10,000,000 dividend was paid to SAIC. SAIC owns ten percent or more of a class
of the Company's equity securities and is an affiliate of the Company. The
remaining proceeds have been invested in investment grade government discount
notes, commercial paper and corporate bonds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -- See Exhibit Index
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(b) Reports on Form 8-K --
The following reports on Form 8-K were filed during the quarter ended March
31, 1999:
On January 15, 1999, we filed a report on Form 8-K, pursuant to Item 5 of
such form, to report that our Board of Directors had approved a two-for-one
split of our Class A Common Stock and Class B Common Stock, to be effected in
the form of a 100% stock dividend.
On February 9, 1999, we filed a report on Form 8-K, pursuant to Item 5 of
such form, to report that the Internet Corporation for Assigned Names and
Numbers had issued, in preliminary form, its "Guidelines for Accreditation of
Internet Domain Name Registrars and for Selection of Registrars for the Shared
Registry System TestBed for .com, .net and .org Domains."
On February 11, 1999, we filed a report on Form 8-K, pursuant to Item 5 of
such form, to report our issuance of a press release announcing our 1998 fourth
quarter and annual revenue and earnings.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK SOLUTIONS, INC.
By: /s/ ROBERT J. KORZENIEWSKI
Robert J. Korzeniewski
Chief Financial Officer, Acting
Chief Operating Officer and
Authorized Signatory
Date: May 17, 1999
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<PAGE> 30
INDEX TO EXHIBITS
NETWORK SOLUTIONS, INC.
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBITS PAGE NO.
- ------- ----------------------- ----------
<S> <C> <C>
10.25 Amendment No. 13 to the Cooperative Agreement dated May 6,
1999
10.26 Lease Agreement By and Between Corporate Oaks LP and Network
Solutions dated March 11, 1999
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
30
<PAGE> 1
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FORM CD-451 U.S. DEPARTMENT OF COMMERCE [ ] GRANT X COOPERATIVE AGREEMENT
(REV 10/98)
----------------------------------------------
ACCOUNTING CODE
AMENDMENT TO N/A
FINANCIAL ASSISTANCE AWARD ----------------------------------------------
AWARD NUMBER
NCR 92-18742
- ------------------------------------------------------------------------------------------------------------------------------------
RECIPIENT NAME AMENDMENT NUMBER
Network Solutions, Incorporated Thirteen (13)
- ------------------------------------------------------------------------------------------------------------------------------------
STREET ADDRESS EFFECTIVE DATE
505 Huntmar Park Drive Upon Execution
- ------------------------------------------------------------------------------------------------------------------------------------
CITY, STATE, ZIP CODE EXTEND WORK COMPLETION TO
Herndon, Virginia 22070 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
CFDA NO. AND PROJECT TITLE
11. National Telecommunications and Information Administration
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS ARE REVISED PREVIOUS ADD DEDUCT TOTAL
AS FOLLOWS: N/A ESTIMATED COST ESTIMATED COST
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL SHARE OF COST
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
RECIPIENT SHARE OF COST
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED COST
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
REASON(S) FOR AMENDMENT
To incorporate a Special Award Condition, and to revise the Shared Registry Section of Amendment Number 11, at no additional cost
to the Government.
- ------------------------------------------------------------------------------------------------------------------------------------
This Amendment approved by the Grants Officer is issued in triplicate and constitutes an obligation of Federal funding.
By signing the three documents, the Recipient agrees to comply with the Amendment provisions checked below and attached,
as well as previous provisions incorporated into the Award. Upon acceptance by the Recipient, two signed Amendment documents
shall be returned to the Grants Officer and the third document shall be retained by the Recipient. If not signed and returned
without modification by the Recipient within 30 days of receipt, the Grants Officer may unilaterally terminate this Amendment.
X Special Award Conditions
[ ] Line Item Budget
[ ] Other(s) _____________________________________________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE OF DEPARTMENT OF COMMERCE GRANTS OFFICER DATE
Betty L. Cassidy /s/ BETTY L. CASSIDY
Acting Grants Officer, Office of Executive Assistance Management 4/22/99
- ------------------------------------------------------------------------------------------------------------------------------------
TYPED NAME, TYPED TITLE, AND SIGNATURE OF AUTHORIZED RECIPIENT OFFICIAL
/s/ D.M. Graves 5/6/99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
SPECIAL AWARD CONDITIONS
NCR 92-189742
Amendment Number Thirteen (13)
1. The Department of Commerce and Network Solutions, Inc. agree that for the
Phase I deployment of the Shared Registration System, NSI's prices for
Registry Services through the Shared Registration System in the gTLDs for
which NSI now acts as the Registry, will be no more than $9 per year per
second level domain name registered, payable at $18 for new registrations
and $9 per year on the anniversary date of the original registration
beginning at the end of the second year and for every year thereafter.
2. The Shared Registry Section of Amendment II is revised by adding the
following sentence:
The Registrar License and Agreement attached and identified as Exhibit 1
is approved for use during Phase I.
3. Except as modified by this amendment, the terms and conditions of this
Cooperative Agreement, as amended, are unchanged.
<PAGE> 3
EXHIBIT 1
REGISTRAR LICENSE AND AGREEMENT
This Registrar License and Agreement (the "Agreement") is dated as of
__________, 1999 ("Effective Date") by and between Network Solutions, Inc., a
Delaware corporation, with its principal place of business located at 505
Huntmar Park Drive, Herndon, Virginia 20170 ("NSI" or the "Registry"), and
_________________, a _____________________ corporation, with its principal place
of business located at _____________________________________ ("Registrar"). NSI
and Registrar may be referred to individually as a "Party" and collectively as
the "Parties."
WHEREAS, multiple registrars will provide Internet domain name registration
services within the .com, .org and .net top-level domains wherein NSI operates
and maintains certain TLD servers and zone files ("Registry");
WHEREAS, Registrar wishes to register second-level domain names in the multiple
registrar system for the .com, .org and .net TLDs.
NOW, THEREFORE, for and in consideration of the mutual promises, benefits and
covenants contained herein and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, NSI and
Registrar, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
A. "DNS" refers to the Internet domain name system.
B. "'IP" means Internet Protocol.
C. An "SLD" is a second-level domain of the DNS.
D. The "System" refers to the multiple registrar system developed by
NSI for registration of second-level domain names in the .com,
.org and .net TLDs.
E. A "TLD" is a top-level domain of the DNS.
F. A "Testbed Registrar" is one of the five registrars to participate
in the test of the Shared Registration System ("Phase I") as
provided in Amendment 11 to the Cooperative Agreement between NSI
and the U.S. Department of Commerce, as amended ("Cooperative
Agreement").
2. OBLIGATIONS OF THE PARTIES
2.1 Throughout the Term of this Agreement, NSI shall operate the System
and provide Registrar with access to the System enabling Registrar to transmit
domain name registration information for the .com, .org and .net TLDs to the
System according to a protocol developed by NSI and known as the Registry
Registrar Protocol ("RRP").
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2.2 No later than three business days after the commencement of the Term
of this Agreement, NSI shall provide to Registrar (i) full documentation of the
RRP, (ii) "C" and "Java" application program interfaces ("APIs") to the RRP with
documentation, and (iii) reference client software ("Software") that will enable
Registrar to develop its system to register second-level domain names through
the System for the .com, .org and .net TLDs.
2.3 Registrar shall be responsible for providing customer service
(including domain name record support), billing and technical support, and
customer interface to accept customer (the "SLD holder") orders.
2.4 As part of its registration of all SLD registrations in the .com,
.net, and .org TLDs during the Term of this Agreement, Registrar shall submit
the following data elements using the RRP concerning SLD registrations it
processes:
a. The name of the SLD being registered;
b. The IP addresses of the primary nameserver and any
secondary nameservers for the SLD; and
c. The corresponding host names of those nameservers.
2.5 Registrar grants NSI as Registry a non-exclusive non-transferable
limited license to the data elements consisting of the SLD name registered, the
IP addresses of nameservers, and the identity of the registering registrar for
propagation of and the provision of authorized access to the TLD zone files.
2.6 Registrar shall have developed and employ in its domain name
registration business an electronic or paper registration agreement, including a
domain name dispute policy, a copy of which is attached to this Agreement as
Exhibit A (which may be amended from time to time by Registrar, provided a copy
is furnished to the Registry three business days in advance of any such
amendment), to be entered into by Registrar with each SLD holder as a condition
of registration. Registrar shall include terms in its agreement with each SLD
holder that are consistent with Registrar's duties to NSI hereunder. Registrar's
dispute policy shall require the SLD holder to indemnify, defend and hold
harmless NSI, and its directors, officers, employees and agents from and against
any and all claims, damages, liabilities, costs and expenses, including
reasonable legal fees and expenses arising out of or relating to the SLD
holder's domain name registration.
2.7 Registrar agrees to develop and employ in its domain name
registration business all necessary technology and restrictions to ensure that
its connection to the System and its transactions with SLD holders and
prospective customers are secure. All data exchanged between Registrar's system
and the System shall be protected to avoid unintended disclosure of information.
Each RRP session shall be authenticated and encrypted using two-way secure
socket layer ("SSL") protocol. Registrar agrees to authenticate every RRP
connection with the System using its Registrar password, which it shall disclose
only to its employees with a need to
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know. Registrar agrees to notify Registry within four hours of learning that its
Registrar password has been compromised in any way.
2.8 Registrar agrees to employ in its domain name registration business
NSI's Registry domain name lookup capability to determine if a requested domain
name is available or currently unavailable for registration.
2.9 Registrar agrees to implement transfers of SLD registrations from
another registrar to Registrar and vice versa pursuant to NSI's policy on
Changes in Sponsoring Registrar by SLD Holders appended hereto as Exhibit B.
2.10 Registrar agrees that in the event of any dispute concerning the
time of the entry of a domain name registration into the Registry database, the
time shown in the NSI Registry records shall control.
2.11 Registrar agrees to comply with all other reasonable terms or
conditions established from time to time, to assure sound operation of the
System, by NSI as Registry in a non-arbitrary manner and applicable to all
registrars, including NSI, and consistent with NSI's Cooperative Agreement with
the United States Government, upon NSI's notification to Registrar of the
establishment of those terms and conditions.
2.12 Registrar agrees to employ necessary employees, contractors, or
agents with sufficient technical training and experience to respond to and fix
all technical problems concerning the use of the RRP and the APIs in conjunction
with Registrar's systems. Registrar agrees that in the event of significant
degradation of the System or other emergency, Network Solutions, as Registry,
may, in its sole discretion, temporarily suspend access to the System.
2.13 Prior to the Effective Date of this Agreement, Registrar shall have
procured a performance bond from a surety acceptable to NSI, in the amount of
$100,000 U.S. dollars. The terms of the performance bond shall provide that
Registrar will perform all the undertakings, covenants, terms and conditions of
this Agreement during the Initial Term, and any Renewal Terms, and shall
indemnify and hold NSI and its employees, directors, officers, representatives,
agents and affiliates harmless from all costs and damages (including reasonable
attorneys' fees) which it may suffer by reason of Registrar's failure to so
perform by making payment(s) up to the full amount of the bond within ten (10)
days of NSI's having notified the surety of its claim(s) of damages.
2.14 Registrar agrees to comply with the policies of NSI as Registry that
will be applicable to all registrars and that will prohibit the registration of
certain domain names in the .com, .org and .net TLDs which are not allowed to be
registered by statute or regulation.
3. LICENSE
3.1 LICENSE GRANT. Subject to the terms and conditions of this
Agreement, NSI hereby grants Registrar and Registrar accepts a
non-exclusive, non-transferable, worldwide limited license to use
for the Term and purposes of this Agreement the RRP, APIs and
Software to provide domain name registration services in the
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.com, .org and .net TLDs only and for no other purpose. The RRP,
APIs and Software will enable Registrar to register domain names
with the Registry on behalf of its SLD holders. Registrar, using
the RRP, APIs and Software, will be able to invoke the following
operations on the System: (i) check the availability of a domain
name, (ii) register a domain name, (iii) re-register a domain
name, (iv) cancel the registration of a domain name it has
registered, (v) update the nameservers of a domain name, (vi)
transfer a domain name from another registrar to itself with
proper authorization, (vii) query a domain name registration
record, (viii) register a nameserver, (ix) update the IP addresses
of a nameserver, (x) delete a nameserver, (xi) query a nameserver,
and (xii) establish and end an authenticated session.
3.2 LIMITATIONS ON USE. Notwithstanding any other provisions in this
Agreement, except with the written consent of NSI, Registrar shall
not: (i) sublicense the RRP, APIs or Software or otherwise permit
any use of the RRP, APIs or Software by or for the benefit of any
party other than Registrar, (ii) publish, distribute or permit
disclosure of the RRP, APIs or Software other than to employees,
contractors, and agents of Registrar for use in Registrar's domain
name registration business, (iii) decompile, reverse engineer,
copy or re-engineer the RRP, APIs or Software for any unauthorized
purpose, or (iv) use or permit use of the RRP, APIs or Software in
violation of any federal, state or local rule, regulation or law,
or for any unlawful purpose.
Registrar agrees to employ the necessary measures to prevent the
System from being used for (i) the transmission of unsolicited,
commercial e-mail (spam) to entities other than Registrar's
customers; (ii) high volume, automated, electronic processes that
apply to NSI for large numbers of domain names; (iii) high volume,
automated, electronic, repetitive queries for the purpose of
extracting data to be used for Registrar's purposes; or (iv) the
use of said data to compile or infer customer identity or other
demographic or firmographic information.
3.3 NSI may from time to time make modifications to the RRP, APIs or
software licensed hereunder that will enhance functionality or
otherwise improve the System. NSI will provide Registrar with at
least 60 days notice prior to the implementation of any material
changes to the RRP, APIs or software licensed hereunder.
4. SUPPORT SERVICES
4.1 TESTBED ENGINEERING SUPPORT. NSI agrees to provide Registrar with
reasonable engineering telephone support (between the hours of 9
a.m. to 5 p.m. local Herndon, Virginia time or at such other times
as may be mutually agreed upon) to address engineering issues
arising in connection with Registrar's use of the System during
the test of the Shared Registration System ("Phase I") as provided
in Amendment 11 to the Cooperative Agreement between NSI and the
U.S. Department of Commerce
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<PAGE> 7
4.2 CUSTOMER SERVICE SUPPORT. During the Term of this Agreement, NSI
will provide reasonable telephone and e-mail customer service
support to Registrar, not SLD holders or prospective customers of
Registrar, for non-technical issues solely relating to the System
and its operation. NSI will provide Registrar with a telephone
number and e-mail address for such support during implementation
of the RRP, APIs and Software. First-level telephone support will
be available on a 7-day/24-hour basis. NSI will provide a
web-based customer service capability in the future and such
web-based support will become the primary method of customer
service support to Registrar at such time.
5. FEES
5.1 LICENSE FEE. As consideration for the license of the RRP, APIs and
Software, Registrar agrees to pay NSI on the Effective Date or if
Registrar is a Testbed Registrar, at the completion of the testbed
period, a non-refundable one-time fee in the amount of $ 10,000
payable in United States dollars (the "License Fee") and payable
by check to Network Solutions, Inc., Attention: Business Affairs
Office, 505 Huntmar Park Drive, Herndon, Virginia 20170 or by wire
transfer to NationsBank, for the credit of Network Solutions,
Inc., Account #193 325 3198, ABA# 054001204. No later than three
business days after either the receipt (and final settlement if
payment by check) of such License Fee, or the execution of this
Agreement for Testbed Registrars, NSI will provide the RRP, APIs
and Software to Registrar.
5.2 REGISTRATION FEES. During the Initial Term of this Agreement,
Registrar agrees to pay NSI the non-refundable amounts of $18
United States dollars for each initial two-year domain name
registration and $9 United States dollars for each one-year domain
name re-registration (collectively, the "Registration Fees")
registered by Registrar through the System. NSI reserves the right
to adjust the Registration Fees prospectively upon thirty (30)
days prior notice to Registrar, provided that such adjustments are
consistent with NSI's Cooperative Agreement with the United States
Government and are applicable to all registrars in the .com, .org
and .net TLDs. NSI will invoice Registrar monthly in arrears for
each month's Registration Fees. All Registration Fees are due
immediately upon receipt of NSI's invoice pursuant to a letter of
credit, deposit account, or other acceptable credit terms agreed
by the Parties.
5.3 REGISTRANT'S TRANSFER OF DOMAIN NAME. If a SLD holder transfers
its domain name registration to the Registrar's account from
another registrar's account, Registrar agrees to pay NSI the
applicable Registration Fee as set forth above. The losing
registrar's Registration Fees will not be refunded as a result of
any such transfer. Such transfer of a SLD holder's domain name
registration from one registrar to another registrar must be
accomplished pursuant to the policy set forth in Exhibit B to this
Agreement.
5.4 NON-PAYMENT OF REGISTRATION FEES. Timely payment of Registration
Fees is a material condition of performance under this Agreement.
In the event that
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Registrar fails to pay its Registration Fees, either initial or
re-registration fees, within three days of the date when due, NSI
may stop accepting new registrations and/or delete the domain
names associated with invoices not paid in full from the Registry
database and terminate this Agreement pursuant to Section 6(c)
below.
6. MISCELLANEOUS
6.1 TERM OF AGREEMENT AND TERMINATION.
(a) TERM OF THE AGREEMENT. The duties and obligations of the
Parties under this Agreement shall apply from the Effective
Date through the completion of Phase I of the Cooperative
Agreement between NSI and the U.S. Department of Commerce
(the "Initial Term"). Upon conclusion of the Initial Term,
all provisions of this Agreement, excluding, however, the
dollar amount listed in Section 5.2, will automatically
renew for successive one (1) year renewal terms, provided,
however, that the dollar amount listed in Section 5.2 has
been established in accordance with the provisions of
Amendment 11 prior to the expiration of the Initial Term,
(each a "Renewal Term" and together with the Initial Term,
the "Term") until the Agreement has been terminated as
provided herein, Registrar elects not to renew, or NSI
ceases to operate as the registry for the .com, .org and
.net TLDs; provided, however, that in the event that
revisions to NSI's Registrar License Agreement are approved
by the U.S. Department of Commerce, Registrar will execute
an amendment substituting the revised agreement in place of
this Agreement.
(b) TERMINATION. Upon expiration or termination of this
Agreement, NSI will complete the registration of all domain
names processed by Registrar prior to the date of such
expiration or termination, provided that Registrar's
payments to NSI for Registration Fees are current and
timely. Notwithstanding the foregoing, Registrar's payment
obligations as set forth in Section 5.2 above shall survive
any such termination or expiration of this Agreement.
(c) TERMINATION FOR CAUSE. In the event that either Party
materially breaches any term of this Agreement including
any of its representations and warranties hereunder and
such breach is not substantially cured within thirty (30)
calendar days after written notice thereof is given by the
other Party, then the non-breaching Party may, by giving
written notice thereof to the other Party, terminate this
Agreement as of the date specified in such notice of
termination.
(d) TERMINATION BY REGISTRAR. Registrar may terminate this
Agreement at any time by giving NSI thirty (30) days notice
of termination.
(e) BANKRUPTCY. Either Party may terminate this Agreement if
the other Party is adjudged insolvent or bankrupt, or if
proceedings are instituted by
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or against a Party seeking relief, reorganization or
arrangement under any laws relating to insolvency, or
seeking any assignment for the benefit of creditors, or
seeking the appointment of a receiver, liquidator or
trustee of a Party's property or assets or the liquidation,
dissolution or winding up of a Party's business.
(f) EFFECT OF TERMINATION. Immediately upon any termination of
this Agreement, Registrar shall (i) transfer its SLD
holders to another licensed registrar(s) of the Registry,
in compliance with any procedures established or approved
by the U.S. Department of Commerce and (ii) either return
to NSI or certify to NSI the destruction of all data,
software and documentation it has received under this
Agreement.
(g) SURVIVAL. In the event of termination of this Agreement for
any reason, Sections 2.5, 2.6, 2.10, 2.11, 2.13, 5.2,
6.1(g), 6.6, 6.7, 6.10, 6.12, 6.13, 6.14 and 6.16 shall
survive. Neither Party shall be liable to the other for
damages of any sort resulting solely from terminating this
Agreement in accordance with its terms but each Party shall
be liable for any damage arising from any breach by it of
this Agreement.
6.2. NO THIRD PARTY BENEFICIARIES; RELATIONSHIP OF THE PARTIES. This
Agreement does not provide and shall not be construed to provide
third parties (i.e., non-parties to this Agreement), including any
SLD holder, with any remedy, claim, cause of action or privilege.
Nothing in this Agreement shall be construed as creating an
employer-employee or agency relationship, a partnership or a joint
venture between the Parties.
6.3 FORCE MAJEURE. Neither Party shall be responsible for any failure
to perform any obligation or provide service hereunder because of
any Act of God, strike, work stoppage, governmental acts or
directives, war, riot or civil commotion, equipment or facilities
shortages which are being experienced by providers of
telecommunications services generally, or other similar force
beyond such Party's reasonable control.
6.4 FURTHER ASSURANCES. Each Party hereto shall execute and/or cause
to be delivered to each other Party hereto such instruments and
other documents, and shall take such other actions, as such other
Party may reasonably request for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
6.5 AMENDMENT IN WRITING. Any amendment or supplement to this
Agreement shall be in writing and duly executed by the other
Parties.
6.6 ATTORNEYS' FEES. If any legal action or other legal proceeding
(including arbitration) relating to the performance under this
Agreement or the enforcement of any provision of this Agreement is
brought against any Party hereto, the prevailing Party shall be
entitled to recover reasonable attorneys' fees, costs and
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disbursements (in addition to any other relief to which the
prevailing Party may be entitled).
