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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-23269
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METROMEDIA FIBER NETWORK, INC.
(Exact name of registrant, as specified in its charter)
DELAWARE 11-3168327
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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C/O METROMEDIA FIBER NETWORK SERVICES, INC.
1 NORTH LEXINGTON AVENUE
WHITE PLAINS, NY 10601
(Address and zip code of principal executive officers)
(914) 421-6700
(Registrant's telephone number, include area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, par value $.01 per share
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Indicate by check mark whether the registrant has filed 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant was $460,533,561 as of March 27, 1998 based on
the last reported bid quotation on the Nasdaq National Market as of that date.
For purposes of this calculation, the value of each share of Class B Common
Stock of the Registrant held by non-affiliates was determined based on the value
of share of Class A Common Stock as there is no established market for the Class
B Common Stock and as each share of Class B Common Stock is convertible into one
share of Class A Common Stock.
The number of shares of Class A Common Stock outstanding as of March 27,
1998 was 18,896,899. The number of shares of Class B Common Stock outstanding as
of March 27, 1998 was 4,221,159.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement to be used in connection with the
Registrant's 1998 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
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METROMEDIA FIBER NETWORK, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
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ITEM NO. DESCRIPTION PAGE
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PART I
Item 1. Business................................................................................... 3
Item 2. Properties................................................................................. 15
Item 3. Legal Proceedings.......................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 18
Item 6. Selected Financial Data.................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation....... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 23
Item 8. Financial Statements and Supplementary Data................................................ 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 48
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 48
Item 11. Executive Compensation..................................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 48
Item 13. Certain Relationships and Related Transactions............................................. 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 49
</TABLE>
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form 10-K"),
including statements under "Item 1. Business," "Item 3 Legal Proceedings" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations," constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Metromedia Fiber Network, Inc. ("MFN" or the "Company") and
its subsidiaries to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, the following: general economic and
business conditions; competition in the telecommunications industry; industry
capacity; success of acquisitions and operating initiatives; management of
growth; dependence on senior management; brand awareness; general risks of the
telecommunications industries; development risk; risk relating to the
availability of financing; the existence or absence of adverse publicity;
changes in business strategy or development plan; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or failure to comply with, government regulations; construction schedules;
the costs and other effects of legal and administrative proceedings; changes in
methods of marketing and technology; changes in political, social and economic
conditions and other factors referenced in this Form 10-K. The Company will not
undertake and specifically declines any obligation to publicly release the
results of any revisions which may be made to any forward-looking statement to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
ITEM 1. BUSINESS
Certain statements under this caption "Business" constitute "forward-looking
statements" under the Reform Act.
GENERAL
MFN is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers. The Company is expanding its existing network to
encompass in excess of 229,000 fiber miles, or in excess of 650 route miles,
concentrated in the northeastern United States, a market which the Company
believes is characterized by significant demand for and limited supply of fiber
optic capacity. The fiber infrastructure leased by MFN to its customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of MFN fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.
The Company tailors the amounts of capacity leased to the needs of its
customers. Certain customers that lease fiber optic capacity from the Company
connect their own transmission equipment to the leased fiber, thereby obtaining
a fixed-cost, secure telecommunications alternative to the metered
communications services offered by traditional providers. Other customers that
require lesser amounts of transmission capacity will have the option to lease
such broadband capacity on the Company's network, whereby the Company
effectively divides a single strand of fiber into multiple smaller
communications channels. The
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Company believes that it will have installation, operating, and maintenance cost
advantages per fiber mile relative to its competitors because MFN installs its
network with as many as 432 fibers per route mile as compared to a generally
lower number of fibers in existing competitive networks.
The Company was formed in 1993 and currently possesses a fiber optic
communications network in the New York/New Jersey metropolitan area (the "NY
Network") and has infrastructure and will commence operations in the Chicago
metropolitan area, consisting of more than 30,000 fiber miles. Within the next
eighteen months the Company plans to complete an expansion of the NY Network to
increase its coverage within the New York/New Jersey metropolitan area. In
addition, the Company intends to construct intra-city fiber optic networks in
Washington, D.C., Chicago and Philadelphia and an inter-city fiber optic route
between New York City and Washington, D.C. The Company currently intends to
expand its network in order to connect the NY Network with other major domestic
metropolitan areas, in part through the exchange of fiber capacity with other
carriers and through other arrangements. The Company has also entered into a
50/50 joint venture, International Optical Network, L.L.C. ("ION"), with a
subsidiary of Racal Electronics Plc, a United Kingdom manufacturer of
electronics and other equipment and a provider of telecommunications services in
the U.K. ION will provide managed transatlantic network services by linking the
Company's network to London by acquiring transatlantic fiber optic cable rights
linking points of presence in the US and UK. ION will enable the Company to
offer its customers seamless broadband connectivity between New York and other
cities served by MFN and London. See "--Build-out of Networks." The Company's NY
Network supports a self-healing SONET architecture that minimizes the risk of
downtime in the event of a fiber cut and provides MFN's customers with high
security and reliability. It is expected that the Company's other intra-city
networks will also support a self-healing SONET architecture. Most of the
Company's fiber is installed inside high density polyethylene conduit to protect
the cable and, where practicable, MFN installs additional unused conduits to
accommodate future network expansion.
MFN is focused on providing its broadband communications infrastructure to
two main customer groups: communications carriers and corporate/government
customers located in selected Tier I markets (generally, the top cities in the
United States based on population). Carrier customers targeted by the Company
include a broad range of communications companies such as incumbent local
exchange carriers ("ILECs"), competitive local exchange carriers ("CLECs"), long
distance companies/interexchange carriers ("IXCs"), paging, cellular and PCS
companies, cable companies, and Internet service providers ("ISPs"). These
carrier customers typically would lease fiber optic capacity with which they
would develop their own communications networks as a low-cost alternative to
building their own infrastructure or purchasing metered services from ILECs or
CLECs. The Company's corporate and government customers would typically lease
fiber optic infrastructure and other broadband services on a point-to-point
basis for high-bandwidth, secure voice and data networks. The Company believes
that it will be well-positioned to penetrate the corporate and government
markets since it plans to continue to install most of its fiber in Tier I
markets. See "--Customers."
On April 30, 1997, Metromedia Company ("Metromedia") and certain of its
affiliates made a substantial equity investment in the Company (the "Metromedia
Investment"). Metromedia and its partners own all of the outstanding shares of
Class B Common Stock of the Company, par value $.01 per share (the "Class B
Common Stock"), which is entitled to 10 votes per share and to vote separately
to elect at least 75% of the members of the Board of Directors. As a result,
Metromedia and its partners own and control approximately 18.26% of the common
equity of the Company (on a diluted basis) and approximately 69% of the
outstanding voting power (on a diluted basis). On October 28, 1997, the Company
successfully completed its initial public offering of 9,108,000 shares of Class
A Common Stock (the "Offering") generating proceeds to the Company of $135.5
million (deducting underwriting discounts but not deducting offering expenses).
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Financial information about the Company may be found in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" of this
Form 10-K.
BUILD-OUT OF NETWORKS
Since its founding in 1993 the Company has mostly concentrated on developing
and constructing its NY Network. The Company has developed a plan for the
expansion of the NY Network and the construction of new fiber optic intra-city
telecommunications networks in Washington, D.C., Chicago and Philadelphia (the
"Intra-City Networks") and fiber optic backbone between New York City and
Washington, D.C. (the "Inter-City Networks") and is pursuing the acquisition of
necessary licenses, franchises and rights-of-way. In constructing its fiber
optic networks, the Company seeks to create strategic alliances with the
engineering and construction management firms that have been engaged to develop
routes, easements and manage deployment plans. Firms with whom the Company is
allied in this regard have deployed local loop network infrastructure for RBOCs
as well as for CLECs. Though much of the actual construction will be outsourced
to various construction firms, the Company maintains strict oversight of the
design and implementation of its fiber optic communications networks. The
Company utilizes only advanced commercially available fiber. Although the
Company has ordered a substantial portion of its fiber optic cable from Lucent
Technologies, Inc., it believes that it could obtain advanced fiber from other
suppliers on acceptable terms.
The Company intends to finance the completion of the build-out of its
networks through the use of cash on hand, revenues generated from the sale of
capacity on its networks including substantial up front payments for certain
long term leases and rights to use agreements.
NY NETWORK. The NY Network currently consists of an over 100 route mile
fiber optic communications network in the New York/New Jersey metropolitan area
consisting of more than 27,000 fiber miles. As currently planned, upon
completion the NY Network will be in excess of 180 route miles with each
additional route-mile consisting of up to 432 fibers for a network total in
excess of 60,000 fiber miles. Upon its completion, the entire NY Network will
create a SONET capable fiber ring focused in Manhattan and extending into each
of the other four boroughs, as well as east to Brookhaven, Suffolk County, Long
Island, north to White Plains, Westchester County and west to Northern and
Central New Jersey. The expanded NY Network is expected to pass more than 800
buildings in New York City and to pass through 31 RBOC central offices, which
are believed to connect to over 15 million people and over 400,000 businesses.
On September 19, 1997, the Company entered into a twenty-year fiber swap
arrangement with an engineering and telecommunications infrastructure
construction company which provides the Company with access to approximately
7,760 fiber miles (or 38.8 route miles) in the New York/New Jersey metropolitan
area in return for the Company providing access to 21.9 route miles on its NY
Network. The agreement also gives the Company the right to acquire a twenty-year
indefeasible right to use an additional 7,756 fiber miles and duct for MFN to
place its own fibers in the New York/New Jersey metropolitan area in return for
certain monthly payments.
INTRA-CITY NETWORKS. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct additional fiber
optic communications networks in Washington, D.C., Chicago, and Philadelphia. No
assurance can be given that the necessary franchises, licenses and rights of way
will be obtained or consummated or will provide all of the rights needed to
implement the Company's
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strategy on acceptable terms. The following table sets forth the Company's
estimates of route miles and fiber miles for each of the proposed Intra-City
Networks.
<TABLE>
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PROPOSED
PROPOSED MINIMUM MINIMUM
CURRENTLY PROPOSED CITIES ROUTE MILES FIBER MILES
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Chicago...................................................... 50 21,600
Washington, D.C.............................................. 120 25,920
Philadelphia................................................. 30 6,480
Total........................................................ 200 54,000
</TABLE>
INTER-CITY NETWORK. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct and operate its
Inter-City Network between New York City and Washington, D.C., covering
approximately 114,000 fiber miles (or 264 route miles). The Company has
completed or is in the process of negotiating for the acquisition of related
rights-of-way.
RIGHTS-OF-WAY. When the Company decides to build a fiber optic
communications network, its corporate development staff seeks to obtain the
necessary rights of way and governmental authorizations. In some jurisdictions,
a construction permit is all that is required. In other jurisdictions, a license
agreement or franchise is also required. Such licenses and franchises are
generally for a term of limited duration. Where possible, rights-of-way are
leased under multi-year agreements with renewal options and are generally
non-exclusive. The Company strives to obtain rights-of-way that afford it the
opportunity to expand its communications networks as business develops.
The Company plans to lease underground conduit and pole space and other
rights-of-way from entities such as ILECs, utilities, railroads, IXCs, state
highway authorities, local governments and transit authorities.
The following is a summary of the status of MFN's efforts to secure
rights-of-way:
- NEW YORK CITY: A franchise agreement entered into between the Company and
the City of New York on December 20, 1993 (the "NYC Franchise Agreement")
grants MFN the right, until December 2008, to install, operate, repair,
maintain, remove and replace cable, wire, fiber or other transmission
media that may be used in lieu of cable, wire or fiber on, over and under
the inalienable property of New York City in order to provide
telecommunications services which originate and/or terminate in or transit
New York City. The Conduit Occupancy Agreement (as defined herein) between
the Company and Bell Atlantic, together with easements granted to the
Company by Bell Atlantic's subsidiary, Empire City Subway (Ltd.) ("ECS"),
authorize the installation of the Company's fiber optic communications
network in Bell Atlantic's conduit system and the conduit system
associated with the ECS, respectively. See "--Franchise, License and
Related Agreements--New York City Franchise Agreement" and "--Conduit
Occupancy Agreement."
- CHICAGO: MFN has entered into agreements which will provide the Company
with access to more than 4300 fiber miles along in excess of 40 miles of
infrastructure on key routes within its Chicago market, in addition to the
necessary easements and rights-of-way for its Chicago network. MFN is also
investigating procuring the required franchises, licenses, permits and
other agreements needed to complete its Chicago network.
- WASHINGTON, D.C.: The Company has obtained rights-of-way for a portion of
the Washington, D.C. Intra-City Network and is investigating obtaining the
necessary licenses and permits for this network.
- PHILADELPHIA: MFN has negotiated with the City of Philadelphia for
permission, subject to certain conditions, to construct, maintain and
operate, replace and remove a telecommunications system in, under and
across the public rights-of-way and city streets and/or to place such
telecommunications system within the existing facilities owned by Bell
Atlantic Corporation, PECO Energy Company,
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Southeastern Pennsylvania Transportation Authority, Consolidated Rail
Corporation or any other entity holding a grant pursuant to City
ordinances. An appropriate ordinance was passed by the Philadelphia city
council in June 1997 and the Company expects to enter into formal licenses
and other agreements shortly.
In developing the Inter-City Network, MFN has negotiated with certain rail
transportation providers to accomplish the Company's goal of providing its
customers with a flexible network architecture. Design and planning is underway
and the Company soon will start construction of this route.
TECHNOLOGY
The MFN Network consists of fiber optic communication paths which allow for
high speed, high quality transmission of voice, data and video communications.
Fiber optic systems use laser-generated light to transmit voice, data and video
in digital formats through ultra-thin strands of glass. Fiber optic systems are
generally characterized by large circuit capacity, good sound quality,
resistance to external signal interference and direct interface to digital
switching equipment or digital microwave systems. The Company plans to install
backbone fiber optic cables containing up to 432 fiber optic strands, which have
significantly greater bandwidth than traditional analog copper cables. Using
current electronic transmitting devices, a single pair of glass fibers used by
the Company's network can transmit up to 8.6 gigabits of data per second or the
equivalent of approximately 129,000 simultaneous voice conversations, which is
substantially more than traditional analog copper cable installed in many
current communications networks. The Company believes that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at relatively low incremental costs. The Company's network is
capable of using the highest commercially available capacity transmission
(OC-192) and thereby can handle advanced, capacity-intensive data applications
such as Frame Relay, ATM, multimedia and Internet-related applications.
The Company offers end-to-end fiber optic capacity, capable of utilizing
SONET capable ring architecture, which has the ability to route customer traffic
in either direction around its ring design thereby assuring that fiber cuts do
not interrupt service to customers on the NY Network and its planned Intra-City
Networks. The Company's Network is also capable of supporting DWDM (dense wave
division multiplexing), ATM and gigabit ethernet. Currently, a state-of-the-art
network operating system continuously monitors and maintains quality control of
the NY Network on a 24-hour basis and alerts the Company of any degradation or
loss of fiber capacity, pinpoints the location of such degradation and enables
the Company to repair or replace impaired fiber without any loss of service. In
addition, the monitoring system automatically reroutes traffic in the event of a
catastrophic break in the system, enabling the Company to ensure that its
customers obtain continuous service.
FRANCHISE, LICENSE AND RELATED AGREEMENTS
NEW YORK CITY FRANCHISE AGREEMENT. The Company has entered into a 15 year
non-exclusive franchise agreement with New York City, which expires in December
2008, to install, operate, repair, maintain, remove and replace cable, wire,
fiber or other transmission medium that may be used in lieu of cable, wire or
fiber on, over and under the inalienable property of New York City in order to
provide telecommunications services which originate and/or terminate in or
transit New York City. The NYC Franchise Agreement provides that the Company may
submit a written petition to New York City to renew the term of the franchise at
least 12 months (but not more than 18 months) before the expiration of the 15
year term. However, New York City has no obligation to renew the NYC Franchise
Agreement. The City of New York has granted only seven franchises to date.
However, the Company is not aware of any limit on the number of franchises that
the City of New York may grant and believes that the City of New York has begun
the process that will result in the awarding of additional licenses.
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The NYC Franchise Agreement requires the Company to provide New York City
with certain telecommunications infrastructure and, by November 1999, to
complete construction of its initial network as described in the NYC Franchise
Agreement. The Company believes it is on schedule to complete such construction.
Both New York City and the Company have the right, at any one time after
December 20, 2000, upon six months notice, to renegotiate certain terms of the
NYC Franchise Agreement, including the annual compensation payable by the
Company to New York City, based on changes in technological, regulatory or
market conditions which may occur after the effective date of the NYC Franchise
Agreement. In the event either party calls for renegotiation, both New York City
and the Company are required to negotiate any such changes in good faith. In the
event an agreement cannot be reached upon any such renegotiation, the NYC
Franchise Agreement will be subject to early termination on a date which would
be one half of the number of days between the date of the notice to renegotiate
and January 1, 2009.
The Company was required to pay the City of New York an annual franchise fee
at a rate of 10% of Gross Revenues per year for 1995 and 1996, 6% of Gross
Revenues for 1997, currently pays 5% of Gross Revenues in 1998 and will pay 5%
of Gross Revenues for each remaining year of the franchise. "Gross Revenues" is
defined in the NYC Franchise Agreement as all revenues received directly or
indirectly by the Company or any affiliate of the Company from or in connection
with telecommunications services which originate in, terminate in, or transit
New York City. Revenues that are generated from transmissions which transit New
York City, but also include transmission through other areas, are to be
pro-rated. The minimum franchise fee payable to the City of New York is $200,000
per annum.
The NYC Franchise Agreement requires that the consent of the City of New
York be obtained in connection with the acquisition of 5% or more of the shares
of the Company by any person other than Mr. Stephen A. Garofalo, Metromedia, Mr.
Howard M. Finkelstein or Mr. Peter Sahagen or any other 5% stockholder on the
date of the consummation of the Offering. Accordingly, the City of New York
would need to consent to the acquisition by any person of more than 5% of the
Class A Common Stock.
CONDUIT OCCUPANCY AGREEMENT. The Company entered into a non-exclusive
conduit occupancy agreement (the "Conduit Occupancy Agreement") with Bell
Atlantic in May 1993, authorizing the Company to install its cable facilities in
Bell Atlantic's conduit system in New York. The Company is required to pay Bell
Atlantic certain rates and charges pursuant to the terms of the agreement.
The Conduit Occupancy Agreement, which had an initial term of 12 months but
was to continue indefinitely if not affirmatively terminated by either party, is
terminable without cause by either party upon three months' written notice.
Under certain circumstances, a petition may be brought to the Public Services
Commission requesting that it decide a dispute arising over termination prior to
the termination of the Conduit Occupancy Agreement.
SALES AND MARKETING
The Company's sales and marketing strategy includes (i) positioning itself
as the communications carriers' carrier of choice, (ii) focusing on high dollar
volume corporate and government customers and (iii) emphasizing the cost
advantages which will allow the Company to lease its fiber optic infrastructure
at fixed prices which represent potentially significant savings for its large
volume carrier and corporate customers relative to their present build or buy
alternatives. The Company also believes that communications carriers and
corporate and government customers will be attracted to the Company's dark fiber
product and its unmetered pricing structure. (Dark fiber is installed fiber
optic cable which is not otherwise carrying a signal originated by the service
provider (i.e., MFN), but which will carry a signal generated by the customer.)
The Company intends to focus its sales and marketing efforts on carrier
customers. However, the Company is currently in the process of hiring additional
sales professionals to focus on both customer groups. As MFN constructs fiber
optic networks in new cities, local sales professionals are expected to be hired
to target regional corporate, government and carrier customers.
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CUSTOMERS
CARRIERS. The Company expects that communications carriers will account for
a majority of its business. The Company currently targets the major carriers,
such as resellers, data services, RBOCs, IXCs, CLECs, ISPs, wireless providers,
and major information service providers. The Company believes it can compete
effectively with other providers due to its rapid deployment, pricing,
reliability, customer service and capacity of the MFN Network. The Company
traditionally leases dark fiber to communications carriers, providing them with
point-to-point and IXC point of presence ("POP") to end user non-switched
access, which connects their customers to the Company's network, enabling them
to eliminate or reduce costly access charges.
The Company has entered into contracts with several communications carriers,
including providers of wireless, cellular, interexchange and competitive local
exchange services. In addition, the Company is currently in the process of
negotiating agreements with certain other major communications carriers and will
continue to target such carriers in the future.
On June 3, 1997, the Company entered into an agreement with NextLink New
York, L.L.C. ("NextLink"), a CLEC, that provides certain exclusive long-term
rights to certain fiber strands in the NY Network. The agreement calls for MFN
to provide NextLink with capacity over a portion of MFN's network at specified
locations for twenty years (the "Term"), with an additional ten year option
exercisable by the customer. In addition, the agreement permits the carrier to
use additional fiber miles for additional charges and requires, under certain
circumstances, the Company to construct and maintain extensions of up to two
miles from the then-existing network. As compensation through the Term, the
Company is to receive $11.0 million in scheduled upfront payments, a monthly
recurring charge per terminated fiber strand terminating at certain additional
locations, and an additional fiber charge per mile of additional fiber made
available for the customer. Charges for the term of the option period are to be
determined at market rates prevailing at the time the option is exercised.
In April 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One"), an IXC, pursuant to which it leases portions of its
fiber optic network to U.S. One for an initial term lasting until December 20,
2008. U.S. One has the option to renew the agreement for an additional term of
up to 13 years. Lease payments consisted of prepayments of $3.6 million. Lease
payments for the additional term are payable only if U.S. One elects to renew
the agreement, either monthly at a rate per fiber mile equal to the lowest lease
rate charged by the Company to any lessee or in a lump sum payment equal to the
present value of the lease payments, up to a maximum of $8.8 million plus a
certain percentage based upon the consumer price index. The lump sum payment to
be made by U.S. One is subject to adjustment if the Company has not completed
the build-out of a portion of its network. During 1997 U.S. One was acquired by
Winstar Communications.
In February 1998, the Company entered into an agreement with an affiliate of
NextLink to provide certain rights to multiple fibers and innerducts along
various MFN routes for a period of 20 years with two ten-year renewals. This
agreement provides this NextLink affiliate with the exclusive rights of use to
certain fiber strands on intra-city routes in Metropolitan Philadelphia and
Washington, D.C., an inter-city link between New York City and Washington, D.C.
and additional routes in Metropolitan New York/New Jersey. Pursuant to the
agreement, the Company is to receive $92.0 million in payments from the
affiliate of NextLink, with $11.75 million paid upfront and $80.25 million to be
placed in escrow and released to MFN periodically as delivery of the fibers and
innerducts are completed during 1998 and 1999 in accordance with the agreement.
CORPORATE/GOVERNMENT CUSTOMERS. The Company expects that its corporate and
government customers, including members of the international financial and
commercial community, will primarily be entities with multiple locations and
high volume communications requirements. The Company expects to provide these
customers with dedicated point-to-point communications that have the capacity to
carry a wide range of communications services (e.g., high speed intranet
access). The Company offers its high-bandwidth
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services to such customers at prices that are lower than those currently offered
by regulated CLECs and ILECs. However, the Company's customers currently provide
their own transmission or switching equipment.
The Company believes it can effectively compete for corporate and government
customers based upon price, non-metered usage, reliability and solutions
tailored to the customers' needs. In addition, the Company's NY Network
utilizes, and the Intra-City Networks will permit use of, SONET technology and
offer reliability which the Company believes is generally superior to that
provided by the ILECs. The Company currently has dark fiber infrastructure
leasing arrangements with a variety of financial services firms, including
investment and commercial banks, securities and accounting firms and a financial
exchange, although installation of the dark fiber to be leased pursuant to
certain of the contracts has not yet been completed by the Company.
COMPETITION
Fiber optic systems are currently under construction both locally and
nationally. In New York City, for example, seven franchisees have been granted
the right to install and operate a telecommunications network within the city.
Development of fiber optic networks is also continuing on a national scale; for
example, one provider of fiber is currently in the midst of constructing a
cross-continental long distance fiber optic network from Los Angeles to New York
and another, Qwest Communications International, is constructing a fiber-based
national backbone network which will connect more than 125 metropolitan areas
and span approximately 16,285 miles. Other companies have also recently
announced their intention to build national fiber-based networks.
The construction of these networks enables their owners to lease access to
their networks to other communications carriers or large corporate or government
customers seeking high bandwidth capacity, without these customers having to
incur costly expenditures associated with building networks of their own.
Alternatively, some network owners may choose to use their infrastructure to
provide switched voice and data services, competing directly with ILECs and
IXCs. Currently, MFN does not provide such services or plan to provide such
services.
In New York City and the cities where MFN plans to deploy fiber optic
communications networks, the Company faces significant competition from the
ILECs, which currently dominate their local communications markets. The Company
also faces competition from CLECs and other potential competitors in New York
City and will face competition in the cities in which the Company plans to build
its networks. Many of the Company's competitors have financial, management and
other resources substantially greater than those of the Company, as well as
other competitive advantages over the Company, including established reputations
in the communications market.
Various communications carriers already own fiber optic cables as part of
their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with the Company in the market for leasing fiber
capacity. In addition, although CLECs generally provide a wider array of
services to their customers than the Company presently provides to its
customers, CLECs nevertheless represent an alternative means by which a
potential customer of the Company could obtain direct access to an IXC POP or
other site of the customer's choosing. Thus, CLECs could compete with the
Company.
Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors of the Company provided that
these competitors are willing to offer this capacity to all of their customers.
The Company believes that as competition in the local exchange market
develops, a fundamental division between the needs of corporate, governmental
and institutional end users and residential end
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users will drive the creation of differentiated communications services and
service providers. The Company believes that the CLECs, IXCs, ISPs, wireless
carriers and corporate and government customers on which it focuses will have
distinct requirements, including maximum reliability, consistent high quality
transmissions, capacity for high-speed data transmissions, diverse routing and
responsive customer service. The Company believes that it will be able to
satisfy the needs of such customers.
REGULATION
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act"),
the most comprehensive reform of the nation's telecommunications laws since the
Communications Act, was enacted. The 1996 Act has resulted in substantial
changes in the marketplace for communications services that should be largely
favorable to the Company.
FEDERAL
The 1996 Act imposes a number of access and interconnection requirements on
all local exchange providers, including CLECs, with additional requirements
imposed on ILECs. The 1996 Act provides a detailed list of items which are
subject to these interconnection requirements, as well as a detailed set of
duties for all affected carriers. All LECs, including CLECs, have a duty to (i)
not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, and nondiscriminatory access to telephone numbers, directory
assistance, operator services and directory listings, (iv) provide access to
poles, ducts, conduits and rights-of-way and (v) establish reciprocal
compensation arrangements for the transport and termination of
telecommunications. In addition to those general duties of all LECs, ILECs have
duties to (i) interconnect at any technically feasible point and provide service
equal in quality to that provided to their customers or the ILEC itself, (ii)
provide unbundled access to network elements at any technically feasible point
at just, reasonable and nondiscriminatory rates, terms and conditions, (iii)
offer retail services at wholesale prices for the use of telecommunication
carriers, (iv) provide reasonable public notice of changes in the network or the
information necessary to use the network or which affect interoperability and
(v) provide for physical collocation. "Physical collocation" is an offering by
an ILEC that enables another telecommunications carrier to enter the ILEC's
premises to install, maintain and repair its own equipment that is necessary for
interconnection or access to the ILEC's network elements. An ILEC must allocate
reasonable amounts of space to carriers on a first-come first-served basis. If
space limitations or practical or technical reasons prohibit physical
collocation, an ILEC must offer "virtual collocation," by which the other
carrier may specify ILEC equipment to be dedicated to its use and electronically
monitor and control communications terminating in such equipment.
The FCC adopted pricing and other guidelines to implement the
interconnection provisions of the 1996 Act, but the 8th Circuit Court of Appeals
recently vacated most of the FCC's guidelines. The 8th Circuit's decision is
expected to be reviewed by the Supreme Court in its 1998-99 term. The
responsibility for setting pricing and other guidelines with respect to
interconnection has thus been left up to the individual state public service
commissions. It is expected that varying pricing and guidelines will emerge from
state to state, and some of these guidelines may eventually have an indirect
adverse effect on the Company's business.
Federal telecommunications law directly shapes the market in which the
Company competes. Consequently, undesirable regulatory changes could adversely
affect the Company's business, financial conditions and results of operations.
Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio."
The Company believes that the leasing of dark fiber facilities does not
constitute engaging in "communication by wire or radio" and therefore is not
subject to these legal requirements. In any event, the Company does not intend
to offer its dark fiber
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facilities as a common carrier. Common carriers are those who offer services
directly to the public, or to all potential users on an indiscriminate basis
subject to standardized rates, terms or conditions. The Company does not intend
to offer its dark fiber services in this manner, but instead intends to enter
into individualized negotiations on a selective basis with prospective lessees
of its dark fiber facilities to determine whether and on what terms to serve
each potential lessee. The Company therefore does not believe that its dark
fiber offerings are subject to the common carrier jurisdiction of the FCC or to
the common carrier provisions of the Communications Act.
Federal telecommunications law also imposes special legal requirements on
"telecommunications carriers." The law essentially defines "telecommunications
carriers" as those offering certain telecommunication services "directly to the
public" or to all potential users. The Company therefore believes that a company
has to be a common carrier in order to be considered a telecommunications
carrier. For the reasons stated above, the Company believes that it is neither a
common carrier nor a telecommunications carrier with respect to its dark fiber
service. Nevertheless, the law is not entirely clear as to, and the FCC has not
definitively addressed whether, the term "telecommunications carriers" is meant
to encompass only common carriers, and therefore whether a provider of dark
fiber facilities on an individualized basis, like the Company, is a
"telecommunications carrier." The FCC has been petitioned by certain railroad,
power and telecommunications associations, none of which are affiliated with the
Company, to clarify the status of dark fiber providers in this respect, and if
the agency decides that such companies are telecommunications carriers, then the
Company would be subject to certain additional regulatory requirements. These
requirements may have a material adverse effect on the Company.
If the Company's offering of dark fiber facilities were deemed to constitute
a "telecommunications service," then its revenues from such leases to end users
(but not to other telecommunication carriers) would become subject to assessment
for the FCC's Universal Service Fund, a fund that was established by the FCC
pursuant to the Telecom Act to assist in ensuring the universal availability of
basic telecommunications services at affordable prices. Such assessments could
create a liability equal to a percentage of these gross revenues. The Company
anticipates that the rate of assessment will be approximately 4.5% of gross
interstate end-user revenues for the year 1998, and may be higher in subsequent
years). The Company also may be liable for assessments by state commissions for
state universal service programs.
With respect to its offering of telecommunications transmission services,
however, the Company will likely operate as a common carrier and therefore will
be subject to the regulatory requirements applicable to common carriers and to
telecommunications carriers. For example, the Company will be required, with
respect to its transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. The Company may also be required to file tariffs setting forth the
rates for its services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on the Company. The FCC
has recently determined, for example, that providers of "access" services
(intracity transmission services used to originate and/or terminate interstate
and foreign communications) need not file tariffs and may offer such services to
customers on a private, contractual basis. Although the FCC's policies may be
subject to change in the future due to regulatory, judicial, or legislative
actions, and such changes could have a material adverse effect on the Company,
the Company does not believe that regulation of its services at the federal
level will have any detrimental effect on its competitiveness. The Company's
revenues from transmission services will be subject to FCC Universal Service
Fund assessments as described above, to the extent that these services are
purchased by end users; since the revenues of the Company's competitors will be
subject to comparable assessments; however, this should not reduce the Company's
competitiveness.
ILECs, CLECs and IXCs are subject to various federal telecommunications
laws. Accordingly, federal telecommunications law may affect the Company's
business by virtue of the inter-relationships that exist among the Company and
many of these regulated telecommunications entities. For example, the FCC
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recently issued an order requiring, among other things, that common line access
fees charged to IXCs, which previously amounted to more than what was necessary
to recover the costs of providing access, shift from being usage driven to a
fixed flat cost-based structure. While it is not possible to predict the precise
effect the access charge changes will have on the Company's business or
financial condition, the reforms will reduce access charges paid by IXCs, likely
eliminating one of the principal disincentives for use of ILEC facilities by
IXCs, which could have a material adverse effect on the use of the Company's
fiber optic telecommunications networks by IXCs.
The FCC has responsibility under the 1996 Act's interconnection provisions
to determine what elements of an ILEC's network must be provided to competitors
on an unbundled basis. The FCC has decided not to declare dark fiber an
unbundled network element under these provisions. This decision is currently
subject to petitions for reconsideration before the FCC. An FCC decision to
alter this decision on reconsideration could decrease the demand for dark fiber
provided by the Company. In addition, the FCC has announced that state
commissions may decide to add network elements to the FCC's list of elements
that are required to be unbundled by all carriers throughout the country.
STATE
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing any interstate or intrastate telecommunications service.
Notwithstanding the prohibition contained in the 1996 Act, states regulate
telecommunications services, including through certification of providers of
intrastate services, regulation of intrastate rates and service offerings, and
other regulations. Nonetheless, this provision of the 1996 Act should enable the
Company and customers of the Company to provide telecommunications services in
states that previously prohibited competitive entry.
States retain jurisdiction under the 1996 Act to adopt regulations necessary
to preserve universal service, protect public safety and welfare, ensure the
continued quality of communications services and safeguard the rights of
consumers. States are also responsible for mediating and arbitrating CLEC-ILEC
interconnection arrangements if voluntary agreements are not reached.
Accordingly, the degree of state involvement in local telecommunications
services may be substantial.
In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
dark fiber should be considered an unbundled network element. For example, the
New York Public Service Commission determined that it would not require Bell
Atlantic to provide dark fiber as an unbundled network element. State
commissions, including those in Florida, Maryland, North Carolina, and Virginia,
also have either refused to require the ILECs to offer dark fiber to
competitors, or have stated that the issue would be addressed at a later time.
On the other hand, state commissions in Illinois, Massachusetts, Arizona,
Georgia, Minnesota, Ohio, Oregon and Tennessee have found dark fiber to be a
network element and required the ILECs to offer it on an unbundled basis to
CLECs. There can be no assurance that these requirements, and the associated
pricing methodologies, where applicable, will not reduce the demand for dark
fiber provided by the Company.
Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. The
Company believes that the offering of dark fiber facilities is not subject to
this type of regulation in the states in which the Company currently intends to
operate. However, the Company's offering of transmission services (as distinct
from dark fiber capacity) likely will be subject to regulation in each of these
jurisdictions to the extent that these services are offered for intra-state use.
Even though many of the Company's facilities will be physically intra-state, the
Company anticipates that most customers will use its
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<PAGE>
facilities and services for the purpose of originating and/or terminating
inter-state and foreign communications. Under current FCC policies, any
dedicated transmission service or facility that is used more than 10% of the
time for the purpose of inter-state or foreign communication is subject to FCC
jurisdiction to the exclusion of any state regulation.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. At present, the
Company does not anticipate that the regulatory requirements to which it will be
subject in the states in which the Company currently intends to operate will
have any material adverse effect on its operations, although the Company will
incur certain costs to comply with regulatory requirements such as the filing of
tariffs, submission of periodic financial and operational reports to regulators,
and payment of regulatory fees and assessments. In some jurisdictions, the
Company's pricing flexibility for intra-state services may be limited because of
regulation, although the Company's direct competitors will be subject to similar
restrictions. However, there can be no assurance that future regulatory,
judicial, or legislative action will not have a material adverse effect on the
Company.
In response to the 1996 Act, Bell Atlantic "unbundled" its local loop in
October 1996. As a result, carriers such as the Company will be permitted to
access Bell Atlantic's existing wiring infrastructure in buildings on an
economical basis, which the Company believes enhances the strategic value of the
NY Network to potential customers. By virtue of the unbundling, Bell Atlantic
must make a significant portion of its in-house apartment wiring available for
$2 per month per apartment. The availability of an unbundled local loop will
enable new carriers to enter the residential voice market on a competitive basis
with Bell Atlantic.
LOCAL
In addition to federal and state laws, local governments exercise legal
authority that may impact the Company's business. For example, local
governments, such as the City of New York, typically retain the ability to
license public rights-of-way, subject to the limitation that local governments
may not prohibit persons from providing telecommunications services. Local
authorities affect the timing and costs associated with the Company's use of
public rights-of-way. These regulations may have an adverse effect on the
Company's business.
INTERNATIONAL
Various regulatory requirements and limitations also will influence the
Company's business as it attempts to enter international markets.
Although the Company has not fully determined its international business
strategy, the Company has negotiated an agreement with a foreign firm that
contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom. Depending
on the Company's specific business plan in this arrangement, it is possible that
the Company will become a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act. Under current FCC rules,
international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a common carrier, the
Company would be subject to among other policies, the common carrier obligations
of nondiscrimination. In addition, FCC rules prohibit U.S. carriers from
bargaining for special concessions from certain foreign partners. The Company
would also be required, under Sections 214 and 203 of the Communications Act,
respectively, to obtain authority and file an international service tariff
containing rates, terms and conditions prior to initiating service. As a
nondominant carrier, the Company would be eligible to seek "global" authority to
operate as facilities-based and/or resale carrier in an application subject to
the FCC's streamlined processing rules. International carriers are also subject
to certain annual fees and filing requirements, including the requirement to
file contracts with other carriers including foreign carrier agreements, and
reports setting forth international circuit, traffic and revenue
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data. Failure to obtain an appropriate U.S. license for international service or
the revocation of a license could have a material adverse effect on the future
operations of the Company.
If the Company operates as an international common carrier, it will also be
required to comply with FCC's International Settlements Policy ("INSP") which
defines the permissible boundaries for U.S. carriers and their foreign
correspondents to settle the cost of terminating each other's traffic over their
respective networks. The INSP is designed to eliminate a foreign carrier's
opportunity to discriminate among different U.S. carriers by bargaining for
accounting rates or other terms that benefit the foreign carrier but is
inconsistent with the U.S. public interest. The INSP generally provides that
U.S. carriers may only enter into foreign carrier agreements for the exchange of
traffic that contain the same accounting rate and settlement rate (typically
one-half of the accounting rate) offered to all other U.S. carriers. The INSP
also requires U.S. carriers to adhere to the principle of proportionate return
so that competing U.S. carriers have comparable opportunities to receive the
return traffic that reduces the marginal cost of providing international
service.
If the Company provides public switched services over international private
lines, it would be subject to FCC rules governing such activity rather than to
the INSP. These rules limit the Company from providing switched services over
international private lines between the United States and certain countries and
impose certain conditions on carriers engaging in such activity.
The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Among other things, the FCC has recognized
the advent of competition in the U.K. market by designating the U.K. as a
country that offers U.S. carriers effective competitive opportunities. The FCC
has also amended its rules to reflect the U.S. participation in the WTO
Agreement on Basic Telecommunications Services in which 72 countries have agreed
to eliminate barriers to competition in their markets for basic
telecommunications services. For example, the FCC has decided to permit U.S.
carriers to enter into "flexible" termination arrangements with carriers in WTO
countries, unless such arrangements would not promote competition. By taking
these actions, the FCC has relaxed or eliminated regulatory limitations on many
U.S. carrier services between U.S. and the U.K. (as well as between the U.S. and
other members of the WTO). In addition, the FCC has established reduced
"benchmark" rates for the amounts U.S. carriers will be allowed to pay to
foreign carriers for terminating U.S.-originated traffic. As of January 1, 1999,
U.S. carriers may ask the FCC to require that U.S. carriers pay foreign carriers
in "high income" countries such as the United Kingdom no more than $.15 per
minute to terminate such calls. Different rates would apply in different
countries depending on the countries' wealth.
Regulation of the international telecommunications industry is changing
rapidly. The Company is unable to predict how the FCC will resolve the various
pending international policy issues and the effect of such resolutions on the
Company.
The Company's international services would also be subject to regulation in
the United Kingdom. U.K. regulation, as well as policies and regulations on the
European Union level, would impose separate licensing, service and other
conditions on the Company's international service operations, and these
requirements may have a material adverse impact on the Company.
EMPLOYEES
As of March 10, 1998, the Company employed 48 people. The Company's
employees are not represented by any labor union. The Company considers its
relationship with employees to be good.
ITEM 2. PROPERTIES
The NY Network and its component assets are the principal properties
currently owned by the Company. The Company owns substantially all of the
communications equipment required for its business.
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The Company's installed fiber optic cable is laid under the various
rights-of-way held by the Company. See Item 1 "Business--Build-out of
Networks--Rights-of-Way." Other fixed assets are located at various leased
locations in geographic areas served by the Company.
The Company's executive and administrative offices are located at its
principal office at One North Lexington Avenue, White Plains, New York. MFN
leases this space (currently 15,061 square feet, expandable to 21,336 square
feet) under an agreement that expires in March 2003. The Company's sales offices
are located at 110 East 42nd Street, New York, N.Y. under an agreement that
expires in June 1998. The Company leases additional space at 60 Hudson Street,
New York, New York, from Hudson Telegraph Associates.
ITEM 3. LEGAL PROCEEDINGS
On or about April 18, 1997, Howard Katz, Realprop Capital Corp. and Evelyn
Katz commenced an action against the Company, Stephen A. Garofalo, Peter Sahagen
and Peter Silverman in the United States District Court for the Southern
District of New York captioned KATZ, ET AL. v. NATIONAL FIBER NETWORK, INC., ET
AL., No. 97 Civ. 2764 (JGK) (the "Katz Litigation"). (National Fiber Network,
Inc. is the former name of the Company). On May 28, 1997, the plaintiffs filed
an amended complaint and on September 15, 1997, the plaintiffs filed a second
amended complaint, which, among other things, added Metromedia and Silverman,
Collura, Chernis & Balzano, P.C. as defendants. The second amended complaint
alleges causes of action for, among other things, common law fraud, violations
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, breach of fiduciary duty and negligent
misrepresentation, for alleged misrepresentations and omissions made in
connection with the repurchase of the Katz Securities (as defined below under
"Certain Relationships and Related Transactions"). The second amended complaint
also contains allegations of corporate waste against the Company and Mr.
Garofalo. Plaintiffs seek, among other things, compensatory damages of not less
than $12 million, punitive damages in the amount of $100 million and, in the
alternative, rescission of the purchase by the Company of 264,631 shares of
Class A Common Stock and 207,883 warrants to acquire shares of Class A Common
Stock. On October 31, 1997, all defendants moved to dismiss the second amended
complaint. The motions were fully briefed as of December 12, 1997. The Company
intends to vigorously defend itself against these allegations based on its
belief that MFN acted appropriately in connection with the matters at issue in
this litigation. No assurance can be made though, that the Company will not
determine that the advantages of entering into a settlement outweigh the risks
and expense of protracted litigation or that ultimately the Company will be
successful in its defense of the allegations. If the Company is unsuccessful in
its defense of the allegations, an award of the magnitude being sought by the
plaintiffs in the Katz Litigation would have a material adverse effect on the 3
Company's financial condition or results of operations.
On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp., Lawrence Black, Sterling Capital LLC,
Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch and Ronald
Kuzon (the "Kramer Defendants") in the United States District Court for the
Southern District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). The
complaint alleges causes of action for, among other things, violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, fraud and fraudulent concealment, breach of fiduciary duty and
negligent misrepresentation and omission made in connection with the sale by
VCNY of 1,368,900 shares of Class A Common Stock to Peter Sahagen and the Kramer
Defendants on January 13, 1997 (the "VCNY Sale"). The complaint also alleges a
cause of action for declaratory judgment asserting that certain "piggyback"
registration rights are applicable to shares of the Company's Class A Common
Stock which VCNY owns (or which may be rescinded to VCNY pursuant to its
requested remedies). The complaint further requests a declaratory judgment that
a stockholders
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agreement between the Company, Stephen Garofalo and VCNY be declared operative,
which agreement indirectly required VCNY, through designated directors, to
approve significant transactions, and, accordingly, the Metromedia Loan and the
Metromedia Investment should be rescinded and Mr. Vento should be reappointed as
Chief Executive Officer of the Company. The Company believes, among other
things, that the stockholders agreement to which Mr. Vento was a party had
terminated and as a result Mr. Vento had no such rights to approve the
Metromedia Investment or the Metromedia Loan or to remain as Chief Executive
Officer of the Company. Plaintiff seeks, among other things, (i) rescission of
the VCNY Sale, or alternatively, damages in an amount not presently
ascertainable, but believed to be in the excess of $36 million, together with
interest thereon, (ii) punitive damages in the amount of $50 million, and (iii)
the declaratory judgments discussed above. The Company intends to vigorously
defend itself against these allegations based on its belief that MFN acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made, though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
VCNY Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
In addition, the Company is subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, the
Company believes that none of such current claims, or proceedings, individually
or in the aggregate, including the Katz Litigation and the VCNY Litigation, will
have a material adverse effect on the Company's financial condition or results
of operations, although there can be no assurances in this regard.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On October 28, 1997, the stockholders of the Company, pursuant to Section
228(a) of the General Corporation Law of the State of Delaware, unanimously
consented to the adoption of the following resolutions without a meeting:
a. Election of David Rockefeller and Leonard White as directors of the
Company. The terms of office of the following persons as directors of the
Company continued after such election: Howard M. Finkelstein, Stephen A.
Garofalo, Vincent A. Galluccio, John W. Kluge, Silvia Kessel, Stuart Subotnick
and Arnold L. Wadler.
b. Approval of the Company's Amended and Restated Certificate of
Incorporation.
c. Approval of the Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan.
d. Approval of the exchange of 9,564,940 shares of the Company's old common
stock, par value $.01 per share, for an equivalent number of Class A Common
Stock.
e. Approval of the exchange of 8,403.25 shares of the Company's Series B
Convertible Preferred Stock, par value $.01 per share, for 4,260,486 shares of
the Company's Class B Common Stock, par value $.01 per share.
f. Approval of the exchange of 39,327 shares of Class B Common Stock for an
equivalent number of shares of Class A Common Stock.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. Since October 28, 1997, the Class A Common Stock has been listed and
traded on the Nasdaq National Market (the "Nasdaq") under the symbol "MFNX." The
following table shows the range of reported high and low closing prices per
share of Class A Common Stock.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH ($) LOW ($)
- -------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
First Quarter............................................................. N/A N/A
Second Quarter............................................................ N/A N/A
Third Quarter............................................................. N/A N/A
Fourth Quarter............................................................ 24 14 7/8
</TABLE>
As of March 27, 1998, there were approximately 104 record holders of Class A
Common Stock and two record holders of Class B Common Stock. The closing price
for the Class A Common Stock on such date was $37.00 per share as reported on
the Nasdaq National Market.
On October 28, 1997, in connection with the Offering, the Company approved
of two share exchanges pursuant to which 9,564,940 shares of the old common
stock, par value $.01 per share, were exchanged for the same number of shares of
Class A Common Stock and a total of 8,403.25 shares of the Series B Convertible
Preferred Stock, par value $.01 per share of the Company were exchanged for
4,260,486 shares of the Company's Class B Common Stock. Immediately thereafter,
two shareholders converted an aggregate of 39,327 shares of Class B Common Stock
into an equivalent number of shares of Class A Common Stock. These exchanges
were exempt from registration under the Securities Act of 1933, as amended, by
virtue of Section 3(a)(9) thereof.
DIVIDENDS. The Company has never declared or paid any cash dividends on its
Class A Common Stock and does not expect to do so in the foreseeable future. The
Company anticipates that all future earnings, if any, generated from operations
will be retained to finance the expansion and continued development of its
business. Any future determination with respect to the payment of dividends will
be within the sole discretion of the Company's Board and will depend upon, among
other things, the Company's earnings, capital requirements, the terms of then
existing indebtedness, applicable requirements of the Delaware General
Corporation Law, general economic conditions and such other factors considered
relevant by the Company's Board. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
b. USE OF PROCEEDS. On November 3, 1997, the Company successfully completed
the Offering of 9,108,000 shares of Class A Common Stock. The principal
underwriters in connection with the Offering included Salomon Brothers Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Deutsche Morgan Grenfell
Inc. The aggregate offering price was $145,728,000 and the aggregate
underwriting discount was $10,200,960. The Offering generated net proceeds to
the Company of approximately $135.5 million, before deducting other offering
expenses. The shares sold through the Offering were registered pursuant to a
registration statement on Form S-1 (Registration No. 333-33653) which was
declared effective on October 28, 1997. The Offering terminated on November 3,
1997 after all 9,108,000 shares of Class A Common Stock were sold.
The following table sets forth all expenses paid by the Company, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares sold through the Offering. None of the amounts shown
were paid directly or indirectly to any director, officer, general partner of
the
18
<PAGE>
Company or their associates, persons owning equity securities of the Company, or
an affiliate of the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 44,160
NASD filing fee................................................. 15,429
Nasdaq National Market listing fee.............................. 50,000
Printing and engraving expenses................................. 453,331
Legal fees and expenses......................................... 456,175
Accounting fees and expenses.................................... 264,680
Transfer Agent and Registrar fees and expenses.................. 2,750
Director and Officers Liability Coverage........................ 316,800
Miscellaneous................................................... 45,092
---------
Total..................................................... $1,648,417
---------
---------
</TABLE>
Net proceeds to the Company after deducting offering expenses and
underwriting discounts totaled $133.9 million. Such net proceeds will be used
primarily for capital expenditures associated with the build-out of the MFN
Network, the development and introduction of new services and for general
corporate and working capital purposes. See "Item 1. Business." As of December
31, 1997, all of the proceeds have been invested as follows (amounts are
estimated):
<TABLE>
<S> <C>
Capital Expenditures.......................................... $ -0-
Working Capital............................................... -0-
Temporary Investments
Offshore Time Deposits...................................... 111,004,867
US Government Agency Notes.................................. 22,895,133
-----------
Total Proceeds Used..................................... $133,900,000
</TABLE>
None of the amounts shown were paid directly or indirectly to any director,
officer, general partner of the Company or their associates, persons owning
equity securities of the Company, or an affiliate of the Company.
The Company is not currently, and does not expect as a result of the
Offerings to become, subject to the registration requirements of the Investment
Company Act of 1940.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below for the Company for the years
ended December 31, 1997, 1996, and 1995 and as of December 31, 1997 and 1996, is
derived from, and qualified by reference to, the audited consolidated financial
statements included elsewhere herein. The selected financial data set forth
below for the Company for the year ended December 31, 1994 and the period ended
December 31, 1993 and as of December 31, 1995, 1994 and 1993 are derived from
consolidated financial statements not included elsewhere herein. The selected
financial data set forth below should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" included
elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8,
1993
(DATE OF
INCEPTION)
FISCAL YEAR ENDED DECEMBER 31, TO
----------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993
----------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue........................................ $ 2,524,311 $ 236,082 $ 56,149 $ -- $ --
Expense:
Cost of sales................................ 3,572,005 698,793 -- -- --
Selling, general and administrative.......... 6,303,041 2,070,345 3,886,568 874,000 188,000
Consulting and employment incentives (a)..... 19,218,591 3,652,101 -- -- --
Depreciation and amortization................ 757,133 612,530 161,576 -- --
Loss from operations........................... (27,326,459) (6,797,687) (3,991,995) (874,000) (188,000)
Interest income (expense) net.................. 1,067,221 (3,561,010) (327,106) -- --
Net loss....................................... $(26,259,238) $(10,358,697) $(4,319,101) $(874,000) $ (188,000)
Net loss applicable to common stockholders per
share-basic and diluted...................... $ (2.22) $ (1.16) $ (0.70) $ (0.15) $ (0.12)
Number of shares of common stock assumed
outstanding (b).............................. 11,861,728 8,964,563 6,207,235 5,833,973 1,521,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ----------
BALANCE SHEET DATA
Current assets................................. $140,957,096 $ 645,114 $ 254,056 $ 271,000 $ 21,000
Working capital (deficiency)................... 133,521,362 (12,887,341) (11,541,561) (1,735,000) (1,583,000)
Fiber optic transmission network and related
equipment, net............................... 15,083,510 6,368,653 5,884,679 2,288,000 1,740,000
Property and equipment, net.................... 759,014 525,268 467,631 -- --
Total assets................................... 167,377,690 7,977,506 7,077,020 2,952,000 2,068,000
Long-term debt................................. -- -- -- 1,968,000 642,000
Total liabilities.............................. 17,836,757 14,835,422 12,412,758 3,974,000 2,246,000
Stockholders' equity (deficiency).............. 149,540,933 (6,857,916) (5,335,738) (1,022,000) (178,000)
</TABLE>
- ------------------------
(a) Represents value of common stock, warrants and options issued to consultants
and officers to provide services to the Company.
(b) Based upon the weighted average shares outstanding after giving retroactive
effect to stock splits; see Note 1 to "Notes to Consolidated Financial
Statements."
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three years ended December 31,
1997. This information should be read in conjunction with the "Item 6. Selected
Financial Data" and the Company's consolidated Financial Statements and related
notes thereto appearing elsewhere in this document.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that constitute
"forward-looking statements." For a related discussion, see "Part I. Special
Note Regarding Forward-Looking Statements."
GENERAL
The Company is a facilities-based provider of technologically advanced,
high-bandwidth fiber optic communications infrastructure to carrier and
corporate/government customers, primarily in the form of leased fiber optic
cables and circuits. The Company currently operates a 107 route mile fiber optic
network within the New York/New Jersey metropolitan area which consists of in
excess of 27,000 fiber miles. The company plans to expand its existing network
within the next two years to encompass approximately 229,000 fiber miles, in
excess of 650 route miles, concentrated in the northeastern United States. The
planned build-out will include intra-city fiber optic networks in Washington,
D.C., Chicago and Philadelphia, as well as an inter-city network between New
York and Washington, D.C. In the fourth quarter of 1997, the Company entered
into the MFN/Racal Joint Venture to provide broadband transatlantic
communication services to their respective customers. The Company anticipates
that initial service, which will include fiber optic international leased line,
ranging in capacity from 2Mb to 45Mb, will be available by the second quarter of
1998. See "Item 1. Business."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
Revenues for 1997 were $2,524,311, a 969% increase as compared to 1996
revenues of $236,082. The revenue increase was generated by one time revenues
associated with commencement of services to customers as well as increased
recurring lease revenues which reflects the growth in the number of customers.
Cost of sales for 1997 were $3,572,005, an increase of 411% versus the
$698,793 which was recorded as cost of sales in 1996. The increase in cost of
sales was associated with the increased revenues. Cost of sales as a percentage
of revenues improved to 142% in 1997 from 296% in 1996. The improvement in cost
of sales as a percentage of revenues reflects the increases in revenue
outdistancing the increases in cost, as the components of cost were mostly of a
fixed nature.
Selling, general and administrative expenses increased to $6,303,041 in 1997
from $2,070,345 in 1996, a 204% increase. This increase resulted primarily from
increased legal expenses as a result of the increased business activities within
the Company and increased staffing to accommodate the Company's anticipated
growth.
Consulting and employment incentives expense of $19,218,591 was recorded in
1997 versus $3,652,101 in 1996. The 1997 expense represents the value of stock
options issued to key employees, officers, directors and consultants in order to
attract or retain their services. The amount recorded in 1996 reflects the
expense associated with issuance of stock and warrants to consultants in
consideration for services rendered.
21
<PAGE>
Depreciation and amortization expense was $757,133 in 1997 as compared to
$612,530 in 1996. The increase in depreciation and amortization expense resulted
from increased investment in the Company's fiber optic network.
Interest income of $1,808,007 was recorded in 1997 versus no interest income
during 1996. The interest income in 1997 arose from the investment of the
Company's excess cash during the year. In 1996, the Company had no excess cash
to invest and, accordingly, earned no interest income. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters--Use of Proceeds."
Interest expense (including financing costs) decreased in 1997 to $740,786
from $3,561,010 in 1996. The decrease in interest expense reflects the repayment
of all of the Company's debt during the year with the proceeds of the Metromedia
Investment, as well as lower financing costs.
A net loss of $26,259,238 was recorded in 1997 versus a net loss of
$10,358,697 in 1996. The increase in the net loss was primarily attributable to
costs associated with organizing to meet the growth objectives of the Company.
In particular, such costs include the consulting and employment incentive,
described above, to attract and retain key employees, officers and directors, as
well as increased overhead to meet the Company's growth objectives.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
During the year ended December 31, 1995, the Company was in its early
development stage and did not generate its first revenues until the last three
months of 1995 when customers began using the Company's facilities.
Total revenues increased to $236,082 for the year ended December 31, 1996
from $56,149 for the year ended December 31, 1995, representing an increase of
$179,933. The increase in revenue was due primarily to an increase in the number
of customers.
Cost of sales was $698,793 for the year ended December 31, 1996. There were
no cost of sales recorded for the year ended December 31, 1995. The increase was
primarily attributable to the inclusion of franchise fees and easement costs in
cost of sales for 1996. In prior years such fees were classified as selling,
general and administrative expense.
Selling, general and administrative expenses decreased to $2,070,345 for the
year ended December 31, 1996 from $3,886,568 for the year ended December 31,
1995, representing a decrease of $1,816,223.
Consulting and employment incentives were $3,652,101 for the year ended
December 31, 1996 versus none in 1995, reflecting the Company's issuance of
equity instruments for consulting services.
Depreciation and amortization increased to $612,530 for the year ended
December 31, 1996 from $161,576 for the year ended December 31, 1995,
representing an increase of $450,954. Certain components of depreciation and
amortization are recognized by the Company upon commencement of service to
customers, which did not occur until late 1995. As a result, depreciation and
amortization in 1996 was larger than it was in 1995 due to the inclusion of a
full year of depreciation and amortization for such customers.
Interest Expense (including financing costs) increased to $3,561,010 for the
year ended December 31, 1996 from $327,106 for the year ended December 31, 1995,
representing an increase of $3,233,904. This increase was a result of additional
debt incurred in 1996 to finance construction of the NY Network and to fund the
operations of the Company.
Net Loss increased to $10,358,697 for the year ended December 31, 1996 from
$4,319,101 for the year ended December 31, 1995, representing an increase of
$6,039,596. The increase in net loss is attributable to the factors discussed
above.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On November 3, 1997, the Company generated net proceeds of $133.9 million in
the Offering of 9,108,000 shares of its Class A Common Stock, after deducting
the underwriters' commission and expenses relating to the Offering.
During 1997, the Company utilized approximately $7.7 million for operating
activities primarily to prepay a long term, non-exclusive right-of-way in order
to build-out a portion of its network and also to meet the growth objectives of
the Company. A portion of the operating activities were funded by advance
payments received from customers. In addition, the Company utilized
approximately $9.8 million in 1997 for investing activities, primarily to
build-out the Company's network. In 1997, approximately $155.9 million of cash
flows were provided by financing activities reflecting the net proceeds of the
Offering, as discussed above, and by the equity investment in MFN of $32.5
million made by Metromedia Company and certain of its affiliates on April 30,
1997, a portion of which was utilized to repay all the outstanding debt of the
Company and purchase all of the Company's Series A preferred stock outstanding
at April 30, 1997.
Cash used in operating activities during 1996 was approximately $2.75
million as compared to approximately $1.3 million in 1995. Cash was utilized in
both years to support the operations through the Company's startup phase. Cash
flows used in investing activities were approximately $1.1 million in 1996 and
approximately $4.2 million in 1995. The investing activities cash outflows in
both years were primarily used for the building of the Company's New York City
Network. Financing activities provided cash flows of approximately $4.3 million
in 1996 and approximately $5.2 million in 1995 with the issuance of equity in
1996 and the issuance of debt in both 1996 and 1995. The cash flows from
financing activities in both 1996 and 1995 were utilized to fund the Company's
operating and investing activities.
The Company anticipates that it will continue to incur net operating losses
as it expands the NY Network, constructs additional networks and markets its
services to an expanding customer base. The Company anticipates spending
approximately $124.0 million through 1998 on the build-out of its fiber optic
network. Cash provided by operations will not be sufficient to fund the
expansion and development of networks as currently planned and as a result the
Company intends to use cash on hand and the net proceeds of the Offering to fund
this expansion and development; Management believes that the cash on hand as of
December 31, 1997 along with cash generated in 1998 (including advance customer
payments), will be sufficient to fund the Company's planned build-out of its
fiber optic network and its other working capital needs through the year ended
December 31, 1998. The Company may also consider from time to time private or
public sales of additional equity or debt securities of the Company and bank
financings, depending upon market conditions, in order to finance the continued
build-out of its network. There can be no assurance that the Company will be
able to successfully consummate any such financing at all, or on acceptable
terms. Accordingly, the Company expects to continue experiencing net operating
losses and negative cash flows for the foreseeable future.
The Company has completed an assessment of its exposure to the "year 2000"
computer problem. Based on this assessment, the Company believes that no
critical software systems will be impacted by this situation. Systems currently
in use are already "year 2000" compliant. Although the Company believes that it
is taking appropriate precautions against disruption of its systems due to the
"year 2000" problem, there can be no assurance that the Company's suppliers and
customers will not be adversely affected by the "year 2000" problem.
Nonetheless, the Company believes that the "year 2000" issue will not have a
material impact on MFN's business operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company will be required to provide both quantitative and qualitative
disclosures about market risk in its Annual Report on Form 10-K for the fiscal
year ending December 31, 1998.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors....................................................... 25
Consolidated Balance Sheets as of December 31, 1997 and 1996.......................... 27
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.................................................... 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................................... 29
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for the years ended December 31, 1997, 1996 and 1995............ 30
Notes to Consolidated Financial Statements............................................ 32
Schedule II, Valuation and Qualifying Accounts........................................ 47
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated balance sheets of Metromedia
Fiber Network, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
deficiency and cash flows for each of the years then ended. Our audits also
included the financial statement schedule listed in the index at Item 14(a)
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
March 16, 1998
25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficiency and cash flows for the year ended December 31, 1995 of
Metromedia Fiber Network, Inc. and Subsidiaries (the "Company"). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows for the year ended December 31, 1995 of Metromedia Fiber Network,
Inc. and Subsidiary in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company's significant recurring
losses, operating history and significant working capital deficiency, including
significant amounts of past due payables, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
M.R. Weiser & Co. LLP
New York, New York
June 26, 1996
26
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1997 1996
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 138,846,458 $ 464,324
Prepaid expenses................................................................. 885,291 --
Accounts receivable.............................................................. 836,628 180,790
Other current assets............................................................. 388,719 --
-------------- -------------
Total current assets......................................................... 140,957,096 645,114
Fiber optic transmission network and related equipment, net........................ 15,083,510 6,368,653
Non-current prepaid expenses....................................................... 9,485,855 --
Property and equipment, net........................................................ 759,014 525,268
Restricted cash.................................................................... 550,000 --
Franchise costs, net............................................................... 274,948 299,941
Investment in/advance to Joint Venture............................................. 56,015 --
Other assets....................................................................... 211,252 138,530
-------------- -------------
Total assets................................................................. $ 167,377,690 $ 7,977,506
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (deficiency)
Current liabilities:
Accounts payable................................................................. $ 3,072,091 $ 5,256,929
Accrued expenses................................................................. 3,090,010 683,227
Current portion of deferred revenue.............................................. 1,183,633 --
Current portion of settlement agreement.......................................... 90,000 115,000
Notes payable.................................................................... -- 7,358,000
Due to related parties........................................................... -- 119,299
-------------- -------------
Total current liabilities.................................................... 7,435,734 13,532,455
Settlement agreement, net of current portion....................................... 90,000 180,000
Deferred revenue................................................................... 10,311,023 1,107,724
Other.............................................................................. -- 15,243
Commitments and Contingencies
Stockholders' equity (deficiency):
Preferred stock, $.10 par value, authorized 2,000,000 shares, none and 150,000
shares issued and outstanding, respectively...................................... -- 15,000
Common stock, $.01 par value; authorized 60,000,000 shares; none and 10,001,310
shares issued and outstanding, respectively...................................... -- 100,013
Class A common stock, $.01 par value; authorized 180,000,000 shares; 18,724,142
shares and none issued and outstanding, respectively............................. 187,241 --
Class B common stock, $.01 par value; authorized 20,000,000 shares; 4,221,159
shares and none issued outstanding, respectively................................. 42,212 --
Additional paid-in capital......................................................... 192,534,268 8,766,506
Accumulated deficit................................................................ (43,222,788) (15,739,435)
-------------- -------------
Total stockholders' equity (deficiency)...................................... 149,540,933 (6,857,916)
-------------- -------------
Total liabilities and stockholders' equity (deficiency).................... $ 167,377,690 $ 7,977,506
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
27
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Revenues.......................................................... $ 2 ,524,311 $ 236,082 $ 56,149
Expenses:
Cost of sales................................................... 3,572,005 698,793 --
Selling, general and administrative............................. 6,303,041 2,070,345 3,886,568
Consulting and employment incentives............................ 19,218,591 3,652,101 --
Depreciation and amortization................................... 757,133 612,530 161,576
-------------- -------------- -------------
Loss from operations.............................................. (27,326,459) (6,797,687) (3,991,995)
Interest income................................................... 1,808,007 -- --
Interest expense (including financing costs)...................... (740,786) (3,561,010) (327,106)
-------------- -------------- -------------
Net loss.......................................................... $ (26,259,238) $ (10,358,697) $ (4,319,101)
-------------- -------------- -------------
-------------- -------------- -------------
Net loss per share-basic and diluted.............................. $ (2.22) $ (1.16) $ (0.70)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------- -------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (26,259,238) $ (10,358,697) $ (4,319,101)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization................................. 757,133 612,530 161,576
Stock, options and warrants issued for services............... 19,438,627 5,395,132 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (655,838) 1,928 (182,718)
Due to related parties...................................... (119,299) (177,680) (377,243)
Prepaid expenses............................................ (10,371,146) 65,425 (44,674)
Accounts payable and accrued expenses....................... 221,945 1,516,723 2,417,155
Settlement agreements....................................... (115,000) (581,146) 876,146
Advance payments received from customers.................... 10,386,932 832,690 275,034
Restricted Cash............................................. (550,000) -- --
Other....................................................... (396,463) (52,495) (96,992)
-------------- -------------- -------------
Net cash used in operating activities......................... (7,662,347) (2,745,590) (1,290,817)
-------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on fiber optic transmission network and
related equipment............................................... (9,355,912) (974,107) (3,709,928)
Deposit on fiber optic cable order................................ (86,771) -- --
Investment in/advance to joint venture............................ (56,015) -- --
Capital expenditures on property and equipment.................... (318,281) (95,356) (476,378)
-------------- -------------- -------------
Net cash used in investing activities......................... (9,816,979) (1,069,463) (4,186,306)
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................ 133,974,844 123,500 --
Proceeds from issuance of preferred stock and warrants............ 32,500,000 2,025,000 --
Dividends paid on preferred stock................................. (76,562) -- --
(Repayments) proceeds from notes payable-private placement........ (1,408,000) 25,000 1,383,000
(Repayments) of notes payable..................................... (5,950,000) (3,350,036) --
Proceeds from notes payable....................................... -- 5,450,000 3,850,036
Purchase of common stock.......................................... (1,140,384) -- --
Purchase of preferred stock....................................... (2,038,438) -- --
-------------- -------------- -------------
Net cash provided by financing activities..................... 155,861,460 4,273,464 5,233,036
-------------- -------------- -------------
Net increase in cash and cash equivalents......................... 138,382,134 458,411 (244,087)
Cash and cash equivalents--beginning of period.................... 464,324 5,913 250,000
-------------- -------------- -------------
Cash and cash equivalents--end of period.......................... $ 138,846,458 $ 464,324 $ 5,913
-------------- -------------- -------------
-------------- -------------- -------------
Supplemental information: Interest paid........................... $ 1,145,416 $ 996,060 $ 67,149
-------------- -------------- -------------
-------------- -------------- -------------
Income taxes paid.......................... $ -- $ -- $ --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B CLASS A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------------ --------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... -- $ -- -- $ -- 6,084,000 $ 60,840 -- $ --
Issuance of common stock as an
inducement for entering into
a loan agreement............. -- -- -- -- 155,994 1,560 -- --
Net loss for the year.......... -- -- -- -- -- -- -- --
--------- --------- ----------- --- ---------- --------- --------- ---------
Balance at December 31, 1995..... -- -- -- -- 6,239,994 62,400 -- --
Issuance of common stock in
1996 for legal services
rendered..................... -- -- -- -- 491,105 4,911 -- --
Issuance of common stock and
warrants in conjunction with
sale of Senior Subordinated
Notes in 1996................ -- -- -- -- 381,087 3,811 -- --
Issuance of shares to holder of
Senior Subordinated Notes in
exchange for warrants........ -- -- -- -- 228,150 2,282 -- --
Issuance of common stock in
April 1996 to extend maturity
of private placement
Subordinated Notes........... -- -- -- -- 59,359 594 -- --
Issuance of common stock in
exchange for management
services..................... -- -- -- -- 1,521,000 15,210 -- --
Issuance of additional common
stock to the holder of the
Senior Subordinated Notes in
connection with antidilution
provisions................... -- -- -- -- 38,025 380 -- --
Issuance of common stock in
April 1996 and July 1996 in
connection with the exercise
of warrants.................. -- -- -- -- 190,543 1,905 -- --
Issuance of common stock to
related electrical contractor
in May 1996 as payment for
services..................... -- -- -- -- 456,300 4,563 -- --
Issuance of common stock to
majority shareholder in May
1996 in exchange for debt.... -- -- -- -- 152,100 1,521 -- --
Sale of common stock and
warrants in June 1996........ -- -- -- -- 38,025 380 -- --
Issuance of common stock in
July 1996 in exchange for
services rendered............ -- -- -- -- 12,168 122 -- --
Issuance of common stock for
services rendered............ -- -- -- -- 182,520 1,825 -- --
Sale of common stock in
September 1996............... -- -- -- -- 10,934 109 -- --
<CAPTION>
CLASS B
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... -- $ -- $ (20,840) $(1,061,637) $(1,021,637)
Issuance of common stock as an
inducement for entering into
a loan agreement............. -- -- 3,440 -- 5,000
Net loss for the year.......... -- -- -- (4,319,101) (4,319,101)
--------- ----------- ----------- ------------ ----------
Balance at December 31, 1995..... -- -- (17,400) (5,380,738) (5,335,738)
Issuance of common stock in
1996 for legal services
rendered..................... -- -- 902,390 -- 907,301
Issuance of common stock and
warrants in conjunction with
sale of Senior Subordinated
Notes in 1996................ -- -- 685,202 -- 689,013
Issuance of shares to holder of
Senior Subordinated Notes in
exchange for warrants........ -- -- (2,282) -- --
Issuance of common stock in
April 1996 to extend maturity
of private placement
Subordinated Notes........... -- -- 106,728 -- 107,322
Issuance of common stock in
exchange for management
services..................... -- -- 2,744,790 -- 2,760,000
Issuance of additional common
stock to the holder of the
Senior Subordinated Notes in
connection with antidilution
provisions................... -- -- (380) -- --
Issuance of common stock in
April 1996 and July 1996 in
connection with the exercise
of warrants.................. -- -- (1,905) -- --
Issuance of common stock to
related electrical contractor
in May 1996 as payment for
services..................... -- -- 688,324 -- 692,887
Issuance of common stock to
majority shareholder in May
1996 in exchange for debt.... -- -- 598,479 -- 600,000
Sale of common stock and
warrants in June 1996........ -- -- 99,620 -- 100,000
Issuance of common stock in
July 1996 in exchange for
services rendered............ -- -- 21,078 -- 21,200
Issuance of common stock for
services rendered............ -- -- 332,975 -- 334,800
Sale of common stock in
September 1996............... -- -- 23,391 -- 23,500
</TABLE>
30
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
SERIES A SERIES B CLASS A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------------ --------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants for
legal services rendered (to
purchase 152,100 shares at
$0.06 per share)........... -- -- -- -- -- -- -- --
Issuance of warrants in
connection with debt
issuance (to purchase
94,302 shares at $5.92 per
share)..................... -- -- -- -- -- -- -- --
Issuance of warrants in
connection with debt
issuance (to purchase
190,543 shares at $.006 per
share)..................... -- -- -- -- -- -- -- --
Issuance of warrants in
connection with debt
issuance (to purchase
107,078 shares at $8.00 per
share)..................... -- -- -- -- -- -- -- --
Sale of preferred stock with
warrants in December
1996....................... 150,000 15,000 -- -- -- -- -- --
Net loss for the year.......... -- -- -- -- -- -- -- --
--------- --------- ----------- ----- ---------- --------- --------- ---------
Balance at December 31, 1996... 150,000 15,000 -- -- 10,001,310 100,013 -- --
Issuance of common stock in
connection with the
exercise of warrants....... -- -- -- -- 152,100 1,521 -- --
Issuance of options to
employees, officers and
directors (to purchase
3,095,235 shares).......... -- -- -- -- -- -- -- --
Issuance of warrants in
connection with debt
extension (to purchase
57,682 shares at $8.00 per
share)..................... -- -- -- -- -- -- -- --
Dividends on preferred
stock...................... -- -- -- -- -- -- -- --
Repurchase and retirement of
Series A preferred stock
and warrants............... (150,000 ) (15,000) -- -- -- -- -- --
Repurchase and retirement of
common stock and warrants.. -- -- -- -- (588,470) (5,885) (17) --
Sales of Series B preferred
stock...................... -- -- 8,403 84 -- -- -- --
Initial Public Offering...... -- -- -- -- -- -- 9,108,000 91,080
Conversion of Common Stock to
Series A Common Stock...... -- -- -- -- (9,564,940) (95,649) 9,564,940 95,649
Conversion of Series B
Preferred Stock to Series A
and B Common Stock......... -- -- (8,403) (84) -- -- 39,327 393
Issuance of common stock in
connection with the
exercise of warrants....... -- -- -- -- -- -- 11,892 119
Net loss for the year.......... -- -- -- -- -- -- -- --
--------- --------- ----------- ----- ---------- --------- --------- ---------
Balance at December 31, 1997... -- $ -- -- $ -- -- $ -- 18,724,142 $ 187,241
--------- --------- ----------- ----- ---------- --------- --------- ---------
--------- --------- ----------- ----- ---------- --------- --------- ---------
<CAPTION>
CLASS B
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of warrants for
legal services rendered (to
purchase 152,100 shares at
$0.06 per share)........... -- -- 200,000 -- 200,000
Issuance of warrants in
connection with debt
issuance (to purchase
94,302 shares at $5.92 per
share)..................... -- -- 13,640 -- 13,640
Issuance of warrants in
connection with debt
issuance (to purchase
190,543 shares at $.006 per
share)..................... -- -- 250,550 -- 250,550
Issuance of warrants in
connection with debt
issuance (to purchase
107,078 shares at $8.00 per
share)..................... -- -- 111,306 -- 111,306
Sale of preferred stock with
warrants in December
1996....................... -- -- 2,010,000 -- 2,025,000
Net loss for the year.......... -- -- -- (10,358,697) (10,358,697)
--------- ----------- ----------- ------------ -----------
Balance at December 31, 1996... -- -- 8,766,506 (15,739,435) (6,857,916)
Issuance of common stock in
connection with the
exercise of warrants....... -- -- 8,479 -- 10,000
Issuance of options to
employees, officers and
directors (to purchase
3,095,235 shares).......... -- -- 19,218,591 -- 19,218,591
Issuance of warrants in
connection with debt
extension (to purchase
57,682 shares at $8.00 per
share)..................... -- -- 220,036 -- 220,036
Dividends on preferred
stock...................... -- -- -- (76,562) (76,562)
Repurchase and retirement of
Series A preferred stock
and warrants............... -- -- (2,010,000) (13,438) (2,038,438)
Repurchase and retirement of
common stock and warrants.. -- -- (384) (1,134,115) (1,140,384)
Sales of Series B preferred
stock...................... -- -- 32,499,916 -- 32,500,000
Initial Public Offering...... -- -- 133,787,543 -- 133,878,623
Conversion of Common Stock to
Series A Common Stock...... -- -- -- -- --
Conversion of Series B
Preferred Stock to Series A
and B Common Stock......... 4,221,159 42,212 (42,521) -- --
Issuance of common stock in
connection with the
exercise of warrants....... -- -- 86,102 -- 86,221
Net loss for the year.......... -- -- -- (26,259,238) (26,259,238)
--------- ----------- ----------- ------------ -----------
Balance at December 31, 1997... 4,221,159 $ 42,212 $192,534,268 ($43,222,788) $149,540,933
--------- ----------- ----------- ------------ -----------
--------- ----------- ----------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS AND LINE OF BUSINESS
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
its subsidiaries (the "Company") was granted a nonexclusive right from the City
of New York, effective December 20, 1993, to provide telecommunication services
and construct a fiber optic network for the purpose of providing these services.