6.7 DISPUTE RESOLUTION; CHOICE OF LAW; VENUE. The Parties shall
attempt to resolve any disputes between them prior to resorting to
litigation. This Agreement is to be construed in accordance with
and governed by the internal laws of the Commonwealth of Virginia,
United States of America without giving effect to any choice of
law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the Commonwealth of
Virginia to the rights and duties of the Parties. Any legal action
or other legal proceeding relating to this Agreement or the
enforcement of any provision of this Agreement shall be brought or
otherwise commenced in any state or federal court located in the
eastern district of the Commonwealth of Virginia. Each Party to
this Agreement expressly and irrevocably consents and submits to
the jurisdiction and venue of each state and federal court located
in the eastern district of the Commonwealth of Virginia (and each
appellate court located in the Commonwealth of Virginia) in
connection with any such legal proceeding.
6.8 NOTICES. Any notice or other communication required or permitted
to be delivered to any Party under this Agreement shall be in
writing and shall be deemed properly delivered, given and received
when delivered (by hand, by registered mail, by courier or express
delivery service or by telecopier during business hours) to the
address or telecopier number set forth beneath the name of such
Party below:
IF TO REGISTRAR:
---------------------------
---------------------------
---------------------------
IF TO NSI:
Network Solutions, Inc.
505 Huntmar Park Drive
Herndon, Virginia 20170
Attention: Director, Business Affairs
Telecopier: + 1 (703) 742-8706
with a copy to:
General Counsel
505 Huntmar Park Drive
Herndon, Virginia 20170
Telecopier: + 1 (703) 742-0065
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<PAGE> 11
6.9 ASSIGNMENT/SUBLICENSE. Except as otherwise expressly provided
herein, the provisions of this Agreement shall inure to the
benefit of and be binding upon, the successors and permitted
assigns of the Parties hereto. Registrar shall not assign,
sublicense or transfer its rights or obligations under this
Agreement to any third person without the prior written consent of
NSI.
6.10 USE OF CONFIDENTIAL INFORMATION. The Parties' use and disclosure
of Confidential Information disclosed hereunder are subject to the
terms and conditions of the Parties' Confidentiality Agreement
(Exhibit C) that will be executed contemporaneously with this
Agreement. Registrar agrees that the RRP, APIs and Software are
the Confidential Information of NSI.
6.11 DELAYS OR OMISSIONS; WAIVERS. No failure on the part of any Party
to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of any Party in exercising any
power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and
no single or partial exercise or waiver of any such power, right,
privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy. No
Party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument
duly executed and delivered on behalf of such Party; and any such
waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
6.12 LIMITATION OF LIABILITY. IN NO EVENT WILL NSI BE LIABLE TO
REGISTRAR FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES RESULTING FROM
LOSS OF PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, EVEN IF NSI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6.13 CONSTRUCTION. The Parties agree that any rule of construction to
the effect that ambiguities are to be resolved against the
drafting Party shall not be applied in the construction or
interpretation of this Agreement.
6.14 INTELLECTUAL PROPERTY. Subject to Section 2(f) above, each Party
will continue to independently own its intellectual property,
including all patents, trademarks, trade names, service marks,
copyrights, trade secrets, proprietary processes and all other
forms of intellectual property. Any improvements to existing
intellectual property will continue to be owned by the Party
already holding such intellectual property.
6.15 REPRESENTATIONS AND WARRANTIES
(a) REGISTRAR. Registrar represents and warrants that: (1) it is a
corporation duly
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incorporated, validly existing and in good standing under the law
of the ______________, (2) it has all requisite corporate power
and authority to execute, deliver and perform its obligations
under this Agreement, (3) it is, and during the Term of this
Agreement will continue to be, accredited or otherwise authorized
to act as a registrar pursuant to Amendment 11 to the Cooperative
Agreement between NSI and the U.S. Department of Commerce, (4) the
execution, performance and delivery of this Agreement has been
duly authorized by Registrar, (5) no further approval,
authorization or consent of any governmental or regulatory
authority is required to be obtained or made by Registrar in order
for it to enter into and perform its obligations under this
Agreement, and (6) Registrar's performance bond provided hereunder
is a valid and enforceable obligation of the surety named on such
bond.
(b) NSI. NSI represents and warrants that: (1) it is a corporation
duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, (2) it has all requisite corporate
power and authority to execute, deliver and perform its
obligations under this Agreement, (3) the execution, performance
and delivery of this Agreement has been duly authorized by NSI,
and (4) no further approval, authorization or consent of any
governmental or regulatory authority is required to be obtained or
made by NSI in order for it to enter into and perform its
obligations under this Agreement.
(c) The RRP, APIs and Software are provided "as-is" and without any
warranty of any kind. NSI EXPRESSLY DISCLAIMS ALL WARRANTIES
AND/OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY OR
SATISFACTORY QUALITY AND FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT OF THIRD PARTY RIGHTS. NSI DOES NOT WARRANT THAT
THE FUNCTIONS CONTAINED IN THE RRP, APIs OR SOFTWARE WILL MEET
REGISTRAR'S REQUIREMENTS, OR THAT THE OPERATION OF THE RRP, APIs
OR SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS
IN THE RRP, APIs OR SOFTWARE WILL BE CORRECTED. FURTHERMORE, NSI
DOES NOT WARRANT NOR MAKE ANY REPRESENTATIONS REGARDING THE USE OR
THE RESULTS OF THE RRP, APIs, SOFTWARE OR RELATED DOCUMENTATION IN
TERMS OF THEIR CORRECTNESS, ACCURACY, RELIABILITY, OR OTHERWISE.
SHOULD THE RRP, APIs OR SOFTWARE PROVE DEFECTIVE, REGISTRAR
ASSUMES THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR
CORRECTION.
6.16. INDEMNIFICATION. Registrar, at its own expense, will indemnify,
defend and hold harmless NSI and its employees, directors,
officers, representatives, agents and affiliates, against any
claim, suit, action, or other proceeding brought against NSI or
any affiliate of NSI based on or arising from any claim or alleged
claim (i) relating to any product or service of Registrar; (ii)
relating to any agreement, including Registrar's dispute policy,
with any SLD holder of Registrar; or (iii)
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<PAGE> 13
relating to Registrar's domain name registration business,
including, but not limited to, Registrar's advertising, domain
name application process, systems and other processes, fees
charged, billing practices and customer service; provided,
however, that in any such case: (a) NSI provides Registrar with
prompt notice of any such claim, and (b) upon Registrar's written
request, NSI will provide to Registrar all available information
and assistance reasonably necessary for Registrar to defend such
claim, provided that Registrar reimburses NSI for its actual and
reasonable costs. Registrar will not enter into any settlement or
compromise of any such indemnifiable claim without NSI's prior
written consent, which consent shall not be unreasonably withheld.
Registrar will pay any and all costs, damages, and expenses,
including, but not limited to, reasonable attorneys' fees and
costs awarded against or otherwise incurred by NSI in connection
with or arising from any such indemnifiable claim, suit, action or
proceeding.
6.17 ENTIRE AGREEMENT; SEVERABILITY. This Agreement, which includes
Exhibits A, B and C constitutes the entire agreement between the
Parties concerning the subject matter hereof and supersedes any
prior agreements, representations, statements, negotiations,
understandings, proposals or undertakings, oral or written, with
respect to the subject matter expressly set forth herein. If any
provision of this Agreement shall be held to be illegal, invalid
or unenforceable, each Party agrees that such provision shall be
enforced to the maximum extent permissible so as to effect the
intent of the Parties, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby. If necessary to
effect the intent of the Parties, the Parties shall negotiate in
good faith to amend this Agreement to replace the unenforceable
language with enforceable language that reflects such intent as
closely as possible.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE SET FORTH IN THE FIRST PARAGRAPH HEREOF.
Network Solutions, Inc.
----------------------------------------
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
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<PAGE> 14
EXHIBIT A
REGISTRAR DISPUTE POLICY
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<PAGE> 15
Exhibit B
CHANGES IN SPONSORING REGISTRAR BY SLD HOLDERS
REGISTRAR REQUIREMENTS:
For each instance when an SLD holder wants to change its Registrar for an
existing domain name (i.e., a domain name that appears in a particular
top-level domain zone file), the gaining Registrar shall:
1) Obtain express authorization from an individual who has the
apparent authority to legally bind the SLD holder (as reflected in
the database of the losing Registrar).
a) The form of the authorization is at the discretion of each
gaining Registrar.
b) The gaining Registrar shall retain a record of reliable
evidence of the authorization.
2) Provide a copy of the authorization to the losing Registrar.
3) Request, in a form prescribed by NSI, that the Registry database
be changed to reflect the new Registrar.
a) The Request shall include an express statement that (1) the
requisite authorization has been obtained from the SLD
holder listed in the database of the losing Registrar, and
(2) the losing Registrar has been provided with a copy of
the authorization.
In those instances when the Registrar of record is being changed
simultaneously with a transfer of a domain name from one party to
another, the gaining Registrar shall also obtain appropriate
authorization for the transfer. Such authorization shall include, but not
be limited to, one of the following:
1) A bilateral agreement between the parties.
2) The final determination of a binding dispute resolution body.
3) A court order.
Whenever there is a change of Registrar, NSI will confirm completion of
the change by e-mail to both the gaining and losing Registrars.
REGISTRATION FEE:
Each change of Registrar shall be subject to a new two-year registration fee to
the Registry.
1) The SLD holder will be entering a new contract with the Registrar.
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<PAGE> 16
2) The Registrar will be starting a new registration period for the
domain name with the Registry.
Each SLD holder shall maintain its own records appropriate to document and prove
the initial domain name registration date, regardless of the number of
Registrars with which the SLD holder enters into a contract for registration
services.
- 14 -
<PAGE> 17
EXHIBIT C
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT is entered into by and between Network
Solutions, Inc. ("NSI"), a Delaware corporation having its principal place of
business in Herndon, VA which is the party disclosing confidential information,
and _________________________ of _________________________ ("Recipient"), which
is the party receiving such information, through their authorized
representatives, and takes effect on the date executed by the final party (the
"Effective Date").
Under this Confidentiality Agreement ("Confidentiality Agreement"), NSI
intends to disclose to the Recipient information which NSI considers valuable,
proprietary, and confidential to participate in the test of the Shared
Registration System ("Phase I") as provided in Amendment 11 to the Cooperative
Agreement between NSI and the U.S. Department of Commerce
NOW, THEREFORE, the parties agree as follows:
1. Confidential Information
1.1 "Confidential Information", as used in this Confidentiality
Agreement, shall mean all information and materials including, without
limitation, computer software, data, information, databases, protocols,
reference implementation and documentation, and functional and interface
specifications, provided by NSI to Recipient under this Confidentiality
Agreement and marked or otherwise identified as Confidential, provided that if a
communication is oral, NSI will notify Recipient in writing within 15 days of
the disclosure.
2. Confidentiality Obligations
2.1 In consideration of the disclosure of Confidential Information to
Recipient, Recipient agrees that:
(a) Recipient shall treat as strictly confidential, and use all
reasonable efforts to preserve the secrecy and confidentiality of, all
Confidential Information received from NSI, including implementing
reasonable physical security measures and operating procedures.
(b) Recipient shall make no disclosures whatsoever of any Confidential
Information to others, provided however, that if Recipient is a
corporation, partnership, or similar entity, disclosure is permitted to
Recipient's officers and employees who have a demonstrable need to know
such Confidential Information, provided Recipient shall advise such
personnel of the confidential nature of the Confidential Information and
of the procedures required to maintain the confidentiality thereof, and
shall require them to acknowledge in writing that they have read,
understand, and agree to be bound by the terms of this Confidentiality
Agreement.
(c) Recipient shall not modify or remove any NSI Confidential legends\
and/or copyright notices appearing thereon.
2.2 Recipient's duties under this section (2) shall expire five (5) years
after the information is received or earlier, upon written agreement of
the parties.
3. Restrictions On Use
3.1 Recipient agrees that it will use any Confidential Information received
under this Confidentiality Agreement solely for the purpose of participating in
the test of the Shared Registration System ("Phase I") as provided in Amendment
11 to the Cooperative Agreement between NSI and the U.S. Department of Commerce
and
- 15 -
<PAGE> 18
for no other purposes whatsoever.
3.2 No commercial use rights or any licenses under any NSI patent, patent
application, copyright, trademark, know-how, trade secret, or any other NSI
proprietary rights are granted to Recipient by this Confidentiality Agreement,
or by any disclosure of any Confidential Information to Recipient under this
Confidentiality Agreement.
3.3 Recipient agrees not to prepare any derivative works based on the
Confidential Information.
3.4 Recipient agrees that any Confidential Information which is in the form
of computer software, data and/or databases shall be used on a computer
system(s) that is owned or controlled by Recipient.
4. Miscellaneous
4.1 This Confidentiality Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia and all applicable
federal laws. Recipient agrees that, if a suit to enforce this Confidentiality
Agreement is brought in the U.S. Federal District Court for the Eastern District
of Virginia, Recipient will be bound by any decision of the Court.
4.2 The obligations set forth in this Confidentiality Agreement shall be
continuing, provided, however, that this Confidentiality Agreement imposes no
obligation upon Recipient with respect to information that (a) is disclosed with
NSI's prior written approval; or (b) is or has entered the public domain in its
integrated and aggregated form through no fault of the receiving party; or (c)
is known by the receiving party prior to the time of disclosure in its
integrated and aggregated form; or (d) is independently developed by the
receiving party without use of the Confidential Information; or (e) is made
generally available by NSI without restriction on disclosure.
4.3 This Confidentiality Agreement may be terminated by NSI upon Recipient's
breach of any of its obligations hereunder. In the event of any such termination
for breach, all Confidential Information in Recipient's possession shall be
immediately returned to NSI; Recipient shall provide full voluntary disclosure
to NSI of any and all unauthorized disclosures and/or unauthorized uses of any
Confidential Information; and the obligations of Sections 2 and 3 hereof shall
survive such termination and remain in full force and effect. Recipient may
cease to participate in the test of the Shared Registration System ("Phase I")
as provided in Amendment 11 to the Cooperative Agreement between NSI and the
U.S. Department of Commerce referred to above, but in such event, Recipient
shall immediately return to NSI all Confidential Information in its possession
and Recipient shall remain subject to the obligations of Sections 2 and 3.
4.4 The terms and conditions of this Confidentiality Agreement shall inure to
the benefit of NSI and its successors and assigns. Recipient's obligations under
this Confidentiality Agreement may not be assigned or delegated.
4.5 Recipient agrees that NSI shall be entitled to seek all available legal
and equitable remedies for the breach of this Confidentiality Agreement.
4.6 The terms and conditions of this Confidentiality Agreement may be
modified only in a writing signed by NSI and Recipient.
4.7 EXCEPT AS MAY OTHERWISE BE SET FORTH IN A SIGNED, WRITTEN AGREEMENT
BETWEEN THE PARTIES, NSI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR
IMPLIED, AS TO THE ACCURACY, COMPLETENESS, CONDITION, SUITABILITY, PERFORMANCE,
FITNESS FOR A PARTICULAR PURPOSE, OR MERCHANTABILITY OF ANY CONFIDENTIAL
INFORMATION, AND NSI SHALL HAVE NO LIABILITY WHATSOEVER TO RECIPIENT RESULTING
FROM RECIPIENT'S RECEIPT OR USE OF THE CONFIDENTIAL INFORMATION.
- 16 -
<PAGE> 19
4.8 If any part of this Confidentiality Agreement is found invalid or
unenforceable, such part shall be deemed stricken herefrom and Recipient and NSI
agree: (a) to negotiate in good faith to amend this Confidentiality Agreement to
achieve as nearly as legally possible the purpose or effect as the stricken
part, and (b) that the remainder of this Confidentiality Agreement shall at all
times remain in full force and effect.
4.9 This Confidentiality Agreement contains the entire understanding and
agreement of the parties relating to the subject matter hereof.
4.10 Any obligation upon Recipient imposed by this Confidentiality Agreement
may be waived in writing by NSI. Any such waiver shall have a one-time effect
and shall not apply to any subsequent situation regardless of its similarity.
4.11 Neither Party has an obligation under this Confidentiality Agreement to
purchase, sell, or license any service or item from the other Party.
4.12 The Parties do not intend that any agency or partnership relationship be
created between them by this Confidentiality Agreement.
IN WITNESS WHEREOF, and intending to be legally bound, duly authorized
representatives of NSI and Recipient have executed this Confidentiality
Agreement in Virginia on the dates indicated below.
___________________("Recipient") Network Solutions, Inc. ("NSI")
By: ____________________________ By: __________________________
Title: _________________________ Title:_________________________
Date:___________________________ Date:_________________________
- 17 -
<PAGE> 1
LEASE AGREEMENT
LANDLORD:
CORPORATE OAKS LP
TENANT:
NETWORK SOLUTIONS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions of Certain Terms..............................................................1
ARTICLE II
Premises..................................................................................2
ARTICLE III
Term......................................................................................3
ARTICLE IV
Base Rent.................................................................................3
ARTICLE V
Increases in Operating Charges............................................................3
ARTICLE VI
Use of Premises...........................................................................5
ARTICLE VII
Assignment, Subletting or Transfer........................................................5
ARTICLE VIII
Maintenance and Repairs...................................................................7
ARTICLE IX
Alterations...............................................................................8
ARTICLE X
Signs.....................................................................................9
ARTICLE XI
Security Deposit..........................................................................9
ARTICLE XII
Holding Over..............................................................................9
ARTICLE XIII
Insurance.................................................................................9
ARTICLE XIV
Services and Utilities...................................................................11
ARTICLE XV
Liability of Landlord....................................................................11
ARTICLE XVI
Rules....................................................................................12
ARTICLE XVII
Damage to Building.......................................................................12
ARTICLE XVIII
Condemnation.............................................................................13
ARTICLE XIX
Default..................................................................................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE XX
Bankruptcy...............................................................................16
ARTICLE XXI
Subordination............................................................................17
ARTICLE XXII
Quiet Enjoyment..........................................................................18
ARTICLE XXIII
General Provisions.......................................................................18
</TABLE>
LIST OF ATTACHMENTS:
ADDENDUM
EXHIBIT A -- Plan Showing Premises
EXHIBIT B -- Work Agreement
EXHIBIT C -- Form of Certificate Affirming Lease Commencement Date
EXHIBIT D -- Rules
<PAGE> 4
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is dated as of the 11TH day of March,
1999, by and between CORPORATE OAKS LIMITED PARTNERSHIP, a Virginia limited
partnership, ("Landlord"), and NETWORK SOLUTIONS, INC., a Delaware corporation
("Tenant").
ARTICLE I
DEFINITIONS OF CERTAIN TERMS
<TABLE>
<S> <C> <C>
1.1 Anticipated Occupancy Date: April 1, 1999 [3.3]
1.2 Base Rent: One Million Two Hundred Sixty-Eight Thousand and One
Hundred Twenty Seven Dollars ($1,268,127) (or $21/sf) [4.1]
1.3 Base Rent Escalator: Three Percent (3%) [4.1]
1.4 Broker(s): Jones, Lang, Wooten, USA; CB Richard Ellis, Inc. [23.3]
1.5 Building: Corporate Oaks [2.1]
625 Herndon Parkway
Herndon VA 20170
1.6 Architect: Larry Blevins, AIA [23.18]
1.7 Existing Mortgagee Address: Regency Savings Bank FSB [23.6]
11 West Madison Street
Oak Park IL 60302
FAX (708) 445-3253
1.8 Landlord's Address: c/o NVCommercial Incorporated
8230 Leesburg Pike, Suite 500
Vienna, VA 22182
FAX (703) 734-0410
Tax I.D. # 54-1293454 [4.2]
1.9 Parking Rent: None [2.2, 2.3]
1.10 Lease Term Length: Five (5) Years from Lease Commencement [3.1]
1.11 Operating Charges Stop: 1999 Actual Operating Charges
and Real Estate Taxes [5.1]
1.12 Permitted Parking Spaces: 3.6 per 1,000 rentable square feet [2.2, 2.3]
1.13 Premises: Approximately 60,387 square feet of rentable area comprising the
entire 1st and 2nd floors of the Building [2.1]
1.14 "INTENTIONALLY LEFT BLANK"
1.15 Security Deposit: N/A
1.16 Space Plan Due Date: N/A
1.17 Tenant Work Deposit: N/A
1.18 Tenant Allowance: $768,000 or approximately $12.71 per
rentable square foot [Exhibit B]
1.19 Tenant Design Cost Allowance: N/A [Exhibit B]
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
1.20 Tenant's Address: with a copy to: SAIC
505 Huntmar Dr. 10260 Campus Point Drive
Herndon VA 20170 San Diego CA 92121
ATTN: Corporate Leasing
FAX (619) 535-773 [23.6]
1.21 Tenant's Representative: Ken Irwin [Exhibit B]
1.22 Use: General Office, including a customer service center [6.1]
1.23 Utilities: To be paid directly by Tenant for the Premises [14.2]
</TABLE>
This Article defines certain terms used in this Lease. Certain other
terms are defined in the places shown in the Index of Certain Definitions
attached to this Lease. For convenience, this Article shows [in brackets] a
reference to where each term defined in this Article first is used in the later
Sections of this Lease. When used in this Lease, except where the context
otherwise requires, each term shall have the meaning indicated.
ARTICLE II
PREMISES
2.1 Tenant leases the Premises in the Building identified in Paragraph
1.5 (consisting of such building and the land, upon which it is built, including
roadways, sidewalks, utilities and other infrastructure improvements) from
Landlord for the term and upon the conditions and covenants stated in this
Lease. Tenant and Tenant's employees, contractors, agents, other authorized
representatives and invitees shall have the non-exclusive right to use the
common and public areas of the Building solely for purposes of ingress to and
egress from the Building.