In October 1995, the basic backbone of the Fiber Optic Cable Network in the City
of New York was completed and the Company began servicing its customers.
The Company entered into a joint venture agreement with Racal
Telecommunications, Inc. ("Racal") on November 26, 1997. The joint venture will
enable the Company and Racal to provide broadband transatlantic communication
services, between New York and London, to their respective customers. Racal is
part of the Racal Electronics Group which is headquartered in the United
Kingdom.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. On April 30,1997
the Company sold 8,403.325 shares of Series B preferred shares in exchange for
$32,500,000 in cash. Prior thereto, the Company had working capital deficiencies
and stockholders' deficiencies. Further, substantially all of its trade payables
and certain current liabilities were past due. These factors, prior to the April
1997 sale of preferred stock, raised substantial doubt about the Company's
ability to continue as a going concern.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and it subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. The investment in the Racal joint venture in which
the Company owns 50% is accounted for by the equity method. Certain balances
have been restated to conform to the current period presentation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated financial statements the Company considers
all highly liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.
FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
The fiber optic transmission network and related equipment are stated at
cost. Costs in connection with the installation and expansion of the network are
capitalized. Depreciation is computed using the straight-line method through the
life of either the franchise agreement or right of way for the related network.
32
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
FRANCHISE COSTS
Amortization of franchise costs on the New York City Network began upon
commencement of service to customers and is computed on the straight-line method
through December 20, 2008 (159 months), the expiration date of the franchise
agreement.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the company were
capitalized and are being amortized over five years on a straight-line basis.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. No such impairment
indicators have been identified by the Company.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets, if any, for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criterion.
RECAPITALIZATIONS
On February 17, 1995, the Company effected a 4,000-for-one stock split of
its outstanding shares of common stock. In April 1997, the Company increased its
authorized common stock of $.01 par value to 60,000,000 shares; in addition,
authorized preferred stock with a par value of $.01 was increased to 2,000,000
shares. On April 29, 1997, the Company effected a 3-for-one stock split of its
outstanding shares of common stock. In September 1997, the Company effected a
.507-for-1 reverse stock split of its common stock. On October 28, 1997, the
total authorized number of shares of common stock of the Company was increased
to 200 million shares, par value $0.01 per share, of which 180 million shares
were designated Class A common stock and 20 million shares were designated Class
B common stock. The accompanying financial statements give retroactive effect to
the above recapitalizations.
RECOGNITION OF REVENUE
The Company recognizes revenue on telecommunications services ratably over
the term of the applicable agreements with customers. The Company also provides
installation services for its customers, and as these services typically are
completed within a year, the Company records the revenues and related costs for
these services under the completed contract method.
33
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock options.
CONSULTING AND EMPLOYMENT INCENTIVES
The amounts represent the value of common stock, warrants and options issued
to consultants, officers, employees and directors of the Company as incentive to
provide services to the Company. The 1997 amounts represent the value of options
to purchase 3,095,235 shares of the Company's common stock issued in 1997 to
officers, employees and directors of the Company. The options have been valued
in accordance with APB Opinion No. 25 at the difference between the exercise
price of the options and the fair market value of the Company's common stock.
EARNINGS PER SHARE
The Company, as required, adopted SFAS No. 128, "Earnings Per Share," for
the year end 1997. All prior period earnings per share data have been restated.
Net loss per share computations are based upon the net loss attributable to
common shareholders divided by the weighted average number of shares of common
stock outstanding during the respective periods. The effect of stock options and
warrants, using the treasury stock method in computing diluted earnings per
share, is anti-dilutive
PREPAID EXPENSES
Non-current prepaid expense mainly represents a prepayment in 1997 to a rail
transportation company which granted the Company a long-term, non-exclusive
right-of-way to place a fiber optic network on a portion of their property.
RESTRICTED CASH
In 1997, the Company entered into agreements regarding the issuance of
long-term standby letters of credit with a financial institution whereby the
financial institution required the Company to maintain collateral in the form of
an interest-bearing cash balance with the financial institution in the full
amount of the standby letters of credit issued. The restricted cash is invested
in short-term time deposits of the issuing financial institution and the
interest earned on the time deposits is free of restriction and released to the
Company periodically.
DEFERRED REVENUES
Deferred revenue represents prepayments received from customers for future
use of the Company's fiber optic network as well as prepayment for installation
services which have not yet been provided. The Company derives revenues from
leasing dark fiber optic cable. Lease payments are structured as either
prepayments or monthly recurring charges. Prepayments are accounted for as
deferred revenues and recognized over the term of the respective customer lease
agreement. At December 31, 1997, the Company had received prepaid lease payments
totaling $11.5 million.
34
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT
Fiber optic transmission network and related equipment consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
Material-fiber optic cable........................................................... $ 5,344,916 $ 1,219,067
Engineering and layout costs......................................................... 4,552,978 3,243,448
Fiber optic cable installation costs................................................. 4,143,119 1,230,041
Other................................................................................ 1,515,867 508,412
Electrical installation cost......................................................... 407,642 407,642
Headends............................................................................. 363,343 363,343
------------- ------------
16,327,865 6,971,953
Less: accumulated depreciation....................................................... (1,244,355) (603,300)
------------- ------------
$ 15,083,510 $ 6,368,653
------------- ------------
------------- ------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1997 1996 USEFUL LIFE
---------- ---------- -------------
Leasehold improvements.................................................... $ 537,962 $ 528,958 174 months
Furniture, equipment and software......................................... 352,056 42,776 5 years
---------- ----------
890,018 571,734
Less: accumulated depreciation and amortization........................... (131,004) (46,466)
---------- ----------
$ 759,014 $ 525,268
---------- ----------
---------- ----------
</TABLE>
4. INVESTMENT IN/ADVANCES TO JOINT VENTURE
On November 26, 1997, the Company entered into a joint venture agreement
with Racal, to provide broad-based transatlantic communication services between
New York and London. The Company and Racal will each be required to contribute
capital of $3,400,000 through October 1, 1998 for their respective 50%
interests. As of December 31, 1997, neither party had yet made a capital
contribution. The balance of the investment at December 31, 1997 represents
advances made to the joint venture by the Company.
5. RELATED PARTY TRANSACTIONS
Prior to 1996, the Company engaged the services of an electrical contractor
controlled by the person who was then the Company's majority shareholder. During
1995, the Company incurred charges for labor and materials of $692,887. As of
December 31, 1995, $692,887 was owed to this related company. In May 1996, the
Company and the assignee of this related party entered into an agreement whereby
the full amount of this indebtedness was satisfied by the issuance of 456,300
shares of the Company's common stock. The value of the stock was based upon the
invoices rendered for services performed based upon negotiations between the
Company and the electrical contractor.
35
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The person who was then the Company's majority shareholder made loans to the
Company which at December 31, 1994 totaled $1,967,109. In April 1995, such
shareholder of the Company agreed to contribute to the Company's capital $1.7
million of amounts due to him. By agreement between the Company and such
shareholder in May 1996 the transaction was rescinded. During 1995, the Company
made repayments (net of additional advances) of $1,070,130. As of December 31,
1995, the Company owed such shareholder $896,979. Pursuant to an agreement dated
May 21, 1996, the Company issued 152,100 shares of its common stock to such
shareholder in consideration for the cancellation of $600,000 of the outstanding
balance. In 1997, the remaining balance of the note was repaid in full.
In March and June 1997, the Company entered into two one-year leases for
office space with an affiliate. Subsequent to June 1997, the affiliate sold this
property. For the year ended December 31, 1997 office rent expenses for these
leases amounted to approximately $110,000.
6. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C> <C>
1997 1996
------------ ------------
U.S. One Communications......................................................... a) $ -- $ 4,900,000
Convertible Subordinated Notes.................................................. b) -- 858,000
Sterling Capital Bridge Loan.................................................... c) -- 550,000
Subordinated Notes.............................................................. d) -- 550,000
AT&T Wireless................................................................... e) -- 500,000
Senior Subordinated Notes....................................................... f) -- --
------------ ------------
$ -- $ 7,358,000
------------ ------------
------------ ------------
</TABLE>
a. On April 16, 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One") for the exclusive usage rights for fibers on the
Company's fiber optic transmission network. The initial term of the agreement
was for a period beginning April 1996 and expiring December 2008. The agreement
was renewable, at the option of U.S. One, for an extended term of 13 years
expiring December 2021. In connection with this agreement, the Company borrowed
$4,900,000 from U.S. One, of which $3,227,867 was immediately used to repay all
notes payable to Tomen America.
On April 30, 1997 the Company amended this agreement which allows U.S. One
to have the exclusive right to use 888 fiber miles of the network. Additionally,
pursuant to the amended agreement, U.S. One received an option to acquire from
the Company up to 1,620 additional fiber miles upon payment of a predetermined
amount. In accordance with the amended agreement the following occurred: (i) all
interest accrued from the inception of the loan to the closing date of the
agreement was waived by U.S. One, and (ii) the $4,900,000 principal balance of
the loan was offset against the $3,530,000 scheduled payment due from U.S. One
to the Company under the amended lease agreement, and (iii) the Company paid to
U.S. One the difference of $1,370,000.
In connection with the execution of the aforementioned lease and financing
agreements, the Company granted U.S. One a warrant to purchase common stock of
the Company. The warrant is exercisable for a number of shares of Class A common
stock to be determined at the Company's discretion subject to a minimum number
of 76,050 shares and maximum number of 456,300 shares. The per share exercise
price is
36
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTES PAYABLE (CONTINUED)
to be determined pursuant to a formula, but in no event shall the aggregate
purchase price exceed $1,250,000.
b. In October 1995, the Company initiated a private offering of $858,000 of
convertible subordinated notes. Through December 31, 1995, $783,000 of notes
were sold pursuant to this offering, and an additional $75,000 of notes were
sold during January and February of 1996. These notes were scheduled to mature
during the period October 1996 through February 1997 and bore interest at an
annual rate of 15%, payable at maturity. The notes were convertible, at the
Company's option, into shares of common stock. Concurrent with the issuance of
these notes, warrants were issued by the Company to the noteholders to purchase
130,502 shares of common stock at $8.00 per share through November 2000. In
1997, the Company repaid the outstanding balance of these notes plus all accrued
interest.
In December 1996, the Company offered the noteholders warrants to purchase
107,078 shares of its common stock exercisable at $8.00 per share through
November 2000 in exchange for the extension of the due dates on the notes. All
of the noteholders accepted this offer and accordingly, the Company recorded a
non cash charge of $111,306. As of December 31, 1997, 3,803 of such warrants
have been exercised.
In March 1997, in consideration for the extension of the due dates of the
notes, the Company issued warrants to the noteholders to purchase an aggregate
of 57,682 shares of common stock, exercisable at $8.00 per share through
November 2000. The Company recorded a non-cash charge of $220,036 for such
issuance. As of December 31, 1997, 3,803 of such warrants have been exercised.
c. On September 24, 1996, the Company entered into a loan agreement with
Sterling Capital ("Sterling") for $550,000. The loan bore interest at 10% per
annum and matured on March 1, 1997. The loan was secured by all of the Company's
assets. As an incentive for the loan, the Company issued to Sterling warrants to
purchase 94,302 shares of common stock at an exercise price of $5.92. The
warrants are exercisable through September 1999. On May 1, 1997 the company
repaid the loan in full and all accrued interest. As of December 31, 1997, 4,286
of the warrants have been exercised.
d. In August 1995, the Company initiated a $600,000 private offering of
subordinated notes. These notes were scheduled to mature in March 1996 and bore
interest at an annual rate of 15%, payable quarterly in arrears. Concurrent with
the issuance of these notes, warrants were issued by the Company to the
noteholders which were exercisable for common shares of the Company in an amount
equal to 0.7% of the outstanding shares of common stock immediately following an
initial public offering of the Company's common stock, at an exercise price
equal to 60% of the initial public offering price. These warrants are
exercisable over a three-year period beginning on the effective date of such
initial public offering. In April 1996, the Company offered the warrantholders
shares of common stock equal to 0.7% of the common stock then issued and
outstanding, in exchange for the surrender and cancellation of the outstanding
warrants, and in consideration for the extension of the maturity date of the
notes through June 30, 1996. All of the warrantholders accepted this offer and,
accordingly, the Company issued a total of 59,359 shares of the Company's common
stock. The Company recorded a noncash charge of $107,322 in connection with such
issuance. In 1996, the Company repaid $50,000 of this debt. In 1997, the Company
repaid the outstanding balance of these notes plus all accrued interest.
e. On April 18, 1995, the Company entered into a loan agreement, which was
subsequently amended, with AT&T Wireless for $500,000 bearing interest at 11%
per annum. In July 1997 the note was repaid in full. In 1995, the Company issued
to AT&T Wireless a warrant entitling the holder to purchase a total of 669,167
shares of the Company's common stock.
37
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTES PAYABLE (CONTINUED)
This warrant, was canceled and replaced by a new warrant issued on February
13, 1997, to purchase 456,300 shares of the Company's common stock at $4.85 per
share. The new warrant expires on February 13, 2000.
f. On February 13, 1996, the Company entered into an investment agreement
with an individual (the "Investor") pursuant to which the company borrowed
$1,000,000 in consideration for the issuance of 12% senior subordinated
promissory notes maturing on November 1, 1996. The notes were guaranteed
personally by the Company's president. The notes were convertible at a price of
$2.62 per unit for each $1,000 of principal outstanding. Each unit consisted of
the following: (i) one share of common stock, and (ii) one warrant to purchase
one share of common stock at $5.27 per share. As an inducement for entering into
the investment agreement, the Company issued to the Investor the following: (i)
381,087 shares of common stock, and (ii) a warrant to purchase 381,087 shares of
common stock at $5.27 per share, exercisable through August 15, 2002. The
Company recorded noncash charges of $689,013 for such issuances.
On March 19, 1996, a supplemental investment agreement was executed with the
Investor providing for an additional advance of $500,000 with the same maturity
date, interest rate, conversion rights, and guaranty features as the initial
$1,000,000 investment. This advance was subsequently repaid, along with interest
on April 16, 1996. In connection with this supplemental agreement, the Company
issued a warrant to purchase 190,543 shares of common stock at $5.27 per share,
exercisable through August 15, 2002. The Company also issued a warrant to
purchase an additional 190,543 shares of Class A common stock at $0.006 per
share exercisable through August 15, 2002. The Company recorded a noncash charge
of $250,550 for such issuance.
On April 11, 1996, a memorandum of understanding was entered into between
the parties pursuant to which the warrants issued on February 13, 1996 to
purchase 381,087 shares at $5.27 per share and the warrants issued on March 19,
1996, to purchase 190,543 shares at $5.27 per share were surrendered by the
Investor to the Company in consideration for the issuance of 228,150 shares of
the Company's common stock.
In April and July 1996, the Investor purchased 152,100 and 38,443 shares of
common stock, respectively, at $0.006 per share in connection with the exercise
of all warrants held by the Investor. Further, in accordance with the investment
agreement an additional 38,025 shares of common stock was issued to the Investor
in compliance with the anti-dilutive requirements in the agreement.
7. SETTLEMENT AGREEMENTS
In February 1996, the Company entered into a settlement agreement with a
former officer regarding the termination of his employment. This agreement
provided for the Company to make payments to the officer totaling $1,003,000,
including interest. The former officer's services effectively terminated prior
to December 31, 1995. Accordingly, as of December 31, 1995, the Company recorded
$876,146 as a liability in accordance with the terms of the settlement
agreement.
38
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The settlement agreement also reaffirmed the option previously issued to
this former officer on May 1, 1995, which entitles the holder to purchase
207,883 shares of the Company's common stock at $0.006 per share through
February 1, 1999. In 1997 the Company repurchased and retired the warrant.
On November 14, 1996, the Company amended the above referenced settlement
agreement with the former officer, whereby a consultant to the Company agreed to
purchase common stock of the company from the former officer and certain of his
affiliates in exchange for $640,000 and the complete satisfaction of the
aforementioned liability.
On February 11, 1997, the Company entered into an agreement with a
consultant/director. Pursuant to the agreement the Company agreed to pay the
consultant/director a fee of $250,000 in full and complete payment for all
services provided to the Company by the consultant/director and for any fees or
compensation due to the consultant/director resulting from any prior agreements
with the Company, and the consultant/director agreed to release the Company from
any claims against the Company.
8. EQUITY TRANSACTIONS
STOCK ISSUED TO LEGAL COUNSEL
On January 12, 1996, the Company entered into an agreement with its legal
counsel which calls for the issuance by the Company of common stock as
additional consideration for legal services provided. Pursuant to this
agreement, as amended, the Company issued a total of 491,105 shares of its
common stock. Management has estimated the value of the 491,105 shares issued to
be $907,301 and has recorded a noncash charge in connection with such issuance.
PREFERRED STOCK
On April 30, 1997, the Company sold an aggregate of 8,403.325 shares of
Series B convertible preferred stock, par value $0.01 per share (the "Series B
preferred stock"), to Metromedia Company and affiliates ("Metromedia") for an
aggregate purchase price of $32.5 million (the "Metromedia Investment"). Each
share of the Series B preferred stock was convertible into 507 shares of the
Company's common stock. On October 28, 1997, the Series B convertible preferred
shares were converted into 4,260,486 shares of Class B common stock. Further, on
October 28, 1997, a total of 39,327 shares of Class B common stock outstanding
were converted into an equivalent number of shares of Class A common stock.
A portion of the proceeds from the Metromedia Investment was used to repay
the Metromedia Loan, discussed below, and accrued interest thereon ($4,058,127),
repay other short-term indebtedness ($3,485,000), and redeem (for $2,115,000)
all of the outstanding shares of the Company's preferred stock (the "Series A
preferred stock") and related warrants.
Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000 (the "Metromedia Loan"). A portion of the proceeds from the
Metromedia Loan was used to purchase 588,470 shares of the Company's common
stock and warrants to purchase 207,883 shares of its common stock at December
31, 1997.
No shares of the Company's Series A preferred stock or Series B preferred
stock remained outstanding at December 31, 1997. Both the Series A and Series B
preferred stock of the Company have been eliminated pursuant to actions by the
Board of Directors.
39
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EQUITY TRANSACTIONS (CONTINUED)
COMMON STOCK
On November 3, 1997, the Company completed the initial public offering ("the
"IPO") of 9,108,000 shares of its Class A common stock, at an offering price of
$16 per share. The net proceeds to the Company from the IPO, after deducting
expenses of the IPO, were approximately $133.9 million.
In addition, on October 28, 1997, a total of 9,564,940 shares of the common
stock of the Company owned by stockholders prior to the IPO were exchanged for
an equal number of shares of Class A common stock. The Company also reserved for
issuance 4,260,486 shares of Class A common stock for conversion of the Class B
common stock.
On October 28, 1996, a shareholder granted to the Company's Chairman of the
Board an option to purchase 399,889 shares of common stock of the company for an
aggregate exercise price of $500,000. By letter dated December 3, 1996, the
option was amended to reduce the number of option shares to 323,839 shares. The
option was thereafter assigned by the Chairman to the Company. On February 11,
1997, the Company exercised the option by payment of $500,000.
On April 15, 1996, the Company entered into a stock purchase agreement with
Vento & Company of New York, LLC ("VCNY"). Pursuant to this agreement, the
Company issued 1,521,000 shares of common stock to VCNY as consideration for
services provided by VCNY. The Company estimated the value of the stock issued
approximated $2,760,000.
Concurrent with the execution of the aforementioned stock purchase
agreement, the parties entered into a consulting agreement. The term of the
agreement was from April 15, 1996 to April 15, 2001. Under the terms of the
agreement, VCNY was to provide guidance and advice with respect to the
management of the day-to-day operations of the Company's fiber optic
transmission network. In consideration for such services, the Company reimbursed
VCNY for all reasonable personnel and travel costs incurred by VCNY with respect
to the performance of these services. On October 9, 1996, the Company entered
into a settlement agreement with the Company's former chief executive officer
and VCNY regarding the termination of such officer's employment and services
provided by VCNY. The agreement provided for VCNY to deliver a total of
1,521,000 shares of common stock in exchange for payments made by the Company.
The payments were not made and the sale of the shares and the Company's
obligation to buy the shares was deemed null and void.
In September 1996, the Company sold 10,934 shares of common stock to three
individuals for total proceeds of $23,500.
In August 1996, the Company issued 182,520 shares of common stock for
consulting services. The Company has recorded a noncash charge of $334,800 for
such issuance.
In July 1996, the Company issued 12,168 shares of common stock as
consideration for consulting services. The Company recorded a noncash charge of
$21,200 for such issuance. In addition, the Company issued 150,579 shares to
three employees for services rendered. The transaction was later rescinded and
the shares were returned to the Company.
In June 1996, the Company sold a total of 38,025 shares of common stock to
two individuals for total proceeds of $100,000. Concurrent with the issuance of
these shares, warrants were issued by the Company to these shareholders
entitling the holders to purchase a total of 38,025 shares at $2.62 per share
for a three-year period.
40
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EQUITY TRANSACTIONS (CONTINUED)
STOCK WARRANTS
In 1997, 1996 and 1995 in connection with the issuance of notes and the
extension of their due dates the Company issued warrants to the noteholders to
purchase 164,760 shares of common stock at $8.00 per share through November
2000; see Note 6.
As of December 31, 1997, the Company has reserved approximately 1,176,198
shares of its common stock for exercise of warrants and contingent warrants.
On December 31, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane") for aggregate cash consideration of $2,025,000 (i) 150,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $1.35 per share per annum, (ii) warrants
to purchase 114,075 shares of Common Stock at an exercise price of $4.93 per
share of Common Stock (such number to be determined based on certain future
events) at an exercise price of $0.02 per share (the "Contingent Warrants"). In
March 1997, Penny Lane agreed to permit the Series A Preferred Stock and the
Contingent Warrants to be redeemed at an aggregate redemption price of
$2,115,000 (which includes accrued but unpaid dividends on the Series A
Preferred Stock) and in connection therewith the number of Penny Lane Warrants
was increased from 114,075 to 228,150.
In September 1996, the Company granted 94,302 common stock purchase warrants
to Sterling at an exercise price of the lesser of $5.92 per share, the price at
which the Company shall issue its securities in the future less $5.92, or one
half the price at which the common stock of the Company is offered in an initial
public offering, exercisable on the later date of September 24, 1999 or twelve
months and 90 days after the date the warrant shares have been covered by a
registration statement. The Company has recorded a noncash charge of $13,640 for
such issuance.
In June 1996, the Company granted 152,100 common stock purchase warrants to
the Company's legal counsel exercisable at $.07 per share for a period of four
years as additional consideration for legal services provided. The Company has
recorded a noncash charge of $200,000 for such issuance.
STOCK OPTIONS
In 1997, the Company granted to certain officers, employees and directors
options to purchase up to 3,095,235 shares of its Common Stock. The options have
exercise prices between $1.97 and $7.63 per share and expire in 2007. The
Company has recorded a noncash charge of $19,218,591 for such issuance.
On October 28, 1997, the Stockholders of the Company approved the Metromedia
Fiber Network, Inc. 1997 Incentive Stock Plan ("Option Plan"). The Option Plan
authorized the award of up to 1,000,000 options to acquire Class A Common Stock
of the Corporation to directors, officers and employees of the Company and
others who are deemed to provide substantial and important services to the
Company. Options to purchase 612,500 shares of the Company's common stock were
granted at an exercise price of $16.00 per share, the market price at the date
of grant.
The Compensation Committee of the Board of Directors is responsible for
determining the type of award, when and to whom awards are granted, the number
of shares and terms of the awards and the exercise price. The options are
exercisable for a period not to exceed ten years from the date of the grant.
Vesting periods range from immediate vesting to four years.
41
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EQUITY TRANSACTIONS (CONTINUED)
The following table summarizes the stock option transactions for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Granted........................................................ 3,707,735 $ 4.36
Balance outstanding at December 31, 1997....................... 3,707,735 $ 4.36
Exercisable at December 31, 1997............................... 3,060,293
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation" ("SAF 123"), and has been determined as if the Company
had accounted for its employees' stock options under the fair value method
provided by that Statement. The fair value of the options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
assumptions for vested and non-vested options:
<TABLE>
<CAPTION>
ASSUMPTION DECEMBER 31, 1997
- --------------------------------------------------------------------------- -----------------
<S> <C>
Risk-free interest yield................................................... 5.73-6.56%
Volatility factor.......................................................... .369
Dividend yield............................................................. --
Average life............................................................... 5 years
</TABLE>
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock has characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's option, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
<S> <C>
Pro forma net loss applicable to common stock................................. $ (28,043,370)
Pro forma loss per share applicable to common stock--basic and diluted........ $ (2.36)
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1997 is $3.93. The weighted average remaining contractual life of
options outstanding at December 31, 1997 is 9.4 years.
9. INCOME TAXES
There was no provision for federal or state income taxes for the years ended
December 31, 1997, 1996 and 1995. At December 31, 1997, the Company expects to
have available approximately $16,000,000 of net operating loss carryforwards,
expiring in the years 2009 through 2012. The Company has recorded a full
valuation allowance against the deferred tax asset as its realization is
uncertain.
42
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RECONCILIATION OF EARNINGS PER SHARE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------- -------------- -------------
BASIC AND DILUTED EPS
Net loss.......................................................... $ (26,259,238) $ (10,358,697) $ (4,319,101)
Deduct dividend on preferred shares............................... 76,562 -- --
-------------- -------------- -------------
Net loss applicable to common stock............................... $ (26,335,800) $ (10,358,697) $ (4,319,101)
-------------- -------------- -------------
-------------- -------------- -------------
Shares
Weighted average number of common shares outstanding.............. 11,861,728 8,964,563 6,207,235
Net loss per common share--basic and diluted...................... $(2.22) $(1.16) $(0.70)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
a. The Company entered into a franchise agreement with the City of New York
on December 20, 1993, whereby the company was granted a nonexclusive franchise
to install, operate, repair, maintain and replace cable, wire, fiber or other
transmission medium and the related equipment and facilities on, over and under
the property of the City of New York. In exchange, the company is obligated to
pay franchise fees commencing on the completion date of the initial backbone of
the fiber optic cable network through December 20, 2008. In connection with the
agreement, among other requirements, the Company maintains a performance bond in
the amount of approximately $1,750,000 and has provided the City with a $500,000
letter of credit as a security fund.
Franchise fees are based on a percentage of the Company's gross sales: 10%
for the first and second years, 6% for the third year and 5% for the fourth and
each year thereafter. However, during each year of the term, the franchise fee
shall be no less than $200,000.
Franchise fees charged to operations in connection with this agreement
amounted to $200,000 for the years ended December 31, 1997, 1996, and 1995.
b. The Company entered into a license agreement with Jersey City, New Jersey
on July 10, 1995, whereby the Company was granted a license to construct a
fiber-optic system within Jersey City. The term of this agreement continues
until written notice of termination is given by either party.
c. The Company entered into a conduit occupancy agreement with Bell
Atlantic, formerly known as The New York Telephone Company, in 1993, whereby the
Company was granted a right to place and maintain cable facilities in the
conduit system of Bell Atlantic. The term of this agreement is for one year from
the date of the agreement and thereafter until three months after written notice
of termination is given by either party.
The Company also has the right to place and maintain cable facilities in the
conduit system of Empire City Subway Company, Ltd., by virtue of the franchise
agreement with the city of New York.
Occupancy fees charged to operations in connection with this agreement were
approximately $120,000 and $152,000 for the years ending December 31, 1997 and
1996, respectively.
d. The Company leases several office facilities under operating leases which
expire at various times through March 31, 2010.
43
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense charged to operations was approximately $268,000, $158,000 and
$148,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
e. On June 1, 1995, the Company entered into two lease agreements with the
Port Authority of New York and New Jersey, whereby the Company was granted a
nonexclusive right to lease two ducts in the North and South tubes of the
Holland Tunnel to install, maintain, operate and provide telecommunications
equipment for its customers. The term of these agreements is for ten years
through June 1, 2005.
Lease expense charged to operations in connection with these leases was
approximately $112,000, $107,000 and $63,000 for the years ending December 31,
1997, 1996 and 1995, respectively.
f. On August 11, 1995, the Company entered into a service agreement with an
unrelated party, for the maintenance of the Company's telecommunications
equipment located in Jersey City. The term of this agreement is for one year
with an option to renew this agreement annually for up to five consecutive one
year renewal terms. Service fees charge to operations in connections with this
agreement was approximately $24,000 in 1997.
g. On November 17, 1997 the Company entered into an agreement with a
telecommunication company (the "Seller") to purchase conduit and associated
improvements (the "Conduit System") within a multiple conduit system being
constructed by the Seller, in the counties of Philadelphia and Montgomery,
Pennsylvania.
The purchase price for the conduit system is $546,940 which is payable in
installments. Upon the acceptance of the multiple Conduit System by the Company
the Seller will grant, bargain, sell, assign, transfer, convey and set over all
right, title, and interest in the Conduit System.
h. On December 1, 1997, the Company entered into an Agreement which provides
the Company with the right-of-way to construct, install, operate and maintain
two innerducts containing fiber optic cable in a tunnel which connects New York
City and Secaucus, New Jersey.
The initial term of this agreement is for five years with an option to renew
and extend the agreement for five consecutive renewal terms of five years. The
annual rental fee is $151,199 for the first contract year. On each anniversary
of the effective date the annual rental fee shall be adjusted to reflect the
increases in the CPI of the previous year.
i. On December 5, 1997 the Company entered into an agreement with a utility
company to purchase conduit (existing and future) for the installation of fiber
optic cable used exclusively to provide telecommunication services in the city
of Chicago. The purchase price for the existing conduit is $1.3 million, of
which $130,000 was paid in December 1997 with the remainder payable during the
first quarter of 1998.
44
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
j. Approximate minimum annual franchise, license, lease and service fees and
conduit payments under the aforementioned agreement are as follows:
<TABLE>
<S> <C>
For the year ended December 31:
1998........................................................................... $3,095,604
1999........................................................................... 1,612,782
2000........................................................................... 1,614,689
2001........................................................................... 1,601,907
2002........................................................................... 1,597,535
Thereafter..................................................................... 5,374,572
----------
$14,897,089
----------
----------
</TABLE>
k. In February 1997, a former investment advisor to the Company asserted a
claim against the Company in the amount of $305,731 pursuant to an agreement
made on June 27, 1995, for the payment of certain fees and expenses. In
September 1997, the Company paid the former investment advisor $250,000 in full
settlement of such claim plus any and all related expenses.
l. On or about April 18, 1997, Howard Katz, Realprop Capital Corporation and
Evelyn Katz commenced an action against, among others, the Company, Stephen A.
Garofalo, Peter Sahagen and Peter Silverman in the United States District Court
for the Southern District Court of New York captioned KATZ, ET AL. V. NATIONAL
FIBER NETWORK, INC., ET AL., No. 97 Civ. 2764 (JGK) (the "Katz Litigation"). On
May 28, 1997, the plaintiffs filed an amended complaint and on September 15,
1997, the plaintiffs filed a second amended complaint. The complaint as amended
alleges causes of action for, among other things, common law fraud, violations
of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, breach of fiduciary duty and negligent misrepresentation
for alleged misrepresentations and omissions made in connection with the
repurchase of a right to purchase an aggregate of 264,631 shares of Class A
common stock of the Company, which class of shares was authorized in October
1997, and an option to purchase warrants for the purchase of 207,888 shares of
Class A common stock. The amended complaint also contains allegations of
corporate waste against the Company and Stephen A. Garofalo. Plaintiffs seek,
among other things, compensatory damages of not less than $12 million, punitive
damages in the amount of $100 million and, in the alternative, rescission of the
purchase of the common stock and warrants by the Company. On October 31, 1997,
all defendants moved to dismiss the amended complaint. The motions were fully
briefed as of December 12, 1997. The Company intends to vigorously defend itself
against these allegations based on its belief that the Company acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made, though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
Katz Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
m. On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp, Lawrence Black, Sterling Capital LLC,
Penrush
45
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Limited, Needham Capital Group, Arthur Asch, Michael Asch and Ronald Kuzon (the
"Kramer Defendants") in the United States District Court for the Southern
District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). The complaint
alleges causes of action for, among other things, violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, fraud
and fraudulent concealment, breach of fiduciary duty and negligent
misrepresentation and omission made in connection with the sale by VCNY of
1,368,900 shares of Class A common stock to Peter Sahagen and the Kramer
Defendants on January 13, 1997 (the "VCNY Sale"). The complaint also alleges a
cause of action for declaratory judgment asserting that certain "piggyback"
registration rights are applicable to shares of the Company's Class A common
stock which VCNY owns (or which may be rescinded to VCNY pursuant to its
requested remedies). The complaint further requests a declaratory judgement that
a stockholders' agreement between the Company, Stephen A. Garofalo and VCNY be
declared operative, which agreement indirectly required VCNY, through designated
directors, to approve significant transactions, and, accordingly, the Metromedia
Loan and the Metromedia Investment should be rescinded and Mr. Vento should be
reappointed as Chief Executive Officer of the Company. The Company believes,
among other things, that the stockholder's agreement to which Mr. Vento was a
party had terminated and, as a result, Mr. Vento had no such rights to approve
the Metromedia Investment or the Metromedia Loan or to remain as Chief Executive
Officer of the Company. Plaintiff seeks, among other things, (i) rescission of
the VCNY Sale, or alternatively, damages in an amount not presently
ascertainable, but believed to be in the excess of $36 million, together with
interest thereon, (ii) punitive damages in the amount of $50 million, and (iii)
the declaratory judgements discussed above. The Company intends to vigorously
defend itself against these allegations based on its belief that it acted
appropriately in connection with the matters at issue in this litigation.
However, no assurance can be made that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
VCNY Litigation would have a material adverse effect on the Company's financial
condition or results of operations.
46
<PAGE>
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO COSTS -END OF
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------- ------------ ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Reserves deducted from assets to which they apply:
Other Current Assets
- -------------------------------------------------------------
1997 $ -- $ 337,500 $ -- $ 337,500
</TABLE>
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
In September 1996, the Company decided to engage a "big six" accounting firm
and engaged Ernst & Young LLP ("Ernst & Young") to serve as its independent
auditors. Stephen A. Garofalo, majority stockholder, approved the dismissal of
M.R. Weiser & Co. LLP, Certified Public Accountants ("Weiser"), the Company's
former independent auditors, and the engagement of Ernst & Young. At no time
during the periods in which Weiser served as the Company's independent auditors
were there any disagreements between the Company and Weiser regarding any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedures. Weiser included in its opinions on the Company's
financial statements a separate paragraph stating that there was substantial
doubt about the Company's ability to continue as a going concern. Ernst &
Young's report on the Company's consolidated financial statements for the years
ended December 31, 1997 and December 31, 1996 does not contain a similar
statement.
PART III
The information called for by this Part III (Items 10, 11, 12 and 13) is not
set forth herein because the Company intends to file with the SEC not later than
120 days after the end of the fiscal year ended December 31, 1997 the Definitive
Proxy Statement for the 1998 Annual Meeting of Stockholders to be held on May
18, 1998. Such information to be included in the Definitive Proxy Statement is
hereby incorporated into these Items 10, 11, 12 and 13 by this reference.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a) 1. Financial Statements:
See Table of Contents to Financial Statements ("Item 8. Financial
Statements and Supplementary Data").
2. Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted since they are either not
applicable or the information is contained elsewhere in "Item 8.
Financial Statements and Supplementary Data."
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of Metromedia Fiber Network, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
3.2 Form of Amended and Restated Bylaws of Metromedia Fiber Network, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
4.1 Specimen Class A Common Stock Certificate of Metromedia Fiber Network, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
10.1 Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653)).
10.2 Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated as of
February 26, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.3 Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as of
April 30, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.4 Agreement made as of April 30, 1997, to be amended by a Modification Agreement made as of October , 1997
by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A. Garofalo
and National Fiber Network, Inc. (incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-33653)).
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of December
20, 1993 (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration
No. 333-33653)).
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network, Inc.,
dated as of May 1993 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.7 Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen, dated February 11, 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates, dated as
of March 19, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of June 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc., dated
as of August 14, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.12 Fiber Optic Use Agreement between National Fiber Network, Inc. and NextLink New York, L.L.C., dated as
of June 3, 1997 (portions of this exhibit are subject to a request to the Securities and Exchange
Commission for confidential treatment, and omitted material has been separately filed with the
Securities and Exchange Commission) (incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration No. 333-33653)).
10.13 Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network, dated as of the
Effective Date by and between US ONE Communications of New York, Inc. and National Fiber Network, Inc.
(portions of this exhibit are subject to a request to the Securities and Exchange Commission for
confidential treatment, and omitted material has been separately filed with the Securities and
Exchange Commission) (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.14 Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc. and NextLink
Communications, Inc., dated as of February 23, 1998 (portions of this exhibit are subject to a request
to the Securities and Exchange Commission for confidential treatment, and omitted material has been
separately filed with the Securities and Exchange Commission).*
10.15 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc.
and NextLink Communications, Inc., made and entered into as of March 4, 1998 (portions of this exhibit
are subject to a request to the Securities and Exchange Commission for confidential treatment, and
omitted material has been separately filed with the Securities and Exchange Commission).*
10.16 Agreement of Lease by and between Connecticut General Life Insurance Company and Metromedia Fiber
Network Services, Inc., dated as of March 9, 1998.*
21.1 List of Subsidiaries of Metromedia Fiber Network, Inc.*
24.1 Power of Attorney from officers and directors (contained on signature page).*
27.1 Financial Data Schedule.*
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
27.2 Restated Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
(b) Current Reports on Form 8-K
During the period from October 1, 1997 to December 31, 1997, the Company
did not file any reports on Form 8-K.
As of the date of the filing of this Annual Report on Form 10-K no proxy
materials have been furnished to securityholders. Copies of all proxy
materials will be sent to the Commission in compliance with its rules.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in New York City, New
York.
METROMEDIA FIBER NETWORK, INC.
BY: /S/ STEPHEN A. GAROFALO
-----------------------------------------
Stephen A. Garofalo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: March 30, 1998
We, the undersigned officers and directors of Metromedia Fiber Network,
Inc., hereby severally constitute Arnold L. Wadler, Howard M. Finkelstein and
Gerard Benedetto, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, any and all reports (including any amendments
thereto), with all exhibits thereto and any and all documents in connection
therewith, and generally do all such things in our name and on our behalf in
such capacities to enable Metromedia Fiber Network, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such reports (including any amendments thereto) and other
documents in connection therewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE OR CAPACITIES DATE
- ------------------------------ --------------------------- -------------------
/s/ STEPHEN A. GAROFALO Chairman of the Board and
- ------------------------------ Chief Executive Officer March 30, 1998
Stephen A. Garofalo
/s/ HOWARD M. FINKELSTEIN President, Chief Operating
- ------------------------------ Officer and Director March 30, 1998
Howard M. Finkelstein
/s/ GERARD BENEDETTO Vice President, Chief
- ------------------------------ Financial Officer and March 30, 1998
Gerard Benedetto Chief Accounting Officer
/s/ SILVIA KESSEL Executive Vice President
- ------------------------------ and Director March 30, 1998
Silvia Kessel
/s/ ARNOLD L. WADLER Executive Vice President,
- ------------------------------ Secretary and Director March 30, 1998
Arnold L. Wadler
/s/ VINCENT A. GALLUCCIO Senior Vice President and
- ------------------------------ Director March 30, 1998
Vincent A. Galluccio
/s/ JOHN W. KLUGE Director
- ------------------------------ March 30, 1998
John W. Kluge
52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE OR CAPACITIES DATE
- ------------------------------ --------------------------- -------------------
/s/ STUART SUBOTNICK Director
- ------------------------------ March 30, 1998
Stuart Subotnick
/s/ DAVID ROCKEFELLER Director
- ------------------------------ March 30, 1998
David Rockefeller
/s/ LEONARD WHITE Director
- ------------------------------ March 30, 1998
Leonard White
53
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of Metromedia Fiber Network, Inc.
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653))
3.2 Form of Amended and Restated Bylaws of Metromedia Fiber Network, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653))
4.1 Specimen Class A Common Stock Certificate of Metromedia Fiber Network, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-1 (Registration No. 333-33653))
10.1 Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan. (incorporated by reference to the
Company's Registration Statement on Form S-1 (Registration No. 333-33653))
10.2 Employment Agreement by and between National Fiber Network, Inc. and Stephen A. Garofalo, dated as of
February 26, 1997. (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653))
10.3 Employment Agreement by and between National Fiber Network, Inc. and Howard Finkelstein, dated as of
April 30, 1997. (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653))
10.4 Agreement made as of April 30, 1997, to be amended by a Modification Agreement made as of October ,
1997 by and among Metromedia Company, Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A.
Garofalo and National Fiber Network, Inc. (incorporated by reference to the Company's Registration
Statement on Form S-1 (Registration No. 333-33653))
10.5 Franchise Agreement between The City of New York and National Fiber Network, Inc., dated as of December
20, 1993 (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration
No. 333-33653)).
10.6 Conduit Occupancy Agreement by and between New York Telephone Company and National Fiber Network, Inc.,
dated as of May 1993 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.7 Consulting Agreement between National Fiber Network and Realprop Capital Corporation, dated as of
February 1, 1996 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.8 Letter Agreement from National Fiber Network, Inc. to Peter Sahagen dated February 11, 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.9 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street Associates, dated as
of March 19, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.10 Office Lease by and between National Fiber Network, Inc. and 110 East 42nd Street, dated as of June 1997
(incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No.
333-33653)).
10.11 Trademark License Agreement by and between Metromedia Company and Metromedia Fiber Network, Inc., dated
as of August 14, 1997 (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.12 Fiber Optic Use Agreement between National Fiber Network, Inc. and NextLink New York, L.L.C., dated as
of June 3, 1997 (portions of this exhibit are subject to a request to the Securities and Exchange
Commission for confidential treatment, and omitted material has been separately filed with the
Securities and Exchange Commission) (incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration No. 333-33653)).
10.13 Amended and Restated Agreement for the Provision of a Fiber Optic Transmission Network dated as of the
Effective Date by and between US ONE Communications of New York, Inc. and National Fiber Network, Inc.
(portions of this exhibit are subject to a request to the Securities and Exchange Commission for
confidential treatment, and omitted material has been separately filed with the Securities and
Exchange Commission) (incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 333-33653)).
10.14 Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc. and NextLink
Communications, Inc., dated as of February 23, 1998 (portions of this exhibit are subject to a request
to the Securities and Exchange Commission for confidential treatment, and omitted material has been
separately filed with the Securities and Exchange Commission).*
10.15 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by and between Metromedia Fiber Network, Inc.
and NextLink Communications, Inc., made and entered into as of March 4, 1998 (portions of this exhibit
are subject to a request to the Securities and Exchange Commission for confidential treatment, and
omitted material has been separately filed with the Securities and Exchange Commission).*
10.16 Agreement of Lease by and between Connecticut General Life Insurance Company and Metromedia Fiber
Network Services, Inc., dated as of March 9, 1998.*
21.1 List of Subsidiaries of Metromedia Fiber Network, Inc.*
24.1 Power of Attorney from officers and directors (contained on signature page).*
27.1 Financial Data Schedule*
27.2 Restated Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
EXHIBIT 10.14
Confidential Treatment(1)
Fiber Lease and Innerduct Use Agreement
by and between
Metromedia Fiber Network, Inc.
and
NEXTLINK Communications, Inc.
February 23, 1998
_____________
(1) Redacted portions have been marked with an asterisk (*). The redacted
portions are subject to a request for confidential treatment and has been
filed separately with the Securities and Exchange Commission.
<PAGE>
FIBER LEASE AND INNERDUCT USE AGREEMENT
This AGREEMENT ("Agreement") is made and entered into as of the 23rd day of
February, 1998, by and between Metromedia Fiber Network, Inc., a Delaware
corporation ("MFN") and NEXTLINK Communications, Inc. ("NEXTLINK"), a Washington
corporation (either MFN or NEXTLINK being referred to in this Agreement as a
"Party," and collectively as the "Parties").
WHEREAS MFN constructs and maintains a fiber optic cable network and
desires to provide NEXTLINK with long term exclusive use of a portion of this
network subject to the terms and conditions of this Agreement;
WHEREAS NEXTLINK desires to acquire certain long term rights to use
portions of the MFN System as described herein, subject to the terms and
conditions of this Agreement; and
WHEREAS NEXTLINK and MFN are increasing the fiber count in NEXTLINK's
network under the New York Fiber Agreement (as defined below);
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Agreement, the Parties agree as follows.
ARTICLE I DEFINITIONS
For purposes of this Agreement, words spelled with initial capital letters
(other than proper names, section headings, and the beginnings of sentences)
shall have the defined meanings set forth in the applicable provisions of this
Agreement or in this Article I.
"MFN System" shall mean the fiber optic network controlled and operated by MFN
as described in Exhibit A.
"New York Fiber Agreement" means the Fiber Optic Use Agreement between MFN and
NEXTLINK New York, L.L.C., dated June 3, 1997.
"NEXTLINK Fibers" shall mean the fibers leased by NEXTLINK from MFN pursuant to
this Agreement, as described in Exhibit A hereto and more fully defined in
Sections 2.1 and 2.2 herein.
"Pro Rata" shall mean the percentage of the total count of optical fiber strands
and other cables within conduit under the control of MFN that is represented by
the NEXTLINK Fibers.
<PAGE>
2
ARTICLE II TERM AND LEASE
2.1 LEASE OF FIBERS. MFN hereby grants to NEXTLINK a lease of the
exclusive use of *** fiber-miles of optical fiber, configured as described in
Exhibit A to this Agreement as of the date of this Agreement and as Exhibit A
may be amended after the date of this Agreement with the agreement of the
Parties and pursuant to Section 2.2, for a Term commencing on the Acceptance
Date for the first segment of NEXTLINK Fibers accepted by NEXTLINK in accordance
with the Acceptance Testing procedures set forth in Section 2.7 ("Acceptance")
and terminating twenty years after the Acceptance Date for the last segment of
NEXTLINK Fibers (the "Term"). MFN shall deliver the NEXTLINK Fibers to NEXTLINK
in logical segments as set forth on Exhibit A. This lease shall provide
NEXTLINK with quiet enjoyment of the NEXTLINK Fibers for the Term. If MFN, in
its sole discretion, extends or renews any underlying right-of-way relating to
the NEXTLINK Fibers beyond the Term, NEXTLINK shall have the right to extend the
Term of the fiber lease for a term corresponding to such extension or renewal
(up to two additional ten-year periods), upon notice to MFN not less than 180
days prior to the expiration of the then-current term. The consideration payable
for any extensions of the Term shall be as stated in Section 3.1. MFN shall
promptly notify NEXTLINK of the expiration dates for rights-of-way relevant to
this Agreement. In the event that NEXTLINK desires to extend the fiber lease, it
shall give notice to MFN no sooner than two years, and no later than one year,
prior to the expiration of the Term (the "Extension Notice"). Within 60 days
after the date of the Extension Notice MFN shall give notice to NEXTLINK
advising NEXTLINK whether or not it intends to renew any relevant rights-of-way.
If MFN does not intend to extend or renew such right-of-way, NEXTLINK shall have
the right to negotiate directly with the holder of any right-of-way for a new
right-of-way. If MFN elects not to renew or extend a right-of-way and intends
to abandon the use of the NEXTLINK Fibers in such right-of-way, MFN shall, upon
NEXTLINK's request, convey title to such NEXTLINK Fibers to NEXTLINK in exchange
for a payment of $100.00 by NEXTLINK.
2.2 DESCRIPTION OF NEXTLINK FIBERS. Exhibit A in the form attached
to this Agreement on the date of this Agreement identifies the type of fiber and
configuration for fiber miles to be leased by NEXTLINK. Exhibit A also states
MFN's anticipated construction schedule for the NEXTLINK Fibers. For a period
of 90 days after the date of this Agreement, NEXTLINK shall have the right (with
the consent of MFN, which shall not be unreasonably withheld or delayed by MFN)
to change the fiber count for particular segments as designated on Exhibit A as
long as the total fiber miles to be changed does not exceed 25% of the total
fiber miles to be leased pursuant to Section 2.1. MFN shall use commercially
reasonable efforts to deliver the NEXTLINK Fibers to NEXTLINK on the schedule
set forth in Exhibit A. NEXTLINK acknowledges, however, that MFN does not
guarantee delivery of the NEXTLINK Fibers to NEXTLINK on the dates set forth on
such schedule.
2.3 LONG-HAUL INNERDUCT. MFN hereby grants to NEXTLINK an exclusive,
indefeasible right of use ("IRU"), for a single, one and one-quarter inch
<PAGE>
3
(11/4") vacant innerduct (the "Long-Haul Innerduct") throughout the entire route
described on Exhibit B-4 (the "Long-Haul Route") for a term ending (with respect
to any particular segment) with the expiration of the underlying right-of-way
for that segment (or, in the case of right-of-way held by Consolidated Rail
Corporation, a term ending with the expiration of the first ten-year "Extension
Term" under MFN's agreement with Consolidated Rail Corporation). This IRU shall
commence upon NEXTLINK's Acceptance of the Long-Haul Innerduct. This IRU shall
provide NEXTLINK with quiet enjoyment of the Long-Haul Innerduct for the term
ending as stated above in Section 2.3. NEXTLINK shall have the right to extend
the term for this IRU for a term ending with the expiration of the underlying
right-of-way for any particular segment, if renewed or extended by MFN in its
discretion from time to time, at no additional consideration other than for
maintenance charges and MFN's incremental share of right-of-way fees as stated
in Section 3.2. The Long-Haul Innerduct shall meet the specifications stated on
Exhibit B and shall include fiber-drop or splice points at locations shown on
Exhibit B or otherwise agreed upon by the Parties. MFN shall deliver to
NEXTLINK such evidence of the grant of the IRU for the Long-Haul Innerduct (on
the terms stated in this Agreement) as NEXTLINK may reasonably request upon
Acceptance of the Long-Haul Innerduct by NEXTLINK. The Long-Haul Innerduct
shall be completed and made available for delivery to NEXTLINK in the logical
sequences shown on Exhibit B, no later than the dates set forth on Exhibit C.
MFN shall grant this IRU for segments of the Long-Haul Innerduct as such
segments are completed rather than waiting for completion of the entire Long-
Haul Innerduct. NEXTLINK shall, not later than the next business day after
NEXTLINK's Acceptance of any segment of the Long-Haul Innerduct, instruct the
Escrow Agent (as defined below) to release funds from escrow calculated at the
rate of *** per mile of Long-Haul Innerduct. Together with the IRU for the
Long-Haul Innerduct, MFN shall use commercially reasonable efforts to grant
NEXTLINK either a lease or IRU for innerduct from MFN's Jersey City, New Jersey
point of presence to MFN's New York, New York point of presence at 60 Hudson
Street, as further described on Exhibit B for the term of the IRU set forth in
this paragraph. If MFN is unable to grant such lease or IRU, MFN shall grant
NEXTLINK a lease of fibers from Jersey City, New Jersey to New York, New York.
The lease of fibers in this segment from Jersey City to New York shall include
the same number of fiber strands that are installed for NEXTLINK's use in the
adjoining portions of the Long-Haul Innerduct. NEXTLINK shall directly pay for
the fibers to be installed in the Jersey City to New York segment, or reimburse
MFN for MFN's cost to purchase the fibers, and NEXTLINK shall also pay directly,
or reimburse MFN for, MFN's cost to install the fibers. These fiber miles do
not reduce the fiber miles to be leased by NEXTLINK under Section 2.1.
The grant of the IRU described in this Section 2.3 is subject to (i)
MFN's receipt of any necessary consents of holders of underlying rights-of-way
required for such IRU , (ii) NEXTLINK entering into such agreement as the holder
of the underlying right-of-way may reasonably request, and (iii) to NEXTLINK's
approval of the amount of right-of-way fees or other fees to be incurred by
NEXTLINK with respect to the Long-Haul Innerduct and of the terms of all
rights-of-way applicable to the Long-Haul
<PAGE>
4
Innerduct. The Parties shall cooperate in good faith, using their respective
commercially reasonable efforts, to obtain the necessary consents or agreements
from holders of underlying rights-of-way. If such consents have not been
obtained within one year after the date of this Agreement, or if NEXTLINK has
not approved the amount of the right-of-way fees or other fees to be incurred by
NEXTLINK and the terms of all rights of way applicable to the Long-Haul
Innerduct within one year after the date of this Agreement, then either Party
may, by written notice to the other Party, terminate the Parties' Agreement for
the IRU under this Section 2.3. Upon such termination, NEXTLINK shall have the
right to select one of the following options, which shall be determined by
NEXTLINK as soon as practical after such termination: (a) NEXTLINK may elect to
terminate the portion of this Agreement relating to the grant of the IRU
pursuant to this Section 2.3 and pay MFN an additional $4,000,000 in
consideration of the fiber lease described in Section 2.1, by deposit into
escrow under the Escrow Agreement (as defined below), which $4,000,000 shall be
disbursed over time upon Acceptance of segments of the NEXTLINK Fibers, in
proportion to the number of fiber miles in such segment compared with the
then-remaining number of fiber miles of NEXTLINK Fibers yet to be delivered; or
(b) if MFN is permitted to pull additional fiber in the Long-Haul Route,
NEXTLINK may (to the extent MFN is permitted to do so under applicable
right-of-way agreements) require MFN to grant NEXTLINK a lease or IRU for the
number of strands requested by NEXTLINK, up to a maximum of 432 strands of fiber
throughout the Long-Haul Route for a one-time payment of *** per fiber mile that
is subject to such lease or IRU (less all amounts released to MFN from escrow,
and the down payment made by NEXTLINK, with respect to the Long-Haul Innerduct),
or (c) if MFN is not permitted to pull additional fiber in the Long-Haul Route,
NEXTLINK may require MFN to lease to NEXTLINK up to 96 strands of fiber for a
one-time lease payment of *** per fiber mile (less all amounts released to MFN
from escrow, and the down payment made by NEXTLINK, with respect to the
Long-Haul Innerduct). The lease or IRU granted under clause (b) and the lease
granted under clause (c) shall expire on expiration of the IRU for the Long-Haul
Innerduct.
2.4 ADDITIONAL INNERDUCT. In the event MFN owns innerduct or the
equivalent in any portion of the route of the NEXTLINK Fibers, and MFN elects to
offer such innerduct or equivalent to NEXTLINK, such election to be in MFN's
sole discretion, and if NEXTLINK elects to accept such offer, such election to
be in NEXTLINK's sole discretion, MFN shall grant NEXTLINK a 20-year IRU for an
additional single, one and one-quarter inch (11/4") vacant innerduct (the
"Additional Innerduct"), or equivalent raceway space, in the route agreed to in
writing by the Parties. MFN shall deliver to NEXTLINK such evidence of the grant
of the IRU for the Additional Innerduct (on the terms stated in this Agreement)
as NEXTLINK may reasonably request upon Acceptance of the Additional Innerduct
by NEXTLINK. The Additional Innerduct shall meet the specifications stated in
Exhibit B with respect to the type, quality and other specifications. NEXTLINK
shall have the right to extend the Term for this IRU for a term ending with the
expiration of the underlying right-of-way for any particular segment, as renewed
or extended by MFN from time to time, at no
<PAGE>
5
additional consideration other than for maintenance charges and incremental
share of right-of-way fees as stated in Section 3.3.
2.5 INSTALLATION OF FIBER IN LONG-HAUL INNERDUCT. NEXTLINK shall
give MFN not less than ninety days written notice prior to the date NEXTLINK
desires to have installation of fiber in the Long-Haul Innerduct commence.
NEXTLINK shall select a contractor from a list of contractors approved by MFN to
install such fiber. At NEXTLINK's option, NEXTLINK may require such contractors
to participate in a competitive-bid process prior to selection of the
contractor. NEXTLINK shall pay the cost charged by such contractor for the
installation. MFN shall have the right to manage and supervise the
installation. NEXTLINK shall reimburse MFN for MFN's reasonable costs for time
spent in such management and supervision, as set forth in invoice from MFN to
NEXTLINK showing in reasonable detail the time spent by MFN personnel.
NEXTLINK's notice regarding the installation shall designate the number of
strands that NEXTLINK intends to have installed in such Long-Haul Innerduct. By
written notice to NEXTLINK within thirty days after such notice from NEXTLINK,
MFN may exercise its option to require NEXTLINK to lease to MFN fiber in one or
more segments of the Long-Haul Innerduct as stated in this Section 2.5. If MFN
fails to provide such notice to NEXTLINK, MFN shall have no right to require
NEXTLINK to lease to MFN fibers in any innerduct. NEXTLINK shall, at MFN's
request, include in the single bundle of fibers installed in such innerduct a
minimum of 96 additional strands of fiber. Subject to the foregoing, if
NEXTLINK has fewer 336 fibers installed in such Long-Haul Innerduct, MFN shall
have the right to increase the number of strands to be installed for MFN by
NEXTLINK above 96 such that a total of up to 432 strands will be installed in
the Long-Haul Innerduct. NEXTLINK shall lease such fibers to MFN for a period
equal to the remaining term on NEXTLINK's IRU for the Long-Haul Innerduct (as
extended or renewed) with no lease payment due from MFN to NEXTLINK. The lease
shall commence on delivery of the fiber strands to MFN.
2.6 COLLOCATION. The Parties shall consult and negotiate with each
other with respect to collocation space, regeneration sites and the like,
including possible swaps of collocation space and regeneration sites. Any
agreement between the Parties with respect thereto shall be in writing and shall
state the pricing terms.
2.7 SPLICING; ACCEPTANCE TESTING. MFN shall, at NEXTLINK's request,
provide such services as shall be necessary to connect the NEXTLINK Fibers,
Long-Haul Innerduct and Additional Innerduct and spurs, laterals, subrings and
other network assets (including regeneration equipment) on and after the
Acceptance Date at splice points and other appropriate points identified on
Exhibits A and B, and also as requested by NEXTLINK at other technically
feasible locations, with the consent of MFN, which consent shall not be
unreasonably withheld or delayed by MFN. NEXTLINK shall have the right to
supervise such work, at NEXTLINK's expense. NEXTLINK shall reimburse MFN for
MFN's reasonable costs in performing such services.
<PAGE>
6
(a) MFN shall test all NEXTLINK Fibers, Long-Haul Innerduct and
Additional Innerduct in accordance with the specifications stated in the
Exhibits to this Agreement ("Acceptance Testing") to verify that such the
NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct are installed in
compliance with the specifications described in the applicable Exhibits.
Acceptance Testing shall progress span by span along each segment as cable
splicing or other installation progresses, so that test results may be reviewed
in a timely manner. Where practical, MFN shall provide NEXTLINK at least ten
(10) business days advance notice, but in any case at least five (5) business
days advance notice, of the date and time of each Acceptance Testing (each of
which shall take place during normal business hours where practical) such that
NEXTLINK shall have the right, but not the obligation, to have a person or
persons present to observe MFN's Acceptance Testing. When MFN has determined
that the results of the Acceptance Testing with respect to a particular span
show that the NEXTLINK Fibers, Long-Haul Innerduct or Additional Innerduct so
tested are installed and in compliance with the applicable specifications set
forth in the Exhibits to this Agreement, MFN shall promptly provide NEXTLINK
with a copy of such test results.
(b) When MFN reasonably determines the NEXTLINK Fibers,
Long-Haul Innerduct or Additional Innerduct with respect to an entire segment
are installed substantially in conformity with the applicable specifications set
forth in the Exhibits to this Agreement, MFN shall promptly provide written
notice of completion to NEXTLINK (a "Completion Notice"). NEXTLINK shall,
within fourteen (14) days of receipt of the Completion Notice, either reject the
Completion Notice specifying the defect or failure in such Acceptance Testing or
give MFN written notice of acceptance of such Acceptance Testing (the period
from the date of NEXTLINK's receipt of the Completion Notice to the date of
MFN's receipt of NEXTLINK's notice of rejection or Acceptance being referred to
herein as the "Review Period"). In the event NEXTLINK rejects the Completion
Notice, MFN shall promptly, and not later than fourteen (14) days after receipt
of NEXTLINK's notice of rejection, and at no cost to NEXTLINK, commence to
remedy the defect or failure. Thereafter, upon completion of the remediation of
the defect or failure, MFN shall again give NEXTLINK a Completion Notice. The
foregoing procedure shall apply again and successively thereafter for a total of
two attempts to remedy the defect or failure. If MFN fails to adequately remedy
or cure the defect or failure after two attempts, NEXTLINK shall have the right
to proceed promptly and in an economically efficient manner for a period of up
to thirty days to cure such defects or failures at MFN's cost and expense, which
shall be paid by MFN to NEXTLINK upon demand, or at the election of NEXTLINK
offset from any payment by NEXTLINK to MFN under this Agreement. No acceptance
of, or failure by NEXTLINK to reject, the Completion Notice shall be deemed to
be a waiver of any rights or remedies of NEXTLINK under this Agreement; provided
that NEXTLINK's use of the fiber or Innerduct in question (other than in
connection with testing) and any failure by NEXTLINK to timely reject as set
forth above shall be deemed Acceptance for purposes of this Agreement. The date
when NEXTLINK accepts or is deemed to have accepted a Completion Notice or cures
such defects at MFN'S cost and expense as provided above with respect to any
portion of the NEXTLINK Fibers is herein defined
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7
as the "Acceptance Date." Not later than the business day following the
Acceptance Date, NEXTLINK shall cause the Escrow Agent to release from escrow a
portion of the funds held by the Escrow Agent under the Escrow Agreement, in the
amount designated by the Parties in the applicable Exhibits corresponding to the
segment being accepted by NEXTLINK.
2.8 REMOVAL ON TERMINATION. Upon the expiration of the fiber lease
and IRUs provided to NEXTLINK in this Agreement, or any earlier termination of
this Agreement, NEXTLINK shall exercise commercially reasonable efforts to
remove all NEXTLINK property from the MFN System and reroute NEXTLINK's traffic
within sixty (60) days from such expiration or termination and shall complete
such removal in a manner that does not interfere with or damage the MFN System.
In the event that NEXTLINK fails to remove its property within such period, MFN
may remove and store the NEXTLINK property at NEXTLINK's expense.
2.9 CONSTRUCTION STANDARDS. All construction required for
performance by MFN of its obligations under this Agreement shall be performed in
accordance with the terms stated in any Exhibit to this Agreement and in
accordance with industry standards.
2.10 COOPERATION IN PLANNING. The Parties shall cooperate in good
faith in planning the design and construction of the NEXTLINK Fibers, the
Long-Haul Innerduct and the Additional Innerduct. Not less frequently than once
every six months, NEXTLINK and MFN shall meet to evaluate MFN's construction
plans and network design and to consider NEXTLINK's comments and requests for
modifications. Except as may be requested to comply with the applicable
specifications stated in this Agreement or an Exhibit to this Agreement, MFN
shall not have any obligation to make modifications requested by NEXTLINK. MFN
shall promptly notify NEXTLINK of any material deviation from the route design
previously proposed by MFN for any particular segments and NEXTLINK shall have
the right to withdraw from participation in the affected portion of the route
and the right to designate (in a commercially reasonable manner) replacement
fibers in technically feasible locations. To the extent technically feasible
and commercially reasonable, however, MFN shall add additional splice points and
make other changes requested by NEXTLINK (at NEXTLINK's expense), provided that
NEXTLINK responds with such requests within the time periods reasonably
determined from time to time by MFN (and given to NEXTLINK in writing) based on
MFN's construction schedule.
2.11 INCREASE IN NEW YORK FIBERS. As part of the consideration
NEXTLINK is receiving under this Agreement, MFN shall increase the fiber count
for the "Leased Fibers" as defined in the New York Fiber Agreement by the number
of fiber miles equivalent to the number of fiber miles required to increase the
fiber count for such "Leased Fibers" to *** fibers in all segments of such
"Leased Fibers." The specific fiber counts by segment shall be as stated by
NEXTLINK in a written request to MFN within 90 days after the date of this
Agreement, with the consent of MFN
<PAGE>
8
(which shall not be unreasonably withheld or delayed by MFN). This Section 2.11
shall not obligate MFN to install these additional strands of fiber in any
particular location unless MFN is obligated to lease to NEXTLINK fiber at that
location under the New York Fiber Agreement. No additional payment shall be due
from NEXTLINK under this Agreement or the New York Fiber Agreement as a result
of such increase in the fiber count for such Leased Fibers. Such increase in
fiber count shall not reduce the fiber-miles NEXTLINK is entitled to lease under
Section 2.1 of this Agreement.
2.12 NEXTLINK and MFN agree that the lease to MFN contemplated under
Section 2.5 and the provision of additional fiber to NEXTLINK contemplated under
Section 2.11 are of equivalent value and are valued at Four Million Four Hundred
Thousand Dollars ($4,400,000).
ARTICLE III TERMS OF PAYMENT
3.1 FIBER LEASE PAYMENT. In consideration of the lease of fibers set
forth in Section 2.1, NEXTLINK shall pay MFN a one-time lease payment of $***.
This lease payment shall be paid as follows: on the third business day following
the execution of this Agreement by both parties, NEXTLINK shall pay the sum of
$*** by wire transfer directly to MFN. Within five days after the execution by
the Parties and the Escrow Agent (as defined in Section 3.4) of the Escrow
Agreement (as defined in Section 3.4) NEXTLINK shall pay the balance of $*** by
wire transfer to the Escrow Agent identified in Section 3.4 below. The funds in
escrow shall be released from escrow as segments of the NEXTLINK Fibers are
accepted by NEXTLINK. If the Term is extended as provided in Section 2.1, the
lease payment for such extended term shall be determined at a rate equal to 35%
of the fair market value of the fiber lease at the commencement of each
extension, plus payment of MFN's maintenance charges at market rates and
increases in right-of-way fees. No monthly charges or other recurring charges
shall be due from NEXTLINK in connection with the lease or maintenance of the
NEXTLINK Fibers (except for maintenance required (i) at NEXTLINK's request, but
not required for compliance with the specifications stated in this Exhibits to
this Agreement, or (ii) as a result of NEXTLINK's acts or omissions.
3.2 LONG-HAUL INNERDUCT PAYMENT. In consideration of the grant of
the IRU for the Long-Haul Innerduct set forth in Section 2.3, NEXTLINK shall pay
MFN a one-time payment of $***. This payment shall be made as follows: on the
third business day following the execution of this Agreement by both parties,
NEXTLINK shall pay the sum $*** by wire transfer directly to MFN. Within five
days after the execution of the Escrow Agreement by the Parties and the Escrow
Agent, NEXTLINK shall pay the balance of $*** by wire transfer to the Escrow
Agent identified in Section 3.4 below. NEXTLINK shall instruct the Escrow Agent
to release $*** (in increments of $*** with respect to the CSX right-of-way and
$*** with respect to the Conrail right-of-way) to MFN promptly after MFN obtains
any necessary consents of holders of rights-of-way under Section 2.3, and
NEXTLINK has approved the amount of right-of-way fees or other fees to be
incurred by NEXTLINK with respect to the Long-Haul Innerduct and
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9
NEXTLINK has approved the terms of all right-of-way agreements NEXTLINK is
required to enter into with respect to the Long-Haul Innerduct and the terms of
any consent given by any holder of such right-of-way. The balance of the funds
in escrow shall be released from escrow as segments of the Long-Haul Innerduct
are accepted by NEXTLINK. No monthly charges or other recurring charges shall
be due from NEXTLINK in connection with the IRU for the Long-Haul Innerduct.
NEXTLINK shall be responsible for payment of maintenance costs with respect to
such Long-Haul Innerduct, by hiring MFN to maintain such Long-Haul Innerduct and
paying MFN's reasonable charges for such maintenance. For a period of two years
after NEXTLINK's Acceptance of the Long-Haul Innerduct, such maintenance charges
shall be calculated at a rate of $200.00 per year per route mile. Such
maintenance charges shall increase or decrease thereafter based on MFN's actual
maintenance costs, as may be agreed by the Parties at the time or, failing such
agreement of the Parties, pursuant to the dispute resolution process set forth
in this Agreement. NEXTLINK shall pay MFN for Emergency Unscheduled Maintenance
on a time and materials basis. If any additional right-of-way fees or other
fees are imposed on MFN by the holder of the underlying right-of-way or other
third party as a result of the installation or use by NEXTLINK of the Long-Haul
Innerduct, NEXTLINK shall pay such additional fees either directly or on a
pass-through basis to MFN. For any pass-through payment, NEXTLINK shall have
the right to receive evidence reasonably satisfactory to NEXTLINK that such
additional fees were actually paid by MFN, or are payable by MFN, with respect
to the installation (or use by NEXTLINK) of the Long-Haul Innerduct. If MFN
exercises its right under Section 2.5 to include fiber in the Long-Haul
Innerduct, NEXTLINK's share of expenses for maintenance and right-of-way fees
under this Section 3.2 shall be reduced Pro Rata. No additional payment shall
be required from NEXTLINK for any renewal or extension of the IRU for the
Long-Haul Innerduct, but NEXTLINK shall continue to pay for maintenance as
required and other fees under this Section 3.2 and shall pay its pro rata share
of any increase right-of-way or other fees incurred by MFN as a result of such
renewal or extension of the right-of-way.
3.3 ADDITIONAL INNERDUCT PAYMENT. In consideration of the grant of
any IRU for the Additional Innerduct set forth in Section 2.4, NEXTLINK shall
pay MFN a one-time fee equal to *** per mile, rounded up or down to the nearest
mile based on the total number of miles of Additional Innerduct granted to
NEXTLINK. This payment shall be paid directly to MFN at the time NEXTLINK
accepts delivery of the Additional Innerduct. No monthly charges or other
recurring charges shall be due from NEXTLINK in connection with the grant of the
IRU with respect to the Additional Innerduct. NEXTLINK shall be responsible for
payment of maintenance costs with respect to such Additional Innerduct, by
hiring MFN to maintain such Additional Innerduct and paying MFN's reasonable
charges for such maintenance. Such maintenance charges shall be calculated at
the rate per year per route mile applicable under Section 3.2 at the time.
NEXTLINK shall pay MFN for Emergency Unscheduled Maintenance on a time and
materials basis. If any additional right-of-way fees or other fees are imposed
on MFN by the holder of the underlying right-of-way as a result of the
installation (or use by NEXTLINK) of the Additional Innerduct, NEXTLINK shall
pay
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10
such additional fees either directly or on a pass-through basis to MFN. For any
pass-through payment, NEXTLINK shall have the right to receive evidence
reasonably satisfactory to NEXTLINK that such additional fees were actually paid
by MFN, or are payable by MFN, with respect to the installation of the
Additional Innerduct. No additional payment shall be required from NEXTLINK for
any renewal or extension of the IRU for the Additional Innerduct, but NEXTLINK
shall continue to pay for maintenance as required in this Section 3.3 and shall
pay its pro rata share of any increase right-of-way or other fees incurred by
MFN as a result of such renewal or extension of the right-of-way.
3.4 ESCROW. Promptly after the execution of this Agreement, the
Parties shall enter an Escrow Agreement substantially in the form attached as
Exhibit G hereto (the "Escrow Agreement"), with such changes as may be
reasonably requested by the Escrow Agent. Pursuant to the Escrow Agreement,
NEXTLINK shall make deposits as set forth in this Article III to an escrow
account established with First Trust National Association or other escrow agent
satisfactory to both Parties (the "Escrow Agent"). The Escrow Agreement shall
authorize the Escrow Agent to remit the Escrow Deposit (as defined in the Escrow
Agreement), when the conditions precedent to such payments, as provided herein,
are satisfied.
3.5 PAYMENT BY MFN. MFN shall pay NEXTLINK for MFN's pro rata share
of the additional costs for materials and right-of-way fees and similar fees
(other than labor) that NEXTLINK incurs as a result of MFN's exercise of its
rights under Section 2.5.
ARTICLE IV MAINTENANCE AND REPAIR OF THE NEXTLINK FIBERS
4.1 ROUTINE MAINTENANCE. Routine maintenance and repair of the
NEXTLINK Fibers described in Section 2.1 ("Scheduled Maintenance") shall be
performed at MFN's expense by or under the direction of MFN. Scheduled
Maintenance shall commence with respect to each segment upon the Acceptance Date
for such segment. All scheduled maintenance shall be performed in accordance
with industry standards and in compliance with MFN's standard maintenance
procedures.
4.2 UNSCHEDULED MAINTENANCE. Non-routine maintenance and repair of
the NEXTLINK Fibers which is not included as Scheduled Maintenance ("Unscheduled
Maintenance"), shall be performed at MFN's expense (except to the extent caused
by the acts or omissions of NEXTLINK) by or under the direction of MFN.
Unscheduled Maintenance shall commence with respect to each segment upon the
Acceptance Date for such segment. Unscheduled Maintenance shall consist of:
(a) "Emergency Unscheduled Maintenance" in response to an alarm
identification by MFN's Operations Center, notification by NEXTLINK or
notification by any third party of any failure, interruption or impairment in
the operation
<PAGE>
11
of the NEXTLINK Fibers, or any event imminently likely to cause the failure,
interruption or impairment in the operation of the NEXTLINK Fibers.
(b) "Non-Emergency Unscheduled Maintenance" in response to any
potential service-affecting situation to prevent any failure, interruption or
impairment in the operation of the NEXTLINK Fibers.
NEXTLINK shall promptly report the need for Unscheduled Maintenance to
MFN in accordance with procedures promulgated by MFN from time to time. MFN
will log the time of NEXTLINK's report, verify the problem and will dispatch
personnel promptly (and as provided in Section 4.3) to take corrective action.
If NEXTLINK has caused the problem giving rise to the Unscheduled Maintenance,
NEXTLINK shall reimburse MFN for MFN's reasonable costs (on a time and materials
basis) with respect to such problem.
4.3 OPERATIONS CENTERS. MFN shall operate and maintain one or more
Operations Centers ("OCs") staffed twenty-four hours a day, seven (7) days a
week by trained and qualified personnel beginning with the earliest Acceptance
Date under this Agreement. Qualified maintenance personnel shall be available
for dispatch twenty-four (24) hours a day, seven (7) days week. MFN shall use
its best efforts to have its first maintenance representative at the site
requiring Emergency Unscheduled Maintenance activity within two (2) hours after
the time MFN becomes aware of an event requiring Emergency Unscheduled
Maintenance. MFN shall maintain a telephone number through which NEXTLINK may
contact personnel at an OC without toll from the New York metropolitan area.
MFN's OC personnel shall dispatch maintenance and repair personnel along the
system to handle and repair problems detected in the NEXTLINK Fibers, (i)
through NEXTLINK's remote surveillance equipment and upon notification by
NEXTLINK to MFN, or (ii) upon notification by a third party.
4.4 COOPERATION AND COORDINATION. NEXTLINK shall utilize an
Operations Escalation List, as updated from time to time, to report and seek
immediate initial redress of exceptions noted in the performance of MFN in
meeting maintenance service objectives. NEXTLINK will, as necessary, arrange
for escorted access for MFN to all sites of the NEXTLINK Fibers, subject to
applicable contractual underlying real property and other third-party
limitations and restrictions. In performing its services hereunder, MFN shall
take workmanlike care to prevent impairment to the signal continuity and
performance of the NEXTLINK Fibers. The precautions to be taken by MFN shall
include notification to NEXTLINK. In addition, MFN shall reasonably cooperate
with NEXTLINK in sharing information and analyzing the disturbances regarding
the cable and/or fibers. In the event that any Scheduled or Unscheduled
Maintenance hereunder requires a traffic roll or reconfiguration involving
cable, fiber, electronic equipment, or regeneration or other facilities of
NEXTLINK, then NEXTLINK shall, at MFN's reasonable request, make such personnel
of NEXTLINK available as may be necessary in order to accomplish such
maintenance, which personnel shall coordinate and cooperate with MFN in
performing such maintenance as required
<PAGE>
12
of MFN hereunder. MFN shall use its best efforts to notify NEXTLINK at least
five business days prior to the date of any Scheduled Maintenance on any
NEXTLINK Fibers and as soon as possible after becoming aware of the need for
Unscheduled Maintenance. NEXTLINK shall have the right to be present during the
performance of any Scheduled Maintenance on any NEXTLINK Fibers or Unscheduled
Maintenance so long as this requirement does not interfere with MFN's ability to
perform its obligations under this Agreement. In the event that Scheduled
Maintenance is canceled or delayed for whatever reason as previously notified,
MFN shall notify NEXTLINK at MFN's earliest opportunity, and will comply with
the provisions of the previous sentence to reschedule any delayed activity.