2.2 Tenant, its employees and visitors, shall have the right to park
automobiles in the Building's parking spaces at no additional cost. The number
of parking spaces available for Tenant, its employees and visitors shall be
equal to the number of Permitted Parking Spaces set forth in Article I. Landlord
shall not be required to reserve or police the Permitted Parking Spaces for
Tenant; provided, however, that Landlord shall have the right, at Landlord's
option, to designate reserved parking spaces. It is understood and agreed that
Landlord assumes no responsibility, and shall not be held liable, for any damage
or loss to any automobiles parked in the Building's parking facilities or to any
personal property located therein, or for any injury sustained by any person in
or about such parking facilities, unless due to the gross negligence or willful
act or omission of Landlord, to its employees, agents, contractors or other
authorized representatives. Additionally, Landlord and Tenant will mutually
agree, after Tenant has begun its construction at the Premises, whether or not
to restripe the parking lot, which work will be performed by Landlord at
Landlord's sole expense.
2.3 In addition to the parking set forth in Articles I and II hereof,
Landlord shall secure Tenant the right, at no cost to Tenant, to (i) park twenty
(20) cars in the parking lot of Corporate Oaks II under the terms specified in a
separate agreement (a copy of which will be provided to Tenant) and (ii)
implement a potential stacking plan for cars on the parking lot of Corporate
Oaks I, either with or without an attendant, which attendant shall be paid for
by Tenant. Tenant understands and agrees that Landlord cannot guarantee (but
will use reasonable efforts to do so, subject to Corporate Oaks II's future
needs) that Tenant will have the ability to park in the parking lot for
Corporate Oaks II throughout the Lease Term.
2
<PAGE> 6
ARTICLE III
TERM
3.1 This Lease is effective between the parties when fully executed by
them. The period referred to in this Lease as the "Lease Term" shall commence on
the Lease Commencement Date determined as provided in Section 3.2. The Lease
Term shall continue for the Lease Term Length shown in Article I; provided that,
if the Lease Commencement Date is not the first day of a month, then the Lease
Term shall continue for the Lease Term Length plus that number of days necessary
to make the Lease Term expire on the last day of the month in which the Lease
Term Length expires. The Lease Term shall also include any renewal or extension
of the term of this Lease.
3.2 The "Lease Commencement Date" shall be April 1, 1999. Promptly
after the Lease Commencement Date is ascertained, Landlord and Tenant shall
execute a certificate (substantially in the form of Exhibit C) confirming the
Lease Commencement Date and any other matters reasonably requested by Landlord.
3.3 It is presently anticipated that the Premises will be delivered to
Tenant within three (3) business days after execution of this Lease by Tenant
and Landlord.
3.4 "Lease Year" shall mean a period of twelve (12) consecutive months
commencing on the Lease Commencement Date and each successive twelve (12) month
period thereafter; provided, however, that if the Lease Commencement Date is not
the first day of a month, then the second Lease Year shall commence on the first
day of the month after the month in which the first anniversary of the Lease
Commencement Date occurs, and each successive Lease Year shall commence on the
anniversary of the second Lease Year. The period in which the Lease Term expires
or terminates shall be a Lease Year even if it is shorter than twelve (12)
months.
ARTICLE IV
BASE RENT
4.1 Tenant shall pay the Base Rent in equal monthly installments in
advance on the first day of each month during a Lease Year. On the first day of
the second and each subsequent Lease Year, the Base Rent in effect shall be
increased by the product of (a) the Base Rent Escalator, multiplied by (b) the
Base Rent in effect immediately before the increase. If the day Tenant's rent
obligation commences is not the first day of a month, then the Base Rent from
such rent commencement date until the first day of the following month shall be
prorated on a per diem basis at the rate of one-thirtieth (1/30) of the monthly
installment of the Base Rent payable during the Lease Year in which the rent
commencement date occurs. Concurrently with Tenant's execution of this Lease,
Tenant shall pay an amount equal to one (1) monthly installment of the Base Rent
in effect during the first Lease Year, which amount shall be credited toward the
first monthly installment(s) of the Base Rent payable under this Lease.
4.2 All Base Rent, additional rent and other sums payable by Tenant
shall be paid to Landlord in legal tender of the United States, at Landlord's
Address, or to such other party or such other address as Landlord may designate
in writing. Landlord's acceptance of rent after it shall have become due and
payable shall not excuse a delay upon subsequent occasions or constitute a
waiver of rights.
ARTICLE V
INCREASES IN OPERATING CHARGES
5.1 Tenant shall pay as additional rent Tenant's proportionate share
of the amount by which Operating Charges during each calendar year falling
entirely or partly within the Lease Term exceed a base amount (the "Operating
Charges Base Amount") equal to the product of (a) the Operating Charges Stop,
multiplied by (b) the number of square feet of rentable office area in the
Building. For purposes of this Section, Tenant's proportionate share shall be
that percentage which is equal to a fraction, the numerator of which is the
number of square feet of rentable area in the Premises, and the denominator of
which is the number of square feet of rentable office area in the Building.
3
<PAGE> 7
5.2 "Operating Charges" shall mean all expenses incurred in owning,
operating, managing, maintaining and repairing the Building and/or the land on
which it is located (the "Land"), including but not limited to: (a) electricity,
water, sewer and other utility charges excluding the utility charges paid
directly by Tenant hereunder; (b) insurance premiums; (c) management fees not to
exceed customary fees for similar buildings in the Herndon, Rt. 28 market area
including, without limitation, salaries for on-site employees not above the
level of building manager; (d) costs of maintenance contracts and service
contracts related to providing services for the building on Monday at 7:00 am
through Saturday at 2:00 pm; (e) maintenance and repair expenses except as
otherwise excluded in Paragraph 10 of the Addendum to this Lease; (f)
amortization, with interest at nine percent (9 %) per annum based on accounting
practices generally accepted for office buildings and amortized over the useful
life (according to GAAP) of the improvements, for capital expenditures made by
Landlord intended or reasonably expected to reduce operating expenses or
required to comply with Laws or to pay for replacement of building components or
systems; (g) Real Estate Taxes; (h) charges or costs for janitorial services for
cleaning the Building once a day on Monday through Friday; (i) assessments or
other amounts payable to any association or associations now or hereafter
established to administer, oversee or enforce common covenants affecting the
Building, or to operate, maintain, or repair common or public areas or
facilities of the Building, including assessments or other amounts imposed (1)
to pay for landscaping in such common areas or facilities, (2) to pay for any
transportation or means of transportation contemplated by any covenants or
governmental requirements now or hereafter affecting the Building, and (3) to
pay for any architectural review board or other administrative expenses not
associated with any Tenant buildout; (j) any business, professional or
occupational license tax payable by Landlord with respect to the Building; (l)
costs of decorating and landscaping the grounds and the common areas of the
Building; and (m) any sales tax paid by Landlord with respect to goods and
services in connection with the foregoing. Operating expenses shall not include
those items set forth in detail in Paragraph 10 of the Addendum to Lease,
attached hereto and incorporated herein by reference. Notwithstanding the above,
Tenant shall pay directly to Landlord within fifteen (15) days the actual cost
for cleaning, trash removal, or security services or other services or at
Landlord's direction directly to the service provider, if any, related to
Tenant's use of the Premises on weekends and from 7 pm to 7 am on weekdays or
for security services in excess of those provided for the previous tenant. Such
amounts will not be deemed Operating Charges, but will be deemed Additional
Rent.
5.3 "Real Estate Taxes" shall mean: (a) all real estate taxes,
including general and special assessments, if any, which are imposed upon
Landlord or levied or assessed against the Building and/or the Land; (b) any
other present or future taxes or governmental charges that are imposed upon
Landlord or assessed against the Building or the Land which are in the nature of
or in substitution for real estate taxes, including any tax levied on or
measured by the rents payable by tenants of the Building; and (c) reasonable
expenses (including attorneys' fees) incurred in seeking a reduction of real
estate taxes.
5.4 If the average occupancy rate for the Building during any full
calendar year is less than one hundred percent (100%), then Operating Charges
(exclusive of utilities, weekend janitorial and real estate taxes) for such full
calendar year shall be deemed to include all additional expenses, as reasonably
estimated by Landlord, which would have been incurred during such calendar year
if such average occupancy rate had been one hundred percent (100%).
5.5 At the beginning of each calendar year that begins during the
Lease Term, Landlord may submit a statement setting forth the amount by which
Operating Charges that Landlord reasonably expects to be incurred during each
calendar year exceed the Operating Charges Base Amount and Tenant's
proportionate share of such excess. Tenant shall pay to Landlord on the first
day of each month after receipt of such statement, until Tenant's receipt of any
succeeding statement, an amount equal to one-twelfth (1/12) of such share.
5.6 Within twelve (12) months after the end of each calendar year,
Landlord shall submit a statement showing (a) Tenant's proportionate share of
the amount by which Operating Charges incurred during the preceding calendar
year exceeded the Operating Charges Base Amount, and (b) the aggregate amount of
Tenant's estimated payments during such year. If such statement indicates that
the aggregate amount of such estimated payments exceeds Tenant's actual
liability, then Landlord will within thirty (30) days refund the net overpayment
to Tenant. If such statement indicates that Tenant's actual liability exceeds
the aggregate amount of such estimated payments,
4
<PAGE> 8
then Tenant shall pay the amount of such excess within twenty (20) days of
receipt of Landlord's invoice and all supporting documentation.
5.7 If the Lease Term commences or expires on a day other than the
first day or the last day of a calendar year, respectively, then Tenant's
liability for Operating Charges incurred during such year shall be
proportionately reduced.
ARTICLE VI
Use of Premises
6.1 Tenant shall use the Premises solely for the Use set forth in
Article I and for no other use or purpose. Tenant shall not cause or allow the
use of the Premises in any manner which will or is likely to (a) violate any
present or future laws, ordinances, regulations or orders (collectively, "Laws")
or any covenants, conditions or restrictions now or hereafter of record
concerning the use of the Premises and all Furnishings therein, (b) constitute
waste, nuisance or unreasonable annoyance to Landlord or any tenant of the
Building, (c) subject to the rights granted to Tenant under Paragraphs 3, 4 and
5 of the Addendum impair or interfere with any base building systems or
facilities, (d) subject to the rights granted to Tenant under Paragraphs 3, 4
and 5 of the Addendum, adversely affect the character, appearance or reputation
of the Building, or (e) increase the number of parking spaces required for the
Building or materially increase the number of parking spaces used by Tenant.
Tenant shall obtain and keep current any temporary or permanent occupancy or use
permits required by any Law at Tenant's expense and promptly deliver a copy
thereof to Landlord.
6.2 Tenant shall pay before delinquency any business, rent or other
tax or fee that is now or hereafter assessed or imposed upon Tenant's use or
occupancy of the Premises, the conduct of Tenant's business in the Premises or
Tenant's Furnishings or personal property. If any such tax or fee is enacted or
altered so that such tax or fee is imposed upon Landlord or so that Landlord is
responsible for collection or payment thereof, then Tenant shall deliver a
receipt or proof of payment for any such tax or fee as levied or charged from
time to time or, if requested by Landlord, Tenant shall pay the amount of such
tax or fee and the costs of any collection thereof promptly to Landlord upon
demand.
6.3 Tenant shall not generate, use, store or dispose of any Hazardous
Materials in or about the Building or the Land. "Hazardous Materials" shall
mean: (a) "hazardous wastes," as defined by the Resource Conservation and
Recovery Act of 1976, as amended from time to time; (b) "hazardous substances,"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time; (c) "toxic substances," as
defined by the Toxic Substances Control Act, as amended from time to time; (d)
"hazardous materials," as defined by the Hazardous Materials Transportation Act,
as amended from time to time; (e) oil or other petroleum products; and (f) any
substance whose presence could be detrimental to the Building or hazardous to
health or the environment Notwithstanding the foregoing, Tenant may use small
quantities of chemicals and substances ordinarily used in an office environment
such (as cleaning supplies, copier and printer toner, office supplies, etc.)
provided that such chemicals and substances are used, stored and disposed of in
accordance with applicable laws and regulations.
ARTICLE VII
Assignment, Subletting or Transfer
7.1 (a) A "Transfer" is any assignment, subletting, use, occupancy or
transfer of the Premises or any part thereof by or to anyone other than Tenant.
A "Transferee" is any individual, group or entity to whom a Transfer is made.
Except as otherwise provided in Paragraph 15 of the Addendum to this Lease,
Tenant shall not Transfer this Lease or any of Tenant's rights or obligations
hereunder, without Landlord's prior written consent, which consent may be
granted or withheld in Landlord's discretion provided that such consent shall
not be unreasonably withheld, conditioned or delayed if the following conditions
all have been satisfied in Landlord's reasonable judgment:
(i) In the reasonable judgment of Landlord, the proposed
Transferee is of a character and financial worth such as is in keeping with the
standards of Landlord in those respects for the
5
<PAGE> 9
Building, and the nature of the proposed Transferee's business and its
reputation are in keeping with the character of the Building and its tenancies.
(ii) The purposes for which the proposed Transferee intends to
use the Premises or the applicable portion thereof are uses expressly permitted
by and not prohibited by this Lease including, without limitation, the
provisions of Article VI hereof.
(iii) The proposed occupancy shall not materially increase the
office cleaning requirements, exceed the capacity of any base building system
including, without limitation, the electrical, heating, ventilation and
air-conditions system, or impose a material extra burden upon the Building's
parking, equipment or services unless the proposed occupant is willing to pay
any excess costs relating thereto.
(iv) Unless such Transfer is to an affiliate or customer of
Tenant, Landlord shall be reasonably satisfied that Tenant has used its good
faith reasonable efforts in obtaining the highest available consideration in
connection with the Transfer, taking into consideration rental rates, timing of
rent commencement and tenant improvements.
(v) No Event of Default shall be continuing under this Lease,
either at the time Landlord's consent to such Transfer is requested, or at the
commencement of the term of any proposed Transfer, or upon the effective date of
any such Transfer, and Tenant shall have complied with all of the terms of this
Article VII in connection with such Transfer.
(vi) The proposed Transferee shall be subject to the service of
process in, and under the jurisdiction of the courts of, the state in which the
Building is situated.
(vii) Any Mortgagee whose consent is required for such Transfer
shall have consented to such Transfer.
(viii) All other material aspects of the Transfer affecting the
Landlord or the Building are otherwise reasonably satisfactory to Landlord.
(b) Except as otherwise provided in Paragraph 15 of the
Addendum to this Lease, no transfer of this Lease may be effected by operation
of law or otherwise without Landlord's prior written consent as provided above.
Any Transfer, Landlord's consent thereto or Landlord's collection or acceptance
of rent from any Transferee shall not be construed as (i) an acceptance of such
Transferee as a tenant except in the event of an assignment approved by Landlord
if Landlord's consent thereto is required, (ii) a waiver or release of Tenant
from liability hereunder, or (iii) a waiver of Tenant's and any Transferee's
obligation to obtain Landlord's prior written consent to any subsequent
Transfer. Tenant shall (in the instrument effecting the Transfer) assign to
Landlord any sum due from any Transferee as security for Tenant's performance of
its obligations pursuant to this Lease, and Tenant shall (in the instrument
effecting the Transfer) authorize each such Transferee if an Event of Default
occurs to pay such sum directly to Landlord if such Transferee receives written
notice from Landlord specifying that such rent shall be paid directly to
Landlord. All restrictions and obligations imposed pursuant to this Lease on
Tenant shall be deemed to extend to any Transferee, and Tenant shall cause any
Transferee to comply with all such restrictions and obligations. If the Lease
Term or Tenant's right of possession shall terminate prior to the stated
expiration of the Lease Term, then, at Landlord's option in its sole and
absolute discretion, Landlord may (but shall not be required to) succeed to the
rights of Tenant under any or all Transfers. Tenant shall not mortgage, pledge
or encumber this Lease without Landlord's prior written consent, which consent
may be granted or withheld in Landlord's sole and absolute discretion. Tenant
shall pay the reasonably documented expenses (including attorneys' fees limited
to $5,000) incurred by Landlord in connection with Tenant's request for Landlord
to give its consent to any Transfer or mortgage.
7.2 If Tenant is a partnership, then any dissolution of Tenant or a
withdrawal or change, whether voluntary, involuntary or by operation of law, of
partners owning a controlling interest in Tenant shall be deemed a Transfer of
this Lease subject to this Article. If Tenant is a corporation, then any
dissolution, merger, consolidation or other reorganization of Tenant, or any
sale or transfer of a 50% or more of its capital stock, shall be deemed a
Transfer of this Lease subject to this Article provided, however, that this
limitation shall not apply to any corporation, all of the outstanding voting
stock of which is listed on a national securities exchange as defined in the
Securities
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Exchange Act of 1934, to a secondary public offering of stock of Tenant to the
general public or in the Tenant to a publicly held entity, the stock of which
publicly held entity is registered with the Securities Exchange Commission.
7.3 In order to request the consent of Landlord to a Transfer pursuant
to this Article if Landlord's consent thereto is required by this Lease, Tenant
shall give Landlord written notice ("Tenant's Request Notice") of the identity
of the proposed Transferee and its business, all terms of the proposed Transfer,
the commencement date of the proposed Transfer, (the "Proposed Transfer
Commencement Date") and the area proposed to be assigned or sublet (the
"Proposed Space"). Tenant shall also transmit therewith the most recent
financial statement or other evidence of financial responsibility of such
Transferee, a certification executed by Tenant and such proposed Transferee
stating whether (and to what extent) any premium or other consideration is being
paid for the proposed Transfer, and all other information reasonably requested
by Landlord concerning such proposed Transferee.
7.4 Unless the proposed Transfer is to an affiliate or customer of
Tenant, Landlord shall have the right in its sole and absolute discretion to
terminate this Lease with respect to the Proposed Transfer Space (if it is
twenty-five (25%) percent or more of the Premises) by sending Tenant written
notice within thirty (30) days after Landlord's receipt of Tenant's Request
Notice. Notwithstanding anything to the contrary in this Section 7.4, Tenant may
negate Landlord's exercise of its option to terminate this Lease with respect to
the Proposed Transfer Space by giving Landlord written notice, within five (5)
days after receipt of Landlord's notice exercising such option, that Tenant
withdraws the Tenant Request Notice and Tenant will remain in the Proposed
Transfer Space. If the Proposed Transfer Space does not constitute the entire
Premises and Landlord elects to terminate this Lease with respect to the
Proposed Transfer Space, then: (a) Tenant shall tender the Proposed Transfer
Space to Landlord on the Proposed Transfer Commencement Date as if the Proposed
Transfer Commencement Date had been originally set forth in this Lease as the
expiration date of the Lease Term with respect to the Proposed Transfer Space;
and (b) as to all portions of the Premises other than the Proposed Transfer
Space, this Lease shall remain in full force and effect except that the
Permitted Parking Spaces, the additional rent payable pursuant to Article V, the
Parking Rent, and the Base Rent shall be reduced proportionately based on square
footage. Tenant shall pay all expenses of demising walls and other construction
required to permit the operation of the Proposed Transfer Space separate from
the balance of the Premises. If the Proposed Transfer Space constitutes the
entire Premises, Landlord elects to terminate this Lease and Tenant does not
negate Landlord's exercise of its option to terminate this Lease, then: (1)
Tenant shall tender the Premises to Landlord on the Proposed Transfer
Commencement Date; and (2) the Lease Term shall terminate on the Proposed
Transfer Commencement Date.
7.5 If the Transferee is to pay any amount in excess of the rent and
other charges due under this Lease, then, whether such excess be in the form of
an increased rental, or lump sum payment, (and if the applicable space does not
constitute the entire Premises, the existence of such excess shall be determined
on a pro rata basis), Tenant shall pay to Landlord fifty (50%) of any such
excess upon such terms as shall be specified by Landlord and in no event later
than twenty (20) days after Tenant receives (or is deemed to have received) such
excess, as further described in Paragraph 16 of the Addendum. Upon Landlord's
written request (made no more often than once per year), Tenant shall have its
books and records relating to any Transfers inspected by a national accounting
firm reasonably acceptable to Landlord, and shall have a report of such
inspection sent to Landlord. Any Transfer shall be effected on forms supplied or
approved by Landlord.
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1 Tenant shall at its sole expense keep and maintain the interior of
the Premises and all Furnishings including, without limitation, any supplemental
heating, ventilating or air conditioning equipment installed by Tenant and any
other Above-Standard Work installed by Tenant, or equipment located in the
Premises in clean, safe and sanitary condition and in good order and repair,
shall suffer no waste or injury thereto, and at the expiration or earlier
termination of the Lease Term, shall surrender the Premises in the same order
and condition in which they were on the Lease Commencement Date, ordinary wear
and tear and insured casualty excepted. Except as otherwise provided
specifically in Articles XVII and XVIII and the last sentence of Section 2.2,
all injury,
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breakage and damage to the Premises and to any other part of the Building or the
Land caused solely or primarily by any act or omission of any invitee, agent,
employee, subtenant, assignee, contractor, licensee or customer of Tenant
(collectively "Invitees") or Tenant, shall be repaired by and at Tenant's
expense, except that Landlord shall have the right at Landlord's option to make
any such repair to the Building or the Land and to charge Tenant for all
reasonable costs and expenses incurred in connection therewith unless caused by
the gross negligence or willful act or omission of Landlord, its employees,
contractors, agents or other representatives. Landlord shall provide and install
replacement tubes for building standard fluorescent light fixtures, and all
other conventional light bulbs and tubes for the Premises, at Tenant's expense,
the cost of which shall be competitively procured.
ARTICLE IX
ALTERATIONS
9.1 The improvement of the Premises shall be accomplished by Tenant in
accordance with Exhibit B. Landlord is under no obligation to make any
alterations, decorations, additions, improvements or other changes in or to the
Premises or to the Building (collectively "Alterations") except as expressly
provided in this Lease or as required by notices of violations from governmental
authorities related to the exterior of the Building only.