4.5 FACILITIES. MFN shall maintain the NEXTLINK Fibers in a manner
that will permit NEXTLINK's use, in accordance with the terms and conditions of
this Agreement, of the NEXTLINK Fibers and associated facilities required to be
provided under the terms of this Agreement. Except to the extent otherwise
expressly provided in this Agreement, NEXTLINK will be solely responsible for
providing and paying for any and all maintenance of all electronic, optronic and
other equipment, materials and facilities used by NEXTLINK in connection with
the operation of the NEXTLINK Fibers, none of which is included in the
maintenance services to be provided hereunder.
4.6 FIBERS. MFN shall perform appropriate Scheduled Maintenance on
the cable containing the NEXTLINK Fibers in accordance with MFN's then current
preventative maintenance procedures as agreed to by NEXTLINK, which shall not
substantially deviate from standard industry practice. MFN shall maintain
sufficient capability to teleconference with NEXTLINK during an Emergency
Unscheduled Maintenance in order to provide regular communication during the
repair process. When correcting or repairing cable discontinuity or damage,
including but not limited to in the event of Emergency Unscheduled Maintenance,
MFN shall use reasonable efforts to repair traffic-affecting discontinuity
within four (4) hours after the MFN maintenance employee's arrival at the
problem site. In order to accomplish such objective, it is acknowledged that
the repairs so effected may be temporary in nature. In such event, within
twenty-four (24) hours after completion of any such Emergency Unscheduled
Maintenance, MFN shall commence its planning for permanent repair, and
thereafter promptly shall notify NEXTLINK of such plans, and shall implement
such permanent repair within an appropriate time thereafter. Restoration of
open fibers on fiber strands not immediately required for service shall be
completed on a mutually agreed-upon schedule. If the fiber is required for
immediate service, the repair shall be scheduled for the next available Planned
Service Work Period ("PSWP"). In performing repairs, MFN shall comply with the
splicing specifications as set forth in Exhibit E. MFN shall provide to
NEXTLINK any modifications to these specifications as may be necessary or
appropriate in any particular instance for NEXTLINK's approval, which approval
shall not be unreasonably withheld. MFN's representatives that are responsible
for initial restoration of a cut cable shall carry on their vehicles the
typically appropriate equipment that would enable a temporary splice, with the
objective of restoring operating capability in as little time as possible. MFN
shall maintain and supply an inventory of spare cable
<PAGE>
13
in storage facilities supplied and maintained by MFN at strategic locations to
facilitate timely restoration.
4.7 PLANNED SERVICE WORK PERIOD ("PSWP"). Scheduled Maintenance that
is reasonably expected to produce any signal discontinuity must be coordinated
between the parties. Generally, this work should be scheduled after midnight and
before 6:00 a.m. local time. Major system work such as fiber rolls and hot cuts
will be scheduled for PSWP weekends. A calendar showing approved PSWP will be
agreed upon in the last quarter of every year for the year to come. The intent
is to avoid jeopardy work on the first and last weekends of the month and
high-traffic holidays.
4.8 RESTORATION. MFN shall use its best efforts to respond to any
interruption of service or a failure of the NEXTLINK Fibers to operate in
accordance with the specifications set forth in the applicable Exhibits to this
Agreement (in any event, an "Outage") as quickly as possible in accordance with
the procedures set forth herein. When restoring a cut cable in the NEXTLINK
Fibers, the parties agree to work together to restore all traffic as quickly as
possible. MFN, promptly upon arriving on the site of the cut, shall determine
the course of action to be taken to restore the cable and shall begin
restoration efforts. MFN shall splice fibers tube by tube or ribbon by ribbon,
rotating between tubes or ribbons operated by any fiber lessees or holders of
IRUs (collectively, "Interest Holders"), including NEXTLINK, in accordance with
the following described priority and rotation mechanics; provided that, lit
fibers in all buffer tubes or ribbons shall have priority over any dark fibers
in order to allow transmission systems to come back on line; and provided
further that MFN will continue such restoration efforts until all lit fibers in
all buffer tubes or ribbons are spliced and all traffic restored. In general,
priority among Interest Holders affected by a cut shall be determined on a
rotating restoration-by-restoration and segment-by-segment basis, to provide
fair restoration to all Interest Holders. However, MFN shall establish a
Priority Customer Grouping ("PCG") which will receive, whenever possible,
priority in the restoration of tubes or ribbons that affect their use of MFN
facilities. NEXTLINK shall be a member of the PCG. The goal of emergency
restoration splicing shall be to restore service as quickly as possible. This
requires the use of some type of mechanical splice, such as the "3M Fiber Lock"
to complete the temporary restoration. Permanent restorations will take place
as soon as possible after the temporary splice is complete.
4.9 STANDARDS; SUBCONTRACTING. All Scheduled Maintenance shall be
performed in accordance with industry standards and in compliance with the
Standards observed by MFN in its maintenance on any other similar MFN assets.
MFN may subcontract any of the maintenance services hereunder; provided that MFN
shall require the subcontractor(s) to perform in accordance with the requirement
and procedures set forth herein and all applicable industry standards. The use
of any such subcontractor shall not relieve MFN of any of its obligations
hereunder.
4.10 FIBER REPLACEMENT. In the event all or any part of the NEXTLINK
Fibers shall require replacement during the term of this Agreement, such
replacement
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14
shall be made as soon as reasonably practical, at MFN's sole cost and expense;
except, however, if the replacement of the NEXTLINK Fibers is required as a
result of the acts or omissions of NEXTLINK, MFN shall make such replacement at
NEXTLINK's cost and expense on a time and materials basis.
4.11 OUTAGES. During the Term of this Agreement, MFN shall refund to
NEXTLINK, the amounts set forth in Exhibit H hereto, as compensation for
"Outages." Payment of such amounts shall be NEXTLINK's sole remedy for such
Outages. For the purposes of this Agreement, an Outage is the complete
interruption of service over any fiber circuit in the NEXTLINK Fibers, whether
or not due to the physical damage or severance of such fiber circuit; except
that no interruption of service caused in whole or in part by the negligent act
or omission or willful misconduct of NEXTLINK shall constitute an Outage.
4.12 REPLACEMENT MAINTENANCE. For any isolated incident wherein MFN
has failed to cure an Outage within the time frames stated in this Agreement or
on an Exhibit to this Agreement, or has failed to otherwise perform its
maintenance obligations as required under this Agreement, NEXTLINK may (after
notice to MFN, which may be oral if the circumstances so require) secure the
services of the contractor selected in advance by MFN for the purposes of
repairing and maintaining the NEXTLINK Fibers, the Long-Haul Innerduct or the
Additional Innerduct (as the case may be) at such location at MFN's expense.
ARTICLE V PERMITS, ACCESS, AND REQUIRED RIGHTS-OF-WAY
5.1 MFN represents and warrants that it has obtained or will obtain
all regulatory approvals, franchises, permits, orders, consents, and
rights-of-way, either by contract or through a franchise, and all other rights
necessary to be obtained by MFN to enable its provision of the NEXTLINK Fibers
and the grant of the IRU for the Long-Haul Innerduct and the Additional
Innerduct (all of which are herein collectively referred to as the
"Rights-of-Way"). If any provision in the Right-of-Way would in the reasonable
judgment of MFN, have an adverse impact on NEXTLINK, MFN shall, on or before
the Acceptance Date for each segment of NEXTLINK Fibers, Long-Haul Innerduct or
Additional Innerduct, provide NEXTLINK with a copy or, in MFN's discretion, a
reasonably-detailed summary of all Rights-of-Way applicable to such segment of
the MFN System accepted. MFN shall exercise reasonable efforts to obtain any
necessary consent of any third party to the disclosure of such Rights-of-Way.
MFN shall use commercially reasonable efforts to cause such Rights-of-Way to
remain effective through the Term and any extensions (or to replace such
Right-of-Way with suitable replacement Right-of-Way). MFN shall in no event be
required to extend any Right-of-Way other than the first ten-year renewal option
pursuant to MFN's agreement with Conrail dated February 24, 1997, as amended.
In the event that any Rights-of-Way are discontinued and not replaced and the
loss of such Rights-of-Way adversely affects the use of the NEXTLINK Fibers, the
Long-Haul Innerduct, or the Additional Innerduct, MFN shall issue a rebate to
NEXTLINK. The amount of the rebate shall be the pro rata
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15
portion of the payment allocable to the remainder of the term, in proportion to
the number of fiber miles (or route miles in the case of Long-Haul Innerduct or
Additional Innerduct).
ARTICLE VI RELOCATION OF THE MFN SYSTEM AND THE NEXTLINK FIBERS
6.1 If MFN receives notice of any request, intent, or plan by any
third party, including, but not limited to, a governmental entity, to relocate
any segment of MFN's fiber network used in the provision of the NEXTLINK Fibers,
the Long-Haul Innerduct or the Additional Innerduct, MFN shall notify NEXTLINK
of such request, intent, or plan and shall consult with NEXTLINK regarding
proceedings and negotiations involving such proposed relocation and communicate
with NEXTLINK regarding the status of such proceedings and negotiations. If MFN
is required by any such third party to relocate any segment of MFN's fiber
network used in providing the NEXTLINK Fibers, the Long-Haul Innerduct or the
Additional Innerduct, MFN shall give NEXTLINK at least sixty (60) days' (or such
lesser period of notice that MFN may have received) prior written notice of any
such relocation ("Relocation Notice"). Along with the Relocation Notice, MFN
shall provide an estimate of the cost of such relocation. MFN shall relocate
the NEXTLINK Fibers, the Long-Haul Innerduct or the Additional Innerduct (as the
case may be), and, to the extent MFN is not reimbursed for the cost of such
relocation by a third party, governmental entity or otherwise, NEXTLINK shall
pay its Pro Rata share of the costs associated with the relocation of the
NEXTLINK Fibers, the Long-Haul Innerduct or the Additional Innerduct (as the
case may be); except, however, to the extent that the factors causing such
relocation are under MFN's control. MFN shall use its reasonable best efforts
to secure an agreement for reimbursement from any third party, governmental
entity or otherwise, requiring any relocation of the MFN System and the NEXTLINK
Fibers, the Long-Haul Innerduct or the Additional Innerduct,.
ARTICLE VII CONDEMNATION
7.1 PARTICIPATION IN PROCEEDINGS. In the event any portion of the
MFN System, the NEXTLINK Fibers, the Long-Haul Innerduct, the Additional
Innerduct, and/or the Rights-of-Way in or upon which they shall have been
installed, become the subject of a condemnation proceeding which is not
dismissed within one hundred eighty (180) days of the date of filing of such
proceeding and which could reasonably be expected to result in a taking by any
governmental agency or other party cloaked with the power of eminent domain for
public purpose or use, both parties shall be entitled, to the extent permitted
under applicable law, to participate in any condemnation proceedings to seek to
obtain compensation by either joint or separate awards for the economic value of
their respective interests in the portion of the MFN System subject to such
condemnation.
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16
7.2 NOTICE. Upon its receipt of a formal notice of condemnation or
taking, MFN shall notify NEXTLINK immediately of any condemnation proceeding
filed against the MFN System, including the NEXTLINK Fibers, the Long-Haul
Innerduct, the Additional Innerduct, and/or the Rights-of-Way in or upon which
the NEXTLINK Fibers, Long-Haul Innerduct and/or Additional Innerduct shall have
been installed. MFN shall also notify NEXTLINK of any similar threatened
condemnation proceeding and agrees not to sell the NEXTLINK Fibers, the
Long-Haul Innerduct, the Additional Innerduct, and/or Rights-of-Way to such
acquiring agency, authority or other party in lieu of condemnation without prior
written notice of ten (10) business days to NEXTLINK.
ARTICLE VIII USE OF THE NEXTLINK FIBERS
8.1 REPAIR BY MFN. NEXTLINK shall not, by itself or by or through
any agent or contractor, make any repair or replacement of the NEXTLINK Fibers
or any other equipment owned by MFN except as provided in Section 4.12 herein.
8.2 COMPLIANCE WITH LAW. NEXTLINK shall not use the NEXTLINK Fibers,
the Long-Haul Innerduct or the Additional Innerduct in any way that fails to
comply with any applicable federal, state or local code, ordinance, law, rule,
regulation or restriction or any policy of insurance.
8.3 USE. For a period of seven years after MFN's receipt of payment
of all amounts due under Sections 3.1 and 3.2 of this Agreement, (a) NEXTLINK
shall not, directly or indirectly, sublease, condo, sublicense or wholesale the
NEXTLINK Fibers, the Long-Haul Innerduct, the Additional Innerduct, or any
fibers deployed in such innerduct, to any third party that is not directly or
indirectly majority-owned, controlled or operated under a management agreement
by NEXTLINK or by Craig O. McCaw (a "Permitted Assignee") unless the traffic on
such NEXTLINK Fibers or carried on fibers in such Long-Haul Innerduct or
Additional Innerduct is distributed through the transmission and switching
equipment of NEXTLINK or a Permitted Assignee; (b) NEXTLINK shall ensure that
the NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct shall be
utilized solely for its business purposes and the business purposes of any
Permitted Assignee; and (c) NEXTLINK shall not, in any event, sublease, condo,
sublicense or wholesale to any third party other than a Permitted Assignee any
dark fiber-optic capacity or any lit fiber-optic capacity on any fibers
contained in the Long-Haul Innerduct or the Additional Innerduct unless such lit
fiber optic capacity is distributed through the transmission and switching
equipment of NEXTLINK or a Permitted Assignee. NEXTLINK shall not (even after
the expiration of the seven-year period stated above) sublease, condo,
sublicense or wholesale to any third party other than a Permitted Assignee any
dark or lit fiber-optic capacity on the NEXTLINK Fibers, unless such lit fiber
optic capacity is distributed through the transmission and switching equipment
of NEXTLINK or a Permitted Assignee. For purposes of this Agreement, a
"management agreement" means an agreement under which the manager has management
control over the business operations of the entity in
<PAGE>
17
question, whether by virtue of a management agreement, management provisions in
a limited liability company agreement or partnership agreement, or by other
agreement. In the event of a sale of an entity that was directly or indirectly
majority-owned, controlled or operated under a management agreement by Craig O.
McCaw, with the result that such ownership, control and management conditions
are no longer met, such entity shall have the right, without any payment to MFN,
to transfer the NEXTLINK Fibers, Long-Haul Innerduct and/or Additional Innerduct
at issue back to NEXTLINK or a Permitted Assignee. As an alternative to such
transfer, NEXTLINK or the purchasing entity shall pay to MFN a fee calculated as
follows: for a sale of the entity during the first five years after the
commencement of the Term, a fee equal to *** per fiber mile; for a sale of the
entity during the next five years, a fee equal to *** per fiber mile; for a sale
of the entity during the next five years, a fee equal to *** per fiber mile; and
for a sale of the entity thereafter, no fee. The purchasing entity shall
nonetheless continue to be bound by the provisions of this Section 8.3.
ARTICLE IX OWNERSHIP OF THE NEXTLINK FIBERS
9.1 NEXTLINK shall have an undivided exclusive leasehold interest in
the NEXTLINK Fibers. NEXTLINK shall have undivided, absolute legal title to
ownership in the fibers installed in the Long-Haul Innerduct and the Additional
Innerduct. MFN shall have an undivided exclusive leasehold interest in any
fibers installed for MFN in the Long-Haul Innerduct pursuant to Section 2.5.
MFN shall have undivided, absolute legal title to ownership in the MFN System,
including the NEXTLINK Fibers, the Long-Haul Innerduct and the Additional
Innerduct. The Parties shall not make any representation to any third party
that is contrary to the terms of this Section 9.1.
ARTICLE X REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 COMPLIANCE WITH SPECIFICATIONS. MFN represents and warrants that
the NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct have been or
will be constructed substantially as represented in the applicable Exhibit to
this Agreement, and warrants that for the Term of this Agreement, the NEXTLINK
Fibers, Long-Haul Innerduct and Additional Innerduct shall comply with the
parameters of the specifications set forth in the Exhibits hereto; provided,
however, that such warranties shall in no way be deemed to be a limitation on or
in derogation of MFN's obligations under Article IV herein. MFN represents and
warrants that the Long-Haul Innerduct and the Additional Innerduct will be of a
size sufficient to contain 432 strands of ribbon fiber and that the NEXTLINK
Fibers, the Long-Haul Innerduct and the Additional Innerduct will conform in all
material respects to the as-builts delivered by MFN under this Agreement from
time to time.
10.2 LIMITATIONS. EXCEPT AS EXPRESSLY PROVIDED IN THE FOREGOING
SECTION 10.1, MFN MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY
OF MERCHANTABILITY OR FITNESS
<PAGE>
18
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MFN SYSTEM, NEXTLINK FIBERS,
LONG-HAUL INNERDUCT AND ADDITIONAL INNERDUCT, DEMAND MAINTENANCE, AND SCHEDULED
MAINTENANCE THEREON. IN NO EVENT SHALL EITHER PARTY HERETO BE LIABLE TO THE
OTHER PARTY OR TO ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, OR
PUNITIVE DAMAGES, INCLUDING THOSE BASED ON LOSS OF REVENUES, PROFITS, OR
BUSINESS OPPORTUNITIES, WHETHER OR NOT SUCH PARTY HAD OR SHOULD HAVE HAD ANY
KNOWLEDGE, ACTUAL OR CONSTRUCTIVE, THAT SUCH DAMAGES MIGHT BE INCURRED.
10.3 AUTHORITY OF MFN. MFN represents and warrants to NEXTLINK that
it has full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by MFN have been duly and validly authorized by all necessary corporate
action on the part of MFN.
10.4 AUTHORITY OF NEXTLINK. NEXTLINK represents and warrants to MFN
that it has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby by NEXTLINK have been duly and validly authorized by all
necessary corporate action on the part of NEXTLINK.
10.5 MFN COMPLIANCE. MFN represents and warrants to NEXTLINK that MFN
is in compliance in all material respects with all laws, regulations and
agreements (including franchises and right-of-way agreements) applicable to its
construction and operation of the MFN System. MFN shall perform all of its
obligations under all right-of-way agreements applicable to the MFN System and
shall promptly notify NEXTLINK of any default, or the assertion by a third party
of the existence of any default, under any franchise, right-of-way agreement or
other agreement material to the MFN System or the operation of the NEXTLINK
Fibers. MFN has obtained and holds (or will, subject to the second paragraph of
Section 2.3 and Section 5.1, obtain and hold) all permits, licenses,
right-of-way agreements and approvals necessary to perform its obligations under
this Agreement and to operate the MFN System as presently conducted and as
contemplated by this Agreement in accordance with applicable law. Except as
provided in Section 2.3 with respect to the consent of underlying right-of-way
holders, neither the execution nor performance of this Agreement nor the
delivery of the NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct
contemplated hereby conflict with or result in a breach or violation of any
provision of MFN's franchise or applicable law. There is no action, suit,
investigation, claim, arbitration, or litigation pending, or to MFN's knowledge,
threatened against, affecting, or involving MFN or the operation of the NEXTLINK
Fibers, the
<PAGE>
19
Long-Haul Innerduct, or the Additional Innerduct at law or in equity or before
any court, arbitrator, or governmental authority that is reasonably likely to
result in a material adverse effect on MFN's performance of its obligations
under this Agreement or the operation of the NEXTLINK Fibers, the Long-Haul
Innerduct, or the Additional Innerduct. MFN is not in default in any material
respect of any contract with a third party that is reasonably likely to result
in a material adverse effect on MFN's performance of is obligations under this
Agreement or on the operation by NEXTLINK of the NEXTLINK Fibers, the Long-Haul
Innerduct, and the Additional Innerduct.
10.6 NEXTLINK COMPLIANCE. NEXTLINK represents and warrants to MFN
that NEXTLINK is in compliance in all material respects with all laws and
regulations applicable to the operation of the business it intends to pursue
through the use of the NEXTLINK Fibers, the Long-Haul Innerduct and the
Additional Innerduct. NEXTLINK has obtained or will obtain all permits,
licenses, and approvals necessary to perform its obligations under this
Agreement and to conduct its business as contemplated by this Agreement, in
accordance with applicable law. Neither the execution nor performance of this
Agreement nor the Acceptance of the NEXTLINK Fibers, Long-Haul Innerduct or
Additional Innerduct contemplated hereby conflict with or result in a breach or
violation of any provision of applicable law. There is no action, suit,
investigation, claim, arbitration, or litigation pending, or to NEXTLINK's
knowledge, threatened against, affecting, or involving NEXTLINK at law or in
equity or before any court, arbitrator, or governmental authority that is
reasonably likely to result in a material adverse effect on NEXTLINK's
performance of its obligations under this Agreement. NEXTLINK is not in default
in any material respect of any contract with a third party that is reasonably
likely to result in a material adverse effect upon NEXTLINK's performance of its
obligations under this Agreement.
10.7 NO BROKER. NEXTLINK and MFN each represent and warrant to the
other that it has not retained any broker, finder, investment banker or other
similar person or entity who is entitled to any brokerage fee, finder's fee or
other similar fee or commission in connection with the transactions described in
this Agreement.
ARTICLE XI TAXES
11.1 For purposes of this Agreement, "Taxes" shall include license,
permit or franchise fees and sales and use taxes imposed by any governmental
entity. NEXTLINK shall be responsible for, and shall timely pay, any and all
Taxes imposed with respect to this Agreement upon NEXTLINK. MFN shall be
responsible for, and shall timely pay, any and all Taxes imposed with respect to
this Agreement upon MFN. Notwithstanding the foregoing, all sales and use
taxes assessed on transactions contemplated by this Agreement shall be borne by
the grantee of any IRU or lessee of any lease.
11.2 If at any time any Tax is imposed on, assessed against or borne
by either NEXTLINK or MFN with respect to this Agreement, NEXTLINK or MFN, as
the case may be, shall have the right to protest, by appropriate proceedings,
the imposition or assessment of any such Tax. In such event, NEXTLINK or MFN,
as the case may be, shall be responsible for such payments and shall indemnify
and hold the
<PAGE>
20
other Party harmless from and against any liability, expense, legal action or
cost, including reasonable attorneys' fees, resulting from the exercise of its
rights under this Section 11.2. In the event of any refund, rebate, reduction
or abatement of any such Tax, the Party who was responsible for paying such Tax
shall be entitled to receive the entire benefit of such refund, rebate,
reduction or abatement.
ARTICLE XII LIABILITY
12.1 LIMITATIONS. Neither NEXTLINK nor MFN shall be liable to the
other for any indirect, special, punitive, or consequential damages (including,
but not limited to, any claim from any customer for loss of services) arising
under this Agreement or from any breach or partial breach of the provisions of
this Agreement or arising out of any act or omission of either Party hereto, its
employees, servants, contractors and/or agents. Both MFN and NEXTLINK shall use
their reasonable best efforts to include in any agreement with any third party
relating to the use of the MFN System or the NEXTLINK Fibers a waiver by such
third party of any claim for indirect, special, punitive, or consequential
damages (including, but not limited to, any claim from any client or customer
for loss of services) arising out of or as a result of any act or omission by
either Party hereto, its employees, servants, contractors and/or agents.
Nothing in this paragraph shall limit NEXTLINK's right to receive liquidated
damages on the terms stated on the Exhibits to this Agreement.
12.2 INDEMNITY. Each Party agrees to indemnify, defend, protect and
save the other harmless from and against any claim, damage, loss, liability,
cost, and expense (including reasonable attorney's fees) in connection with any
personal injury or other tortious act, including death, loss, or damage to any
property or facilities of any party (including MFN, NEXTLINK, or any other party
operating or using any part of the MFN System or the NEXTLINK Fibers, Long-Haul
Innerduct or Additional Innerduct) arising out of or resulting in any way from
the acts or omissions to act, negligent or otherwise, of such party, its
employees, servants, contractors, and/or agents in connection with the exercise
of its rights and obligations under the terms of this Agreement or any breach by
such party of any obligation contained herein.
12.3 THIRD PARTIES. Nothing contained herein shall operate as a
limitation on the right of either Party hereto to bring an action for damages,
including consequential damages, against any third party based on any acts or
omissions of such third party as such acts or omissions may affect the
construction, operation, or use of the MFN System or the NEXTLINK Fibers;
provided, however, that each Party hereto shall assign such rights or claims,
execute such documents, and do whatever else may be reasonably necessary to
enable the injured Party to pursue any such action against such third party.
<PAGE>
21
ARTICLE XIII INSURANCE
13.1 Each Party shall, at its own expense, secure and maintain in
force, throughout the Term, general liability insurance, with competent and
qualified issuing insurance companies, such that the total available limits to
all insureds will not be less than three million dollars ($3,000,000.00) in
respect of injuries to or death of any one person and not less than five million
dollars ($5,000,000.00) in respect of injuries to or death of any number of
persons aggregated for any one occurrence and not less than three million
dollars ($3,000,000.00) in respect of damage to or loss of use of property in
any one occurrence, and worker's compensation and employer's liability insurance
as required by the laws all applicable government entities. Such insurance may
be provided in policy or policies, primary and excess, including the so-called
umbrella or catastrophe forms. The undertaking with respect to insurance shall
not relieve either Party of its obligation in Article XII. In addition, each
Party shall comply with the insurance requirements in any underlying
right-of-way agreements (provided that such Party has knowledge of such
requirements).
ARTICLE XIV FORCE MAJEURE
14.1 The obligations of the Parties hereto are subject to force
majeure and neither Party shall be in default under this Agreement if any
failure or delay in performance is caused by any factor beyond such Party's
reasonable control, including but not limited to such as strike or other labor
problems; accidents; acts of God; fire; flood; adverse weather conditions;
material or facility shortages or unavailability not resulting from such Party's
failure to timely place orders therefor; lack of transportation; the imposition
of any governmental codes, ordinances, laws, rules, regulations or restrictions;
condemnation or the exercise of rights of eminent domain; war or civil disorder.
ARTICLE XV DEFAULT
15.1 DEFAULTS. Neither Party shall be in default under this
Agreement, or in breach of any provision hereof unless and until the other Party
shall have given it written notice of such breach and it shall have failed to
cure the same within thirty (30) days after receipt of such notice; provided,
however, that where such breach cannot reasonably be cured within such thirty
(30) day period, if the defaulting Party shall proceed promptly to cure the same
and prosecute such curing with due diligence, the time for curing such breach
shall be extended for such period of time as may be necessary to complete such
curing up to a maximum cure period of 180 days. Upon the failure by the
defaulting Party to timely cure any such breach after notice thereof from the
other Party, the non-defaulting Party shall have the right, in its sole
discretion, to take such action as it may determine to be necessary to cure the
breach, to terminate this Agreement with respect to the segment or segments of
the NEXTLINK Fibers, Long-Haul Innerduct or Additional Innerduct adversely
affected by such default, and to recover damages subject to the limitations
stated in this Agreement. If this Agreement is
<PAGE>
22
terminated by NEXTLINK pursuant to this Section, in addition to other remedies,
NEXTLINK may cease payment of any charges that would thereafter become payable
under this Agreement with respect to the segment or segments as to which this
Agreement is terminated.
15.2 REMEDIES NOT EXCLUSIVE. Subject to Section 12.1 and except as
provided in Section 4.11 with respect to Outages and except with respect to
liquidated damages payments made by MFN under this Agreement (which shall, in
each case, be NEXTLINK's exclusive remedy), no remedy provided for herein is
intended to be exclusive, but each remedy shall be cumulative and in addition to
and may be exercised concurrently with any other remedy available to MFN or
NEXTLINK at law or in equity.
ARTICLE XVI CONFIDENTIALITY
16.1 CONFIDENTIALITY. The Parties acknowledge and agree that the
information each Party has provided or will provide in connection with this
Agreement, including, without limitation, the terms and conditions of this
Agreement, are and shall be confidential and proprietary to the Party providing
such information (the "Providing Party"). The Party in receipt of confidential
information (the "Receiving Party") agrees not to use or disclose to any third
party the confidential information of the Providing Party except as required for
performance of its obligations under this Agreement. Each Party shall restrict
dissemination of confidential information to only those persons in its
respective organization who must have access to such confidential information in
order to perform its obligations under this Agreement. Neither Party shall be
required to hold confidential any information which becomes publicly available
other than through the Receiving Party; which is independently developed by the
Receiving Party; which becomes available to the Receiving Party without
restriction from a third party; with respect to which the Providing Party
consents to the disclosure by the Receiving Party; or with respect to which a
court, administrative agency, or other governmental body with jurisdiction over
the Receiving Party orders the disclosure, provided that in such circumstances
the Receiving Party first provides the Providing Party with notice of such
required disclosure and takes reasonable steps to allow the Providing Party to
seek a protective order with respect to the confidential information. The
Receiving Party will cooperate and assist the Providing Party in connection with
such protective order at the Providing Party's request.
16.2 EXISTING AGREEMENT. The provisions of this Article XVI shall be
subject to and superseded by any separate confidentiality agreement between the
Parties, whether now existing or later entered into.
16.3 PERMITTED DISCLOSURES. Notwithstanding the other provisions of
this Article XVI and without waiver of any obligations hereunder, MFN may
disclose the identity of NEXTLINK as a customer of MFN and NEXTLINK may disclose
the identity of MFN as a supplier of NEXTLINK, and each Party may disclose the
length of the
<PAGE>
23
Term of this Agreement, the number of route miles provided pursuant to this
Agreement, the route of the NEXTLINK Fibers, Long-Haul Innerduct and Additional
Innerduct, and the total consideration payable by NEXTLINK under this Agreement.
Except when an immediate disclosure is required by law, the Parties shall confer
about any proposed disclosure in advance of the disclosure.
ARTICLE XVII NOTICES
17.1 NOTICES. Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be in writing and addressed as
follows:
If to MFN:
Metromedia Fiber Network, Inc.
c/o Metromedia Fiber Network Services, Inc.
Suite 1502
110 East 42nd Street
New York, New York 10018
Fax: (212) 687-9188
Attention: Chief Executive Officer and Vice President Legal
Affairs
With a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
Fax: (212) 698-7825
Attention: Barry A. Adelman, Esq.
If to NEXTLINK:
NEXTLINK Communications, Inc.
155 108th Avenue, N.E.
Bellevue, Washington
Fax: (425) 519-8910
Attention: General Counsel
<PAGE>
24
With a copy to:
Davis Wright Tremaine
1300 S.W. Fifth Avenue, Suite 2300
Portland, OR 97201
Fax: (503) 778-5299
Attention: Jay D. Hull
or at such other address as may be designated in writing to the other Party.
17.2 DATE OF DELIVERY. Unless otherwise provided herein, notices
shall be sent by certified U.S. Mail, return receipt requested, or by commercial
overnight delivery service, or by facsimile, and shall be deemed delivered: if
sent by U.S. Mail, five (5) days after deposit; if sent by facsimile, upon
verification of receipt; or, if sent by commercial overnight delivery service,
one (1) business day after deposit.
ARTICLE XVIII ASSIGNMENT; SUCCESSION
18.1 ASSIGNMENT BY NEXTLINK. NEXTLINK shall not assign or otherwise
transfer this Agreement, in whole or in part, to any other party without the
prior written consent of MFN. NEXTLINK shall remain secondarily liable for all
payments and other performance due under this Agreement after assignment.
Without such consent, NEXTLINK shall have the right to assign, sublet, or
otherwise transfer this Agreement, in whole or in part, to any parent,
subsidiary or affiliate of NEXTLINK which shall control, be under the control
of, or be under common control with NEXTLINK, any entity that purchases all or
substantially all of the assets of NEXTLINK, or any entity formed by the merger
of NEXTLINK and another entity. Any such assignee shall be subject to the terms
of this Agreement, including Section 8.3.
18.2 ASSIGNMENT BY MFN. MFN shall not assign or otherwise transfer
this Agreement, in whole or in part, to any other party without to the prior
written consent of NEXTLINK. MFN shall remain secondarily liable for all
payments and other performance due under this Agreement after assignment.
Without such consent, MFN shall have the right to assign or otherwise transfer
this Agreement to any parent, subsidiary or affiliate of MFN which shall
control, be under the control of, or be under common control with MFN, any
entity which purchases all or substantially all of the assets of MFN, or any
entity formed by the merger of MFN and another entity. Any such assignee shall
be subject to the terms of this Agreement.
18.3 ASSIGNMENT FOR SECURITY PURPOSES. Except to the extent such
assignment is prohibited by any right-of-way agreement relevant to this
Agreement, the Parties shall also have the right to assign this Agreement and
their respective rights under this Agreement as collateral for indebtedness
incurred by such Party in favor of a bank or other institutional creditor, if
such assignment is part of a grant of a security interest in additional assets
of such Party. The creditor shall be required to agree, as of the grant
<PAGE>
25
of such assignment for security purposes, that such assignment is subject to the
terms applicable rights-of-way and to the terms of this Agreement, which shall
be binding on the creditor and on any entity acquiring an interest in this
Agreement as a result of the foreclosure of such assignment for security
purposes.
18.4 BINDING AGREEMENT. Subject to the provisions of this Article
XVIII, this Agreement, and each of the Parties' respective rights and
obligations hereunder, shall be binding upon and shall inure to the benefit of
the Parties hereto and each of their respective permitted successors and
assigns.
ARTICLE XIX GOVERNING LAW
19.1 This Agreement shall be interpreted and construed in accordance
with the internal laws of the State of New York without giving effect to its
principles of conflicts of laws.
ARTICLE XX DISPUTE RESOLUTION
20.1 DISPUTE RESOLUTION. Any claims or disputes arising under the
terms and provisions of this Agreement, or any claims or disputes which the
Parties are unable to resolve to their mutual satisfaction within thirty (30)
calendar days (or such longer period as may be mutually agreed upon) from the
date that either Party notifies the other in writing that such claim or dispute
exists, shall be settled in New York, New York, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time of the dispute. The written notice shall contain a concise
statement of the claim or issue in dispute, together with relevant facts and
data to support the claim. The arbitrator(s) shall be bound by the limits on
damages set forth in this Agreement. The decision of the arbitrator(s) shall be
final and binding upon the Parties if based upon written findings of law and
fact. The arbitrator(s) shall be empowered to order injunctive relief and
either Party may obtain judgment on the decision of the arbitrator(s) in a court
of competent jurisdiction. Each Party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), will be shared equally by the parties hereto
unless the award otherwise provides.
20.2 CONTINUING PERFORMANCE. During arbitration proceedings under
this Article, MFN shall continue to provide the NEXTLINK Fibers, the Long-Haul
Innerduct and the Additional Innerduct pursuant to this Agreement and NEXTLINK
shall continue to make payments in accordance with this Agreement.
ARTICLE XXI ENTIRE AGREEMENT
21.1 This Agreement, and any Exhibits attached hereto or to be
attached hereto, constitute the entire agreement between the parties hereto with
respect to the
<PAGE>
26
subject matter hereof and supersede any and all prior negotiations,
understandings, and agreements with respect hereto, whether oral or written.
ARTICLE XXII MISCELLANEOUS
22.1 HEADINGS. The headings of the Articles in this Agreement are
strictly for convenience and shall not in any way be construed as amplifying or
limiting any of the terms, provisions, or conditions of this Agreement.
22.2 SEVERABILITY. In the event any term of this Agreement shall be
held invalid, illegal, or unenforceable in whole or in part, neither the
validity of the remaining part of such term nor the validity of the remaining
terms of this Agreement shall in any way be affected thereby.
22.3 AMENDMENTS. This Agreement may be amended only by a written
instrument executed by the Parties.
22.4 WAIVER. No failure to exercise and no delay in exercising, on the
part of either party hereto, any right, power, or privilege hereunder shall
operate as a waiver hereof, except as expressly provided herein.
22.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement is the
joint work product of both parties and, in the event of ambiguity no presumption
shall be imposed against any party by reason of document preparation.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as
of the day and year first above written.
METROMEDIA FIBER NETWORK, INC. NEXTLINK COMMUNICATIONS, INC.
/s/ Howard M. Finkelstein /s/ James F. Voelker
- ------------------------------------- ---------------------------------
By: Howard M. Finkelstein, President By: James F. Voelker, President
<PAGE>
EXHIBIT 10.15
Confidential Treatment(1)
Amendment No. 1
to
Fiber Lease and Innerduct Use Agreement
by and between
Metromedia Fiber Network, Inc.
and
NEXTLINK Communications, Inc.
March 4, 1998
_________________
(1) Redacted portions have been marked with an asterisk (*). The redacted
portions are subject to a request for confidential treatment and has been
filed separately with the Securities and Exchange Commission.
<PAGE>
AMENDMENT NO. 1
FIBER LEASE AND INNERDUCT USE AGREEMENT
This Amendment No. 1 is made and entered into as of the 4th day of March,
1998, by and between Metromedia Fiber Network, Inc., a Delaware corporation
("MFN"), and NEXTLINK Communications, Inc. ("NEXTLINK"), a Washington
corporation (either MFN or NEXTLINK being referred to in this Agreement as a
"Party", and collectively as the "Parties").
WHEREAS, the Parties entered into a Fiber Lease and Innerduct Use Agreement
dated as of February 23, 1998 (the "Agreement"); and
WHEREAS, the Parties desire to amend certain provisions thereof.