9.2 Tenant shall not make or permit anyone to make any Alteration
without Landlord's prior written consent, which consent may be granted or
withheld in Landlord's sole and absolute discretion. Notwithstanding the above,
Landlord's approval shall not be unreasonably withheld, conditioned or delayed
for non-structural alterations which are not visible from the exterior and do
not affect the Building's utility systems. Any Alteration made by Tenant shall
be subject to the preceding sentence and shall be made: (a) in a good,
workmanlike, first-class and prompt manner; (b) using new materials only; (c) by
a contractor and in accordance with plans and specifications and procedures
reasonably approved in writing by Landlord; (d) in accordance with all Laws and
the reasonable requirements of any insurance company insuring the Building and
any Mortgagee; (e) after providing Landlord's with proof of workmen's
compensation insurance and any other insurance policy reasonably required by
Landlord; and (f) after delivering to Landlord (if such items are necessary for
such Alteration) (i) an architect's certificate that such Alteration will
conform to all applicable Laws, (ii) a copy of all necessary permits obtained
from governmental authorities having jurisdiction, and (iii) written,
unconditional waivers of mechanics' and materialmen's liens against the Premises
and the Building from all proposed contractors, subcontractors, laborers and
material suppliers for all work and materials in connection with such
Alteration, provided, however, that these waivers may be conditioned on final
payment. If any lien (or a petition to establish a lien) is filed in connection
with any Alteration, then such lien (or petition) shall be discharged by Tenant
at Tenant's expense within ten (10) days after Tenant has notice thereof by the
payment thereof or filing of a bond acceptable to Landlord. Landlord's consent
to the making of any Alteration shall be deemed not to constitute Landlord's
consent to subject its interest in the Premises or the Building to liens which
may be filed in connection therewith. Tenant shall furnish Landlord with an
updated set of "as-built" drawings reflecting any Alterations made by Tenant, if
such drawings are necessary based on such Alterations.
9.3 If any Alteration is made without Landlord's prior written
consent, then Landlord shall have the right at Tenant's expense to remove and
correct such Alteration and restore the Premises and the Building to their
condition immediately prior thereto or to require Tenant to do the same. All
Alterations made by either party shall immediately become Landlord's property
and shall remain upon and be surrendered with the Premises at the expiration or
earlier termination of the Lease Term except that Tenant shall be required to
remove all Alterations which Landlord designates in writing for removal at the
time Landlord consents to such Alteration. Landlord has requested Tenant to
remove all cabling prior to the end of the term of the Lease, but Tenant and
Landlord have agreed, in lieu thereof, that Tenant shall pay Landlord, prior to
the end of the term of the Lease, $15,000 in full satisfaction of the
requirement for such removal. Notwithstanding the foregoing sentence, if Tenant
is not in default under this Lease, then Tenant shall have the right to remove,
prior to the expiration or earlier termination of the Lease Term, all Movable
Furnishings, generators and uninterruptible power supplies installed in the
Premises solely at Tenant's expense provided that Tenant repairs any damage to
the Premises or the Building occasioned by such removal to Landlord's reasonable
satisfaction. If any such Furnishings, generators, supplemental HVAC
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brought in by Tenant and uninterruptible power supplies are not removed by
Tenant prior to the expiration or earlier termination of the Lease Term, then
the same shall become Landlord's property and shall be surrendered with the
Premises as a part thereof; provided, however, that Landlord shall have the
right to remove from the Premises at Tenant's expense such Furnishings,
generators, supplemental HVAC brought in by Tenant and uninterruptible power
supplies and any Alteration, designated for removal by Landlord in writing, as
set forth above which Tenant fails to remove. Landlord shall have the right to
repair at Tenant's expense all damage to the Premises or the Building caused by
Landlord's or Tenant's removal of Furnishings, generators, supplemental HVAC
brought in by Tenant and uninterruptible power supplies or Alterations
designated by Landlord in writing for removal or to require Tenant to do the
same.
ARTICLE X
SIGNS
10.1 Landlord will list Tenant's name in the Building directory, if
any, and provide building standard signage on or near the primary suite entry
door. Except as otherwise specified in Section 2 of the Addendum, Tenant shall
not paint, affix or otherwise display on any part of the exterior or interior of
the Building any other sign, advertisement or notice. If any such item that has
not been approved by Landlord is so displayed, then Landlord shall have the
right to remove such item at Tenant's expense or to require Tenant to do the
same.
ARTICLE XI
SECURITY DEPOSIT (NONE)
ARTICLE XII
HOLDING OVER
12.1 Tenant acknowledges that it is extremely important that Landlord
have substantial advance notice of the date on which Tenant will vacate the
Premises, because Landlord will (a) require an extensive period to locate a
replacement tenant, and (b) plan its entire leasing and renovation program for
the Building in reliance on its lease expiration dates. Tenant also acknowledges
that if Tenant fails to surrender the Premises at the expiration or earlier
termination of the Lease Term, then it will be conclusively presumed that the
value to Tenant of remaining in possession, and the loss that will be suffered
by Landlord as a result thereof, far exceed the Base Rent and additional rent
that would have been payable had the Lease Term continued during such holdover
period. Therefore, if Tenant does not immediately surrender the Premises upon
the expiration or earlier termination of the Lease Term, then the rent shall be
increased 150% of the Base Rent, additional rent and other sums that would have
been payable pursuant to the provisions of this Lease if the Lease Term had
continued during such holdover period. Such rent shall be computed on a monthly
basis and shall be payable on the first day of such holdover period and the
first day of each calendar month thereafter during such holdover period until
the Premises have been vacated. Landlord's acceptance of such rent shall not in
any manner adversely affect Landlord's other rights and remedies, including
Landlord's right to evict Tenant and to recover damages through process of law.
ARTICLE XIII
INSURANCE
13.1 Tenant shall not conduct or allow any activity or place or allow
the placement of any item in or about the Building which may (i) subject
Landlord to any liability for injury to any person or property, (ii) cause any
increase in the insurance rates on any policies of insurance carried by Landlord
covering the Building, except as such increased rates are reimbursed by Tenant
as hereinafter provided or cause insurance companies of good standing to refuse
to insure the Building in amounts reasonably satisfactory to Landlord, (iii)
result in the cancellation of any policy of insurance or the assertion of any
defense by the insurer to any claim under any policy of insurance maintained by
or for the benefit of Landlord, or (iv) violate any reasonable insurance
requirement Landlord hereby warrants that Tenant's use as set forth in Section
1.22, and Paragraphs 3 and 4 of
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the Addendum attached hereto does not violate any of the foregoing provisions
and shall not increase the insurance premiums payable for the Building and the
Land or subject such policies to cancellation therefor. If any increase in the
cost of such insurance is due to any such activity or item, then (whether or not
Landlord has consented to such activity or item) Tenant shall pay the amount of
such increase as additional rent within twenty (20) days after Landlord's demand
and all supporting documentation therefor. The statement of any insurance
company or insurance rating organization (or other organization exercising
similar functions in connection with the prevention of fires or the correction
of hazardous conditions) that such an increase is solely due to any such
activity or item shall be conclusive evidence thereof.
13.2 Tenant shall maintain throughout the Lease Term, with a company
licensed to do business in the jurisdiction in which the Building is located
reasonably, approved by Landlord and having a rating equal to or exceeding A VII
in Best's Insurance Guide: (a) commercial general liability insurance (written
on an occurrence basis and including contractual liability coverage insuring the
obligations assumed by Tenant pursuant to Section 15.2 and an endorsement for
personal injury); (b) all-risk property insurance; (c) comprehensive automobile
liability insurance (covering automobiles owned by Tenant); (d) Broad Form
Boiler and Machinery Insurance on all air conditioning equipment provided by
Tenant and exclusively serving the Premises, miscellaneous electrical apparatus,
boilers and other pressure vessels or systems, whether fired or unfired,
installed by Tenant (or by Landlord, at Tenant's expense) in or exclusively
serving the Premises, either as part of the extended coverage insurance
mentioned in clause (b) of this Section or in amounts set by Landlord, but in no
event less than One Million Dollars ($1,000,000); (e) during the course of
construction of any Alterations by Tenant in the Premises and until completion
thereof, Builder's Risk insurance on an "all risk" basis (including collapse) on
a completed value (non-reporting) form for full replacement value, covering
interests of Landlord and Tenant (and their respective contractors and
subcontractors) and any Mortgagee, in all work incorporated in the Building and
all materials and equipment in or about the Premises; (f) Workers' Compensation
Insurance, as required by law; and (g) such other insurance in such amounts as
Landlord may reasonably require from time to time provided that such insurance
is then commonly required by similar landlords of similar tenants. The minimum
amounts of insurance required under this Section shall not be construed to limit
the extent of Tenant's liability under this Lease. Such liability insurance
shall be in minimum amounts typically carried by prudent tenants engaged in
similar operations, but in no event shall be in an amount less than five million
dollars ($5,000,000) combined single limit per occurrence for bodily injury or
death to any one person or any number of persons (up to $3,000,000 of which may
be umbrella or other excess coverage), and two million dollars ($2,000,000)
general aggregate for property damage. Such property insurance shall be in an
amount not less than that required to replace all Above-Standard Work, antennae,
satellite dishes equipment, generators, supplemental HVAC brought in by Tenant
and uninterruptible power supplies, all Alterations and all other contents of
the Premises, excluding the Building Standard Work. Such automobile liability
insurance shall be in an amount not less than one million dollars ($1,000,000)
combined single limit per occurrence for bodily injury and property damage and
two million dollars ($2,000,000) in the aggregate. All liability insurance shall
name Landlord, any Mortgagee and Landlord's managing agent as additional
insureds. All property insurance by Landlord and Tenant shall contain an
endorsement that such insurance shall remain in full force and effect
notwithstanding that the insured may have waived its claims against any person
prior to the occurrence of a loss, and provide that the insurer waives all right
of recovery by way of subrogation against the other party, its partners, agents
and employees. All of Tenant's insurance shall contain an endorsement
prohibiting modification, expiration or cancellation as to the interests of
Landlord, any Mortgagee or Landlord's managing agent by reason of any act or
omission of Tenant, without the insurer's giving Landlord thirty (30) days'
prior written notice of such action. Landlord reserves the right from time to
time to reasonably require Tenant to obtain higher minimum amounts of insurance,
however, Tenant may carry such increased coverage under its umbrella or other
excess coverages. Tenant shall deliver a certificate of insurance for all
required insurance policies to Landlord on or before the Lease Commencement Date
and at least annually thereafter, no less than fifteen (15) days prior to the
earliest expiration date on such certificate.
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ARTICLE XIV
SERVICES AND UTILITIES
14.1 Landlord shall furnish to the Premises air-conditioning and
heating during the seasons they are required in Landlord's reasonable judgment
and in accordance with the provisions otherwise set forth in this Lease or in
local building codes or regulations. Landlord shall provide: janitorial service
on Monday through Friday only excluding legal public holidays celebrated by the
Executive Departments of the Federal Government ("Holidays"); electricity;
water; elevator service; and exterior window-cleaning service. The normal hours
of operation of the Building will be 8:00 a.m. to 6:00 p.m. on Monday through
Friday (except such Holidays) and 8:00 a.m. to 1:00 p.m. on Saturday (except
such Holidays) and such other extended hours, if any, as Landlord determines.
Subject to the provisions of this Lease, Tenant shall have access to the
Building twenty-four (24) hours a day, seven (7) days a week, three hundred
sixty-five (365) days a year, and Landlord recognizes that Tenant anticipates it
will conduct its operations during these time frames.
14.2 Tenant will immediately install separate meters to electrical
circuits and shall pay directly to the utility company all costs and expenses
related to its electrical consumption, as well as gas consumption, if ever
available at the Building. The only utility Landlord shall pay for is for water
and sewer under Section 5.2. Upon request, Tenant shall use reasonable efforts
to provide Landlord with copies of utility bills; provided, however, that
failure to do so shall not constitute a default under this Lease.
ARTICLE XV
LIABILITY OF LANDLORD
15.1 Landlord, its Officers (as defined in Section 15.5), employees,
agents and Mortgagees shall not be liable to Tenant, any Invitee or any other
person or entity for any damage (including indirect and consequential damage),
injury, loss or claim (including claims for the interruption of or loss to
business) based on or arising out of any cause whatsoever (except as otherwise
provided in this Section or in Article XVII, Article XVIII, the last sentence of
Section 2.2 or Paragraph 21 of the Addendum attached hereto), including without
limitation the following: repair to any portion of the Premises or the Building;
interruption in the use of the Premises or any equipment therein; any accident
or damage resulting from any use or operation (by Landlord, Tenant or any other
person or entity) of elevators or heating, cooling, electrical, sewerage or
plumbing equipment or apparatus; termination of this Lease by reason of damage
to the Premises or the Building; fire, robbery, theft, vandalism, mysterious
disappearance or any other casualty; actions of any other tenant of the Building
or of any other person or entity; failure or inability to furnish any service or
utility specified in this Lease; and leakage in any part of the Premises or the
Building from water, rain, ice or snow that may leak into, or flow from, any
part of the Premises or the Building, or from drains, pipes or plumbing fixtures
in the Premises or the Building. If any condition exists that may be the basis
of a claim of constructive eviction, then Tenant shall give Landlord written
notice thereof and a reasonable opportunity to correct such condition, and in
the interim Tenant shall not claim that it has been constructively evicted or
(except as provided in Article XVII or Paragraph 20 of the Addendum) is entitled
to a rent abatement. Any property placed by Tenant or Invitees in or about the
Premises or the Building shall be at the sole risk of Tenant, and Landlord shall
not in any manner be responsible therefor. For purposes of this Article, the
term "Building" shall be deemed to include the Land. Notwithstanding the
foregoing provisions of this Section, Landlord shall not be released from
liability to Tenant for any property damage caused by the gross negligence or
willful misconduct of Landlord its employees, contractors, agents or other
authorized representatives, or any physical injury to any natural person caused
by Landlord's, its employees', contractors', agents' or other authorized
representatives' gross negligence or willful misconduct to the extent such
damage or injury is not covered by insurance (a) carried by Tenant, or (b)
required by this Lease to be carried by Tenant. Landlord agrees to promptly
repair all items that are Landlord's responsibility and that materially affect
Tenant's use of the Premises.
15.2 Tenant shall reimburse Landlord for, and shall indemnify, defend
upon request and hold Landlord, its employees and agents harmless from and
against, all costs, damages, claims, liabilities, expenses (including attorneys'
fees), losses and court costs suffered by or claimed against Landlord, directly
or indirectly, based on or arising out of, in whole or in part: (a) use and
occupancy of the
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Premises or the business conducted therein; (b) any act or omission of Tenant or
any Invitee; (c) any breach of Tenant's obligations under this Lease, including
failure to surrender the Premises upon the expiration or earlier termination of
the Lease Term; (d) any entry by Tenant or any Invitee in or upon the Building
prior to the Lease Commencement Date; or (e) the breach of any representation or
warranty made by Tenant in this Lease. The provisions of this Paragraph 15.2
shall survive the expiration or earlier termination of the Lease Term. Landlord
shall reimburse Tenant for, and shall indemnify, defend upon request and hold
Tenant, its employees and agents harmless from and against, all costs, damages,
claims, liabilities, expenses (including attorneys' fees), losses and court
costs suffered by or claimed against Landlord, directly or indirectly, based on
or arising out of the gross negligence or willful misconduct of Landlord, its
agents, contractors, employees or other authorized representatives. The
provisions of this paragraph shall survive the expiration or earlier termination
of the Lease Term.
15.3 If any landlord hereunder transfers the Building or such
landlord's interest therein, then such landlord shall not be liable for any
obligation or liability based on or arising out of any event or condition
occurring after such transfer. Within twenty (20) days after request, Tenant
shall attorn to such transferee and execute, acknowledge and deliver any
mutually agreeable document submitted to Tenant confirming such attornment.
15.4 Tenant shall not have the right to offset or deduct the amount
allegedly owed to Tenant pursuant to any claim against Landlord from any rent or
other sum payable to Landlord. Tenant's sole remedy for recovering upon such
claim shall be to institute an independent action against Landlord.
15.5 If Tenant or any Invitee is awarded a money judgment against
Landlord, then recourse for satisfaction of such judgment shall be limited to
execution against Landlord's estate and interest in the Building including, but
not limited to, all rents and other proceeds therefrom or related thereto. No
other asset of Landlord, any partner, director or officer of Landlord
(collectively "Officer") or any other person or entity shall be available to
satisfy or subject to such judgment, nor shall any Officer or other person or
entity have personal liability for satisfaction of any claim or judgment against
Landlord or any Officer.
ARTICLE XVI
RULES
16.1 Tenant and Invitees shall observe the rules specified in Exhibit D
and any other reasonable and nondiscriminatory rules not inconsistent with this
Lease, of which notice is given, that Landlord may promulgate for the operation
or maintenance of the Building. Landlord shall have no duty to enforce such
rules or any provision of any other lease against any other tenant; provided
that Landlord shall not enforce the rules against Tenant in a way that
discriminates unfairly against Tenant.
ARTICLE XVII
DAMAGE TO BUILDING
17.1 If the Premises or the Building are totally or partially damaged
by fire or other casualty, and (a) the insurance required to be carried by
Landlord hereunder is insufficient to pay the full cost of the repair and
restoration to be performed by Landlord, (b) any Mortgagee fails or refuses to
make such insurance proceeds available for such repair and restoration in
accordance with the provisions of its security instrument, (c) zoning or other
applicable Laws do not permit such repair and restoration, (d) the cost of
repair and restoration exceeds twenty-five percent (25%) of the replacement
value of the Building, or (e) in Landlord's reasonable judgment the period
needed for effecting a satisfactory settlement with any insurance company
involved, removing debris, preparing plans, obtaining all required governmental
permits and other approvals and completing such repair and restoration will
exceed two hundred twenty-five (225) days after the occurrence of such damage,
then Landlord shall have the right, at its sole option, to terminate this Lease
by giving written notice of termination within forty-five (45) days after the
occurrence of such damage, or, if
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later, within ten (10) days after Landlord last receives notice of the existence
of any of the circumstances in clauses (a) through (e) above. Landlord shall
have no liability to Tenant in the event Landlord's estimate of the time frame
for the circumstances in clause (e) above proves inaccurate. If the Premises or
the Building is totally or partially damaged by fire or other casualty that
renders the Premises totally or partially inaccessible or unusable, and the
conditions in clause (e) above exist with respect to the Premises, then Tenant
shall have the right, at Tenant's option, to terminate this Lease by giving
written notice of termination within forty-five (45) days after the occurrence
of such damage, or, if earlier, within twenty 20 days after Landlord notifies
Tenant that Landlord intends to proceed with repair and restoration as required
by this Article or at any time if the repair and restoration is not completed
within two hundred twenty-five (225) days after the occurrence of such damage.
If this Lease is terminated pursuant to this Article, then rent shall be
apportioned (based on the portion of the Premises which is usable after such
damage) and paid to the date of termination. Upon Tenant's written request,
Landlord will provide Tenant with the casualty provisions of its Mortgagee's
security instrument.
17.2 If this Lease is not terminated as a result of such damage, then,
after collecting the insurance proceeds attributable to such damage, Landlord
shall diligently repair and restore the Premises to substantially the same
condition they were in prior to such damage; provided, however, that Landlord
shall not be required to repair or restore any Above-Standard Improvements,
generators, uninterruptible power supply, antennae, satellite dishes equipment,
generator, supplemental HVAC brought in by Tenant or uninterruptible power or
Alteration previously made by Tenant (unless mutually agreed by Tenant and
Landlord and insurance proceeds applicable thereto have been paid to Landlord)
or any of Tenant's Furnishings or personal property. Landlord shall bear the
expenses of such repair and restoration of the Premises and the Building;
provided, however, that if such damage or destruction was caused solely or
primarily by the negligence or willful misconduct of Tenant or any Invitee, then
Tenant shall pay the amount by which such expenses exceed the insurance
proceeds, if any, actually received by Landlord on account of such damage and
the amount (not to exceed $25,000) of any deductible. If this Lease is not
terminated as a result of such damage, then until such repair and restoration of
the Premises are substantially complete, Tenant shall be required to pay the
Base Rent and additional rent only for the portion of the Premises that is
suitable for Tenant to reasonably conduct its normal business (in Tenant's
reasonable judgment) while such repair and restoration are being made; provided,
however, that if a delay in the substantial completion of such repair and
restoration shall occur as a result of any cause of the kind described in
Exhibit B as a Tenant Delay, including any failure by Tenant to provide Landlord
with plans and specifications for such repair or restoration within fifteen (15)
days of Landlord's request or any delay by Tenant in giving authorizations,
approvals or substitutions necessary for completion of the repair or
restoration, then Tenant shall not be entitled to any rent reduction for any
period in excess of the period which would be necessary regardless of the
aforementioned delays to restore the Premises to Building Standard Work
condition.
ARTICLE XVIII
CONDEMNATION
18.1 If one-third or more of the area of the Premises or occupancy
thereof shall be taken or condemned by any governmental or quasi-governmental
authority for any public or quasi-public use or purpose or sold under threat of
such a taking or condemnation (collectively, "Condemned" or "Condemnation"),
then this Lease shall terminate on the date title vests in such authority and
rent shall be apportioned as of such date. If less than one-third of the
Premises or occupancy thereof is Condemned, then this Lease shall continue in
full force and effect as to the part of the Premises not Condemned, except that
as of the date title vests in such authority Tenant shall not be required to pay
the Base Rent and additional rent with respect to the part of the Premises
Condemned. If any Condemnation reduces the number of parking spaces available to
the Building, then the number of Permitted Parking Spaces shall be reduced
proportionately. If there is a Condemnation of the Land or the Building for
which the award, damages and other compensation can reasonably be expected to
exceed twenty-five percent (25%) of the replacement value of the Land or
Building, then regardless of whether the Premises are affected, Landlord shall
have the right to terminate this Lease as of the date title vests in such
authority by written notice to Tenant within forty-five (45) days of the date
title vests in such authority. Notwithstanding the foregoing provisions; if more
than twenty percent (20%) of the Premises is condemned, and Tenant, in its
reasonable judgment, determines that it can't conduct its business operations in
the remaining Premises, then, upon thirty (30) days prior
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written notice to Landlord, Tenant may terminate the Lease and all obligations
of the parties shall cease as of the date of termination set forth in such
notice, except those obligations which expressly survive termination of this
Lease.
18.2 All awards, damages and other compensation paid by such authority
on account of such Condemnation shall belong to Landlord, and Tenant assigns to
Landlord all rights to such awards, damages and compensation. Tenant shall not
make any claim against Landlord or the authority for any portion of such award,
damages or compensation attributable to damage to the Premises, value of the
unexpired portion of the Lease Term, loss of profits or goodwill, leasehold
improvements (to the extent paid for by Landlord), furnishings or severance
damages. Nothing contained herein, however, shall prevent Tenant from pursuing a
separate claim against the authority for the value of Furnishings installed in
the Premises at Tenant's expense and for relocation expenses and for leasehold
improvements paid for by Tenant; provided that such claim shall in no way
diminish the amounts payable to Landlord in connection with such Condemnation.
ARTICLE XIX
DEFAULT
19.1 An "Event of Default" is: (a) Tenant's failure to pay Base Rent,
additional rent or other sum within seven (7) business days after written notice
from Landlord that the same is overdue or, if Tenant has received two (2) or
more such notices within the immediately preceding twelve (12) month period,
then within five (5) days after. The date on which such sum is due; (b) an Event
of Bankruptcy as specified in Article XX; (c) Tenant's dissolution or
liquidation: (d) any breach of any material representation or warranty by
Tenant; or (e) Tenant's failure to observe or perform any other term, covenant
or condition of the Lease after twenty (20) days written notice from Landlord
identifying the specific failure or violation, provided, however that in the
event the violation identified is incapable of being cured within such twenty
(20) day period for reasons which are beyond the reasonable control of Tenant,
then such twenty (20) day cure period shall be extended for an additional
reasonable amount of time, not to exceed ninety (90) days, necessary for Tenant
to effect such cure, as long as Tenant proceeds diligently to effect such cure
upon its receipt of Landlord's written notice.
19.2 This Lease is entered into on the express condition that if there
shall be an Event of Default, including an Event of Default prior to the Lease
Commencement Date, then the provisions of this Section shall apply. Landlord
shall have the right, at its sole option, to terminate this Lease. In addition,
with or without terminating this Lease, Landlord may re-enter, terminate
Tenant's right of possession and take possession of the Premises pursuant to
applicable laws, or by such other proceedings, including re-entry and
possession, as may be applicable. The provisions of this Article shall not
operate as a notice to quit, any other notice to quit or of Landlord's intention
to re-enter the Premises being expressly not waived. If Landlord elects to
terminate this Lease and/or elects to terminate Tenant's right of possession,
then all of Landlord's obligations as set forth in this Lease shall cease.
Landlord may relet the Premises or any part thereof, alone or together with
other premises, for such term(s) (which may extend beyond the date on which the
Lease Term would have expired but for Tenant's default) and on such terms and
conditions (which may include concessions or free rent and alterations of the
Premises) as Landlord, in its sole discretion, may determine, but Landlord shall
not be liable for, nor shall Tenant's obligations be diminished by reason of,
Landlord's failure to relet the Premises or collect any rent due upon such
reletting. Whether or not this Lease is terminated, Tenant nevertheless shall
remain liable for the Base Rent, additional rent and any other sums or damages
which may be due or sustained prior to the later of termination of this Lease or
Landlord's recovery of possession of the Premises, and all costs, fees and
expenses (including without limitation reasonable attorney's fees in the event
of any dispute regarding the Lease, brokerage fees and expenses incurred in
placing the Premises in first-class rentable condition) incurred by Landlord in
pursuit of its remedies and in renting the Premises to others from time to time.
Tenant shall also be liable for additional damages which at Landlord's election
shall be either Monthly Damages or Present Value Damages. "Monthly Damages"
shall be an amount equal to the Base Rent and additional rent which would have
become due during the remainder of the Lease Term, less the amount of rental, if
any, which Landlord receives during such period from others to whom the Premises
may be rented (other than any additional rent payable as a result of any failure
of such other person to perform any of it obligations), which damages shall be
computed and payable in monthly installments, in advance, on the first day of
each calendar month following Tenant's
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default and continuing until the date on which the Lease Term would have expired
but for Tenant's default; provided, however, that if at the time of any
reletting of the Premises there exists other space in the Building available for
leasing, then the Premises shall be deemed the last space rented, even though
the Premises may be relet prior to the date such other space is leased. Separate
suits may be brought to collect any such Monthly Damages for any month(s), and
such suits shall not in any manner prejudice Landlord's right to collect any
such damages for any subsequent month(s), or Landlord may defer any such suit
until after the expiration of the Lease Term, in which event such suit shall be
deemed not to have accrued until the expiration of the Lease Term. "Present
Value Damages" shall be an amount equal to the present value (as of the date of
Tenant's default) of the Base Rent and additional rent which would have become
due through the date on which the Lease Term would have expired but for Tenant's
default, which damages shall be payable to Landlord in a lump sum on demand. For
purpose of this Section, present value shall be computed by discounting at a
rate equal to one (1) whole percentage point above the discount rate then in
effect at the Federal Reserve Bank with jurisdiction over banks in the area in
which the Building is located. Tenant waives any right of redemption, re-entry
or restoration of the operation of this Lease under any present of future law,
including any such right, which Tenant would otherwise have if Tenant shall be
dispossessed for any cause.
19.3 Landlord shall have the right to terminate any renewal right
contained in this Lease, and to grant or withhold any consent or approval
pursuant to this Lease in its sole and absolute discretion, if two or more an
Events of Default have occurred. If this Lease requires Landlord to be
reasonable in giving any prior written consent or approval of an action by
Tenant, Landlord nevertheless shall not be required to be reasonable in
approving the action of Tenant if Tenant took the action without first seeking
Landlord's prior written consent pursuant to this Lease. Landlord shall have no
obligation to refund to Tenant or to credit to Tenant against any other amounts
or installments coming due to Landlord hereunder any amount otherwise owed or
creditable by Landlord to Tenant pursuant to the terms of this Lease if (a)
Tenant is in default hereunder but an Event of Default has not occurred, unless
such default is cured prior to the expiration of any applicable grace period or
(b) an Event of Default has occurred. The provisions of this Section shall apply
notwithstanding anything to the contrary in this Lease, and whether or not this
Lease and/or Tenant's right of possession is terminated as a result of Tenant's
default.
19.4 Landlord's rights and remedies set forth in this Lease are
cumulative and in addition to Landlord's other rights and remedies at law or in
equity, Landlord's exercise of any such right or remedy shall not prevent the
concurrent or subsequent exercise of any other right or remedy. Landlord's delay
or failure to exercise or enforce any of Landlord's rights or remedies or
Tenant's obligations shall not constitute a waiver of any such rights, remedies
or obligations. Landlord shall not be deemed to have waived any default unless
such waiver expressly is set forth in an instrument signed by Landlord. Any such
waiver shall not be construed as a waiver of any covenant or condition except as
to the specific circumstances described in such waiver. Neither Tenant's payment
of an amount less than a sum due nor Tenant's endorsement or statement on any
check or letter accompanying such payment shall be deemed an accord and
satisfaction. Notwithstanding any request or designation by Tenant, Landlord may
apply any payment received from Tenant to any payment then due. Landlord may
accept the same without prejudice to Landlord's right to recover the balance of
such sum or to pursue other remedies. Re-entry and acceptance of keys shall not
be considered an acceptance of a surrender of this Lease.
19.5 If more than one natural person and/or entity shall constitute
Tenant or if Tenant is a general partnership or other entity, the partners or
members of which are subject to personal liability, then the liability of each
such person, entity, partner or member shall be joint and several. If Tenant is
a partnership, without limiting any other proper means for service of process
upon Tenant or its partners, Tenant represents and warrants to Landlord that
each General Partner has irrevocably appointed the person to whom notices to
Tenant under this Lease are to be addressed as its agent for service of process
in all matters relating to this Lease. Tenant represents and warrants to
Landlord that neither Tenant, nor any Guarantor, nor any General Partner, is
entitled, directly or indirectly, to diplomatic or sovereign immunity.
19.6 If Tenant fails to do any act herein required to be made or done
by Tenant, the Landlord may after written notice to Tenant and Tenant not having
performed same within the applicable cure period, but shall not be required to,
make such payment or do such act. Landlord's taking such action shall not be
considered a cure of such failure by Tenant or prevent Landlord from pursuing
any
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remedy it is otherwise entitled to in connection with such failure. If Landlord
elects to make such payment or do such act, then all reasonable and necessary
expenses incurred, plus interest thereon at the Default Rate from the date
incurred to the date of payment thereof by Tenant, shall constitute additional
rent. The "Default Rate" shall equal the rate per annum which is the greater of
fifteen percent (15%) or four (4) whole percentage points above the prime rate
published from time to time by First Union Bank or such replacement rate as
Landlord may designate if said prime rate is not available.
19.7 If Tenant fails to make any payment of the Base Rent, additional
rent or any other sum payable to Landlord within five (5) days of the date such
payment is due and payable (without regard to any grace period specified in
Section 19.1), then Tenant shall pay a late charge of five percent (5%) of the
amount of such payment. In addition, such payment and such late charge shall
bear interest at the Default Rate from the date such payment was due to the date
of payment.
ARTICLE XX
BANKRUPTCY
20.1 An "Event of Bankruptcy" is: the occurrence, with respect to
Tenant, any guarantor or surety of this Lease ("Guarantor"), or any general
partner in Tenant (a "General Partner") of any of the following: (a) any such
person's becoming insolvent, as that term is defined in Title 11 of the United
States Code (the "Bankruptcy Code"), or under the insolvency laws of any state
(the "Insolvency Laws"); (b) appointment of a receiver or custodian for any
property of any such person, or the institution of a foreclosure or attachment
action upon any property of any such person; (c) filing of a voluntary petition
by any such person under the provisions of the Bankruptcy Code or Insolvency
Laws; (d) filing of an involuntary petition against any such person as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which either (1) is
not dismissed within sixty (60) days after filing, or (2) results in the
issuance of an order for relief against the debtor; or (e) any such person's
making or consenting to an assignment for the benefit of creditors or a
composition of creditors.
20.2 Upon occurrence of an Event of Bankruptcy, Landlord shall have all
rights and remedies available pursuant to Article XIX; provided, however, that
while a case (the "Case") in which Tenant is the subject debtor under the
Bankruptcy Code is pending, Landlord's right to terminate this Lease shall be
subject, to the extent required by the Bankruptcy Code, to any rights of Tenant
or its trustee in bankruptcy (collectively, "Trustee") to assume or assign this
Lease pursuant to the Bankruptcy Code. Trustee shall not have the right to
assume or assign this Lease unless Trustee promptly: (a) cures all defaults
under this Lease; (b) compensates Landlord for damages incurred as a result of
such defaults; (c) provides adequate assurance of future performance on the part
of Tenant or Tenant's assignee; (d) complies with the other requirements of this
Article; and (e) complies with all other requirements of the Bankruptcy Code. If
Trustee fails to assume or assign this Lease in accordance with the requirements
of the Bankruptcy Code within sixty (60) days after the initiation of the Case,
then Trustee shall be deemed to have rejected this Lease. Adequate assurance of
future performance shall require that the following minimum criteria be met: (1)
Tenant's gross receipts in the ordinary course of business during the thirty
(30) days preceding the Case must be greater than ten (10) times the next
monthly installment of the Base Rent and additional rent; (2) both the average
and median of Tenant's monthly gross receipts in the ordinary course of business
during the seven (7) months preceding the Case must be greater than ten (10)
times the next monthly installment of the Base Rent and additional rent; (3)
Trustee must pay its estimated pro-rata share of the cost of all services
performed or provided by Landlord (whether directly or through agents or
contractors and whether or not previously included as part of the Base Rent) in
advance of the performance or provision of such services; (4) Trustee must agree
that Tenant's business shall be conducted in a first-class manner, and that no
liquidating sale, auction or other non-first-class business operation shall be
conducted in the Premises; (5) Trustee must agree that the Use of the Premises
as stated in this Lease shall remain unchanged and that no prohibited use shall
be permitted; (6) Trustee must agree that the assumption or assignment of this
Lease shall not violate or affect the rights of other tenants in the Building
and the Project; (7) Trustee must pay at the time the next monthly installment
of the Base Rent is due, in addition to such installment, an amount equal to the
monthly installments of the Base Rent and additional rent due for the next six
(6) months thereafter, such amount to be held as a security deposit; (8) Trustee
must agree to pay, at any time Landlord draws on such security deposit, the
amount necessary to restore such security
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deposit to its original amount; and (9) all assurances of future performance
specified in the Bankruptcy Code must be provided. If Trustee shall propose to
assume and assign this Lease to any person who shall have made a bona fide offer
to accept an assignment of this Lease on terms acceptable to Trustee, then
notice of such proposed assignment shall be given to Landlord by Trustee no
later than twenty (20) days after receipt by Trustee of such offer, but in any
event no later than ten (10) days prior to the date that Trustee shall make
application to the court of competent jurisdiction for approval to assume this
Lease and enter into such assignment, and Landlord shall thereupon have the
option, to be exercised by notice to Trustee given at any time prior to the date
of such application, to accept an assignment of this Lease upon the same terms
and conditions and for the same consideration, if any, as the offer made by such
person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
ARTICLE XXI
SUBORDINATION
21.1 A "Mortgage" is any of the following now or hereafter in effect:
any mortgage, deed of trust, financing statement or similar security or
financing instrument securing any existing or future debt or obligation and
encumbering or affecting the Building; any master lease, ground lease or other
underlying lease or sublease under which Landlord is lessee or sublessee of the
Building; and all renewals, extensions, modifications, recastings or
refinancings of any such agreement or instrument. A "Mortgagee" is the holder or
other party secured by, or lessor under, any Mortgage and shall include trustees
and successors and assigns of such party whether immediate or remote, the
purchaser of any Mortgage whether at foreclosure or otherwise, and the
successors, assigns and Mortgagees of such purchaser whether immediate or
remote. A "Foreclosure" is any foreclosure, trustee's sale, deed-in-lieu of
foreclosure, termination or other enforcement. The provisions of this Article
shall be effective without any further document signed by Tenant; however, in
confirmation of the provisions of this Article, Tenant shall at Landlord's
reasonable request promptly execute any requisite or appropriate mutually
agreeable documents.
21.2 This Lease is subject and subordinate to the lien, operation and
effect of all Mortgages and any and all advances made or hereafter made under
each such Mortgage, except that if and to the extent specifically elected by any
Mortgagee in writing, at its sole option, this Lease shall be deemed superior to
such Mortgagee's Mortgage and any Mortgage which is subordinate to such
Mortgage, to the extent necessary to prevent any Foreclosure of such Mortgage
and/or Mortgages from terminating or affecting this Lease and Tenant's rights
hereunder, but such superiority shall not limit the ability of any Mortgagee to
exercise the other rights granted in its Mortgage, including but not limited to
the right to direct the application of insurance or condemnation proceeds. Such
election by a Mortgagee may be made in its Mortgage, in an advertisement of a
Foreclosure sale, or in a separate document executed before, or within a
reasonable time after, a Foreclosure. Tenant waives the provisions of any
statute or rule of law now or hereafter in effect which may give or purport to
give Tenant any right to terminate or otherwise adversely affect this Lease or
Tenant's obligations in the event any Foreclosure is prosecuted or completed or
in the event the Land, the Building or Landlord's interest therein is sold at a
Foreclosure. If this Lease is not terminated or extinguished upon such
Foreclosure or by the purchaser or successor ("Successor") following such
Foreclosure, then Tenant shall attorn to the Purchaser or Successor following
such Foreclosure ("Successor") and shall recognize such Successor as the
landlord under this Lease. Upon such attornment such Successor shall not be: (a)
bound by any payment of the Base Rent or additional rent more than one (1) month
in advance; (b) bound by any amendment of this Lease made without the written
consent of the Mortgagee under each Mortgage existing as of the date of such
amendment; (c) liable for any breach, act or omission of any prior landlord; (d)
subject to any offsets, defenses or counterclaims which Tenant might have
against any prior landlord; (e) obligated to perform any work for Tenant or the
Premises; or (f) liable for the return of any security deposit not actually
received by such Successor. Any liability of the Mortgagee or Successor
hereunder shall exist only during the time such Mortgagee or Successor is the
owner of the Land, Building or the Project and shall be subject to any other
limitations of liability under this Lease.
21.3 If any lender or prospective lender providing financing secured by
the Building requires as a condition of such financing that modifications to
this Lease be obtained, and provided that such modifications (a) are reasonable,
(b) do not adversely affect in a material manner Tenant's use of the
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Premises or the Building as herein permitted, and (c) do not increase the rent
and other sums to be paid by Tenant, then Tenant shall diligently negotiate with
lender and Landlord a mutually acceptable amendment to this Lease incorporating
such modifications within ten (10) days after receipt of such amendment from
Landlord.
21.4 Tenant shall be entitled (without any liability to Landlord) to
rely on any notice which Tenant receives from any Mortgagee stating that such
Mortgagee is exercising its rights under its Mortgage and is thereafter entitled
to receive all amounts thereafter due under this Lease; provided that Tenant has
first received from such Mortgagee written notice of the existence of such
Mortgage, together with a copy of the relevant provision of the applicable
instrument and a copy of any and all notices to Landlord pursuant to which said
Mortgagee is exercising said right to receive the amounts thereafter due
hereunder.
ARTICLE XXII
QUIET ENJOYMENT
22.1 Landlord covenants that if Tenant shall perform timely all of its
obligations within any applicable cure periods provided in this Lease, then,
subject to the provisions of this Lease, Tenant shall during the Lease Term
peaceably and quietly occupy and enjoy possession of the Premises without
hindrance by Landlord or anyone rightfully claiming through Landlord.
22.2 Landlord reserves the right to: (a) change the street address and
name of the Building or the project; (b) change the arrangement and location of
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the Building; (c) erect, use and maintain pipes and
conduits in and through the Premises; (d) grant to anyone the exclusive right to
conduct any particular business in the Building not inconsistent with the
permitted Use of the Premises; (e) subject to Tenant's rights under Section 4 of
the Addendum, use or lease exclusively the roof areas, the sidewalks and other
exterior areas; (f) resubdivide the Land or to combine the Land with other
lands; (g) construct improvements (including kiosks) on the Land and in the
public and common areas of the Building; (h) relocate any parking area
designated for Tenant's use; and (i) install and display signs, advertisements
and notices on any part of the exterior or interior of the Building. Exercise of
any such right shall not be considered a constructive eviction or a disturbance
of Tenant's business or occupancy provided, however, Landlord shall use
reasonable efforts (i) to minimize disruption to Tenant's business, (ii) not
permanently and materially adversely affect access to the Premises or the Common
Areas serving the Premises, and (iii) not adversely alter the visibility of
Tenant's exterior signage.
22.3 Without limiting the generality of the preceding Section, and
subject to Tenant's rights in Paragraphs 2, 3, 4 and 5 of the Addendum, Tenant's
rights under this Lease shall extend only to the surfaces facing the interior of
the space identified in Article I as the Premises, and not to any other areas,
including but not limited to: (a) exterior walls; (b) the space above the hung
ceiling; (c) the space below the underside of the Premises; (d) the Land; (e)
the roof of the Building; and (f) the common or public areas of the Building
(except for ingress and egress purposes expressly permitted by this Lease and
all rights of signage provided to Tenant in this Lease). No easement for light
or air is incorporated in the Premises.
22.4 Subject to Tenant's or Tenant's customers' security provisions as
otherwise set forth in Paragraph 26 of the Addendum to this Lease, Tenant shall
permit Landlord and Landlord's designees to enter the Premises, without charge
or diminution of rent therefore, to inspect or maintain and exhibit (within the
last twelve (12) months of any given term) the Premises and to install,
maintain, repair, replace or relocate for service building service fixtures,
equipment and facilities wherever located in the Building provided that
substitutions thereof are substantially equivalent or better.
ARTICLE XXIII
GENERAL PROVISIONS
23.1 Tenant acknowledges that neither Landlord nor any broker, agent or
employee of Landlord has made any representation or promise with respect to the
Premises or the Building except
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as expressly set forth herein, and no right is being acquired by Tenant except
as expressly set forth herein. This Lease contains the entire agreement of the
parties and supersedes all prior agreements, negotiations, letters of intent,
proposals, representations, warranties and discussions between the parties. This
Lease may be changed in any manner only by an instrument signed by both parties.
23.2 Nothing contained in this Lease shall be construed as creating any
relationship between Landlord and Tenant other than that of landlord and tenant.
23.3 Landlord and Tenant each warrants that in connection with this
Lease it has not employed or dealt with any broker, agent or finder other than
the Broker(s). Tenant shall indemnify and hold Landlord harmless from and
against any claim for brokerage or other commissions asserted by any other
broker, agent or finder employed by Tenant or with whom Tenant has dealt.
Landlord shall indemnify and hold Tenant harmless from and against any claim for
brokerage or other commissions asserted by any other broker, agent or finder
employed by Landlord or with whom Landlord has dealt. Landlord shall pay all
commissions of Brokers, subject to a separate agreement between Landlord and
Brokers, as its sole and separate cost.