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Parties agree as follows:
1. All terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
2. The ninth sentence of Section 2.3 of the Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"NEXTLINK shall, not later than the next business day after NEXTLINK's
Acceptance of the final segment of the Long-Haul Innerduct (as such
segments are set forth in Exhibit C), instruct the Escrow Agent (as defined
below) to release funds from escrow calculated at the rate of $64,150.94
per mile of Long-Haul Innerduct (a total of ***)."
3. The last sentence of Section 2.7 of the Agreement is hereby deleted in
its entirety and the following is substituted in lieu thereof:
<PAGE>
"With respect to the NEXTLINK Fibers, not later than the business day
following the Acceptance Date for each segment of NEXTLINK Fibers, NEXTLINK
shall cause the Escrow Agent to release from escrow a portion of the funds
held by the Escrow Agent under the Escrow Agreement, in the amount
designated by the Parties (as such amounts are set forth in the applicable
Exhibit) corresponding to the segment being accepted by NEXTLINK. With
respect to the Long-Haul Innerduct, not later than the business day
following the Acceptance Date for the final segment of the Long-Haul
Innerduct, NEXTLINK shall cause the Escrow Agent to release from escrow
$***"
4. The fifth sentence of Section 3.1 of the Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"If the Term is extended as provided in Section 2.1, the lease payment for
such extended term shall be 15% of the fiber lease payments set forth in
the Agreement, plus payment of MFN's maintenance charges at market rates
and increases in right-of-way fees."
5. The fourth sentence of Section 3.2 of the Agreement is hereby deleted
in its entirety.
6. The fifth sentence of Section 3.2 of the Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"The balance of the funds in escrow shall be released from escrow upon
Acceptance by NEXTLINK of the final segment of the Long-Haul Innerduct (as
such segment is set forth on Exhibit C)."
7. Except as set forth in this Amendment No. 1, the Agreement shall
continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
METROMEDIA FIBER NETWORK, INC. NEXTLINK COMMUNICATIONS, INC.
By: /s/ Howard M. Finkelstein By: /s/ James F. Voelker
------------------------------ ----------------------------------
Howard M. Finkelstein, President James F. Voelker, President
<PAGE>
EXHIBIT 10.16
===============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE.
===============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
Prepared By:
THE LAW OFFICES OF
HIRSCH & KATZ, LLP
595 STEWART AVENUE
SUITE 400
GARDEN CITY, NEW YORK 11530
(516) 227-1117
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - DEMISE; TERM . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 - RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 3 - TAXES AND COMMON AREA MAINTENANCE
CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE 4 - USE OF DEMISED PREMISES. . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 5 - POSSESSION AND CONDITION OF DEMISED PREMISES . . . . . . . . . . .8
ARTICLE 6 - UTILITIES, CLEANING, ETC.. . . . . . . . . . . . . . . . . . . . .9
ARTICLE 7 - REPAIR AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 8 - THE WORK; LESSEE'S ALTERATIONS . . . . . . . . . . . . . . . . . 13
ARTICLE 9 - COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 10 - RIGHTS RESERVED TO LESSOR . . . . . . . . . . . . . . . . . . . 14
ARTICLE 11 - INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 12 - DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 13 - CURING DEFAULT'S; FEES AND EXPENSES . . . . . . . . . . . . . . 17
ARTICLE 14 - DEFAULT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 15 - MEASURE OF DAMAGES IN EVENT OF DEFAULT. . . . . . . . . . . . . 20
ARTICLE 16 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 17 - MECHANICS AND OTHER LIENS . . . . . . . . . . . . . . . . . . . 22
ARTICLE 18 - CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 19 - COVENANT OF QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . 23
ARTICLE 20 - WAIVER OF COUNTERCLAIM AND JURY TRIAL . . . . . . . . . . . . . 23
ARTICLE 21 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 22 - WAIVERS AND SURRENDERS TO BE IN WRITING . . . . . . . . . . . . 24
ARTICLE 23 - RIGHTS CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 24 - CONVEYANCE; LIABILITY OF PARTIES. . . . . . . . . . . . . . . . 25
ARTICLE 25 - CHANGES AND ALTERATIONS BY LESSEE . . . . . . . . . . . . . . . 26
ARTICLE 26 - CERTIFICATE OF LESSEE . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 27 - ASSIGNMENTS, SUBLEASES AND MORTGAGES. . . . . . . . . . . . . . 27
ARTICLE 28 - SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 29 - SURRENDER; REMOVAL OF LESSEE'S PROPERTY . . . . . . . . . . . . 30
ARTICLE 30 - RENEWAL TERM. . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 31 - FIBER OPTIC NETWORK SERVICES. . . . . . . . . . . . . . . . . 32
ARTICLE 32 - BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
ARTICLE 33 - SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 34 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 35 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 37
LIST OF EXHIBITS TO LEASE
EXHIBIT "A" THE METES AND BOUNDS DESCRIPTION OF THE PROPERTY
EXHIBIT "B" THE FLOOR PLANS OF THE DEMISED PREMISES
EXHIBIT "C" BUILDING RULES AND REGULATIONS
EXHIBIT "D" CLEANING SPECIFICATIONS
EXHIBIT "E" THE PLANS FOR THE WORK
EXHIBIT "F" THE PARTIES FINANCIAL CONTRIBUTIONS FOR THE WORK
EXHIBIT "G" STANDARD REQUIREMENTS FOR ALTERATIONS TO BE PERFORMED BY
LESSEES
<PAGE>
AGREEMENT OF LEASE, dated as of March 9, 1998, between CONNECTICUT GENERAL
LIFE INSURANCE COMPANY, having an office at 900 Cottage Grove Road, S-311,
Hartford, Connecticut 06152-2311 (hereinafter referred to as "Lessor") and
METROMEDIA FIBER SERVICES INC., a Delaware corporation, with offices at 110 East
42nd Street, Suite 1502, New York, New York 10017 (hereinafter referred to as
"Lessee");
W I T N E S S E T H
WHEREAS, Lessor is the owner in fee simple absolute of the land and all the
improvements erected thereon and more particularly described in EXHIBIT "A"
annexed hereto (the "Property");
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to hire from
Lessor: (i) a portion of the Fourth (4th) floor in the Building (as hereinafter
defined) located on the Property and which shall be deemed to consist of
approximately Fifteen Thousand, Sixty-One (15,061) rentable square feet
(hereinafter referred to as the "Initial Premises") as more particularly
described on the floor plans annexed hereto as EXHIBIT "B" and made a part
hereof, and (ii) a portion of the Fourth (4th) floor in the Building located on
the Property adjacent to the Initial Premises and which shall be deemed to
consist of approximately Six Thousand, Two Hundred and Seventy-Five (6,275)
rentable square feet (hereinafter referred to as the "Additional Premises") as
more particularly described on the floor plans annexed hereto as EXHIBIT "B-1"
and made a part hereof. The Initial Premises and Additional Premises shall be
deemed to consist of Twenty-One Thousand, Three Hundred and Thirty-Six (21,336)
rentable square feet and are hereinafter sometimes referred to collectively as
the "Demised Premises;"
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to hire from
Lessor all that certain personal property presently located in the Demised
Premises more particularly described on schedule annexed hereto as EXHIBIT "B-2"
and made a part hereof (the "Personal Property") as of the Initial Premises
Commencement Date and Additional Premises Commencement Date, as the case may be;
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements hereinafter set forth Lessor and Lessee agree as
follows:
ARTICLE 1 - DEMISE; TERM
SECTION 1.01.A. Lessor, in consideration of the rents hereinafter reserved
and of the terms, covenants, conditions and agreements herein contained on the
part of Lessee to be paid, observed and fulfilled, does hereby demise and lease
the Demised Premises to Lessee and Lessee hereby hires the same from Lessor;
subject to all present and future zoning ordinances, laws, regulations,
requirements and orders, including building restrictions and regulations, and
all other present and future ordinances, laws, regulations, requirements and
orders of all departments, boards, bureaus, commission and bodies, of any
municipal, county, state or federal governments now or hereafter having or
acquiring jurisdiction of the Demised Premises; Taxes (as hereinafter defined)
not yet due and payable; all other present and future covenants, easements and
restrictions affecting the Property and the Demised Premises and the revocable
nature of any restriction, easement, agreement, ordinance or right affecting the
Property and the Demised Premises.
B.1. The Initial Premises are Demised and leased unto Lessee, its permitted
successors and assigns, for a term ("Term") commencing on the Initial Premises
Commencement Date (as hereinafter defined) and expiring at noon on the last day
("Expiration Date") of the first full month in which the Fifth (5th) anniversary
of the Initial Premises Commencement Date falls, unless the same shall sooner
terminate pursuant to any of the terms, covenants, conditions or agreements of
this Lease or pursuant to law or be extended pursuant to the provisions of
Article 30 hereof.
2. The Additional Premises are demised and leased unto Lessee, its
permitted successors and assigns, for a term commencing on the Additional
Premises Commencement Date (as hereinafter defined) and expiring at noon on the
Expiration Date, unless the same shall sooner terminate pursuant to any of the
terms, covenants, conditions or agreements of this Lease or pursuant to law or
be extended pursuant to the provisions of Article 30 hereof.
SECTION 1.02.A. As used herein, the term "Initial Premises Commencement
Date" shall mean the date which is the sooner of: (i) the date that the Initial
Premises Work (as hereinafter
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defined) is substantially completed (in accordance with the provisions of
Section 34.02(e) hereof), and (ii) the date which is such number of days prior
to the Initial Premises Commencement Date as shall equal the number of days, if
any, by which commencement or performance of the Initial Premises Work shall
have been delayed by reason of Lessee's Delays (as hereinafter defined).
B. As used herein the term "Additional Premises Commencement Date" shall
mean the date which is the later of: (i) the date that the Additional Premises
Work (as hereinafter defined) is substantially completed (in accordance with the
provisions of Section 34.02(e) hereto, and (ii) the date which is such number of
days prior to the Additional Premises Commencement Date as shall equal the
number of days, if any, by which commencement or performance of the Additional
Premises Work shall have been delayed by reason of Lessee's Delays, or (iii)
September 1, 1998.
SECTION 1.03. Upon determination of the date which is the Initial Premises,
Commencement Date, the Additional Premises Commencement Date, and Expiration
Date, as provided in this Section 6, Lessee, upon the request of Lessor, shall
execute and deliver to Lessor a statement setting forth the Initial Premises
Commencement Date, Additional Premises Commencement Date and Expiration Date,
but the failure of Lessee to execute and deliver such statement shall not
detract from the effectiveness of any of the provisions of this Lease.
ARTICLE 2 - RENT
SECTION 2.01. Lessee shall pay to Lessor, or to such other person as Lessor
may from time to time designate, at the address specified in or pursuant to
Section 2.04, during the Term, fixed rent ("Fixed Rent"), over and above the
other and additional payments to be made by Lessee as hereinafter provided, as
follows:
A. During and in respect of the period from the Initial Premises
Commencement Date to the day preceding the Additional Premises Commencement
Date (both dates inclusive), an amount each year equal to Four Hundred and
Ten Thousand, Four Hundred and Twelve and 24/100 ($410,412.24) Dollars
payable in equal monthly installments of Thirty-Four Thousand, Two Hundred
and One and 02/100 ($34,201.02) Dollars; and
B. During and in respect of the period from the Additional Premises
Commencement Date to the Expiration Date (both dates inclusive), an amount
each year equal to Five Hundred and Eighty-One Thousand, Four Hundred and
Six and 00/100 ($581,406.00) Dollars payable in equal monthly installments
of Forty-Eight Thousand, Four Hundred and Fifty and 50/100 ($48,450.50)
Dollars.
SECTION 2.02. Fixed Rent shall be paid in equal monthly installments on the
first day of each and every month during the Term without any set off or
deduction whatsoever; PROVIDED, HOWEVER, that if Fixed Rent shall be payable for
any period prior to the first day of the first full month during the Term then
such Fixed Rent shall be paid in a proportionate amount for the number of days
in such period and paid as and when the first full monthly installment would be
payable had Lessee not prepaid such amount as provided for in the following
sentence. Notwithstanding the foregoing, Lessee shall pay the first full
monthly installment of Fixed Rent upon execution of this Lease.
SECTION 2.03. If Lessee shall fail to pay as and when due under this Lease
any License Fee or Additional Rent (as hereinafter defined), and such failure
shall not be remedied within the grace period (if any) applicable thereto under
this Lease, Lessor shall have all of the rights and remedies provided in this
Lease as in the case of default in the payment of the Fixed Rent, including any
rights available to Lessor at law or in equity. Except as otherwise
specifically provided in this Lease, the Fixed Rent, License Fee and Additional
Rent shall be paid without notice, demand, credit, abatement, deduction or
setoff of any kind whatsoever. The Fixed Rent, License Fee and Additional Rent
are sometimes referred to collectively herein as "Rent."
SECTION 2.04. Lessee shall pay the Rent to Lessor in lawful money of the
United States of America which shall be legal tender for all debts, public and
private, at the time of payment, at the office of Lessor set forth above, or to
such other person or persons and/or at such other place or places as Lessor may
designate from time to time by notice to Lessee. Such payments may be by check
of Lessee, subject to collection, payable to the order of Lessor or to such
other person or persons as Lessor may designate from time to time by notice to
Lessee; any such payment shall be deemed made upon receipt thereof, subject to
collection.
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<PAGE>
SECTION 2.05. Any obligation of Lessee for payment of Rent which shall have
accrued with respect to any period during or prior to the Term shall survive the
expiration or termination of this Lease.
ARTICLE 3 - TAXES AND COMMON AREA MAINTENANCE CHARGES
SECTION 3.01. As used herein:
A. "Lessor's Statement" shall mean an instrument containing a computation
of any Additional Rent payable by Lessee to Lessor pursuant to this Article.
B. "Common Area Maintenance Charges" shall mean all costs and expenses of
whatever kind or nature, whether or not herein specifically mentioned or now
contemplated, which are incurred by Lessor or Lessor's agents in connection with
the use, operation, repair or maintenance of the Building and/or Property,
including, but not limited to the following: (1) premiums and other charges for
insurance which Lessor is required or permitted to maintain hereunder including,
but not limited to, general comprehensive liability insurance covering bodily
injury, personal injury (including death), property damage, public liability,
non-hired automobile insurance, sign insurance, plate glass insurance and any
other insurance incurred by Lessor for the Building and/or Property; (2) costs
and expenses of performing repairs in or to the Building and/or Property and the
sidewalks and curbs adjacent thereto; (3) costs and expenses of performing
repairs, resurfacing of the parking lots and any adjacent facilities; (4) costs
and expenses of landscaping and maintaining the grounds of the Building and/or
Property; (5) costs and expenses of snow and ice removal and/or treatment; (6)
costs and expense of rubbish, garbage and other refuse removal; (7) fees and
disbursements payable to Albert B. Ashforth Inc. ("Ashforth") to furnish
management, repair, or other services regarding the Building and/or Property,
except that, in the case of any such person who is affiliated with Lessor, such
fees shall not exceed that which is customary or reasonable in the industry for
similar buildings in Westchester County; (8) fees and disbursements payable to
any person (other than "Ashforth") to furnish management, repair or other
services regarding the Building and/or Property, except that, to the extent that
such fees shall not exceed that which is customary or reasonable in the industry
for similar buildings in Westchester County; (9) cost and expenses of performing
repair and replacement of all structural walls, roofs, and plate glass doors and
windows, if any, which are not expressly made part of the Building, Property or
the Demised Premises; (10) cost of refurbishing the common areas and modernizing
and replacing equipment servicing the common areas, as is necessary, including
but not limited to regular painting of non-tenanted areas at the Building and/or
Property; (11) cost and expense of maintenance and repairs of the structural
elements of the Building and/or Property; (12) costs and expenses of performing
repair, maintenance and replacement of lighting and lighting fixtures to the
common areas; (13) repair, maintenance, and replacement, if necessary, of all or
any part of the sprinkler system installed in any part of the Building and/or
Property; (14) cost of utilities, such as electricity, water and sewer;
depreciation of the capital cost of all machinery, equipment (including on-site
sewage, lighting and power facilities) and vehicles used in connection with the
operation and maintenance of the common areas as determined by Lessor for
federal income tax purposes but utilizing the straight-line method of computing
depreciation and the normal useful lives; (15) costs and expenses of performing
repairs, maintenance and replacements of all heating, ventilating and air
conditioning equipment installed in any part of the Building, including but not
limited to that portion contained within the Demised Premises; (16) cost and
expense of performing repairs, maintenance and replacement, if necessary, of
utility lines, sanitary and storm sewer lines and culverts and drainage
facilities; (17) costs and expenses of providing and maintaining security, if
any; (18) costs and expenses of providing and maintaining traffic control, if
any; (19) labor costs and expenses of full time personnel employed at the
Property in connection with the operation of the Building including and below
the grade of building manager; (20) costs and expenses of providing holiday and
other decorations to the Building and/or Property; (21) costs and expenses of
performing repairs, maintenance and replacements of all elevators and escalators
in any part of the Building and/or Property; (22) cost and expense of providing
and maintaining porter and matron service at the Building and/or Property, if
any; (23) cost and expense of providing and performing cleaning and related
services; (24) cost and expense of providing window washing; (25) cost and
expense of all supplies; (26) wages, salaries, disability benefits, pensions,
hospitalization, retirement plans and group insurance respecting service and
maintenance employees of Lessor; (27) cost and expense of all uniforms and
working clothes for such employees and the cleaning thereof; (28) cost and
expense imposed on Lessor pursuant to law or to any collective bargaining
agreement with respect to such employees; (29) cost and expense of providing and
maintaining worker's compensation insurance, payroll, social security,
unemployment and other taxes now in effect
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<PAGE>
or hereinafter imposed with respect to such employees; (30) cost of all sales,
utility and use taxes and other taxes of like import now in effect or
hereinafter imposed; (31) cost and expense of all maintenance and service
contracts for the Building and/or Property; (32) cost of all other normal
operating expenses of repair, operation, and maintenance of the Building and/or
Property; (33) cost and expense of providing and maintaining loading dock and
mail personnel, if any; (34) cost and expense of all professional and consulting
fees, including legal and audit fees and all costs and disbursements incurred in
connection therewith; (35) such cost and expenses shall be subject to Lessor's
overhead and administrative cost of Five (5%) percent; and (36) the cost of any
capital equipment or capital expenditures only to the extent provided for in
Section 3.0l.C. hereof; PROVIDED, HOWEVER, that the following items shall be
excluded from Common Area Maintenance Charges: (1) leasing commissions; (2) cost
of repairs or replacements incurred by reason of fire or other casualty (to the
extent the same is or would have been covered by insurance required to be
maintained by Lessor herein), or caused by the exercise of the right of eminent
domain (to the extent same is covered by any condemnation award) less any cost
incurred by Lessor in obtaining such insurance proceeds or condemnation award;
(3) costs incurred in performing work or furnishing services to or for
individual tenants (including Lessee) at such tenant's expense; (4) debt service
on any mortgages now or hereafter encumbering the Building and/or Property; (5)
the cost of performing or furnishing services for tenants at Lessor's expense,
to the extent that such work or service Lessor is obligated to furnish to or for
tenants at Lessor's expense; (6) the cost of attorneys' fees incurred in
connection with negotiating and drafting leases with tenants, or in connection
with disputes with tenants; (7) costs incurred in the sale or refinancing of the
Building and/or Property; (8) interest or penalties due to Lessor's violations
of law, (9) advertising and promotional expenses; (10) depreciation; and (11)
leasehold improvements made for tenants.
C.1. If Lessor shall purchase any item of capital equipment or make any
capital expenditure intended to result in savings or reductions in the Common
Area Maintenance Charges and which Lessor reasonably believes shall provide
Lessee with the benefit of a savings or reduction in such Common Area
Maintenance Charges based upon the advice of Lessor's consultants, then the
actual costs for same shall be included in the Common Area Maintenance Charges,
to the extent hereinafter set forth. Lessor shall deliver to Lessee, promptly
following Lessee's request, a copy of any concluded studies conducted by Lessor
which show anticipated savings or reductions in such Common Area Maintenance
Charges as a result of any planned capital expenditure or purchase of capital
equipment. The costs of capital equipment or capital expenditures shall be
included in the Common Area Maintenance Charges in the year in which the costs
are incurred and in any subsequent years, on a straight-line basis, to the
extent that such items are amortized over such period of time as reasonably can
be estimated at the time in which such savings or reductions in such Common Area
Maintenance Charges are expected to equal Lessor's costs for such capital
equipment or capital expenditure, with an interest factor equal to two percent
(2%) above the interest rate payable on United States Treasury securities having
a maturity comparable to the period of amortization at the time Lessor incurred
said costs. If Lessor shall lease any such item of capital equipment designed
to result in savings or reductions in any Common Area Maintenance Charges, then
the rentals and other costs paid pursuant to such leasing shall be included in
such Common Area Maintenance Charges for the year in which they were incurred.
2. If Lessor shall purchase any item of capital equipment or make any other
capital expenditure in order to comply with Legal Requirements, Insurance
Requirements or Environmental Laws (as those terms are hereinafter defined) or
reasonably necessary in order to benefit or increase the safety and security of
the Building, Property, or its tenants and/or invitees, then the costs for same
shall be included in Common Area Maintenance Charges for the year in which the
costs are incurred and subsequent years, on a straight-line basis, amortized
over the useful life of such items, with an interest factor equal to two percent
(2%) above the interest rate payable on United States Treasury securities having
a maturity comparable to the useful life of such items at the time Lessor
incurred said costs. If Lessor shall lease any such item of capital equipment
to comply with Legal Requirements, Insurance Requirements, Environmental Laws or
to increase safety and security then, in such event, the rentals and other costs
paid pursuant to such leasing shall be included in Common Area Maintenance
Charges for the year in which they were incurred.
3. If during all or part of any year, including calendar year 1998, (i)
less than ninety-five percent (95%) of the leasable space in the Building is
occupied by tenants or occupants or (ii) Lessor shall furnish any particular
item(s) of work or service (which would constitute a Common Area Maintenance
Charge hereunder) to less than ninety-five percent (95%) of the leasable
portions of the Building or to only a portion of the Property, due to the fact
that less than ninety-five percent (95%) of the leasable portions of the
Building are occupied, or because such item of work or service is not required
or desired by the tenant of such portion, or such tenant is itself obtaining and
providing such item of work or service, or for other reasons, then, for the
purposes
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of computing the Additional Rent payable hereunder, the amount of Common Area
Maintenance Charges or the amount of the expenses attributable to such item as
the case may be, for such period shall be deemed to be increased by an amount
equal to the additional costs and expenses which would reasonably have been
incurred during such period had the Building been at least ninety-five percent
(95%) occupied or had Lessor furnished such item of work or services to such
other portions of the Building or the Property.
D. Lessor shall have the absolute right, at all times during the Term and
any Renewal Term (as hereinafter defined) to increase, reduce, alter or
otherwise modify the way in which it uses, operates, repairs, or maintains the
Building and/or the Property and the cost thereof. Nothing contained herein
shall require Lessor to incur or provide any particular service or charge in
connection with its use, operation, repair or maintenance of the Building and/or
Property, it being agreed and understood that the items described in Section
3.0l.B. are by way of illustration only and shall not obligate Lessor thereto,
except that Lessor shall maintain the Building and Property as a first class
office building located in Westchester County, New York.
E. The term "Taxes" shall mean all such taxes, assessments, use and
occupancy taxes in respect of this Lease and any subleases made hereunder, water
and sewer charges, rates and rents, water and other meter charges and all such
other charges, taxes, levies and sums of every kind or nature whatsoever,
general and special, extraordinary as well as ordinary, whether or not now
within the contemplation of the parties, as shall or may during or in respect of
the Term (or any period prior to the Term for which Fixed Rent is payable) be
assessed, levied, charged or imposed upon or become a lien on the Property,
Building, or Demised Premises, or any part thereof, or anything appurtenant
thereto, or the sidewalks, streets or roadways in front of, adjacent to or
appurtenant to the Property, Building or Demised Premises (and which have a
basis related in any way to the Property, Building, or Demised Premises and/or
the use or manner of use thereof), or which, if imposed on Lessee or in respect
of the Property, Building or Demised Premises and if not paid by Lessee, would
be collectible from Lessor, or which have been so assessed, levied, charged or
imposed prior to the Term (but, in the last-mentioned case, only with respect to
a period falling within the Term); PROVIDED, HOWEVER, that, except if and to the
extent otherwise provided in the succeeding sentence, "Taxes" shall not mean
federal, state or local income taxes, franchise, excise, gift, transfer, capital
stock, estate, succession or inheritance taxes or penalties or interest for late
payment of any tax in respect of which Lessee shall have duly made payment of
Additional Rent as herein provided. If, at any time during the Term, the
methods of taxation prevailing at the commencement of the Term shall be altered
so that, in lieu of or as a substitution in whole or in part for the taxes,
assessments, levies, impositions or charges now or hereafter levied, assessed or
imposed on real estate and the improvements thereon, shall be levied, assessed
or imposed any tax or other charge on or in respect of the Property, Building
and/or Demised Premises or the rents, income or gross receipts of Lessor
therefrom (including any county, town, municipal, state or federal levy), then
such tax or charge shall be deemed a Tax, but only to the extent that such Tax
would be payable if the Property, Building or Demised Premises, or the rent,
income or gross receipts received therefrom, were the only property of Lessor
subject to such Tax, and Lessee shall pay and discharge the same as herein
provided in respect of the payment of Taxes.
F. The term "School Tax Base" shall mean the amount of Taxes as hereinabove
defined, imposed, levied, assessed and/or collected on the Property, for the
1997/1998 School Tax and "Town Tax Base" shall mean the amount of Taxes as
hereinabove defined, imposed, levied, assessed and/or collected on the Property
for the 1998 Town, County and State Tax.
G. The term "School Tax Year" shall mean each period of twelve (12)
consecutive months commencing as of the first day of January of each such
period; and "Town Tax Year" shall mean each period of twelve (12) consecutive
months commencing as of the first day of January of each such period, in which
any part of the term of this Lease shall occur, or such other periods of twelve
(12) months as may be adopted as the fiscal year for real estate tax purposes.
SECTION 3.02.A. Lessee shall pay to Lessor, as Additional Rent, during or
in respect of the period from the Commencement Date to the Expiration Date (both
dates inclusive) for each School Tax Year and Town Tax Year or portion thereof,
its proportionate share ("Lessee's Proportionate Share," as hereinafter defined)
of increases in Taxes which will be imposed, levied, assessed or collected on
the Property, and/or Building of which the Demised Premises are a part, for such
School Tax Year and/or Town Tax Year, as the case may be, over the respective
tax bases regardless of whether such increase results from a higher tax rate
and/or an increase in the assessed valuation of either the Property or Building
or any other tax. Reasonable fees and expenses, if any, incurred in obtaining
any reduction in assessed valuation from the tentative
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assessment to the final assessment shall also be considered an increase in Taxes
for the purpose of this provision. Such payments shall be made by Lessee as
Additional Rent in equal monthly installments during the applicable tax year
together with the payment of Fixed Rent. Copies of tax bills applicable to the
School Tax Base and the Town Tax Base, as the case may be, and to any such
applicable tax year shall be made available by Lessor for inspection by Lessee
during normal business hours. In the event of any reduction in Taxes after
final assessment and with respect to which Lessee has paid its proportionate
share, any such reduction, less fees and expenses incurred to obtain such
reduction shall be refunded in proportionate amounts to Lessee.
B. If Lessor obtains a reduction of either the School Tax Base or Town Tax
Base by final determination of legal proceedings or otherwise, then: (i) the
School Tax Base or Town Tax Base shall be correspondingly revised, (ii) all Tax
payments theretofore paid or payable hereunder shall be recomputed on the basis
of such reduction, (iii) Lessee shall pay to Lessor as Additional Rent, within
thirty (30) days after receipt of a bill therefor, any deficiency between the
amount of such Tax payments theretofore computed and the amount thereof due as a
result of such recomputations and (iv) all future Tax payments shall be computed
using the revised School Tax Base and Town Tax Base.
SECTION 3.03.A. Lessee shall pay to Lessor, as Additional Rent, during or
in respect of the period from the Commencement Date to the Expiration Date (both
dates inclusive) for each calendar year or portion thereof, Lessee's
Proportionate Share of the increases in the Common Area Maintenance Charges over
the over the Base Common Area Maintenance Charges (as hereinafter defined).
Such payments shall be made by Lessee as Additional Rent in equal monthly
installments during the applicable calendar year together with the payment of
Fixed Rent.
B. The term "Base Common Area Maintenance Charges" shall mean the Common
Area Maintenance Charges in effect for the calendar year ending December 31,
1998.
SECTION 3.04.A. At any time hereafter and from time to time, Lessor may
furnish to Lessee a Lessor's Statement setting forth (i) Lessor's actual Common
Area Maintenance Charges (or any one or more items thereof) and/or actual Taxes
for a period which shall have expired and/or (ii) Lessor's reasonable estimate
of Common Area Maintenance Charges and/or Taxes for a succeeding period. Within
thirty (30) days next following rendition of each such Lessor's Statement,
Lessee shall pay to Lessor the entire amount, if any, shown on such Lessor's
Statement as being due with respect to any period which shall have expired. In
addition, Lessee shall pay to Lessor, on the first day of each month following
rendition of each such Lessor's Statement, on account of the estimated
Additional Rent thereafter payable, a proportionate sum of the total Additional
Rent shown upon such Lessor's Statement as being Lessor's reasonable estimate
for a succeeding period on an annual basis (it being agreed that Lessor's
estimate shall in any event be deemed reasonable if it is based on actual Common
Area Maintenance Charges (or any one or more items thereto and/or actual Taxes
for a period which shall have expired immediately prior thereto, so that one
month prior to the end of such period, Lessee's Proportionate Share of the
increase shall be paid in full, and Lessee shall continue to pay Additional Rent
on such basis until receipt of a subsequent Lessor's Statement. Such Additional
Rent shall be due and payable at the same time as each monthly installment of
Fixed Rent.
B. A reconciliation shall be made upon each Lessor's Statement as follows:
Lessee shall be debited with any Common Area Maintenance Charges and/or Taxes
payable as shown on such Lessor's Statement, and credited with the aggregate of
the total amount, if any, paid by Lessee in accordance with the provisions of
the preceding paragraph on account of the estimated Additional Rent, for the
period or item in question, and, within thirty (30) days next following
rendition of such Lessor's Statement, Lessee shall pay Lessor the amount of any
net debit balance shown thereon or Lessor shall apply against the next ensuing
installments of Fixed Rent the net credit balance shown thereon.
C. Without limiting the preceding provisions of Section 3.04, it is
understood that Lessor shall furnish a Lessor's Statement, for each calendar
year falling wholly or partially within the Term.
SECTION 3.05.A. Lessor's failure to render Lessor's Statements with respect
to any period shall not prejudice Lessor's fight to render a Lessor's Statement
with respect to that or any subsequent period. The obligations of Lessor and
Lessee under the provisions of this Article with respect to Additional Rent
shall survive the expiration or any sooner termination of the Term.
B. Each Lessor's Statement shall be conclusive and binding upon Lessee
unless within thirty (30) days after receipt of such Lessor's Statement, Lessee
shall notify Lessor that it disputes
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the reasonableness or correctness of Lessor's Statement, specifying the respects
in which Lessor's Statement is claimed to be unreasonable or incorrect. Pending
the determination of such dispute by agreement or otherwise, Lessee shall pay
Additional Rent in accordance with the applicable Lessor's Statement, and such
payment will be without prejudice to Lessee's position. If the dispute shall be
finally determined in Lessee's favor by a court of competent jurisdiction,
Lessor shall forthwith pay Lessee the amount of Lessee's overpayment of
Additional Rent resulting from compliance with Lessor's Statement. Lessor, upon
request of Lessee, shall either make available to Lessee such documentation as
may be in Lessor's possession to support a particular Common Area Maintenance
Charge or permit Lessee to examine relevant portions of Lessor's books and
records.
SECTION 3.06. Lessee shall pay and discharge, or cause to be paid and
discharged, the following items, regardless of to whom or how incurred, all
taxes and assessments, if any, which shall or may during the Term be charged,
levied, assessed or imposed upon, or become a lien upon, the personal property
of Lessee used in the operation of the Demised Premises and which if not paid by
Lessee, would be collectible from Lessor.
ARTICLE 4 - USE OF DEMISED PREMISES
SECTION 4.01.A. Subject to the provisions of this Article, Lessee shall
have the right to use the Demised Premises for general and executive office
purposes and for no other purposes (the "Permitted Use").
B. Provided that Lessee complies with all terms, covenants and conditions
of this Lease, Lessor agrees that Lessee shall have the right to install,
maintain, repair, remove and operate the Fiber Optic Network (as hereinafter
defined).
SECTION 4.02. Lessee shall not use or occupy the Demised Premises in any
manner or suffer or permit the Demised Premises or any part thereof to be used
in any manner, or do or suffer or permit anything to be done in the Demised
Premises, or bring anything into the Demised Premises or suffer or permit
anything to be brought into the Demised Premises, which would in any way do any
of the following: (a) violate any of the provisions of the Mortgage (as
hereinafter defined) or Superior Lease (as hereinafter defined); (b) violate any
Legal Requirements, Insurance Requirements or Environmental Laws (as such terms
are hereinafter defined); (c) make void or voidable any insurance policy then in
force with respect to the Demised Premises, Building or Property; (d) make
unobtainable from insurance companies authorized to do business in the State of
New York and rated by Best's Insurance Rating Service with a rating at least
equal to A:XII, at standard rates without any special premium or charge, any
fire or other casualty insurance with extended coverage, or rental, liability or
boiler insurance, or other insurance provided for in Section 11.01 or otherwise
may be required to be furnished by Lessor under the terms of the Mortgage or
Superior Lease with respect to the Demised Premises, Building or Property; (e)
cause physical damage to the Demised Premises, Building or Property, or any part
thereof, (f) constitute a public or private nuisance; (g) substantially impair
the appearance or character of the Demised Premises, Building or Property; (h)
discharge or cause the discharge of objectionable substances, fumes, vapors or
odors from the Demised Premises not otherwise in compliance with Legal
Requirements, Insurance Requirements and Environmental Laws; (i) cause Lessee to
default in the observance and performance of any of its other obligations to be
observed and performed under this Lease; (j) unreasonably interfere with the
effectiveness or accessibility of the utility, mechanical, electrical and other
systems installed or located anywhere at the Demised Premises, Building or
Property or (k) violate any of the Building's Rules and Regulations annexed
hereto as EXHIBIT "C," as same may be amended from time to time. Lessor agrees
that it shall enforce all of the Building's Rules and Regulations in a
nondiscriminatory manner.
SECTION 4.03. If any governmental license or permit shall be required for
the proper and lawful conduct of Lessee's business in the Demised Premises or
any part thereof, then Lessee, at its sole cost and expense, shall duly procure
and thereafter maintain such license or permit and submit the same to inspection
by Lessor. Lessee shall, at all times, comply with the terms and conditions of
each such license or permit, but in no event shall failure to procure and
maintain same by Lessee affect Lessee's obligations hereunder. Lessee shall not
use or occupy the Demised Premises, or suffer or permit anyone to use or occupy
the Demised Premises, in violation of any certificate of occupancy issued for
the Building or Property.
SECTION 4.04. Lessor shall obtain a certificate(s) of occupancy required
for Lessee's occupancy of the Demised Premises upon substantial completion of
Lessor's Work (as that term is hereinafter defined).
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SECTION 4.05. Lessee shall not place, or suffer, or permit anyone to place
a load upon any floor of the Building that exceeds the floor load per square
foot that such floor was designed to carry and which is allowed by certificate,
rule, regulation, permit or law, nor shall Lessee overload, or suffer, or permit
anyone to overload any wall, roof, land surface, pavement, landing or equipment
on the Demised Premises. For the purposes of this Lease the floor loads for the
Building are 100 pounds per square foot for the interior column bay and 80
pounds per square foot for the perimeter column bay.
SECTION 4.06. Lessee shall not use, or suffer, or permit anyone to use, on
or across the Demised Premises, Building or Property, any equipment having
caterpillar-type tracks or tires, or any other equipment which would be damaging
to the Demised Premises, Building or Property or any road surface or
blacktopping thereon.
SECTION 4.07.A. Lessee shall not release, discharge or dispose of, or
permit, or suffer any release, discharge or disposal of any Hazardous Material
at the Demised Premises in violation of any Environmental Law. Lessee shall not
permit or suffer the manufacture, generation, storage, transmission or presence
of any Hazardous Material over or upon the Demised Premises in violation of any
Environmental Law.
B. Lessee shall: (i) promptly, upon learning thereof, notify Lessor of any
violation of, or non-compliance with, potential violation of or non-compliance
with, or liability or potential liability under, any Environmental Law
concerning the Demised Premises, (ii) promptly make (and deliver to Lessor
copies to) all reports or notices that Lessee is required to make under any
Environmental Law concerning the Demised Premises and maintain in current status
all permits and licenses required under any Environmental Law concerning the
Demised Premises, (iii) immediately comply with any orders, actions or demands
of any Governmental Authority (as herein defined) with respect to the discharge,
clean-up or removal of Hazardous Materials at or from the Demised Premises due
to a breach of a covenant set forth in Section 4.07.A, (iv) pay when due the
cost of all environmental consultants, laboratory analysis, removal of,
treatment of, or the taking of any remedial action (including abatement and/or
disposal) with respect to, any Hazardous Material on the Demised Premises which
is required by an Environmental Law due to a breach of a covenant set forth in
Section 4.07.A, (v) keep the Demised Premises free of any lien imposed pursuant
to any Environmental Law in respect of a breach of a covenant set forth in
Section 4.07.A, (vi) from time to time, upon the request of Lessor, execute such
affidavits, certificates and statements concerning Lessee's knowledge and belief
concerning the presence of Hazardous Materials on the Demised Premises and (vii)
otherwise comply with all Environmental Laws concerning the Demised Premises.