23.4 From time to time upon twenty (20) days' prior written notice,
Tenant and each Transferee shall execute, acknowledge and deliver to Landlord
and any designee of Landlord a written statement certifying: (a) that this Lease
is unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and stating the modifications); (b) the amount of Base
Rent and additional rent and the dates to which rent and any other charges have
been paid; (c) that Landlord is not in default in the performance of any
obligation (or specifying the nature of any default); (d) the address to which
notices are to be sent; (e) the Lease Commencement Date and date of expiration
of the Lease Term; (f) that Tenant has accepted the Premises and all work
thereto has been completed (or specifying the incomplete work); and (g) such
other matters as Landlord may reasonably request. From time to time upon ten
(10) days' prior written notice, Tenant shall deliver to Landlord the most
current quarterly financial statements of Tenant (including 10Q's and 10K's).
Tenant represents and warrants to Landlord that all financial statements and
information previously or in the future delivered to Landlord regarding Tenant,
shall be true, correct and complete. Tenant represents and warrants to Landlord
that there has been no material adverse change in Tenant's financial condition
from that depicted in the financial statements previously delivered to Landlord
by Tenant. Any breach of the representations and warranties contained in the
immediately preceding sentences shall constitute an Event of Default under this
Lease. Any statements delivered pursuant to this Section may be relied upon by
any owner of the Building or the Land, any prospective purchaser of the Building
or the Land, any lender or prospective lender, or any other person or entity.
Tenant acknowledges that time is of the essence to the delivery of such
statements and Tenant's failure to deliver timely such statements may cause
substantial damages resulting from, for example, delays in obtaining financing
secured by the Building.
23.5 Landlord, and Tenant, waive trial by jury in any action, claim or
counterclaim brought in connection with any matter arising out of or in any way
connected with this Lease, the landlord-tenant relationship, or Tenant's use or
occupancy of the Premises or any claim of injury or damage except for claims
brought by third parties. Tenant consents to service process and any pleading
relating to any such action at the address of its agent for service of process
to: Edward R. Parker, 5511 Staples Mill Road, Richmond, VA 23228; provided,
however, that nothing herein shall be construed as requiring such service at
such address Landlord and Tenant waive any objection to the venue of any action
filed in any court situated in the jurisdiction in which the Building is located
and waive any right to transfer any such action filed in any such court to any
other court.
23.6 All notices or other required communications shall be in writing
and shall be deemed duly given when sent by Federal Express or other overnight
courier, on the next business day after being sent or when sent by certified or
registered mail, return receipt requested, postage prepaid, on the second
business day after being sent to the Addresses set forth in Article I. Landlord
and Tenant shall each have the right to send any and all notices by electronic
facsimile transmission ("Fax") to the other party at the Fax number set forth
below such party's name in Article 1. Any such notice transmitted by Fax shall
be deemed given on the date of completion of the Fax (as evidenced by the
telecopier confirmation sheet of the sender), provided that such Fax is
confirmed within two (2) business days by duplicate notice sent in a manner
permitted by the preceding sentence. Any party may change its Address for the
giving of notices by notice given in accordance with this Section. If Landlord
or any Mortgagee notifies Tenant, in writing in accordance with the foregoing
notice
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provisions, that a copy of each notice to Landlord shall be sent to any
Mortgagee at a specified address, the Tenant shall send (in the manner specified
in this Section and at the same time such notice is sent to Landlord) a copy of
each such notice to such Mortgagee, and no such notice shall be considered duly
sent unless such copy is so sent to such Mortgagee. In accordance with the
foregoing, Landlord hereby notifies Tenant that a copy of each notice to
Landlord shall be sent to the Existing Mortgagee(s) at the address specified in
Article I (or at such other address as Tenant is notified by Landlord or the
Existing Mortgagee(s)). If Tenant claims that Landlord has breached any
obligation, then Tenant shall send each Mortgagee notice specifying the breach
and shall permit each such Mortgagee a reasonable opportunity to cure the
breach.
23.7 Each provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law. If any provision or its application to any
person or circumstance shall to any extent be invalid or unenforceable, then
such provision shall be deemed to be replaced by the valid and enforceable
provision most substantively similar thereto, and the remainder of this Lease
and the application of such provision to other persons or circumstances shall
not be affected.
23.8 This Section sets forth certain rules of construction, which shall
apply to this Lease and all agreements and Exhibits supplemental to this Lease,
unless the context otherwise requires. Feminine, masculine or neuter pronouns
shall be substituted for those of another form, and the plural or singular shall
be substituted for the other number, in any place in which the context may
require. The term "person" includes natural persons as well as corporations,
partnerships and other entities. The terms "include," "such as" and the like
shall be construed as if followed by the phrase "without being limited to." The
terms "herein," "hereunder" and the like shall refer to this Lease as a whole,
not to any particular Section or other part, unless expressly so stated. The
term "tenant" shall include any and all occupants of the Building. The terms
"consent," "approval" and the like shall mean prior written consent and
approval. References to days, months or years shall refer to calendar days (i.e.
Sunday, Monday, etc.), calendar months (i.e. January, February, March, etc.), or
calendar years (i.e. 1990, 1991, etc.) unless expressly so stated. The terms
"business day," "work day" and the like shall mean any day other than Saturday,
Sunday or a Holiday.
23.9 The provisions of this Lease shall be binding upon and inure to
the benefit of the parties and their respective representatives, successors and
assigns, subject to the provisions herein restricting Transfers. No other person
shall have any rights hereunder or be deemed a third-party beneficiary of this
Lease.
23.10 This Lease shall be governed by the laws of the jurisdiction in
which the Building is located.
23.11 Headings and any table of contents or index are used for
convenience and shall not be considered when construing this Lease.
23.12 The submission to Tenant of an unsigned copy of this document,
including drafts and correspondence submitted to Tenant by any person on
Landlord's behalf, shall not constitute an offer or option to lease. This Lease
shall become effective and binding only upon execution and delivery by both
Landlord and Tenant.
23.13 Time is of the essence with respect to each provision of this
Lease.
23.14 This Lease may be executed in multiple counterparts, each of which
is deemed an original and all of which constitute one and the same document.
Neither this Lease nor a memorandum thereof shall be recorded without the
written approval of both Landlord and Tenant.
23.15 Tenant hereby waives any right to damages based upon Landlord's
actually or allegedly wrongfully withholding or delaying any consent under or in
connection with this Lease. Tenant's sole remedy for any wrongfully withheld or
delayed consent shall be a proceeding for specific performance, or injunction or
declaratory judgment. In no event shall Tenant be entitled to any other rights
or remedies arising from any such withholding or delaying of consent.
23.16 Landlord reserves the right to make reasonable changes to the
plans and specifications for the Building without Tenant's consent, provided
such changes do not alter the character of the Building as a first-class office
building, materially adversely affect access to the Premises or the
20
<PAGE> 24
common areas serving such Premises or materially adversely affect the visibility
of Tenant's signage.
23.17 Except as otherwise provided in this Lease, any additional rent or
other sum owed by Tenant to Landlord, and any cost, expense, damage or liability
incurred by Landlord for which Tenant is liable, shall be considered additional
rent payable pursuant to this Lease and paid by Tenant no later than fifteen
(15) business days after the date Landlord notifies Tenant of the amount
thereof. If Tenant wishes to object to any statement rendered by Landlord
setting forth the amount of any additional rent, Tenant shall give Landlord
written notice, specifying in reasonable detail the grounds for Tenant's
objection, within fifteen (15) business days after the statement is rendered to
Tenant; provided that such objection shall not entitle Tenant to reduce or delay
paying any additional rent. Tenant shall be deemed to have waived any such
objection if Tenant does not give Landlord the written notice of objection as
and when described above.
23.18 The rentable area of the Building and the Premises has been
previously determined by the Landlord in accordance with the Washington, D.C.
Association of Realtors, Inc. Standard Method of Measurement. In the event the
Building Architect determines prior to Lease Commencement that any square
footage shown in Article I varies by more than four percent (4%) from the
correct square footage and certifies said determination, the Base Rent and any
other amount based on such square footage shall be appropriately adjusted in an
amendment to this Lease prepared by Landlord and executed by Landlord and
Tenant.
23.19 Landlord and Tenant's liabilities existing as of the expiration or
earlier termination of the Lease Term shall survive such expiration or earlier
termination.
23.20 If Landlord or Tenant is in any way delayed or prevented from
performing any obligation due to fire, act of God, governmental act or failure
to act, labor dispute, inability to procure materials or any cause beyond
Landlord's reasonable control (whether similar or dissimilar to the foregoing
events), then the time for performance of such obligation shall be excused for
the period of such delay or prevention and extended for a period equal to the
period of such delay or prevention provided, however, this provision shall not
excuse any delay in the payment of Base Rent or additional Rent.
23.21 The deletion of any printed, typed or other portion of this Lease,
or any earlier draft of this Lease, shall not evidence an intention to
contradict such deleted portion. Such deleted portion shall be deemed never to
have been inserted in this Lease.
The person executing this Lease on Landlord's and Tenant's behalf warrants that
such person is duly authorized to so act.
(SIGNATURES ON FOLLOWING PAGE)
21
<PAGE> 25
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
WITNESS: LANDLORD:
CORPORATE OAKS LIMITED PARTNERSHIP
[SIGNATURE] By: /s/ PETER H. LUNT
- ---------------------------- ---------------------------------
Name: Peter H. Lunt
Title: Executive Vice President
NVCommercial Incorporated,
General Partner
WITNESS: TENANT:
NETWORK SOLUTIONS, INC.
[SIGNATURE] By: /s/ MICHAEL A. DANIELS
- ---------------------------- ---------------------------------
Name: Michael A. Daniels
Title: Acting Chief Executive Officer
and Chairman of the Board
[SIGNATURE] By: /s/ ROBERT J. KORZENIEWSKI
- ---------------------------- ---------------------------------
Name: Robert J. Korzeniewski
Title: Chief Financial Officer
NETWORK SOLUTIONS, INC.
JULY 16, 1996
DELAWARE
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<PAGE> 26
INDEX OF CERTAIN DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM: DEFINED IN:
- ------------- -----------
<S> <C>
Above-Standard Work.................................................................................Exhibit B
Alterations..........................................................................................Sec. 9.1
Anticipated Occupancy Date..........................................................................Exhibit B
Bankruptcy Code.....................................................................................Sec. 20.1
Base Rent...........................................................................................Article I
Base Rent Escalator.................................................................................Article I
Broker(s)...........................................................................................Article I
Building............................................................................................Article I
Building Architect..................................................................................Article I
Building Standard Work..............................................................................Exhibit B
Case................................................................................................Sec. 20.2
Condemnation........................................................................................Sec. 18.1
Condemned...........................................................................................Sec. 18.1
Contractor..........................................................................................Exhibit B
Default Rate........................................................................................Sec. 19.7
Event of Bankruptcy.................................................................................Sec. 20.1
Event of Default....................................................................................Sec. 19.1
Foreclosure.........................................................................................Sec. 21.1
Furnishings..........................................................................................Sec. 3.2
General Partner.....................................................................................Sec. 20.1
Guarantor...........................................................................................Sec. 20.1
Holidays............................................................................................Sec. 14.1
Insolvency Laws.....................................................................................Sec. 20.1
Invitees.............................................................................................Sec. 8.1
Land.................................................................................................Sec. 5.2
Landlord........................................................................................1st Paragraph
Landlord's Address..................................................................................Article I
Laws.................................................................................................Sec. 6.1
Lease...........................................................................................1st Paragraph
Lease Commencement Date..............................................................................Sec. 3.2
Lease Term...........................................................................................Sec. 3.1
Lease Term Length...................................................................................Article I
Lease Year...........................................................................................Sec. 3.4
Monthly Damages.....................................................................................Sec. 19.2
Mortgage(s).........................................................................................Sec. 21.1
Mortgagee(s)........................................................................................Sec. 21.1
Officer.............................................................................................Sec. 15.5
Operating Charges....................................................................................Sec. 5.2
Operating Charges Base Amount........................................................................Sec. 5.1
Operating Charges Stop..............................................................................Article I
Parking Rent........................................................................................Article I
Permitted Parking Spaces............................................................................Article I
Premises............................................................................................Article I
Present Value Damages...............................................................................Sec. 19.2
Project..............................................................................................Sec. 2.1
Proposed Transfer Commencement Date..................................................................Sec. 7.3
Proposed Transfer Space..............................................................................Sec. 7.3
Punch List Items....................................................................................Exhibit B
Real Estate Taxes....................................................................................Sec. 5.3
Security Deposit....................................................................................Article I
Substantially Completed.............................................................................Exhibit B
Substitute Premises.................................................................................Sec. 22.5
Successor...........................................................................................Sec. 21.2
Tenant..........................................................................................1st Paragraph
Tenant Delay........................................................................................Exhibit B
Tenant's Address....................................................................................Article I
Tenant's Representative.............................................................................Article I
Tenant's Request Notice..............................................................................Sec. 7.3
Tenant Work.........................................................................................Exhibit B
Transfer.............................................................................................Sec. 7.1
Transferee...........................................................................................Sec. 7.1
Trustee.............................................................................................Sec. 20.2
Use.................................................................................................Article I
</TABLE>
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<PAGE> 27
EXHIBIT B
WORK AGREEMENT
This Work Agreement governs the design and construction of the
Above-Standard work to be installed in the Premises (the "Tenant Work").
Unless the context otherwise requires, the terms used in this Exhibit
that are defined in the Lease shall have the same meanings as provided in the
Lease.
1. DESIGN
Tenant accepts the Premises in its "as is" condition, although
Landlord acknowledges to Tenant that it has ordered four (4) new Trane rooftop
HVAC units for the building with the intention of having them installed on or
before May 1, 1999, subject to force majeure. All other services, work and
materials in connection with the Tenant Work are referred to herein as the
"Above-Standard Work" and shall be provided at the expense to Tenant. All Plans
and specifications shall be delivered to Phil Hathcock of Metro Management
Services ("MMS") for review and approval prior to commencement of construction.
Landlord shall use its best efforts to respond to Tenant within five (5)
business days after receipt of plans and specifications.
2. TENANT'S CONTRACTOR
(a) Landlord must reasonably approve Tenant's general
contractor. All subcontractors' names shall be submitted to Phil Hathcock for
review and approval, such approval not to be unreasonably withheld, conditioned
or delayed.
(b) The contractors, subcontractors, or laborers employed in
connection with the work shall comply with any applicable laws and any work
rules and regulations reasonably established by Landlord from time to time for
work in the Building and uniformly applied to all workers in the Building
(c) Tenant, or its contractors and their subcontractors, will
provide such insurance as Landlord may reasonably require for its protection
from negligence or malfeasance on the part of such contractors and
subcontractors.
(d) In Landlord's best judgment, such work or the presence of
such contractors or their subcontractors will not result in delays, stoppages or
other action or the threat thereof which may interfere with Landlord, or impede
Landlord from providing operating services to other Tenants in the Building.
(e) Any approvals shall not relieve Tenant of its
responsibility to comply with the applicable provisions of the Work Agreement or
constitute a waiver by Landlord of any of its rights under the Lease.
(f) Tenant shall indemnify and hold harmless Landlord and MMS
from any loss or damages, incurred by Landlord as a result of the performance by
or on behalf of Tenant of such Above-Standard Work, and Landlord shall have the
right to bill Tenant for such amounts, which shall be payable by Tenant within
ten (10) business days of such bill. Landlord and Landlord's agent, MMS, shall
have the right to inspect Tenant's contractors' and subcontractors' work on a
regular basis. The provisions of the Lease, including Article IX thereof, shall
apply to any work done by Tenant or its contractors or subcontractors.
3. TENANT'S REPRESENTATIVE
Tenant has appointed Ken Irwin as its authorized representative
with full power and authority to bind Tenant for all actions taken with regard
to the Tenant Work. Tenant hereby ratifies all actions and decisions with regard
to Tenant Work that Tenant's Representative may have taken or made prior to the
execution of the Lease. Landlord shall not be obliged to respond to or act upon
B-1
<PAGE> 28
any plan, drawing, change order or approval or other matter relating to the
Tenant Work until it has been executed by Tenant's Representative.
4. PAYMENT OF TENANT ALLOWANCE
In consideration of this Lease and Tenant's covenants contained
herein, Landlord shall pay to Tenant the "Tenant Allowance" as defined in
Article I as a reimbursement to Tenant for the costs of performing the Tenant's
Work. The Tenant Allowance shall be paid by Landlord to Tenant in accordance
with the provision of the paragraph below. Despite the foregoing, Tenant shall
pay all costs of performing the Above-Standard Work that are in excess of the
Tenant Allowance.
Provided that Tenant is not in default, Landlord shall pay the
Tenant Allowance (or applicable portion thereof) to Tenant within thirty (30)
days after the last to occur of the following: (A) final completion of all
Tenant's work in accordance with the terms of this Lease, (B) evidence of the
satisfaction of the requirements of governmental authorities with respect
thereto, (C) receipt of releases of lien from all contractors and materialmen
who supplied labor or materials for the Tenant's Work, and (D) Landlord's
receipt of paid invoices evidencing that Tenant has actually paid to materialmen
and contractors who have supplied materials or labor for the Tenant's Work an
amount equal to or in excess of the Tenant Allowance.
B-2
<PAGE> 29
EXHIBIT C
FORM OF CERTIFICATE AFFIRMING LEASE COMMENCEMENT DATE
The Certificate to be executed by Landlord and Tenant pursuant to Section
3.2 of the Lease shall provide as follows:
"This Certificate is being provided pursuant to the terms
and provisions of that certain lease agreement dated as of
_________________ ____, 19___ (the "Lease"), by and between
________________________ and _______________________________. The
parties confirm the following:
1. The Lease Commencement Date is _________________ ____,
19___.
2. The initial term of the Lease shall expire on
__________________ ____, 19____.
3. The agreed rentable square footage of the Premises is:
_________________.
4. The agreed number of Permitted Parking Spaces allocated
to Tenant is ______________."
C-1
<PAGE> 30
EXHIBIT D
RULES
1. Tenant and Invitees shall not obstruct or encumber or use for any
purpose other than ingress and egress to and from the Premises any sidewalk,
entrance, passage, court, elevator, vestibule, stairway, corridor, hall or other
part of the Building or Land not exclusively occupied by Tenant. Landlord shall
have the right to control and operate the public portions of the Building and
Land and the facilities furnished for common use of the tenants, in such manner
as Landlord deems best for the benefit of the tenants generally. Tenant shall
coordinate in advance with Landlord's property management department all
move-ins, move-outs and oversized deliveries to the Building, including all use
of any freight elevator, so that Landlord shall have advance knowledge thereof
and so that arrangements can be made to minimize such interference. Tenant and
their employees shall not use any of the parking spaces designated for use by
visitors.
2. Tenant and Invitees shall not place any showcase, mat or other
article in any common or public area of the Building. Tenant and Invitees shall
not place objects against glass partitions or doors or windows or adjacent to
any open common space which would be unsightly from the Building corridors or
from the exterior of the Building, and will promptly remove the same upon
written notice from Landlord. Tenant and Invitees shall not at any time place,
leave or discard any rubbish, paper, articles, or objects of any kind whatsoever
outside the doors of the Premises or in the corridors or passageways of the
Building, or on the Land.
3. Tenant and Invitees shall not use the water and wash closets and
other plumbing fixtures for any purpose other than those for which they were
constructed and shall not place any debris, rubbish, rag or other substance
therein.
4. Tenant and Invitees shall not construct, maintain, use or operate
within the Premises any electrical device, wiring or apparatus in connection
with a loudspeaker system or other sound system without Landlord's prior written
consent. Tenant and Invitees shall not construct, maintain, use or operate any
such loudspeaker or sound system outside of the Premises. This does not pertain
to Tenant's quiet communication system, which is approved.
5. Tenant and Invitees shall not bring any bicycle, vehicle, animal,
bird or pet of any kind into the Building.
6. Tenant shall not, and Tenant shall not permit or suffer anyone to:
(i) cook in the Premises, except as specifically contemplated by the Tenant Work
described in Exhibit B to the Lease or microwave cooking or coffee machines by
Tenant's employees and visitors for their own consumption; (ii) cause or permit
any unusual or objectionable odor to be produced upon or permeate from the
Premises; or (iii) use any space in the Building or on the Land for the sale of
goods to the public at large or for the sale at auction of goods or property of
any kind.
7. Tenant shall not place or allow on any floor a load exceeding the
floor load per square foot, which such floor was designed to carry. Landlord
shall have the right to prescribe the weight, position and manner of
installation of safes and other heavy items. Landlord shall have the right to
repair at Tenant's expense any damage caused by Tenant's moving property into or
out of the Premises or due to the same being in or upon the Premises or to
require Tenant to do the same. Tenant and Invitees shall not receive into the
Building or carry in the elevators any furniture, equipment or bulky item except
as approved by Landlord, and any such furniture, equipment and bulky item shall
be delivered only through the designated delivery entrance of the Building and
the designated freight elevator. Tenant shall remove promptly from sidewalks
adjacent to the Building items delivered for Tenant.
8. Door keys for doors in the Premises will be furnished at the
commencement of the Lease by Landlord with enough keys for all of Tenant's
initially designated employees to be provided with a key. Tenant shall not place
or allow additional locks or bolts of any kind on any door or window or make any
change in any lock or locking mechanism without Landlord's prior written
approval and shall provide duplicate keys to Landlord for any such additional
locks or bolts. Landlord shall be reasonable in approving the use of any
internal Cypher locks within the Premises
D-1
<PAGE> 31
provided Landlord has reasonable access unless prohibited by the security
requirements of Tenant's customers described in Paragraph 26 of the Addendum to
the Lease. Tenant shall keep doors leading to a corridor or main hall closed at
all times except as such doors may be used for ingress or egress. Upon the
termination of its tenancy, Tenant shall deliver to Landlord all keys furnished
to or procured by Tenant, and if any key so furnished is not delivered, then
Tenant shall pay the replacement cost thereof. Tenant will provide to Landlord
the means of opening any safes, cabinets or vaults left in the Premises.
9. Tenant and Invitees shall not place or install any projections,
antennas, aerials or similar devices inside or outside of the Premises without
the prior written consent of Landlord. Tenant and Invitees shall not install or
operate in the Premises any equipment that operates on greater than 110-volt
power without obtaining Landlord's prior consent. Landlord may condition such
consent upon Tenant's payment of additional rent in compensation for the excess
consumption of electricity or other utilities and for the cost of any additional
wiring or apparatus that may be occasioned by the operation of such equipment.
Tenant and Invitees shall not install any equipment of any type or nature that
will or may necessitate any changes, replacements or additions to, or changes in
the use of, the water system, heating system, plumbing system, air-conditioning
system or electrical system of the Premises or the Building. If any equipment of
Tenant or Invitees causes noise or vibration that may be transmitted to such a
degree as to be objectionable to Landlord or any tenant in the Building, then
Landlord shall have the right to install at Tenant's expense vibration
eliminators or other devices sufficient to reduce such noise and vibration to a
level satisfactory to Landlord or to require Tenant to do the same. Tenant and
Invitees shall not waste electricity or water. Tenant agrees to cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air conditioning and shall refrain from attempting to adjust any controls.
10. Landlord may exclude from the Building any person who does not
properly identify himself to the Building management or guard on duty. Landlord
may require any person admitted to or leaving the Building during off hours to
register.
11. Tenant and Invitees shall not use the Premises for: (i) lodging,
manufacturing, or for any immoral or illegal purposes; (ii) engaging in the
manufacturing or sale of, or permitting the use of, any spirituous, fermented,
intoxicating or alcoholic beverages on the Premises; or (iii) engaging in the
manufacturing or sale of, or permitting the use of, any illegal drugs on the
Premises.
12. Before closing and leaving the Premises at any time, Tenant shall
close all windows and turn off all lights. Tenant assumes full responsibility
for protecting the Premises from theft, robbery and pilferage.
13. Tenant shall not employ or request Landlord's employees to do
anything outside of such employees' regular duties whatsoever without Landlord's
prior written consent. Tenant's special requirements will be attended to only
upon application to Landlord's property management firm, and any such special
requirements shall be billed to Tenant by Landlord's property management firm
from time to time or as is agreed upon in writing in advance by Landlord's
property management firm and Tenant.
14. Canvassing, soliciting and peddling in the Building or on the Land
are prohibited. Tenant shall cooperate to prevent the same.
15. Only hand trucks equipped with rubber tires and side guards may be
used in the Building. Tenant shall be responsible for loss or damage resulting
from any delivery made by or for Tenant or the Premises.
16. Tenant shall comply with standards prescribed by Landlord for
curtains, drapes, blinds, shades, screens, lights and ceilings, including
standards designed to give the Building a uniform, attractive appearance. No
person or contractor employed by Landlord or Landlord's property management firm
shall be used to perform exterior window washing in the Premises.
17. Drapes (whether installed by Landlord or Tenant) which are visible
from the exterior of the Building shall be cleaned by Tenant at least once a
year at Tenant's expense. Landlord's property management firm shall clean
Venetian blinds.
D-2
<PAGE> 32
18. Any sign, lettering, picture, notice or advertisement installed
within the Premises (including but not limited to Tenant identification signs on
doors to the Premises) which is visible outside of the Premises shall be
installed in such manner, character and style as Landlord may approve in
writing. No sign, lettering, picture, notice or advertisement shall be placed on
any outside window or in any position so as to be visible from outside the
Building or from any atrium or lobbies of the Building.
19. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity, without the
prior written consent of Landlord.
20. Tenant and Invitees shall not bring into the Building inflammables
such as gasoline, kerosene, naphtha and benzene, or explosives or firearms or
any other article of intrinsically dangerous nature except for customary amounts
of customary office AND normal cleaning supplies, which shall be stored, used
and disposed of in accordance with applicable laws and regulations and good
business office practice.
21. Tenant shall comply with all applicable federal, state and
municipal Laws and shall not directly or indirectly make any use of the Premises
which may be prohibited thereby or which shall be dangerous to person or
property or shall increase the cost of insurance or require additional insurance
coverage.
22. If Tenant desires a fire alarm signal, communication, alarm or a
utility service connection installed or changed, the same shall be made at the
expense of Tenant, with approval and under direction of Landlord. Landlord will
be reasonable in approving the installation of an electronic security system
within the Premises, provided Landlord has access except to the extent
prohibited by the security requirements of Tenant's customers described in
Paragraph 26 of the Addendum to the Lease.
23. Tenant shall cooperate and participate in all security programs
affecting the Building.
24. In the event Landlord allows one or more tenants in the Building
to do any act prohibited herein, Landlord shall not be precluded from denying
any other tenant the right to do any such act, provided that Landlord shall not
prohibit Tenant to do any act which is permitted to other similarly situated
tenants.
25. Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's reasonable opinion, tends to impair the reputation
of the Building or its desirability for offices, and upon written notice from
landlord, Tenant will refrain from or discontinue such advertising.
26. Except for the installation of customary office decorations and
except as otherwise set forth in the lease (i) Tenant shall not mark, paint,
drill into, or in any way deface any part of the Building or the Premises and
(ii) no boring, driving of nails or screws, cutting or stringing of wires shall
be permitted, except with the prior consent of Landlord. Tenant shall not
install any resilient tile or similar floor covering in the Premises except
pursuant to Exhibit B as part of its original Tenant Work and thereafter with
the prior approval of Landlord if required in accordance with provisions in the
Lease regarding additions and alterations to the Premises.
27. Landlord shall have the right to limit or control the number and
format of listings on any Building directory.
28. Tenant shall not, and Tenant shall not permit or suffer anyone,
within Tenant's control, to light or smoke any cigarette, cigar, pipe or other
tobacco product within the Premises and/or within any confines of the Building,
including but not limited to the hallways, corridors, lobbies, elevators,
restrooms, basement, stairwells, closets or any other such area.
29. Landlord may, upon request of Tenant, waive Tenant's compliance
with any of the rules, provided that no waiver (a) shall be effective unless
signed by Landlord, (b) shall relieve Tenant from the obligations to comply with
such rule in the future unless otherwise agreed in writing by Landlord, (c)
granted to any Tenant shall relieve any other Tenant from the obligation of
D-3
<PAGE> 33
complying with these rules and regulations, and (d) shall relieve Tenant from
any liability for any loss or damage resulting from Tenant's failure to comply
with any rule.
30. If there is any conflict between the terms of the Lease and the
terms of this Exhibit, the terms of the Lease shall control.
D-4
<PAGE> 34
ADDENDUM
The foregoing attached Lease (the "Lease") dated March 11, 1999, by and
between CORPORATE OAKS LP, a Virginia limited partnership ("Landlord") and
NETWORK SOLUTIONS, INC., a Delaware corporation ("Tenant"), is modified,
amended, and/or supplemented as hereinafter set forth, and any language of, or
provision in, said Lease that is inconsistent or in conflict with the following
shall be deemed appropriately amended or modified.
1. CONSTRUCTION OF PREMISES. Modifying the provisions of Exhibit B to the
Lease, Tenant, at Tenant's expense, may engage an interior architectural firm of
Tenant's choice to provide all architectural services required in connection
with the construction of the Above-Standard Work, including but not limited to
the preparation of Tenant's space plan and architectural, mechanical and
electrical working drawings. Tenant, at Tenant's expense, may engage its own
architect and contractor to design and construct the Above-Standard Work.
Tenant, at Tenant's expense, shall have the right to engage a project manager to
provide consulting and/or construction management services for the
Above-Standard Work. It is understood and agreed that the aforesaid
architectural firm, contractor and project manager, other parties engaged by
Tenant shall be involved in the bidding and awarding of the construction
contracts for and the construction of the Above-Standard Work. Landlord shall
provide such parties with complete access to the Premises, the Building and the
Land during the construction period, provided that such parties shall not
interfere with the parking lot repaving activities of Landlord and its
contractors.
2. SIGNAGE. Modifying the provisions of Article X of the Lease, Tenant shall
have the non-exclusive right, at Tenant's expense, to install signage displaying
Tenant's name at two (2) locations, mutually agreed to by Landlord and Tenant,
on the Building's exterior upper spandril, and to cause electricity to be
brought to such signage, provided that Tenant obtains Landlord's prior written
approval of such signage, which approval shall not be unreasonably withheld,
conditioned or delayed. Additionally, Tenant shall have the right, at Tenant's
expense, to install a sign displaying Tenant's name and/or logo on the monument
sign in the front of the Building facing Herndon Parkway, provided that Tenant
obtains Landlord's prior written approval of such sign, which approval shall not
be unreasonably withheld, conditioned or delayed. Landlord's approval of all
such signs is subject to Tenant obtaining all necessary governmental approvals
and permits for said signs. Landlord hereby approves Tenant's logo, including
the colors therefor, for use in Tenant's signs. Throughout the Term of this
Lease, Tenant shall maintain all of said signs in good condition and repair, and
shall pay for all electricity consumed by said Building exterior signs. Upon the
expiration or termination of the Term of this Lease, Tenant, at its expense,
shall remove such signs and repair any damage to the Building exterior and the
monument sign resulting therefrom.
3. GENERATOR PAD. Tenant shall have the right, at Tenant's expense, to
install a generator pad in a location, on the Building grounds, mutually agreed
to by Landlord and Tenant, and install a generator thereon, provided that (i)
Tenant, at Tenant's expense, screens such generator pad and generator with
screening approved in advance, in writing, by Landlord, and (ii) Tenant obtains
Landlord's prior written approval of the size and location of the generator and
the hook-up to the Building, which approval shall not be unreasonably
conditioned or delayed, but may be granted or withheld in Landlord's sole
discretion. Tenant shall have the right, at Tenant's expense, to run conduit
from said generator to the Premises. Tenant, at its option, may remove said
generator from the generator pad upon the expiration or termination of the Term
of this Lease, provided that Tenant repairs any damage resulting therefrom.
4. SATELLITE DISH AND ANTENNAS. Landlord hereby grants to Tenant the
non-exclusive right (i) to install, on the roof of the Building, (a) up to ten
(10) whip antennas of no more than six feet (6') in height, (b) up to two (2)
satellite dishes of no more than three (3) meters in diameter, and (c) one (1)
twelve inch (12") to eighteen inch (18") high timing antenna, (ii) to run cables
from the roof to the Premises, and (iii) to install and operate any other
related equipment necessary to permit the antennas and satellite dishes to
function properly, on the following terms and conditions:
A. Tenant shall construct, install, maintain and use the antennas,
satellite dishes, cables and related equipment in accordance with all laws and
governmental rules and regulations and in a manner that is safe and does not
interfere with any other use of equipment on or in the Building.
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B. Tenant shall install or cause to be installed the antennas,
satellite dishes, cables and other related equipment in a manner which will not
impair the structure of the Building or any part thereof.
C. Landlord shall reasonably specify the location of the antennas and
satellite dishes (to, among other considerations, minimize visibility of the
antennas and dish from the ground), provided that the location so specified is
one at which the antennas and satellite dishes can work adequately for Tenant's
use with a clear line of sight. Plans for the placement and installation of the
antennas, satellite dishes, cables and other related equipment (including a
drawing showing how the antennas and satellite dishes will look from the
perspective of a person at ground level on Herndon Parkway, if reasonably
requested by Landlord) shall be submitted to Landlord for Landlord's approval,
which approval shall not be unreasonably withheld, conditioned or delayed so
long as Landlord's representative confirms that the antennas and satellite
dishes and their installation will not cause undue stress to the roof,
structural system and other essential elements of the Building.
D. Tenant shall pay all costs associated with the installation,
maintenance, use and removal of the antennas, satellite dishes, cables and other
related equipment, including the cost of repairing any damage to the Building
resulting therefrom.
E. The antennas, satellite dishes, cables and other related equipment
shall remain the property of Tenant and Tenant agrees, within fifteen (15) days
after the end of the Term of this Lease, to remove the antennas, satellite
dishes, cables and other related equipment, repair any damage to the Building
caused by such removal and restore any portion of the Building affected by the
installation of the antennas, satellite dishes, cables and other related
equipment to its original condition.
F. Landlord shall grant Tenant, its agents or its contractors, access
to the roof and other areas of the Building at reasonable times to facilitate
the installation, use, maintenance and removal of the antennas, satellite
dishes, cables and other related equipment, provided that Tenant shall obtain
Landlord's prior written approval of the scope of any such work affecting the
roof of the Building. Tenant shall take reasonable measures to minimize
interference with other tenants in the Building. Tenant, at its expense, shall
use a roof contractor reasonably approved by Landlord to seal any roof
penetration caused by the installation, maintenance or removal of Tenant's
equipment and Tenant shall be responsible for all roof repairs necessitated by
the installation, maintenance, use or removal of such equipment, including any
roof repairs which would have been covered by a warranty lost by reason of any
of the same.
G. Landlord makes no representation that the Building or roof is
suitable for the installation of such antennas, satellite dishes, cables or
other related equipment.
H. Tenant shall make reasonable efforts to eliminate, to the extent
possible, any electromagnetic interference with the equipment of Landlord and
other tenants of the Building caused by Tenant's antennas, satellite dishes,
cables or other related equipment.
I. Landlord may retain a consultant to study Tenant's specifications
and plans for the installation of the antennas, satellite dishes, cables and
other related equipment. If so, within thirty (30) days of Tenant's receipt of a
copy of the consultant's bill to Landlord for such services, Tenant shall
reimburse Landlord for the amount expended for said consultant, in an amount not
to exceed the prevailing market rate for ten (10) hours of such consulting
services.
J. Except for third party charges, Landlord shall not charge Tenant
for its use of the roof of the Building in accordance with this Paragraph 4.
Tenant shall also have the right to install HVAC equipment on the roof of the
Building, upon all of the same terms and conditions as are set forth in this
Paragraph 4 with respect to satellite dishes and antennas.
5. GROUNDING AND CONNECTIVITY RIGHTS. Landlord hereby (i) grants to Tenant
the non-exclusive right (a) to access and utilize the Building's vertical ground
risers and main electrical service ground, (b) to use existing
telecommunications conduits in the Building, and (c) to install new
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telecommunications conduits, and cables, equipment and other related
telecommunications facilities, and supporting utilities therefor, for Tenant's
network in the Building, and (ii) agrees to permit Tenant's telecommunications
providers to install fiber optic cable in the Building, on the following terms
and conditions:
A. Tenant and its telecommunications carriers shall install, maintain
and use all such equipment in accordance with all laws and governmental rules
and regulations and in a manner that is safe and does not interfere with any
other use of equipment on or in the Building.
B. Tenant and its telecommunications carriers shall install or cause
to be installed the conduits, cables and other related equipment and supporting
utilities in a manner which will not impair the structure of the Building or any
part thereof.
C. Tenant and its telecommunications carriers shall obtain Landlord's
prior approval of the location and method of installation of all conduit, cable
or other related telecommunications equipment or supporting utilities installed
in the Building, which approval shall not be unreasonably withheld, conditioned
or delayed. Subject to such prior approval, Landlord shall allow Tenant's
telecommunications carriers (including, but not limited to, MFS, WorldCom, MCI,
TCG and Bell Atlantic) to provide and install redundant or dual access of their
services via fiber optic cable.
D. Tenant shall pay all third party costs associated with the
installation, maintenance and use and (if required by Landlord) removal of the
conduits, cables and other related equipment and supporting utilities, including
the cost of repairing any damage to the Building resulting therefrom.
E. Tenant agrees that, then within fifteen (15) days after the end of
the Term of this Lease, Tenant shall remove any conduits, cables or related
equipment or supporting utilities installed by Tenant or its telecommunications
carriers which Landlord requires to be removed by written notice to Tenant, and
Tenant shall repair any damage to the Building caused by such removal and
restore any portion of the Building affected by the installation of such
conduits, cables or other related equipment or supporting utilites to its
original condition.
F. Provided that Tenant obtains Landlord's prior written approval of
the location of Tenant's conduit, cabling and wiring, Landlord shall not
interfere, or permit other persons to interfere, with such conduit, cabling and
wiring during the Lease Term, except as may be reasonably required in connection
with repairs to the Building.
G. After Tenant's installation of the equipment described in
Paragraphs 3 or 4 or this Paragraph 5, Landlord shall not use, nor permit its
tenants, licensees, employees or agents to use, any portion of the Building in
any way which causes harmful physical or electronic interference with such
equipment, or which materially interferes with Tenant's access to such
equipment. Landlord shall use reasonable efforts to eliminate any such
interference within one (1) business day after receipt of written notice thereof
from Tenant.
6. OPTION TO TERMINATE. Landlord hereby grants to Tenant the conditional
right, exercisable at Tenant's option, to terminate this Lease effective as of
the end of any calendar month between November 30, 2002 and September 30, 2003.
If exercised, and if the conditions applicable thereto have been satisfied,
Tenant shall surrender the Premises to Landlord pursuant to the applicable
provisions of this Lease on the effective termination date specified in Tenant's
notice to Landlord exercising such termination option, and the parties shall
thereupon be relieved on any further liability under this Lease, except for
obligations which expressly survive the expiration or earlier termination of
this Lease. The right of termination herein granted to Tenant shall be subject
to and shall be exercised in accordance with the following terms and conditions:
A. Tenant may exercise such right to terminate only if one or more of
the following circumstances exists:
(i) Tenant is relocating from the Premises to consolidate all
of substantially all of its of its offices in the Washington, D.C. metropolitan
area into a single location;
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(ii) Tenant is relocating the call center function performed in
the Premises to a location more than fifty (50) miles from the Washington, DC
metropolitan area (defined as Washington, DC, Montgomery, Prince Georges, Ann
Arundel, Frederick and Howard Counties, Maryland, and Arlington, Alexandria, and
Fairfax, Loudon, Prince William, Fauquier and Stafford Counties, Virginia); or
(iii) Tenant, as a company, is ceasing to perform the call center
function performed in the Premises or is outsourcing such call center function.
Tenant's notice exercising such termination option shall state which of the
aforesaid conditions exist.
B. Tenant shall exercise its right to terminate this Lease by giving
Landlord written notice thereof (the "termination notice") not less than twelve
(12) months prior to the date (within the time frame set forth above) upon which
Tenant wishes the termination of the Lease to be effective (the "effective
termination date"), which effective termination date shall be specified in such
termination notice. In the event the termination notice is not given timely,
Tenant's option to terminate shall lapse and be of no further force and effect.
C. Tenant shall pay Landlord an Early Termination Penalty in the
amount of the sum of (i) three (3) times the amount of the monthly installments
of Base Rent and additional rent in effect as of the effective termination date,
plus (ii) the unamortized portion, as of the effective termination date, of
Landlord's expenses related to this Lease and to the exercise of any of Tenant's
expansion rights hereunder (including without limitation tenant improvement
allowances, leasing commissions and legal expenses), such expenses to be
amortized, with interest at the rate of eight percent (8%) per annum, over the
initial sixty (60) month Term. Landlord shall submit to Tenant a reasonably
detailed invoice for the Early Termination Penalty within a reasonable time
after receipt of Tenant's termination notice. Tenant shall pay the Early
Termination Penalty to Landlord within thirty (30) days after receipt of such
invoice, failing which, at Landlord's option, the Tenant's exercise of the
termination option shall be null and void, and this Lease shall remain in full
force and effect for the entire Term described herein.
D. In the event that an Event of Default exists and is continuing
under this Lease on the date the termination notice is sent or on the effective
termination date, then, at Landlord's option, the Tenant's exercise of the
termination option shall be null and void, and this Lease shall remain in full
force and effect for the entire Term described herein.
7. OPTION TO RENEW. Landlord hereby grants to Tenant the conditional right,
exercisable at Tenant's option, to renew the term of this Lease for up to two
(2) consecutive additional periods of three (3) years each ("Renewal Term(s)").
If exercised, and if the conditions applicable thereto have been satisfied, each
such Renewal Term shall commence immediately following the end of the
immediately preceding Term of this Lease (i.e., the initial Term or the first
Renewal Term, as applicable). Such right of renewal shall apply to, and if
exercised must be exercised with respect to, the entire Premises, which by
definition includes all space then leased by Tenant under this Lease. The right
of renewal herein granted to Tenant with respect to each such Renewal Term shall
be subject to and shall be exercised in accordance with the following terms and
conditions:
A. Tenant shall exercise its right to renew with respect to each
Renewal Term by giving Landlord written notice thereof not later than nine (9)
months prior to the expiration date of the immediately preceding Term of this
Lease (i.e., the initial Term or the first Renewal Term, as applicable). In the
event the renewal option notice is not given timely, Tenant's right of renewal
with respect to such Renewal Term and any subsequent Renewal Term shall lapse
and be of no further force and effect.
B. In the event that an Event of Default exists and is continuing
under this Lease on the date the renewal option notice is sent or on the date
the Renewal Term is to commence, then, at Landlord's option, the Renewal Term
shall not commence and the Term of this Lease shall expire at the date the Term
of this Lease would have expired without such renewal.
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C. During the Renewal Term, all the terms, conditions, covenants, and
agreements set forth in this Lease shall continue to apply and be binding upon
Landlord and Tenant. The Base Rent shall be escalated in accordance with Section
4.1 of the Lease at the commencement of the Renewal Term and at the commencement
of each Lease Year thereafter during the Renewal Term. Notwithstanding the
foregoing, (i) Tenant shall retain possession of the Premises in its "as is"
condition, and (ii) in no event shall Tenant have the right to renew the Term of
this Lease beyond the expiration of the second Renewal Term.
8. BUILDING SECURITY SYSTEM. Landlord has installed and maintains a
controlled access security system for the exterior doors of the Building, which
currently operates from approximately 6:00 p.m. to approximately 7:00 a.m.
Monday through Friday, and on weekends. At approximately 6:00 p.m., Monday
through Friday, the exterior doors of the Building are automatically secured and
respond only to authorized security controls. The hours during which such
security system operates may be changed by Landlord from time to time during the
Lease Term. Landlord shall give Tenant thirty (30) days prior written notice of
any such change.