SECTION 4.08. Lessor shall include Lessee's name on any Building directory
(except for the blue monuments located outside the Building) and on the front
entrance to the Demised Premises. Other than the foregoing, Lessee shall not
place or suffer to be placed or maintain any sign, awning or canopy upon or
outside the Demised Premises or in the Building; nor shall Lessee place any
sign, decoration, lettering or advertising matter of any kind without first
obtaining Lessor's written approval and consent in each instance. In the event
that Lessor gives its consent hereunder, all signs shall be of a size, color and
design as is approved in writing by Lessor and shall be installed where
designated by Lessor and maintained in good condition, repair and appearance at
all times, according to Lessor's standards and the laws of the municipality
having jurisdiction over such signs. If Lessor shall deem it necessary to
remove any sign in order to paint or to make any repairs, alterations or
improvements in or upon the Demised Premises or any part thereof, Lessor shall
have the right to do so, provided the same be removed and replaced at Lessor's
cost and expense unless having been occasioned by fault of Lessee. Lessor shall
have the right, with or without notice to Lessee, to remove any signs (paper or
otherwise) installed by Lessee in violation of this paragraph and to charge
Lessee the cost of such removal without liability to Lessee for such removal.
SECTION 4.09. No property, other than such as might normally be brought
upon or kept in the Demised Premises as incidental to the Permitted Use of the
Demised Premises, will be brought upon or kept in the Demised Premises.
ARTICLE 5 - POSSESSION AND CONDITION OF DEMISED PREMISES
SECTION 5.01. Lessee has inspected the Demised Premises and the state of
title thereto and, subject to Lessor's obligations under Section 8.01, Lessee
accepts the Demised Premises in their "AS IS" state and condition on the
Commencement Date and without any representation or warranty (except as
expressly set forth herein), express or implied, in fact or by law, by Lessor,
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and without recourse to Lessor, as to title thereto, the nature, condition or
usability thereof or as to the use or occupancy which may be made thereof.
SECTION 5.02. If delivery of possession to the Demised Premises to Lessee
is delayed by reason of Unavoidable Delays (as hereinafter defined), then this
Lease and the validity thereof shall not be affected thereby and Lessee shall
not be entitled to terminate this Lease, to claim actual or constructive
eviction, partial or total, or to be compensated for loss or injury suffered as
a result thereof, nor shall the same be construed in any way to extend the Term,
PROVIDED, HOWEVER, that, notwithstanding the provisions of Article 1, the
Commencement Date shall be deemed to occur only if and when possession of the
Demised Premises is made available to Lessee.
SECTION 5.03. The provisions of this Article shall be considered an express
provision to the contrary pursuant to New York REAL PROPERTY LAW Section 223-(a)
governing delivery of possession of the Demised Premises and any law providing
for such a contingency in the absence of such express agreement now or hereafter
enacted shall have no application in such case to the extent inconsistent with
this Lease.
ARTICLE 6 - UTILITIES, CLEANING, ETC.
SECTION 6.01.A. During the Term hereof and any Renewal Term, Lessor shall
furnish to Lessee, during Normal Working Hours as hereinafter defined: (a)
necessary elevator facilities; (b) heat to the Demised Premises when reasonably
necessary or otherwise required by law in accordance with the specifications
provided for in this Lease; (c) water for ordinary lavatory and drinking
purposes, but if Lessee uses or consumes water for any other purposes or in
unusual and excessive quantities in Lessor's reasonable judgment, Lessor may
install a water meter at Lessee's expense in good working order and repair to
register such water consumption and Lessee shall pay for water consumed in
excess of ordinary lavatory and drinking purposes as shown on said meter as
Additional Rent as and when bills are rendered; (d) air conditioning and/or
cooling; (e) ventilation; and (f) electricity for Building lighting and normal
Building equipment and other incidental equipment ("Utility Service").
B. The air conditioning and/or cooling system shall be designed to be
capable of maintaining inside conditions of not more than 78 degrees F when
outside conditions are not more than 89 degrees F dry bulb and 74 degrees F wet
bulb and a temperature of 70 degrees F when the outside temperature is 11
degrees F. The design capabilities of the system are based upon and limited to
the following conditions: (i) the occupancy does not exceed one (1) person for
each 150 square feet of area; (ii) the total connected electrical load does not
exceed 5 watts per square foot of installed ceiling area for all purposes,
including lighting and power; and (iii) proper use of window blinds to control
sunload. The system shall provide fresh air as per code requirements. If due
to use of the Demised Premises in a number exceeding the aforementioned
occupancy and electrical load criteria, or due to rearrangement of partitioning
after the initial preparation of the Demised Premises, interference with normal
operation of the air conditioning in the Demised Premises results, necessitating
changes in the air conditioning system servicing the Demised Premises, such
changes shall be made by Lessor upon written notice to Lessee and at Lessee's
sole cost and expense. Lessee agrees to keep all windows closed, and to lower
and close window coverings when necessary because of the sun's position whenever
the said air conditioning system is in operation, and Lessee agrees at all times
to cooperate fully with Lessor and to abide by all the regulations and
requirements which Lessor may prescribe for the proper functioning and
protection of the said air conditioning system. Lessor, throughout the Term,
shall have free and unrestricted access to any and all air conditioning
facilities in the Demised Premises.
C. Except as otherwise specifically provided for in this Lease, Lessor
represents that Lessee shall have access (by elevator) to the Demised Premises
Twenty-Four (24) hours a day, Seven (7) days a week.
D. Lessor agrees that Lessee shall have the right to use the existing
supplemental air conditioning units located in the Demised Premises, which shall
be in working order on the Commencement Date. During the Term hereof and any
Renewal Term, Lessor shall furnish to Lessee condenser water ("Condenser Water")
serving not more than Five (5) tons of rated cooling capacity for use in
connection with the Supplemental Units serving the Demised Premises. Lessee
agrees to pay Lessor for all Condenser Water used in connection with the
Supplemental Units at the rate of One Hundred and Twenty-Five and 00/100
($125.00) Dollars per month, per rated ton of connected load (the "Condenser
Water Charge"), PROVIDED, HOWEVER, that in no
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event shall Lessor ever be obligated to provide Lessee with more than Five (5)
tons per hour of Condenser Water for use in connection with the Supplemental
Units.
SECTION 6.02. During the Term hereof and any Renewal Term, Lessor shall
furnish to Lessee cleaning services for the Demised Premises in accordance with
the Cleaning Specifications annexed hereto as EXHIBIT "D."
SECTION 6.03.A. If Lessee uses the Demised Premises outside Normal Working
Hours, Lessee agrees to pay to Lessor an overtime charge to cover Lessor's
actual expenses for electricity for lighting and normal Building Equipment (as
hereinafter defined) and other incidental equipment, extra building maintenance,
building employee overtime, furnishing water for lavatories, air cooling, heat,
ventilation, wear and tear, etc. caused by Lessee's overtime use ("Overtime
Services").
B.1. Lessor shall furnish such Overtime Services to Lessee as may be
required provided that (i) Lessee pays to Lessor as Additional Rent special
overtime charges (the "Overtime Charges") therefor, which is presently at the
rate of One Hundred and Seventy-Five and 00/100 ($175.00) Dollars per hour,
along with Lessee's next monthly installment of Fixed Rent if such service shall
have been finished to Lessee prior to the fifteenth (15th) day of the month or
along with the subsequent monthly installment of Fixed Rent if such service
shall have been furnished to Lessee after the fifteenth (15th) day of the month,
(ii) that Lessee's request shall be received by Lessor by not later than 2:00
P.M. on the day for which such required after hours service is requested (and by
not later than 2:00 P.M. on the day preceding any requested before-hours
service), (iii) that Lessor shall not be required to furnish such Overtime
Services to Lessee for more than twenty (20) hours in any one (1) week, and (iv)
the Building HVAC system is not then producing chilled water for future HVAC
use. Notwithstanding anything contained to the contrary in this Article 6,
Lessee shall not be required to pay Overtime Charges for intermittent use of the
Demised Premises outside Normal Working Hours, provided that such use shall not
be on a scale and of a frequency so as to constitute the regular operation of
Lessee's business outside Normal Working Hours. In no event, however, shall
Lessor be obligated to supply heating or air conditioning outside of Normal
Working Hours unless Lessee shall request and pay for the same as provided in
this Article 6.
2. Lessee agrees that the Overtime Charges and Condenser Water Charge may,
from time to time, be increased by Lessor, with not less than thirty (30) days
prior written notice to Lessee, if the rates at which Lessor purchases
electrical energy from the public utility corporation supplying electrical
current to the Building of which the Demised Premises are a part or shall be
increased, or the cost of supplying Condenser Water shall be increased, or any
tax is imposed upon Lessor's receipt from the sale or resale of electrical
energy or Condenser Water by any Federal, State or Municipal Authority, or any
charges incurred or taxes payable by Lessor in connection therewith shall be
increased. The Overtime Charges and Condenser Water Charge shall be increased
by an amount equal to the product of the respective hourly rate times the
percentage increase in the rates at which Lessor purchases electrical energy
from the public utility corporation as aforesaid, or the percentage increase in
the cost of producing Condenser Water, as the case may be.
SECTION 6.04.A. Lessee acknowledges and agrees that Lessor shall furnish
electrical current to Lessee for lighting, electrical appliances and/or office
equipment in the Demised Premises, including electrical current for the
Supplemental Units ("Electric Service") based on the method of including the use
thereof within the Fixed Rent and, accordingly, Lessee agrees that the Fixed
Rent provided for in Article 2 of this Lease has been increased to compensate
Lessor for supplying Electric Service on the basis of Two and 25/100 dollars
($2.25) per square foot per annum for each square foot contained in the Demised
Premises (hereinafter referred to as the "Base Charge") payable in equal monthly
installments commencing on the Commencement Date. By the execution of this
Lease, Lessee acknowledges and agrees that the Base Charge shall not be
contestable by Lessee at a future date and shall only be increased by Lessor at
a future date in accordance with this Section. Lessor will furnish electricity
to Lessee through presently installed electrical facilities, which Lessor
represents to be at least five (5) watts of connected load per square foot of
installed ceiling area for all lighting and power purposes, for Lessee's
reasonable use.
B.1. Lessee shall make no substantial alterations or additions to the
initial lighting, electrical appliances or office equipment without first
obtaining written consent from Lessor (which consent shall not be unreasonably
withheld or delayed) in each instance. Lessor warrants that the electrical
facilities servicing the Demised Premises is in good working order and can
accommodate a normal office installation with associated office machinery and
equipment.
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Lessee agrees that at all times its use of Electric Service shall not exceed the
capacity or overload any of the central and appurtenant installations for
Electric Service including, but not limited to all wires, feeders, risers,
electrical boxes, switches, outlets, connections, and cables located in the
Property, Building, or Demised Premises or any other mechanical equipment spaces
located therein. Lessee's use of Electric Service shall not interfere with the
use thereof by other occupants of the Property, or Building and shall be of such
a nature, as determined by Lessor in its reasonable judgment and discretion, so
as not cause permanent damage or injury to the Demised Premises or the Building
of which the Demised Premises are a part, or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repairs or
expense, or interfere with or disturb other tenants or occupants.
2. If at any time prior to or during the Term or any Renewal Term of this
Lease, subject to the restrictions contained elsewhere in this Lease: (i) Lessee
installs substantial additional or substituted lighting, electrical appliances,
office equipment or otherwise increases its use of Electric Service in excess of
five (5) watts of connected load per square foot of installed ceiling area for
all purposes, and/or; (ii) subject to the provisions of Article 8 of this Lease,
electrical feeders, risers, wiring or other electrical facilities serving the
Demised Premises shall be installed by Lessor, Lessee or others, on behalf of
Lessee or any person claiming through or under Lessee in addition to the
feeders, risers, wiring or other electrical facilities necessary to serve the
lighting fixtures, electrical appliances, office equipment and electrical
receptacles initially located in the Demised Premises; then the Fixed Rent shall
be increased by an amount determined by the electrical engineer selected by
Lessor who shall certify the amount of the Additional Rent to be increased in
writing to Lessor and Lessee. Following any such determination and
certification by the electrical engineer, this Lease shall automatically be
modified by increasing the Additional Rent by an amount equal to (i) the product
of the Base Charge times the percentage increase in Lessee's use of electrical
current over that for Lessee's initially installed lighting, electrical
appliances and office equipment and/or (ii) the product of the Base Charge times
the percentage increase in the potential additional electrical energy made
available to Lessee annually based upon the estimated capacity of such
additional electrical feeders, risers, wiring or other electrical facilities, as
the case may be. As evidence of such modification, such electrical engineer's
certification shall be delivered by Lessor to Lessee and also appended hereto.
Any such increase shall be effective as of the date of the first use by Lessee
of such additional service and retroactive to such date if necessary. In
addition, Lessee shall pay to Lessor, as Additional Rent, within ten (10) days
of the date of a notice therefor from Lessor, the total actual Cost (as
hereinafter defined) to Lessor of the additional electrical feeders, risers,
wiring, or other electrical facilities serving the Demised Premises.
C. If, at any time or times after the date of this Lease, the rates at
which Lessor purchases electrical energy from the public utility corporation
supplying electrical current to the Building of which the Demised Premises are a
part shall be increased, or any tax is imposed upon Lessor's receipt from the
sale or resale of electrical energy or gas or telephone service to Lessee by any
Federal, State or Municipal Authority, or any charges incurred or taxes payable
by Lessor in connection therewith shall be increased, the Additional Rent shall
be increased by an amount equal to the product of the Base Charge times the
percentage increase in the rates at which Lessor purchases electrical energy
from the public utility corporation as aforesaid, over those rates in effect on
the date of the calculation of the Base Charge. Following any such rate
increase or other charge, this Lease shall automatically be modified by
increasing the Additional Rent for the remainder of the term hereof in
accordance with this Subsection and, as evidence of such modification,
documentation of such rate increase or other charge shall be delivered by Lessor
to Lessee and also appended hereto. Any such increase in the Additional Rent
shall be effective as of the date of any such increase in cost or other charge
to Lessor and shall be retroactive to such date if necessary.
D. Notwithstanding anything contained to the contrary in this Article 6,
Lessor shall have the right, at its option, to conduct a survey of the Demised
Premises by an electrical engineer of Lessor's choosing at any time during the
term of this Lease in order to determine Lessee's actual use of electrical
current therein. In the event that Lessor's survey provided for in the
preceding sentence shall indicate that Lessee's use of electrical current
exceeds five (5) watts of connected load per square foot of installed ceiling
area for all purposes, Lessee, upon receipt of notice from Lessor, shall pay to
Lessor an increase in Fixed Rent equal to an amount determined by multiplying
the Base Charge times the percentage increase in Lessee's use of electrical
current over five (5) watts of connected load per square foot of installed
ceiling area for all purposes. Any such increase shall be payable in accordance
with the terms of this Article 6 and shall be effective as of the date of
Lessee's first increased use of electrical current and shall be retroactive to
such date, if necessary.
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SECTION 6.05. Except as otherwise specifically provided for in this Lease,
Lessor reserves the right to temporarily stop, interrupt and/or suspend Utility
Service, and/or Electric Service when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or desirable in the
judgement of Lessor for as long as may be reasonably required by reason thereof.
The repairs, alterations, replacements or improvements shall be done with a
minimum of inconvenience to Lessee and Lessor shall pursue same with due
diligence.
SECTION 6.06. Except to the extent caused by the negligent or wilful acts
or on omissions of Lessor, its employees, agents or contractors, Lessor shall in
no way be liable for any loss, damage, or expense which Lessee may incur as a
result of the change, at any time, of the character or quality of Electric
Service, or Utility Service or any failure of or defect in Electric Service, or
Utility Service by reason of any public or private utility company then
supplying such service to the Property, Building or the Demised Premises and
Lessee agrees to hold the Lessor harmless and to indemnify it from and against
any loss, liability or damage in connection therewith. This indemnity shall
survive the expiration or other termination of this Lease.
ARTICLE 7 - REPAIR AND MAINTENANCE
SECTION 7.01.A. Subject to the provisions of Section 7.02 hereof, Lessee
shall, during the Term of this Lease and any Renewal Term, at Lessee's sole cost
and expense, take good care of, maintain and make all repairs (other than
structural) in the Demised Premises, and the fixtures and equipment therein and
appurtenances thereto, including but not limited to, the Supplemental Units,
internal doors and entrances, door checks, internal signs, floor covering,
interior walls, columns and partitions; and lighting, heating, hot water,
plumbing and sewerage facilities, sprinkler system and sprinkler heads located
within the Demised Premises and serve only the Demised Premises.
B. If Lessee refuses or neglects to maintain or make repairs or otherwise
fails to perform any of Lessee's repair or maintenance obligations hereunder,
Lessor shall have the right, but shall not be obligated, to make such repairs or
perform on behalf of and for the account of Lessee. All sums so paid by Lessor
in connection with the payment or performance by it or any of the obligations of
Lessee hereunder and all actual and reasonable costs, expenses and disbursements
paid in connection therewith or enforcing or endeavoring to enforce any right
under or in connection with this Lease, or pursuant to law, together with
interest thereon at the minimum legal rate from the respective dates of the
making of such payment, shall constitute Additional Rent payable by Lessee under
this Lease and shall be paid by Lessee to Lessor upon demand by Lessor. The
provisions of this Section shall survive the expiration or other termination of
this Lease.
SECTION 7.02.A. Lessor shall not be required to make any repairs or
improvements of any kind upon the Demised Premises except for necessary
structural repairs to the Building or for damage caused by a casualty or
Lessor's negligent or wilful acts or omissions, excluding Lessee's property.
Lessor shall during the Term of this Lease and any Renewal Term, maintain and
repair all common areas and other facilities in or about the Property and/or the
Building, exclusive of doors, door frames, door checks, windows and window
frames. Lessor shall have the right to construct, maintain and operate lighting
and other facilities on all said areas and improvements; to police the same; to
change the area, level, location and arrangement of parking areas and other
facilities; to build multistory parking facilities; to restrict parking by
Lessees, their officers, directors, agents and employees, to enforce parking
charges (by operation of meters and otherwise to the extent required by law);
and to close all or any portion of said areas or facilities to such extent as
may be legally sufficient to prevent a dedication thereof or the accrual of any
right to any person or the public therein; to close temporarily all or any
portion of the parking areas or facilities to discourage non-visitor parking.
Lessor shall operate and maintain the common areas in such manner as Lessor in
its discretion shall determine, and Lessor shall have full right and authority
to employ and discharge all personnel with respect thereto. If Lessor shall
designate an employee or lessee parking area or areas, Lessee and its employees
shall use only such areas for parking and Lessee shall cooperate fully with
Lessor in enforcing this covenant.
B. In the event that Lessor is unable or fails to provide Critical Services
(as hereinafter defined) which it is obligated to provide under this Lease
solely as a result of Lessor's negligence, wilful acts or omissions, and the
loss of such services causes all or part of the Demised Premises to become
unusable or access to the Demised Premises is not reasonably available for more
than five (5) consecutive business days, or if such condition is caused by any
other reason other than as provided for herein and such condition continues for
thirty (30)
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consecutive days, and the Demised Premises are in fact not used for the purposes
for which they were leased, during such period, then in such event, Lessee shall
be entitled to a pro rata abatement of Rent commencing with the sixth (6th)
consecutive business day, or the thirty-first (31st) consecutive day that same
are unusable, as the case may be; PROVIDED, HOWEVER, that Lessee shall not be
entitled to any abatement of Rent if such unusability is (a) caused by the
negligence or wilful act or omission of Lessee or any of Lessee's servants,
employees, agents, or licensees; or (b) where such condition arises in
connection with work performed by Lessor at the request of Lessee to make a
decoration, alteration, improvement or addition; or (c) where the repair in
question are those which Lessee is obligated to make or furnish under any of the
provisions of this Lease. The provisions of this paragraph B shall not apply in
the event of a condition caused by fire or other casualty or condemnation as
provided for in Articles 12 and 18, respectively. As used herein, the term
"Critical Services" shall mean: (i) electricity; (ii) heating through the
Buildings heating system but excluding supplemental heating systems installed by
Lessee; (iii) ventilating and air conditioning through the Building's AC System
but excluding any supplemental units; (iv) water (including condenser water);
and/or (v) elevator service to the Demised Premises.
SECTION 7.03. "Repairs" as used herein shall mean all repairs,
replacements, renewals, alterations, additions and betterments. All contracts
between Lessee and others for installations, maintenance, and repairs and
alterations involving the Demised Premises, including maintenance agreements,
shall be subject to the prior written approval of Lessor, not to be unreasonably
withheld or delayed.
SECTION 7.04. Lessor shall not be required to make any repairs or
replacements to the common areas occasioned by the act or negligence of Lessee,
its agents, employees, invitees, customers, licensees, or contractors, except to
the extent that Lessor is reimbursed therefor under any policy of insurance
permitting waiver of liability and containing a waiver of subrogation, except as
otherwise provided in this Article and Article 12 of this Lease.
ARTICLE 8 - THE WORK; LESSEE'S ALTERATIONS
SECTION 8.01. Lessor shall have no obligation whatsoever to perform any
build-out or similar work to Demised Premises, and Lessee agrees to accept same
in "AS IS" physical order and condition on the Commencement Date and without any
representation or warranty, express or implied, in fact or by law, by Lessor,
and without recourse to Lessor, as to title thereto, the nature, condition or
usability thereof or as to the use or occupancy which may be made thereof.
Notwithstanding the foregoing, Lessor agrees to perform the work set forth on
the plans and specifications annexed hereto as EXHIBIT "E" and made a part
hereof (the "Work"). Lessor agrees to perform, at its sole cost and expense,
that portion of the Work more particularly set forth on EXHIBIT "F" annexed
hereto and made a part hereof as Lessor's financial contribution to the Work.
Lessee agrees to pay Lessor for the Cost (as that term is hereinafter defined)
of that portion of the Work set forth on EXHIBIT "F" as Lessee's financial
contribution to the Work ("Lessee's Financial Contribution"). Lessee shall pay
to Lessor as Additional Rent, Lessee Financial Contribution within ten (10)
business after demand therefor.
SECTION 8.02. Following the Commencement Date, Lessee may complete its own
build-out, if any, and fully equip the Demised Premises with all trade and
operating fixtures and equipment, plumbing, lighting and other fixtures and
equipment, furniture, furnishings, floor covering, and any and all other items
necessary for the proper operation of Lessee's business ("Lessee's Work"). All
equipment permanently affixed to the Demised Premises by Lessee shall not be
subject to liens, conditional sales contracts, security agreements or chattel
mortgages. Nothing contained herein shall prohibit Lessee from purchasing
display and other moveable equipment which may be subject to liens, conditional
sales contracts, security agreements or chattel mortgages ("Lessee's Trade
Fixtures"). Lessee shall complete or cause to be completed all of Lessee's Work
required on Lessee's part to be performed in and at the Demised Premises under
this Lease pursuant to Lessor's STANDARD REQUIREMENTS FOR ALTERATIONS TO BE
PERFORMED BY LESSEES' annexed hereto as EXHIBIT "G," as may be amended from time
to time.
SECTION 8.03. Other than as specifically provided for in Section 8.02
hereof, Lessee shall not do any construction, work or alterations to the Demised
Premises, nor shall Lessee install any items other than Lessee's Trade Fixtures
without first: (1) obtaining Lessor's written consent, which consent shall not
be unreasonably withheld or delayed AND (2) complying with all of the terms,
covenants and conditions contained in Lessor's STANDARD REQUIREMENTS FOR
ALTERATIONS TO BE PERFORMED BY LESSEES'.
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ARTICLE 9 - COMPLIANCE WITH LAWS
SECTION 9.01. Lessor represents that the Demised Premises, the Building and
Property and all of Lessor's Work will comply with all Legal Requirements,
Environmental Laws and Insurance Requirements as of the Commencement Date.
SECTION 9.02. Throughout the Term of this Lease and all Renewal Terms, if
any, Lessee shall promptly comply with all Legal Requirements, Environmental
Laws and Insurance Requirements whether or not such compliance involves
structural repairs or changes or be required on account of any particular use to
which the Demised Premises, or any part, may be put, and whether or not any such
Legal Requirements, Environmental Laws, or Insurance Requirements be of a kind
not now within the contemplation of the parties hereto. Compliance by Lessee
with Legal Requirements, Environmental Laws, and Insurance Requirements shall be
at Lessee's sole cost and expense. Lessee shall not contest the application or
validity of any such Legal Requirements, Environmental Laws, or Insurance
Requirements without the prior written consent of Lessor in each such instance.
Any repair or change required under this Section shall be deemed a repair for
the purposes of Article 7. With respect to actions necessary to comply with
Legal Requirements, Insurance Requirements and Environmental Laws which, due to
their nature, can only be taken by Lessor, Lessor, at Lessee's expense, will
cooperate with Lessee in facilitating such compliance.
ARTICLE 10 - RIGHTS RESERVED TO LESSOR
SECTION 10.01. Lessee shall permit Lessor, Lessor's's agents, and its
invitees to enter the Demised Premises, or any part thereof, at all reasonable
times and upon reasonable notice to Lessee provided same does not unreasonably
interfere with Lessee's business for the purposes of (a) inspecting the same,
(b) curing Events of Default of Lessee (after ten (10) days' notice to Lessee,
except that no notice shall be required in case of an emergency), (c) showing
the same to mortgagees, appraisers, or prospective lenders, purchasers or
lessees (Lessor shall only show the Demised Premises to prospective lessees in
the last nine (9) months of the Term, as may be extended), (d) observing the
performance by Lessee of its obligations under this Lease, (e) performing any
act or thing which Lessor may be obligated or have the right to do under this
Lease or otherwise, and (f) any other reasonable purpose. Lessor and any
providers of Utility Services or other services shall have the right to maintain
existing utility, mechanical, electrical and other systems and to enter upon the
Demised Premises to make such repairs and alterations therein or in or to the
Demised Premises as may, in the reasonable opinion of Lessor, be deemed
necessary or advisable. Lessor shall not be liable for inconvenience,
annoyance, disturbance or loss of business to Lessee or any sublessee by reason
of making any repairs or the performance of any work, or on account of bringing
materials, tools, supplies and equipment into or through the Demised Premises
during the course thereof and the obligations of Lessee under this Lease shall
not be affected thereby. The rights provided in this Article shall be exercised
so as to minimize interference with the use and occupancy of the Demised
Premises by Lessee. Nothing contained in this Article shall impose, or shall be
construed to impose on Lessor any obligation to maintain the systems referred to
in this Article or the Demised Premises or anything appurtenant thereto, or to
make repairs or alterations thereof or thereto, or to create any liability for
any failure to do so.
SECTION 10.02.A. Without abatement or diminution in rent, Lessor reserves
and shall have the following additional rights: (a) to change the street address
and/or the name of the Building of which the Demised Premises are a part and/or
the Property and/or the locations of entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets, or other public parts of the Building
and/or Property without liability to Lessee, PROVIDED, HOWEVER, that Lessor
shall take no action which adversely affects Lessee's access to and/or use of
the Demised Premises and/or Building, (b) to approve in (in Lessor's reasonable
judgment) writing all sources furnishing construction work, painting,
decorating, repairing, maintenance and any other work in or about the Demised
Premises, (c) to erect, use and maintain pipes and conduits in and through the
Demised Premises, provided that any such pipes, and conduits are located behind
the walls and in the ceiling of the Demised and do not materially reduce the
usable square footage of the Demised Premises and do not unreasonably interfere
with the operation of Lessee's existing systems and facilities servicing the
Demised Premises; (d) to charge to Lessee any reasonable and actual expense
including overtime cost incurred by Lessor in the event that repairs,
alterations, decorating or other work in the Demised Premises are made or done
after ordinary business hours at Lessee's request, (e) to immediately enter and
alter, renovate, and redecorate the Demised Premises (without reduction or
abatement of rent or incurring any liability to Lessee for compensation), if
during the last six (6) months of the Term or of any Renewal Term Lessee shall
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have removed all of Lessee's property therefrom, and (f) grant to anyone the
exclusive right to conduct any particular business or undertaking in the
Building of which the Demised Premises are a part.
B. Lessor may exercise any or all of the foregoing rights hereby reserved
to Lessor without being deemed guilty of an eviction, actual or constructive, or
disturbance or interruption of Lessee's use or possession and without being
liable in any manner toward Lessee and without limitation or abatement of Rent
or other compensation, and such acts shall have no effect on this Lease.
ARTICLE 11 - INSURANCE
SECTION 11.01.A. Lessee shall obtain and keep in full force and effect
during the Term, and during any earlier period of time when Lessee or Lessee's
agents, employees, or contractors may enter the Demised Premises at its own cost
and expense:
(1) commercial general liability insurance (with a contractual
liability endorsement covering the matters set forth in Article 16) having
a combined single limit of not less than Two Million ($2,000,000.00)
Dollars (including umbrella coverage) protecting Lessor, any Lessor's agent
which is acting as a property manager for the Property, the holder of any
Mortgage, or Lessor under any Superior Lease and Lessee as insureds, as
their interests appear (and naming each such person as an insured party or
as an additional insured, as their interests appear) against any and all
claims for bodily injury, death or property damage occurring, during the
Term and during any earlier period of time when Lessee or Lessee's agents,
employees, or contractors may enter the Demised Premises;
(2) insurance (herein sometimes referred to as "Lessee's fire
(casualty) insurance") against loss or damage by any and all risks and
hazards to Lessee's Property (as hereinafter defined) for the full
replacement value thereof (including coverages which are currently
sometimes referred to as "all risk" with coverage written on a replacement
cost basis);
(3) workers' compensation and employees liability insurance in
accordance with the laws of the State of New York and all Governmental
Authorities having jurisdiction over the Demised Premises and/or the
Property; and
(4) Lessee shall insure and keep insured in the name of Lessee, with
the name of Lessor included as an additional insured, as its interests may
appear, at Lessee's expense (i) all internal plate glass in the Demised
Premises; (ii) if there is a steam boiler, steam generator, or any other
combustible device, mechanism or appliance in, on, adjoining or beneath the
Demised Premises, for the exclusive use of the Lessee, Lessee shall insure
and keep the same insured with a broad form boiler insurance in the amount
of at least Five Hundred Thousand ($500,000.00) Dollars. Lessee shall
further insure, at Lessor's request, against any other peril generally
insured against by a business of Lessee's type.
B. Said insurance is to be written in form and substance reasonably
satisfactory to Lessor by an insurance company, licensed to do business in the
State of New York, which shall be rated by Best's Insurance Rating Service with
at least a rating equal to A:XII. Lessee shall procure, maintain and place such
insurance and pay all premiums and charges therefor and upon failure to do so
Lessor may, but shall not be obligated to, procure, maintain and place such
insurance or make such payments, and in such event Lessee agrees to pay the
amount thereof plus interest at the maximum legal rate, to Lessor on demand as
Additional Rent. If Lessee has other locations that it owns or leases, said
policy shall include an aggregate per location endorsement. Lessee shall cause
to be included in all such insurance policies (i) a provision to the effect that
the same will not be canceled or modified except upon not less than thirty (30)
days' prior written notice to the Lessor, and (ii) a provision to the effect
that the naming of any person other than Lessee as an insured shall not obligate
such person to pay any premium. Each such Lessee's fire (casualty) insurance
policy shall contain an agreement by the insurer that the act or omission of one
insured will not invalidate the policy as to any other insured. Not less than
ten (10) days prior to the Commencement Date the original insurance policies or
appropriate certificates and paid receipts therefor (together with a photocopy
of the policy, if Lessor shall so request), shall be deposited with Lessor. Any
renewals or endorsements thereto shall also be deposited with Lessor, not less
than ten (10) days prior to the expiration date of the policy being renewed,
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replaced or endorsed, to the end that said insurance shall be in full force and
effect at all times during the Term.
SECTION 11.02. Lessee agrees to use reasonable efforts to include in each
of its insurance policies (insuring the Demised Premises and Lessor's property
therein, against loss occasioned by fire or other casualty) a waiver of the
insurer's right of subrogation against the Lessor, or if such waiver should be
unobtainable or unenforceable, (a) an express agreement that such policy shall
not be invalidated if the insured waives or has waived before the casualty the
right of recovery against any party responsible for a casualty covered by the
policy, or (b) any other form of permission for the release of the other party,
or (c) the inclusion of the Lessor as an additional insured, as its interests
may appear. Lessee, upon request from Lessor from time to time, will furnish
evidence of the nature of the insurance arrangements made concerning the subject
matter of this Section.
SECTION 11.03. As long as both parties' fire (casualty) insurance policies
then in force include the waiver of subrogation or agreement or permission to
release liability referred to in Section 11.02 or name the other party as an
additional insured, each party hereby waives (and agrees to cause any other
permitted occupants of the Demised Premises to execute and deliver to the other
party written instruments waiving) any right of recovery against the other
party, the holder of the Mortgage, or Superior Lease, and any servants,
employees, agents or contractors of the other party, or of any such Lessor's or
holder, or of any such other tenants or occupants, for any loss occasioned by
fire or other casualty, that is an insured risk under Lessee's fire (casualty)
insurance policies. In the event that at any time either party's fire
(casualty) insurance carriers shall not include such or similar provisions in
the other party's fire (casualty) insurance policies, the waivers set forth in
the foregoing sentence shall be deemed of no further force and effect. During
any period when either party fails to maintain such fire (casualty) insurance,
for the purposes of the first sentence of this Section there shall be deemed to
be in effect such fire (casualty) insurance meeting the requirements of such
sentence.
SECTION 11.04. Nothing contained in this Lease shall (i) relieve Lessee of
any liability to Lessor or to its insurance carriers which Lessee may have under
law or the provisions of this Lease in connection with any damage to the Demised
Premises by fire or other casualty; (ii) impose upon Lessor any duty to procure
or maintain any kinds of insurance or any particular amounts or limits of any
such kinds of insurance.
SECTION 11.05. Lessor shall insure the Building with all risk insurance
coverage in such amounts so as to avoid co-insurance and Lessor agrees that such
policies shall contain a waiver of subrogation in favor of Lessee.
ARTICLE 12 - DAMAGE OR DESTRUCTION
SECTION 12.01. If the Demised Premises or any part thereof shall be damaged
by fire or other casualty, Lessee shall give prompt notice thereof to Lessor and
Lessor shall proceed (subject to the provisions of this Article) with reasonable
diligence to repair or cause to be repaired such damage. Except as provided in
Section 12.05, the Fixed Rent shall be abated proportionately to the extent that
the Demised Premises shall have been rendered Untenantable (as hereinafter
defined), such abatement to be from the date of such damage or destruction to
the date the Demised Premises shall no longer be Untenantable.
SECTION 12.02. If the Demised Premises shall be totally damaged or the
whole of the Demised Premises shall be rendered Untenantable by fire or other
casualty, and Lessor has not terminated this Lease pursuant to Section 12.03 and
Lessor has not completed the making of the required repairs and restored and
rebuilt the Demised Premises and/or access thereto within one (1) year from the
date of such damage or destruction to the level of demising walls only, and such
additional time after such date, as shall equal the aggregate period Lessor may
have been delayed in doing so by Unavoidable Delays or adjustment of insurance,
Lessee may serve notice on Lessor of its intention to terminate this Lease and
if within thirty (30) days thereafter, Lessor shall not have substantially
completed the making of the required repairs and restored and rebuilt the
Demised Premises to the level of demising walls, then in such events, this Lease
shall terminate on the expiration of such thirty (30) day period as if such
termination date were the Expiration Date, and the Fixed Rent and Additional
Rent shall be apportioned as of such date of sooner termination and any prepaid
portion of Fixed Rent and Additional Rent for any period after such date shall
be refunded by Lessor to Lessee.
SECTION 12.03.A. If the Demised Premises shall be totally damaged or the
whole of the Demised Premises shall be rendered Untenantable by fire or other
casualty or if the Demised
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Premises shall be so damaged by fire or other casualty that substantial
alteration or reconstruction shall, in Lessor's reasonable opinion, be required,
then and in such events Lessor may, at its option, terminate this Lease and the
Term and estate hereby granted by giving Lessee not less than thirty (30) days,
nor more than sixty (60) days, notice of such termination, within ninety (90)
days after the date of such damage. In the event that such notice of
termination shall be given, this Lease and the Term and estate hereby granted
shall terminate as of the date provided in such notice of termination (whether
or not the Term shall have commenced) with the same effect as if that were the
Expiration Date, and the Fixed Rent and Additional Rent shall be apportioned as
of such date of sooner termination, mid any prepaid portion of Fixed Rent and
Additional Rent for any period after such date shall be refunded by Lessor to
Lessee.
B. If the Demised Premises shall be totally damaged or the whole or
substantially all of the Demised Premises shall be rendered untenantable by fire
or other casualty, and Lessor has not terminated this Lease as provided in
Section 12.03.A., Lessor shall notify Lessee, within ninety (90) days after such
fire or other casualty, as to the estimated period of time necessary to complete
the required repairs and restore and rebuild the Demised Premises to the level
of demising walls. If such Lessor's estimate exceeds one (1) year, from the
date of such notice, or if Lessor falls to deliver such notice, then in such
events, Lessee may serve on Lessor, within thirty (30) days of its receipt of
Lessor's notice, or the expiration of the ninety (90) days after such fire or
other casualty, as the case may be (time being of the essence with respect
thereto), notice of its intention to terminate this Lease on a date which shall
be not more than thirty (30) days from the date of Lessee's notice. If Lessee
gives notice of its intention to cancel this Lease as provided herein, then in
such event, this Lease shall terminate on the expiration of such thirty (30) day
period as if such termination date were the Expiration Date, and the Fixed Rent
and Additional Rent shall be apportioned as of such date of sooner termination
and any prepaid portion of Fixed Rent and Additional Rent for any period after
such date shall be refunded by Lessor to Lessee. Lessee's failure to notify
Lessor within the thirty (30) day period shall be deemed a waiver of the right
to terminate this Lease.
SECTION 12.04. Lessor shall not be liable for any inconvenience or
annoyance to Lessee or injury to the business of Lessee resulting in any way
from such damage by fire or other casualty or the repair thereof.
SECTION 12.05. Lessee shall restore all improvements made by Lessee to the
Demised Premises, at Lessee's sole cost and expense. Nothing herein contained
shall relieve Lessee from any liability to the Lessor or to its insurers in
connection with any damage to the Property, Building or Demised Premises by fire
or other casualty if Lessee shall be legally liable in such respect.