9. TERM. Modifying Section 3.3 of the Lease, in the event that Landlord
shall not deliver possession of the Premises to Tenant within sixty (60) days
after execution of this Lease by Tenant and Landlord, then Tenant, at its
option, may terminate this Lease by written notice to Landlord within five (5)
business days after the expiration of such sixty (60) day period.
10. OPERATING CHARGES. Modifying Section 5.2 of the Lease, "Operating
Charges" shall not include any of the following:
A. Legal fees, brokerage commissions, advertising costs and other
related expenses incurred in connection with the sale or leasing of the
Building;
B. Costs of repairs, restoration, replacements or other work (1)
occasioned by fire or other casualty of an insurable nature (whether such
destruction be total or partial), if and to the extent either (a) paid by
insurance required to be carried by Landlord under this Lease, or (b) otherwise
paid by insurance then in effect obtained by Landlord, or (2) occasioned by the
exercise by governmental authorities of the right of eminent domain, whether
such taking be total or partial, if and to the extent paid by the award from the
condemning authority.
C. The costs of damage and repairs to the extent recoverable under
any warranty carried by or required to be carried by Landlord in connection with
the Building or Common Areas;
D. Any and all costs of any kind or character for any injuries,
damage and repairs (including any applicable deductibles pursuant to the Lease)
necessitated by the gross negligence or willful misconduct of Landlord or
Landlord's employees, contractors or agents;
E. Executive salaries of Landlord;
F. Salaries or service personnel to the extent that such service
personnel perform services not solely in connection with the management,
operation, repair or maintenance of the Building or Common Areas;
G. Landlord's general overhead expenses not related to the Building;
H. Payments of principal or interest or any mortgage, ground rents or
other encumbrances, including commissions and legal fees associated with
financing, except as expressly included in Operating Charges under Section 5.2
of the Lease;
I. Depreciation or accelerated cost recovery of the Building or any
equipment, except as expressly included in Operating Charges under Section 5.2
of the Lease;
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J. Legal fees, accountants' fees and other expenses incurred in
connection with negotiations for leases with tenants, other occupants or
prospective tenants, or disputes with tenants or other occupants of the
Building, or associated with the enforcement of any leases or defense of
Landlord's title to or interest in the Building or any part thereof;
K. Costs, including permit, license and inspection fees, incurred in
renovating or otherwise improving, decorating, painting or altering space for
other tenants or other occupants or vacant non-Common Area space in the
Building;
L. Costs incurred due to violation by Landlord or any other tenant of
the Building of the terms and conditions of any lease;
M. The costs of any service provided to other tenant(s) of the
Building to the extent Landlord is entitled to direct reimbursement therefor
(including excess electricity consumption) and the cost of any service provided
to other tenants of the Building, but not to Tenant;
N. Charitable or political donations by Landlord;
O. Any cost or expense related to the testing for, removal,
transportation, or storage of hazardous materials from the Building, except to
the extent caused by or required as a result of Tenant's activities;
P. Interest, penalties or other costs arising out of Landlord's
failure to make timely payment of its obligations, unless resulting from
Tenant's failure to make timely payment of its obligations to Landlord;
Q. Costs associated with revenue-generating public parking areas of
the Building where fees are charged for use of parking areas by the public and
not by tenants of the Building;
R. Costs incurred in advertising and marketing or leasing promotional
activities for the Building;
S. Costs incurred in connection with any retail tenants of the
Building and not associated with the office tenants of the Building, including,
without limiting the generality of the foregoing, any services provided to some
retail tenants but not to the Tenant herein;
T. Income taxes of Landlord, whether such income is from the
operation of the Building or not, or costs of maintain Landlord's corporate
existence and franchise taxes; and
U. Building management fees in excess of reasonably standard rates
for comparable services to comparable buildings in the same municipality as the
Building and Land are situated.
Notwithstanding anything to the contrary in this Lease, in the event that Tenant
disputes the cost of a particular category of Operating Charges or a particular
service, Tenant will have the right to have Landlord rebid that service, with a
minimum of two (2) vendors on the selection list being Tenant-designated;
provided, however, that Tenant may not exercise such right more than once in any
calendar year. Landlord will then choose the lowest cost vendor with acceptable
qualifications.
11. REAL ESTATE TAXES. Modifying Section 5.3 of the Lease, Landlord
represents and warrants that the Real Estate Taxes for 1999 are not subject to
any abatements, phase-ins for assessments, reductions in rates, credits,
exemptions, or any other benefits or discounts that may effectively reduce the
Real Estate Taxes for 1999 from what would otherwise be a fully assessed
Building at the then-applicable tax rate for comparable commercial office
buildings in Herndon, Virginia.
Any special assessments included in Real Estate Taxes shall be deemed
payable in installments over the maximum time permitted, without penalty, by the
taxing authority.
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In the event that the Real Estate Taxes are reduced as a result of
Landlord's appeal or protest, Landlord shall apply such refund to the tax year
such refund applies and if any portion of such refund applied to a tax year in
which Tenant has paid Operating Charges, Landlord shall refund to Tenant an
amount equal to Tenant's pro-rata share of such reduction in Real Estate Taxes
as has actually been paid by Tenant to Landlord in the tax year to which the
reduction applies, in accordance with Article V of the Lease. Landlord's
obligation to refund to Tenant its pro-rata share of such reduction shall
survive the expiration or termination of this Lease.
12. LANDLORD'S ANNUAL OPERATING CHARGES STATEMENT. Modifying Section 5.6 of
the Lease, Landlord's failure to furnish the annual Operating Charges statement
(described in such Section 5.6) for any calendar year within twelve (12) months
after the end of such calendar year shall be deemed a waiver of Landlord's right
thereafter to render such statement and collect any amounts which may be shown
thereon to be owed by Tenant to Landlord.
13. AUDIT. Modifying Section 5.6 of the Lease, Tenant shall have the right,
upon prior written notice to Landlord within ninety (90) days after Landlord's
submission of the statement of Operating Charges for the previous calendar year,
to inspect and audit, or to have an accounting firm inspect and audit,
Landlord's books and records with respect to Operating Changes incurred during
the previous calendar year. If Landlord and Tenant determine, based upon such
inspection, that Landlord overstated Tenant's obligation for Operating Charges
in such calendar year, Landlord shall promptly refund such excess. Tenant shall
bear all costs of any such inspection; provided, however, that if any such
inspection shows that the amount shown on Landlord's statement as the amount of
Operating Charges for a calendar year exceeded by more than three percent (3%)
the actual amount of Operating Charges for such calendar year, then Landlord
shall reimburse Tenant for the reasonable and documented cost of Tenant's
inspection.
14. HAZARDOUS MATERIALS. Landlord shall comply and shall exercise good faith
efforts to cause its other tenants in the Building to comply, and Tenant shall
comply, with all statutes, laws, ordinances, rules, and regulations now or
hereafter mandated by any federal, state, or local governmental authority with
respect to the use, generation, treatment, storage, disposal, emission,
discharge, release or threatened release of any Hazardous Materials (as defined
in Section 6.3 of the Lease). Neither Landlord nor Tenant shall cause, or allow
anyone else within its control to cause, any Hazardous Materials to be used,
generated, treated, stored, disposed of. emitted, discharged, or released, on or
about the Premises or Building, except that each party may use, store and
dispose of small quantities of chemicals and substances ordinarily used in its
business operations in the Building, provided that such chemicals and substances
are used, stored and disposed of in accordance with applicable laws and
regulations.
Landlord covenants that as far as Landlord is aware, no asbestos or
polychlorinated biphenyls (PCBs) have been or are currently used in the
construction or operation of the Building. Landlord's and Tenant's obligations
under this Paragraph 14 shall survive the termination of the Lease.
15. PERMITTED ASSIGNMENTS AND SUBLETTINGS. Modifying Section 7.1 of the
Lease, Landlord's prior written consent shall not be required for (a) an
assignment of this Lease or subletting of the Premises, in whole or in part, to
allow occupancy of the Premises by any customer, subcontractor or contract
partner of Tenant working on business with Tenant at the Premises, or (b) an
assignment of this Lease to any corporation into or with which Tenant may be
merged or consolidated or which acquires all or substantially all of Tenant's
assets, provided that the successor or surviving entity agrees in writing for
the benefit of the Landlord to assume the obligations of the Tenant hereunder,
or (c) an assignment of this Lease or subletting of the Premises, in whole or
part, to any corporation which is a subsidiary, parent or affiliate of Tenant;
provided, in the case of each assignment and subletting permitted by this
Paragraph 15, (1) Tenant gives Landlord prior written notice of such assignment
or subletting, (2) Tenant confirms in writing for the benefit of the Landlord
that Tenant is not released from its obligations hereunder as a result of such
assignment or subletting; and (3) a fully executed copy of such sublease or
assignment and assumption agreement, in form reasonably satisfactory to
Landlord, is delivered to Landlord.
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16. PROFITS FROM ASSIGNMENT OR SUBLETTING. Modifying Section 7.5 of the
Lease, "excess" is defined as the total consideration received by Tenant and
Landlord from the Transferee, reduced by (i) the rent and other amounts payable
by Tenant or the Transferee to Landlord for the space assigned or sublet to the
Transferee during the term of such assignment or sublease (the "Transferee
Rent"), (ii) any reasonable amounts paid by the Transferee to Tenant for
goodwill (in the case of a sale of all or part of Tenant's business) or for the
fair market value of furniture or fixtures installed in the Transfer Space at
Tenant's expense (i.e, not covered by the Tenant Allowance) (collectively, the
"Fixture Consideration"), and (iii) the reasonable costs and expenses actually
incurred by Tenant in procuring such assignment or sublease, limited to leasing
commission, expenses (including architect's fees) of improvements constructed in
such assigned or subleased space and paid for by Tenant, and attorneys' fees not
to exceed twenty-five cents ($0.25) per rentable square foot of floor space
assigned or sublet (collectively, the "Transfer Expenses"). If Landlord and
Tenant are unable to agree upon the amount of the Fixture Consideration, the
issue shall be submitted for arbitration, before a single arbitrator, to the
Washington, D.C. office of the American Arbitration Association. Landlord's
fifty percent (50%) share of the excess shall be paid as follows: The first
amounts collected by Tenant from the Transferee, which are in excess of the
Transferee Rent, shall be applied by Tenant to the Fixture Consideration and the
Transfer Expenses. Commencing when such Fixture Consideration and the Transfer
Expenses have been fully reimbursed by the amounts so applied, and thereafter
throughout the remaining term of the applicable assignment or sublease, Tenant
shall pay Landlord, on a monthly basis, fifty percent (50%) of all amounts
collected by Tenant from the Transferee which are in excess of the Transferee
Rent. Throughout the term of the assignment or sublease, Tenant shall provide to
Landlord, on a calendar quarterly basis, an accounting, in form reasonably
acceptable to Landlord, of the amount and application of the excess.
17. MAINTENANCE AND REPAIRS. Landlord shall repair, replace, and maintain, or
cause to be repaired, replaced, and maintained, in good working order and
condition, all in a manner consistent with the standards employed by landlords
of other comparable office buildings in Herndon, Virginia, regardless of whether
a portion of the following is contained in the Premises: (a) the Building
entrances, lobbies, common areas, service areas, elevators and the structural
components of the Building, including but not limited to, the foundation, roof,
columns and exterior walls; and (b) the Building's HVAC, electrical, plumbing
and fire and life safety systems (but no supplemental HVAC or other special
equipment installed in the Premises by or for Tenant), and the underground
utility and sewer pipes outside of the exterior walls of the Building.
18. LANDLORD'S INSURANCE. Landlord shall maintain during the Lease Term,
including any extensions thereof:
A. All-risk fire, extended coverage, malicious mischief and vandalism
insurance on the Building, in an amount not less than the full replacement value
of the Building, exclusive of foundations and footings, and the improvements
therein (other than Above-Standard Work, antennae, satellite dishes equipment,
generators, supplemental HVAC brought in by Tenant and uninterruptible power
supplies, all of which shall be insured by Tenant pursuant to Section 13.2 of
the Lease);
B. Rental loss insurance; and
C. Comprehensive general liability insurance, including contractual
liability, written on an occurrence basis, in an amount not less than Five
Million Dollars ($5,000,000.00) combined single limit for bodily injury,
property damage and personal liability, as well as contractual liability and
other standard commercial endorsements as Landlord may determine are reasonable.
Landlord shall, upon request, supply Tenant with copies of all of Landlord's
insurance policies applicable to the Building.
19. MUTUAL WAIVER OF CLAIMS. Notwithstanding anything to the contrary in this
Lease, Landlord and Tenant each hereby waives all rights and claims, each
against the other and their respective agents, employees and persons claiming
through them, for loss of or damage to their
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respective real and personal property, caused by theft, fire or other perils, to
the extent that such risks are required to be insured under the provisions of
this Lease, and to such extent, each party hereby assumes the sole risks
associated with its own property, including all amounts of underinsurance and
any applicable deductibles under such policies. Each party shall obtain from its
respective insurer, a waiver of subrogation to the extent of this waiver of
claims and shall ensure that their respective policies of insurance will not be
adversely affected or impaired by this waiver. This waiver shall not apply in
respect of the deductible amount actually payable by a party under its said
property insurance.
20. INTERRUPTION IN UTILITY SERVICE. Modifying Section 15.1 of the Lease, in
the event that (i) electricity and/or heating or air conditioning (in season) of
the Premises, shall not be furnished for more than five (5) consecutive business
days, and (ii) such interruption is within Landlord's day-to-day control (e.g.,
not a city-wide blackout), and (iii) Tenant, in its reasonable business
judgment, determines that it is unable to use and occupy the Premises (or any
part thereof) as a result thereof, then the Base Rent Tenant is obligated to pay
hereunder shall abate with respect to that part of the Premises which Tenant
does not use and occupy until the date on which such services and utilities are
restored.
21. INDEMNITY BY LANDLORD. Modifying Article XV of the Lease, Landlord shall
indemnify and save harmless Tenant and its directors, officers, employees and
agents from and against, and shall defend all actions against any of them by
counsel reasonably approved by Tenant, with respect to all liabilities, losses,
damages (excluding consequential damages), costs and expenses (including
reasonable attorneys' fees), demands, claims or judgments of any nature
whatsoever (hereinafter collectively called "Claims") arising from bodily injury
or death, loss of or damage to property caused by the gross negligence or
willful misconduct of the Landlord or its agents, employees, contractors or any
person for whom Landlord is legally responsible; provided, however, that this
indemnity shall not apply to the extent of the gross negligence, fraud or
willful misconduct of Tenant. The obligations of Landlord under this Paragraph
21 shall survive the termination of the Lease.
22. LANDLORD'S DEFAULT. If Landlord shall fail to observe or perform any
covenant or agreement under this Lease, and such failure shall not be cured
within thirty (30) days after written notice thereof from Tenant (or if such
failure is incapable of being cured within said thirty (30) day period for
reasons which are beyond the reasonable control of Landlord, if Landlord fails
to commence such cure with said thirty (30) day period and thereafter to proceed
with reasonable diligence to complete such cure), then Landlord shall be in
default of this Lease, and Tenant may pursue any remedies available for such
default at law or in equity.
23. NON-DISTURBANCE AGREEMENTS. Modifying Article XXI of the Lease, Landlord
shall use reasonable efforts to obtain for Tenant from the holder of any
mortgage or deed of trust now or hereafter encumbering the Building a
non-disturbance agreement, on such holder's form (as the same may be modified as
a result of negotiations between Tenant and such holder), providing that so long
as Tenant is not in default in the payment of Base Rent or additional rent or of
any other covenants and conditions of this Lease, its rights as Tenant hereunder
shall not be terminated and its possession of the Premises shall not be
disturbed by any mortgagee or trustee or by any proceedings on the debts which
such mortgage or deed of trust secures or by virtue of a right or power
contained in such mortgage or deed of trust or the bond or note secured thereby
and that any sale at foreclosure shall be subject to this Lease. Notwithstanding
the foregoing, Tenant agrees that Landlord need not obtain a non-disturbance
agreement for Tenant from the holder of the deed of trust encumbering the
Building as of the date of this Lease, provided that Landlord refinances the
Building within three (3) months after the date of this Lease and uses
reasonable efforts to obtain a non-disturbance agreement for Tenant from the
holder of the deed of trust securing such refinancing. Landlord shall use
reasonable efforts to obtain from the holder of any ground or underlying lease
now or hereafter encumbering the Building a non-disturbance agreement, on such
holder's form, providing that so long as Tenant is not in default in the payment
of Base Rent or additional rent or any other covenant or condition of this
Lease, (i) its rights as Tenant hereunder shall not be affected or terminated,
(ii) its possession of the Premises shall not be disturbed, (iii) no action or
proceeding shall be commenced to remove or evict Tenant, and (iv) the Lease
shall at all times continue in full force and effect,
9
<PAGE> 43
notwithstanding the termination or expiration of such ground or underlying lease
prior to the expiration or termination of this Lease.
24. KEYS. On or before the Lease Commencement Date, Landlord shall give
Tenant a reasonably sufficient number of keys to the Premises and the bathrooms
in the Building for Tenant's initial occupancy of the Building.
25. COMPLIANCE. Notwithstanding anything to the contrary in the Lease,
Landlord shall be responsible for ensuring that the Common Areas comply with all
applicable governmental laws and regulations (including the Americans with
Disabilities Act) in effect as of the Lease Commencement Date, and thereafter
for keeping the Common Areas in such compliance; provided, however, that
Landlord shall have no responsibility for ensuring that any Common Areas
(including bathrooms) altered or improved by Tenant comply with applicable
governmental laws and regulations. Landlord covenants that, to the best of its
knowledge and belief, the Common Areas comply with all the requirements of all
municipal, county, state, federal and other applicable governmental authorities
in effect as of the date of execution of this Lease.
Additionally, Landlord shall insure that all computer controlled facility
components installed in the Premises as of the date Landlord tenders possession
thereof to Tenant are Year 2000 date and time function compliant prior to
acceptance of the space for occupancy by Tenant. Landlord must verify compliance
by physical testing and/or written confirmation of testing like components
and/or systems from the component and/or systems manufacturer. Upon completion
of any repair/replacement to effect year 2000 compliance, Landlord shall verify
compliance by physical testing and/or written confirmation of testing of like
components and/or systems from the component and/or systems manufacturer and
advise Tenant that such replacement components have been verified as compliant.
26. RIGHT OF ENTRY. Notwithstanding anything to the contrary in the Lease,
Landlord's or Landlord's employees', contractors', agents' or other
representatives' right of entry to the Premises shall be subject to any security
requirements imposed by Tenant's government customers. In the event that
Landlord requires entry to the Premises for any purpose, except in the event of
any emergency, Landlord shall provide written notice to Tenant and arrange to
perform such work, inspection or such other purpose at a mutually agreeable date
and time. Landlord's right of entry shall be subject to those rules and
restrictions imposed by the National Industrial Security Program administered by
Tenant in compliance with the regulations of the Department of Defense and other
governmental agencies. Landlord shall reasonably cooperate with Tenant to
provide janitorial service during hours requested by Tenant, provided that such
hours are consistent from day to day, and provided further that Tenant shall pay
(directly to Landlord, as Additional Rent, and not as part of Operating Charges)
any additional charges incurred by Landlord for janitorial service as a result
of providing the same during the hours requested by Tenant. If required by
Tenant to accommodate its business operations, janitorial personnel shall be
permitted access to the Premises or portions thereof only in the presence of
authorized representatives of Tenant. Notwithstanding anything to the contrary
in the Lease, Landlord shall have no responsibility for cleaning or repairing
any portion of the Premises to which it is unable to gain access, and Tenant
shall be liable for any damage to the Premises or the Building arising from the
failure to make necessary repairs to any such portion of the Premises.
27. ATTORNEYS' FEES. Should either party hereto employ an attorney for the
purpose of enforcing, construing, or declaring rights under this Lease, or any
amendment thereto, or any judgment based on this Lease, in any legal proceeding
whatsoever, including bankruptcy, arbitration, declaratory relief or other
litigation, the prevailing party shall be entitled to receive from the other
party reimbursement for all reasonable attorneys' fees and all costs, including
but not limited to service of process, filing fees, court and court reporter
costs, investigative costs, expert witness fees, and the cost of any bonds,
whether taxable or not, and that such reimbursement shall be included in any
judgment or final order issued in that proceeding. The "prevailing party" means
the party determined by the court to most nearly prevail.
10
<PAGE> 44
28. FURTHER ASSURANCES. The parties hereto agree to promptly sign all
documents reasonably necessary or desirable to give further effect to the
provisions of this Lease.
29. CONFIDENTIALITY. Neither Landlord nor Tenant shall disseminate orally or
in written form a copy of this Lease, lease proposal or lease drafts, except to
attorneys, accountants, lenders or prospective lenders, purchasers or
prospective purchasers, management company personnel or other authorized
business representatives of this parties.
30. ADDENDUM TO PREVAIL. If there are any discrepancies between the Lease or
Exhibits and this Addendum, this Addendum shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum.
WITNESS: LANDLORD:
CORPORATE OAKS LP
[SIGNATURE] By: /s/ PETER H. LUNT (SEAL)
- --------------------------- ------------------------
Name: Peter H. Lunt
-------------------
Title: NVCommercial Inc.
------------------
General Partner
WITNESS: TENANT:
NETWORK SOLUTIONS, INC.
[SIGNATURE] By: /s/ MICHAEL A. DANIELS (SEAL)
- --------------------------- ------------------------
Name: Michael A. Daniels
Title: Acting Chief Executive Officer
and Chairman of the Board
[SIGNATURE] By: /s/ ROBERT J. KORZENIEWSKI (SEAL)
- --------------------------- ----------------------------
Name: Robert J. Korzeniewski
Title: Chief Financial Officer
network.ad3
NETWORK SOLUTIONS, INC.
JULY 16, 1996
DELAWARE
11
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