Notwithstanding any of the foregoing provisions of this Article, if by reason of
some action or inaction on the part of Lessee or any of its employees, agents,
officers, directors or contractors, Lessor or the holder of the Mortgage or
Superior Lease shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) applicable to damage or destruction of the
Demised Premises by fire or other cause, then, without prejudice to any other
remedy which may be available against Lessee, the abatement of Fixed Rent
provided for in this Article shall not be effective to the extent of the
uncollected insurance proceeds.
SECTION 12.06. This Lease shall be considered an express agreement to the
contrary pursuant to New York REAL PROPERTY LAW Section 227 governing any case
of damage to or destruction of the Demised Premises or any part thereof by fire
or other casualty, and any law providing for such a contingency in the absence
of such express agreement, now or hereafter enacted, shall have no application
in such case to the extent inconsistent with this Lease.
SECTION 12.07. Lessee shall, at its own cost and expense, remove all of
Lessee's property from the Demised Premises as Lessor shall require in order to
repair and restore the Demised Premises and Lessor shall not be obligated to
commence repairs or restoration of the Demised Premises until such property has
been removed by Lessee from the damaged portion of the Demised Premises. Should
Lessee neglect, fail, or refuse to remove its aforesaid property within thirty
(30) days after such damage or destruction, the provisions for abatement of
Fixed Rent contained herein shall be suspended and of no force and effect
whatsoever until Lessee has completed such removal. In no event shall the
Lessor be required to repair or replace Lessee's merchandise, trade fixtures,
furniture, furnishings, inventory and equipment.
ARTICLE 13 - CURING DEFAULT'S; FEES AND EXPENSES
SECTION 13.01. If Lessee shall default in the full and prompt performance
of any covenant contained herein and to be performed on Lessee's part, Lessor,
after notice to Lessee in accordance with provisions of this Lease (except that
a lesser notice appropriate to the
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circumstances shall be required in case of an emergency), without being under
any obligation to do so and without thereby waiving such default may perform
such covenant for the account and at the expense of Lessee and may enter upon
the Demised Premises for any such purpose and take all action thereon as may be
necessary therefor. All reasonable sums so paid by Lessor in connection with
the payment or performance by it of any of the obligations of Lessee hereunder
and all actual and reasonable costs, expenses and disbursements paid in
connection therewith or enforcing or endeavoring to enforce any right under or
in connection with this Lease, or pursuant to law, together with interest
thereon at the maximum legal rate from the respective dates of the making of
each such payment, shall constitute Additional Rent payable by Lessee under this
Lease and shall be paid by Lessee to Lessor upon demand by Lessor. The
provisions of this Section shall survive the expiration or other termination of
this Lease.
ARTICLE 14 - DEFAULT PROVISIONS
SECTION 14.01.A. If any one or more of the following events shall happen
and shall not have been cured within any applicable grace period herein
provided:
(1) if default shall be made in the due and punctual payment of Fixed
Rent or Additional Rent payable by Lessee under this Lease when and as the
same shall become due and payable, and such default shall continue for a
period of five (5) days after written notice thereof from Lessor to Lessee
(provided that no such notice shall be required if, during the period of
one (1) year immediately preceding the date of default, there shall have
been two (2) or more defaults in the due and punctual payment of Fixed Rent
or Additional Rent payable by Lessee under this Lease when and as the same
shall have been due and payable); or
(2) if default shall be made by Lessee in performance of, or
compliance with, any of the covenants, agreements or conditions contained
in this Lease and either (i) in the case of a default or a contingency
which can with due diligence be cured within thirty (30) days, such default
shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee, or (ii) in the case of a default or a
contingency which cannot with due diligence be cured within thirty (30)
days, Lessee shall fail, after written notice thereof from Lessor, to
proceed promptly and with all due diligence to commence to cure the same
and thereafter to prosecute the curing of such default with all due
diligence (it being intended that, in connection with a default which is
not susceptible of being cured with due diligence within thirty (30) days
the time of Lessee within which to cure the same shall be extended for such
period as may be necessary for the curing thereof with all due diligence);
or
(3) if Lessee shall file a voluntary petition seeking an order or
relief under Title 11 of the United States Code or similar law of any
jurisdiction applicable to Lessee, or Lessee shall be adjudicated a debtor,
bankrupt or insolvent, or shall file any petition or answer seeking,
consenting to or acquiescing in any order for relief, reorganization,
arrangement, composition, adjustment, winding-up, liquidation, dissolution
or similar relief with respect to Lessee or its debts under the present or
any future bankruptcy act or any other present or future applicable
federal, state or other statute or law, or shall file an answer admitting
or failing to deny the material allegations of a petition against it for
any such relief or shall generally not, or shall be unable to, pay its
debts as they become due or shall admit in writing in any filing with any
court or Governmental Authority its insolvency or its inability to pay its
debts as they become due, or shall make a general assignment for the
benefit of creditors or shall seek or consent or acquiesce in the
appointment of any trustee, receiver, examiner, assignee, sequestrator,
custodian or liquidator or similar official of Lessee or of all or any part
of Lessee's property or if Lessee shall take any action in furtherance of
or authorizing any of the foregoing; or if Lessee shall call a meeting of,
or propose any form of arrangement, composition, extension or adjustment
with its creditors holding a majority in amount of Lessee's outstanding
indebtedness; or
(4) if any case, proceeding or other action shall be commenced or
instituted against Lessee, seeking to adjudicate lessee a bankrupt or
insolvent, or seeking an order for relief against Lessee as debtor, or
reorganization, arrangement, composition, adjustment, winding-up,
liquidation, dissolution or similar relief with respect to Lessee or its
debts under the present or any future bankruptcy act or any other present
or future applicable federal, state or other statute or law, or seeking
appointment of any trustee, receiver, examiner, assignee, sequestrator,
custodian or liquidator or similar official of Lessee or of all or part of
Lessee's property, which either (i) results in the entry of an
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order for relief, adjudication of bankruptcy or insolvency or such an
appointment or the issuance or entry of any other order having similar
effect or (ii) remains undismissed for a period of ninety (90) days; or if
any case, proceeding or other action shall be commenced or instituted
against Lessee seeking issuance of a warrant of execution, attachment,
restraint or similar process against Lessee or any of Lessee's property
which results in the taking or occupancy of the Demised Premises or an
attempt to take or occupy the Demised Premises which shall not have been
vacated, discharged, or stayed or bonded pending appeal within ninety (90)
days after the entry thereof; or
(5) if any event shall occur or any contingency shall arise whereby
this Lease or the estate hereby granted to the unexpired balance of the
Term would, by operation of law or otherwise, devolve upon or pass to any
person other than Lessee, except as is expressly permitted under Article
27, or if default shall be made by Lessee in the performance of, or
compliance with the covenants, agreements and conditions set forth in
Article 27; or
(6) if Lessee's (other than Lessee herein named) obligations under
this Lease shall have been guaranteed by any person other than Lessee and
such person shall default in observance or performance of any term,
covenant or condition to be observed or performed by such person under the
instrument or agreement containing such guarantee; or
(7) if any financial statement or other information furnished to
Lessor by Lessee in connection with this Lease is materially false or
misleading; or
(8) if Lessee shall default in the observance or performance of any
term, covenant or condition on Lessee's part to be observed or performed
under the provisions of Section 35.09; or
(9) if Lessee is the subject of a Chapter 11 reorganization under the
Bankruptcy Reform Act of 1978 and such reorganization is not confirmed
within eighteen (18) months from the time of filing of a voluntary or
involuntary petition thereunder (it being understood that in such event
Lessee consents to the termination of the automatic stay provisions of
Section 362 of such Act);
then and in any such event (hereinafter sometimes called an "Event of Default")
Lessor may give written notice ("Termination Notice") to Lessee specifying such
Event of Default or Events of Default and stating that this Lease and the Term
shall expire and terminate on the date specified in the Termination Notice,
which shall be at least seven (7) days after the giving of the Termination
Notice, and on the date specified therein this Lease and the Term and all rights
of Lessee under this Lease shall expire and terminate, it being the intention of
the Lessor and Lessee hereby to create conditional limitations, and Lessee shall
remain liable as provided in Article 15 and in accordance with those provisions
of this Lease which are specifically stated herein to survive the expiration or
other termination of this Lease.
B. Notwithstanding the provisions of Section 14.0l.A, if there shall be an
Event of Default at any time or from time to time under the provisions of
subdivision (1) of Section 14.0l.A, Lessor may, in lieu of giving a Termination
Notice, at any time after the occurrence of any such Event of Default and during
the continuance thereof, institute an action for the recovery of the Fixed Rent
and/or Additional Rent in respect of which an Event of Default shall have
occurred and be continuing. Neither the commencement of any such action for the
recovery of Fixed Rent and/or Additional Rent nor the prosecution thereof shall
be deemed a waiver of Lessor's right to give a Termination Notice in respect of
any such Event of Default during the continuance thereof and Lessor may,
notwithstanding the commencement and prosecution of any such action, give a
Termination Notice and terminate this Lease pursuant to Section 14.0l.A at any
time during the continuance of such Event of Default.
C. If, at any time, (i) Lessee shall be comprised of two or more persons,
or (ii) Lessee's obligations under this Lease shall have been guaranteed by any
person other than Lessee, or (iii) Lessee's interest in this Lease shall have
been assigned, the word "Lessee," as used in subdivisions (4), (5) and (9) of
Section 14.0l.A, shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Lessee's obligations under this Lease. Any
monies received by Lessor from or on behalf of Lessee during the pendency of any
proceeding of the types referred to in said subdivisions (4), (5) and (9) of
Section 14.0l.A shall be deemed paid as compensation for the use and occupation
of the Demised Premises and the acceptance of any such
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compensation by Lessor shall not be deemed an acceptance of rent or a waiver on
the part of Lessor of any rights under Section 14.01.
SECTION 14.02. In the event that this Lease shall be terminated as provided
in this Article, Lessor or Lessor's agents may, immediately, or at any time
thereafter, without further notice, enter upon and re-enter the Demised Premises
and possess and repossess itself thereof, by summary proceedings, ejectment or
otherwise, and have, hold and enjoy the Demised Premises and the right to
receive all income of and from the same. No re-entry by Lessor pursuant to this
Article shall be deemed an acceptance of a surrender of this Lease nor shall it
absolve or discharge Lessee from any liability under this Lease.
SECTION 14.03. In the event that this Lease shall be terminated as provided
in this Article, Lessor may, at any time or from time to time thereafter, relet
the Demised Premises or any part thereof, for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions (which may include concessions or
free rent, which shall, however, be amortized over the entire term for the
purpose of determining damages under Article 15) as Lessor may determine, to any
tenant which it may deem suitable and satisfactory and for any use and purpose
it may deem appropriate and may collect and receive the rents therefor. Lessor
shall use commercially reasonable methods in making such reletting. Lessor, at
its option, may make such repairs, alterations, additions, improvements,
decorations and other physical changes in and to the Demised Premises as Lessor
considers advisable or necessary in connection with any such reletting or
proposed reletting, without relieving Lessee of any liability under this Lease
or otherwise affecting any such liability. Lessor shall in no way be
responsible or liable for any failure to relet the Demised Premises, or any part
thereof, or for any failure to collect any rent due upon such reletting. Lessor
shall not in any event be required to pay Lessee (but shall credit Lessee, to
the extent set forth in Article 15, with) any sum received by Lessor on a
reletting of the Demised Premises, or any part thereof, whether or not in excess
of the rent reserved in this Lease.
SECTION 14.04. Lessee, on its own behalf and on behalf of all persons
claiming through or under Lessee including all creditors, does hereby waive any
and all rights and privileges, so far as is permitted by law, which Lessee and
all such persons might otherwise have under any present or future law, to (i)
the service of any notice of intention to re-enter or institute legal
proceedings to that end, excluding service of process, (ii) redeem the Demised
Premises, (iii) re-enter or repossess the Demised Premises, or (iv) restore the
operation of this Lease, after Lessee shall have been dispossessed by a judgment
or by warrant of any court or judge, or after any re-entry by Lessor or after
any expiration or termination of this Lease and the Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this Lease. The words "re-enter," "re-entry" and
"re-entered" as used in this Lease shall not be deemed to be restricted to their
technical legal meanings.
SECTION 14.05. In the event the Lessee shall dispute the validity or
amount, or the time or manner of payment of, any Rent claimed by Lessor to be
due from Lessee under this Lease, Lessee shall nevertheless pay the same and
such payment may be without prejudice to Lessee's position if Lessee so requests
at the time of payment. If the dispute shall be finally determined in Lessee's
favor by a court of competent jurisdiction, Lessor shall within a reasonable
period of time not to exceed sixty (60) days pay Lessee the amount of Lessee's
overpayment of such rent. Lessee's failure to observe and perform the
provisions of this Section shall be deemed a default under subdivision (1) of
Section 14.0l.A.
ARTICLE 15 - MEASURE OF DAMAGES IN EVENT OF DEFAULT
SECTION 15.01.A. In the event that this Lease be terminated pursuant to
Article 14 as a result of an Event of Default on the part of the Lessee and
whether or not the Demised Premises be relet, Lessor shall be entitled to retain
all monies, if any, paid by Lessee to Lessor, whether as advance Rent or
otherwise, but such monies shall be credited by Lessor against any Rent due at
the time of such termination, or at Lessor's option, against any damages payable
by Lessee, and Lessor shall be entitled to recover from Lessee, and Lessee shall
pay to Lessor the following:
(a) All Rent to the date upon which this Lease and the Term shall have
terminated, and
(b) All expenses reasonably incurred by Lessor in recovering
possession of the Demised Premises (including summary proceedings),
restoring the Demised Premises to good order and condition, maintaining the
Demised Premises in good order and condition
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while vacant, altering or otherwise preparing the same for reletting, and
in reletting the Demised Premises (including reasonable and customary
brokerage commissions and legal expenses), the same to be paid by Lessee to
Lessor on demand, and
(c) The amount by which the rent which, but for the termination of
this Lease, would have been payable under this Lease from the date of
termination to the Expiration Date exceeds the rental and other income, if
any, collected by Lessor in respect of the Demised Premises, or any part
thereof, subject nevertheless to the provisions of Section 14.03, said
amount to be due and payable by Lessee to Lessor on the several days on
which the Rent reserved in this Lease would have become due and payable for
the period which otherwise would have constituted the unexpired portion of
the Term (that is to say, upon each of such days Lessee shall pay to Lessor
the amount of deficiency then existing).
B. Whether or not Lessor shall have collected any monthly deficiencies
aforesaid, Lessor shall be entitled to recover from Lessee on demand, as and for
liquidated damages, a lump sum payment equal to the amount by which the Fixed
Rent and Additional Rent payable hereunder for the period which otherwise would
have constituted the unexpired portion of the Term (due account being taken of
amounts, if any, collected under clause [c] of Section 15.0l.A, and conclusively
presuming the Additional Rent to be the same as was payable for the year
immediately preceding such termination or re-entry and thereafter increasing by
three (3%) percent per annum) exceeds the then rental value of the Demised
Premises for the same period both discounted at a rate equal to then applicable
Treasury Rate to present value. If the Demised Premises or any part thereof be
relet by Lessor for the unexpired portion of the Term, or any part thereof,
before presentation of proof of such liquidated damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall be deemed
PRIMA FACIE to be the fair and reasonable rental value for the part or the whole
of the Demised Premises so relet during the term of the reletting. Nothing
herein contained shall limit or prejudice the right of the Lessor to prove for
and obtain as damages by reason of such termination an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount be greater or less than the amount of liquidated damages
referred to above (due account to be taken, however, of the amounts, if any,
collected under this Article 15).
SECTION 15.02. In no event shall Lessee be entitled to receive any excess
of the rental and other income collected by Lessor in respect of the Demised
Premises over the sums payable by Lessee to Lessor hereunder. In no event shall
Lessee be entitled in any suit for the collection of damages pursuant to this
Article to a credit in respect of any such rental and other income, except to
the extent that such rental and other income is allocable to the portion of the
Term in respect of which such suit is brought and is actually received by Lessor
prior to the entry of judgment in such suit.
SECTION 15.03. Separate actions may be maintained by Lessor against Lessee
from time to time to recover any damages which, at the commencement of any such
action, have then or theretofore become due and payable to Lessor under Article
14, without waiting until the end of the Term and without prejudice to Lessor's
right to collect damages thereafter.
ARTICLE 16 - INDEMNIFICATION
SECTION 16.01. Notwithstanding that joint or concurrent liability may be
imposed upon either party by statute, ordinance, rule, regulation, order or
court decision, and notwithstanding any insurance furnished by either party
pursuant hereto or otherwise, Lessee shall and does hereby indemnify and hold
Lessor and its agents, officers, directors, and employees, harmless from and
against any and all loss, liability, fines, suits, claims, obligations, damages,
penalties, demands and actions, and costs and reasonable expenses of any kind or
nature (including architects', engineers' and attorneys' fees) due to or arising
out of any of the following:
(a) any work or thing done in, on or about the Demised Premises,
Building or the Property or any part thereof or any use, possession,
occupation, condition, operation, maintenance, repair or management of the
Demised Premises, Building or the Property or any part thereof, by Lessee
or anyone claiming through or under Lessee or the respective employees,
agents, licensees, contractors, servants or sublessees of Lessee or any
such person;
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(b) any act or omission on the part of Lessee or any person claiming
through or under Lessee, or the respective employees, agents, licensees,
invitees, contractors, servants or sublessees of Lessee or any such person;
or
(c) any accident or injury to any person (including death) or damage
to property (including loss of property) occurring in, on, or about the
Demised Premises, Building or the Property or any part thereof, due to the
act or omission by Lessee, its employees, agents, licensees, invitees,
contractors or servants.
The provisions of this Section 16.01 shall survive the expiration or
termination of this Lease. Any sums payable by Lessee to Lessor under this
Section 16.01 shall be due and payable on demand.
SECTION 16.02. Lessor and Lessor's agents, officers, directors, and
employees shall not be liable for any of the following, however caused, other
than by negligent or wilful acts: (a) failure of any Utility Service, (b) damage
to Lessee's property on the Demised Premises caused by or resulting from any
cause whatsoever, including explosion, falling plaster, vermin, smoke, gasoline,
oil, Hazardous Materials, steam, gas, electricity, earthquake, subsidence of
land, hurricane, tornado, flood, wind or similar storms or disturbances or
water, rain, ice or snow which may be upon, or leak or flow from, any street,
road, parking lot, sewer, gas main or subsurface area, or from any part of the
Property, or leakage of gasoline, oil or other substances from pipes, pipelines,
appliances, storage tanks, sewers or plumbing works in or at the Property, or
from any other place, or from the breaking of any electrical wire or the
breaking, bursting or leaking of water or Hazardous Materials from any plumbing
or sprinkler system, or any other pipe or storage tanks in, on, under or about
the Property, (c) interference with light or other incorporeal hereditaments,
and (d) loss by theft or otherwise of Lessee's Property or the property of any
person claiming through or under Lessee. Any employees of Lessor to whom any
property shall be entrusted by or on behalf of Lessee shall be deemed to be
acting as Lessee's agents with respect to such property and neither Lessor nor
Lessor's agents shall be liable for any loss or for damage to any such property
by theft or otherwise. This Section 16.02 shall not be construed as a provision
for indemnification.
SECTION 16.03. Except as otherwise provided for in this Lease, Lessor shall
and does hereby agree to indemnify, defend and hold harmless Lessee and Lessee's
agents from and against any and all loss, liability, fines, suits, claims,
obligations, damages, penalties, demands and actions, and costs and reasonable
expenses of any kind or nature (including architects' and attorneys' fees) due
to or arising out of the negligence or willful misconduct of Lessor, its agents,
officers, directors and employees. In case of any obligation of Lessor to
indemnify Lessee pursuant to this Section, such obligation shall be subject to
and conditioned upon (x) the receipt by Lessor of prompt written notice of the
claim with respect to which indemnification is sought and (y) Lessor's having
had reasonable opportunity to conduct the defense of such claim in such manner
as it deems appropriate, with the full cooperation of Lessee, and using counsel
reasonably acceptable to Lessor.
ARTICLE 17 - MECHANICS AND OTHER LIENS
SECTION 17.01. If any mechanic's, laborer's or materialman's lien shall be
at any time be filed against the Demised Premises, Building or Property, or any
part thereof with respect to any work done, or caused to be done, or labor or
materials furnished, or caused to be furnished, by Lessee or anyone claiming
through or under Lessee (except for Lessor's Work), Lessee, within thirty (30)
days after notice of the filing thereof, shall cause the same to be discharged
of record by payment, deposit, bond, order of a court of competent jurisdiction
or otherwise. If Lessee shall fail to cause such lien to be discharged within
the period aforesaid, then, in addition to any other right or remedy, Lessor
may, but shall not be obligated to, discharge the same by bonding proceedings,
if permitted by law (and if not so permitted, by deposit in court). Any amount
so paid by Lessor, including all reasonable and actual costs and expenses paid
by Lessor in connection therewith, together with interest thereon at the maximum
legal rate from the respective dates of Lessor's so paying any such amount, cost
or expense, shall constitute Additional Rent payable by Lessee under this Lease
and shall be paid by Lessee to Lessor on demand.
ARTICLE 18 - CONDEMNATION
SECTION 18.01. If the whole of the Demised Premises, or such part thereof
as will render the remainder Untenantable, shall be acquired or condemned for
any public or quasi-public use or purpose, this Lease and the Term shall end as
of the date of vesting of title in the
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condemning authority with the same effect as if said date were the Expiration
Date. If only a part of the Demised Premises shall be so acquired or condemned
then, except as otherwise provided in this Article, this Lease and the Term
shall continue in force and effect but, from and after the date of the vesting
of title, the Fixed Rent shall be an amount which bears the same ratio to the
Fixed Rent payable immediately prior to such condemnation pursuant to this Lease
as the value of the untaken portion of the Demised Premises (appraised after
taking and repair of any damage to the Demised Premises pursuant to this
Section) bears to the value of the entire Demised Premises immediately before
the taking. The value of the Demised Premises before and after the taking shall
be determined for the purposes of this Section by an independent licensed
appraiser chosen by Lessor. If more than sixty (60%) percent of the total area
of the Building included in the Demised Premises immediately prior to
acquisition or condemnation is so acquired or condemned, or if by reason of such
acquisition or condemnation, Lessee no longer has reasonable means of access to
the Demised Premises, then in such event, either party, may give notice to the
other party within sixty (60) days next following the date upon which Lessee
have received notice of vesting of title, thirty (30) days notice of termination
of this Lease. In the event any such thirty (30) day notice of termination is
given by Lessor or Lessee, this Lease and the Term shall terminate upon the
expiration of said thirty (30) days with the same effect as if that date were
the Expiration Date. If a part of the Demised Premises shall be so acquired or
condemned, and the Term shall not be terminated pursuant to the provisions of
this Section, Lessor, at Lessor's expense, shall restore that part of the
Demised Premises not so acquired or condemned to a self-contained unit. In the
event of any termination of this Lease and the Term pursuant to the provisions
of this Section, the Fixed Rent and Additional Rent shall be apportioned as of
the date of sooner termination and any prepaid portion of the Fixed Rent and
Additional Rent for any period after such date shall be refunded by Lessor to
Lessee, subject to the claims, if any, of Lessor against Lessee hereunder or
otherwise.
SECTION 18.02. In the event of any acquisition or condemnation of all or
part of the Demised Premises for any public or quasi-public use or purpose,
Lessor shall be entitled to receive the entire award for such acquisition or
condemnation, Lessee shall have no claim against Lessor or the condemning
authority for the value of any unexpired portion of the Term and Lessee hereby
expressly assigns to Lessor all of its right, title and interest in and to any
such award, and also agrees to execute any and all further documents that may be
required in order to facilitate the collection thereof by Lessor. Nothing
contained in this Section shall be deemed to prevent Lessee from making a
separate claim in any condemnation proceeding for moving expenses and for the
value of any Lessee's Property which would be removable at the end of the Term
pursuant to the provisions hereof, directly against any Governmental Authority
authorized to exercise the power of eminent domain, provided that applicable
statutes permit such awards and any award to Lessor is not diminished or
adversely affected thereby.
SECTION 18.03. The terms "condemnation" and "acquisition" as used in this
Article shall include any agreement in lieu of or in anticipation of the
exercise of the power of eminent domain between Lessor and/or any Superior
Mortgage and any Governmental Authority authorized to exercise the power of
eminent domain.
ARTICLE 19 - COVENANT OF QUIET ENJOYMENT
SECTION 19.01. If and so long as no Event of Default shall have occurred
and be continuing, Lessor covenants and agrees that Lessee may peaceably and
quietly enjoy the Demised Premises and Lessee's possession of the Demised
Premises will not be disturbed by Lessor, its successors and assigns, subject,
however, to the terms of this Lease (including those set forth in Sections 24.01
and 24.02), the Mortgage, Superior Lease and any and/or all other agreements and
any amendments thereto, to which this Lease is subordinated.
ARTICLE 20 - WAIVER OF COUNTERCLAIM AND JURY TRIAL
SECTION 20.01. In the event that Lessor shall commence any summary or other
proceedings or action for non-payment of Rent hereunder, Lessee shall not
interpose any counterclaim of any nature or description in such proceeding or
action, unless such non-interposition would effect a waiver of Lessee's right to
assert such claim against Lessor in a separate action or proceeding. The
parties hereto waive a trial by jury on any and all issues arising in any action
or proceeding between them or their successors under or in any way connected
with this Lease or any of its provisions, any negotiations in connection
therewith, the relationship of Lessor and Lessee, or Lessee's use or occupation
of the Demised Premises, including any claim of injury or any emergency or other
statutory remedy with respect thereto. The provisions of this Article shall
survive the expiration or other termination of this Lease.
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ARTICLE 21 - NOTICES
SECTION 21.01.A. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests, consents or other communications
given or required to be given under this Lease shall be effective only if
rendered or given in writing and
(a) If to Lessee, then, at the option of Lessor, (i) addressed to
Lessee's address as set forth in this Lease with a copy thereof to Lessee
at One Meadowlands Plaza, East Rutherford, New Jersey 07073, Attention:
General Counsel, or to such other address as Lessee may designate as its
new address for such purpose by notice given to Lessor in accordance with
the provisions of this Section, or (ii) delivered personally to Lessee, or
(iii) by overnight courier,
(b) If to Lessor, sent by personal delivery or overnight courier,
addressed to Lessor at Lessor's address as set forth in this Lease, with a
copy thereof to Hirsch & Katz, LLP, 595 Stewart Avenue, Suite 400, Garden
City, New York 11530, Attention: Steven C. Hirsch, Esq., or to such other
address as Lessor may designate as its new address for such purpose by
notice given to Lessee in accordance with the provisions of this Section.
B. Any such bill, statement, notice, demand, request, consent or other
communication shall be deemed to have been rendered or given: (i) on the date
delivered, if delivered to Lessee personally, or by overnight courier and
(ii) on the expiration of five (5) days after mailing, if mailed to Lessor or
Lessee as provided in this Section. Any notice by a party signed by counsel for
such party shall be deemed a notice signed by such party.
ARTICLE 22 - WAIVERS AND SURRENDERS TO BE IN WRITING
SECTION 22.01. The receipt of full or partial Rent by Lessor with knowledge
of any breach of this Lease by Lessee or of any default on the part of the
Lessee in the observance or performance of any of the provisions or covenants of
this Lease shall not be deemed to be a waiver of any such provision, covenant or
breach of this Lease, PROVIDED, HOWEVER, that acceptance of a payment of Rent
shall be valid PRO TANTO. No waiver or modification by Lessor, unless in
writing, and signed by Lessor, shall discharge or invalidate any provision or
covenant or affect the right of Lessor to enforce the same in the event of any
subsequent breach or default. The failure on the part of Lessor to insist in
any one or more instances upon the strict performance of any of the provisions
or covenants of this Lease, or to enforce any covenant or provision herein
contained or to exercise any right, remedy or election herein contained
consequent upon a breach of any provision of this Lease, shall not affect or
alter this Lease or be construed as a waiver or relinquishment for the future of
such one or more provisions or covenants or of the right to insist upon strict
performance or to exercise such right, remedy or election, but the same shall
continue and remain in full force and effect with respect to any existing or
subsequent breach, act or omission, whether of a similar nature or otherwise.
The receipt by Lessor of any rent or any other sum of money or any other
consideration hereunder paid by Lessee after the termination, in any manner, of
the Term, or after the giving by Lessor of the Termination Notice, shall not
reinstate, continue or extend the Term, or destroy, or in any manner impair the
efficacy of any such Termination Notice, as may have been given hereunder by
Lessor to Lessee prior to the receipt of any such Rent, or other sum of money or
other consideration, unless so agreed to in writing and signed by Lessor.
Neither acceptance of the keys or any other act or thing done by Lessor or any
agent or employee shall be deemed to be an acceptance of a surrender of the
Demised Premises, or any part thereof, excepting only an agreement in writing
signed by Lessor. No payment by Lessee or receipt by Lessor of a lesser amount
than the correct Rent shall be deemed to be other than a payment on account, nor
shall any endorsement or statement on any check, as distinguished from any
letter accompanying such check or payment, be deemed to effect or evidence an
accord and satisfaction, and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance or pursue any other remedy in
this Lease provided.
SECTION 22.02. No waiver or modification by Lessee, unless in writing, and
signed by Lessee, shall discharge or invalidate any provision or covenant or
affect the right of Lessee to enforce the same in the event of any subsequent
breach or default. The failure on the part of Lessee to insist in any one or
more instances upon the strict performance of any of the provisions or covenants
of this Lease, or to enforce any covenant or provision herein contained or to
exercise any right, remedy or election herein contained consequent upon a breach
of any provision of this Lease, shall not affect or alter this Lease or be
construed as a waiver or relinquishment for the future of such one or more
provisions or covenants or of the right to insist
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upon strict performance or to exercise such right, remedy or election, but the
same shall continue and remain in full force and effect with respect to any
existing or subsequent breach, act or omission, whether of a similar nature or
otherwise.
ARTICLE 23 - RIGHTS CUMULATIVE
SECTION 23.01. Each right and remedy of Lessor shall be cumulative and to
the extent permitted by law, the exercise or beginning of the exercise by Lessor
of any one or more of the rights or remedies of such party shall not preclude
the simultaneous or later exercise by Lessor of any or all other rights or
remedies; PROVIDED, HOWEVER, that this sentence shall not be construed to
entitle Lessor to satisfaction of more than one remedy in respect of a
particular breach. In the event of any breach or threatened breach by Lessee or
any persons claiming through or under Lessee of any of the agreements, terms,
covenants or conditions contained in this Lease, Lessor shall be entitled to
enjoin such breach or threatened breach (if entitled to do so at law or in
equity or by statute or otherwise) and shall have the right to invoke any right
or remedy allowed by law or in equity or by statute or otherwise as if re-entry,
summary proceedings or other specific remedies were not provided for in this
Lease.
ARTICLE 24 - CONVEYANCE; LIABILITY OF PARTIES
SECTION 24.01. The term "Lessor" as used herein shall mean and include only
the owner or owners at the time in question of the Lessor's interest in this
Lease so that in the event of any transfer or transfers (by operation of law or
otherwise) of Lessor's entire interest in this Lease, Lessor herein named (and
in the case of any subsequent transfers or conveyances, the then transferor)
shall be and hereby is automatically freed and relieved, from and after the date
of such transfer or conveyance, of all liability in respect of the performance
of any covenants or obligations on the part of the Lessor contained in this
Lease thereafter to be performed, provided that the transferee shall be deemed
to have assumed and agreed to perform subject to the limitation of this Article
(and without further agreement between or among the parties or their successors
in interest, and/or the transferee) and only during and in respect of the
transferee's period of ownership, all of the terms, covenants and conditions in
this Lease contained on the part of Lessor to be performed, which terms,
covenants, and conditions shall be deemed to "run with the land," it being
intended hereby that the terms, covenants and conditions contained in this Lease
or the part of the Lessor to be performed shall, subject as aforesaid, be
binding on Lessor, its successors and assigns, only during and in respect of
their respective successive periods of ownership.
SECTION 24.02. In the event of a breach by Lessor of any provisions,
covenants or obligations of this Lease to be performed by Lessor, the monetary
liability of Lessor in relation to any such breach shall be limited to the
equity of Lessor in the Demised Premises, and Lessee shall look only to Lessor's
equity in the Demised Premises for the performance and observance of the terms,
covenants, conditions and obligations of this Lease to be performed or observed
by Lessor and for the satisfaction of Lessee's remedies for the collection of
any award, judgment or other judicial process requiring the payment of money by
Lessor in the event of a default in the full and prompt payment and performance
of any Lessor's obligations hereunder and in no event shall any of the partners
constituting Lessor (the "Partners"), nor the partners, shareholders, officers
or directors of Lessor or the Partners shall be liable for the performance of
Lessor's obligations under this Lease, nor shall any of the Partners assets be
liable to any levy, execution, restraint, award, claim of any kind whatsoever
arising out of, or in any way related to this Lease.
SECTION 24.03. The term "Lessee" as used in this Lease shall mean and
include Lessee named herein and, during and in respect of their respective
successive periods of ownership, each subsequent owner or owners of the
leasehold estate created by this Lease. For all purposes of this Lease and
without affecting the rights of, and obligations between, Lessee herein named
and any transferee, notwithstanding any transfer (by operation or law or
otherwise) of title to the leasehold estate created by this Lease by Lessee
herein named or by any subsequent owner of such estate and notwithstanding the
assumption by any transferee of the obligations of the Lessee hereunder, Lessee
herein named, as between Lessor and Lessee herein named, shall remain primarily
liable as primary obligor and not as a surety, for the full and prompt payment
and performance of Lessee's obligations hereunder and, without limiting the
generality of the foregoing or of Article 28, shall remain fully and directly
responsible and liable to Lessor for all acts and omissions on the part of any
transferee subsequent to it in violation of any obligation of this Lease.
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ARTICLE 25 - CHANGES AND ALTERATIONS BY LESSEE
SECTION 25.01.A. Lessee shall have no right to make any alteration, change,
additions or improvement, structural or otherwise (an "Alteration"), to the
Demised Premises or any appurtenances thereto without the prior written consent
of Lessor in each instance, which consent shall not be unreasonably withheld.
B. If Lessor shall grant its consent to the making of an Alteration, then
the same shall (i) be performed at the sole cost and expense of Lessee, (ii) be
performed in a good and workmanlike manner, and in compliance with all
applicable Legal Requirements (including existing zoning requirements),
Insurance Requirements and Environmental Laws, (iii) be consistent with the use
of the Demised Premises provided for herein, (iv) not in any way render the
Demised Premises other than a complete, self containing operating unit, (v) in
the case of a structural alteration, be performed in accordance with plans and
specifications approved prior to the commencement of any work by the appropriate
Governmental Authorities and by Lessor, (vi) be of such nature so as not to
lessen the fair market value of the Demised Premises, and (vii) be performed
under the supervision of a licensed architect approved by Lessor and in
accordance with Lessor's STANDARD REQUIREMENTS FOR ALTERATIONS TO BE PERFORMED
BY LESSEES', as may be amended from time to time.
SECTION 25.02.A. Any and all Alterations made in accordance with
Section 25.01 shall immediately become the property of Lessor, PROVIDED,
HOWEVER, that if, in accordance with the provisions of Sections 25.02.B and
29.02, Lessee shall have the option to and shall remove its trade fixtures,
provided that same are not affixed to or such removal would otherwise damage the
Demised Premises, then the same shall cease to be property of the Lessor upon
removal.
B. Unless Lessor shall otherwise expressly indicate in writing at the time
of granting its consent to the making of a proposed Alteration, Lessee shall, as
and when provided in Section 29.02, restore the affected portion of the Demised
Premises to the state or condition thereof existing prior to the making of such
Alteration.
C. Any and all contractors to be involved in performing work shall be
subject to Lessor's prior approval, which shall not be unreasonably withheld.
D. Prior to commencing any work at the Demised Premises, Lessee shall
furnish Lessor with evidence reasonably satisfactory to Lessor of such insurance
as Lessor may require and such insurance shall be in full force and effect
during such work and will cover, by endorsement or otherwise, the risk during
the course of such work.
E. In the event of any Alteration as provided for in this Article, the Rent
payable hereunder shall not be reduced or abated in any manner whatsoever,
except as specifically provided for in Article 3 hereof.
F. No Alterations shall involve the removal of any fixtures, equipment or
other property in the Demised Premises which are not Lessee's property, unless
Lessor's prior written consent is first obtained and unless such fixtures,
equipment or other property shall be promptly replaced, at Lessee's expense and
free of superior title, liens and claims, with fixtures, equipment or other
property (as the case may be) of like utility and at least equal value (which
replaced fixtures, equipment or other property shall thereupon become the
property of Lessor), unless Lessor shall otherwise expressly consent in writing.
SECTION 25.03. Notwithstanding anything herein to the contrary, Lessor
(which term shall mean Lessor and/or Lessor's affiliated general contractor)
shall have the right to bid on any and all Alterations pursuant to Article 25 of
this Lease. In the event that Lessor is not the successful bidder, then in such
event, Lessor (which term shall mean Lessor and/or Lessor's affiliated general
contractor) shall be entitled to a general supervisory fee of Five (5%) percent
to supervise all such Alterations.
ARTICLE 26 - CERTIFICATE OF LESSEE
SECTION 26.01. Lessee agrees at any time and from time to time, within
twenty (20) days after receiving written request by Lessor, to execute,
acknowledge and deliver a statement certifying (i) the Commencement Date and/or
Rent Commencement Date hereunder, (ii) that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the Lease is in full
force and effect as modified and stating the modifications), (iii) the dates to
which the Fixed Rent and Additional Rent have been paid, and (iv) whether or not
to the knowledge of
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the signer of such statement (a) Lessor is in default in keeping, observing or
performing any term, covenant, agreement, provision, condition or limitation
contained in this Lease and, if in default, specifying each such default,
(b) either party is holding any funds under this Lease in which the other has an
interest (and, if so, specifying the party holding such funds and the nature and
amount thereof), and (c) there is any amount then due and payable to Lessee by
Lessor, it being intended that any such statement delivered pursuant to this
Section may be relied upon by Lessor, any mortgagee, superior lessor or any
person who may and does become a mortgagee, superior lessee, any person who may
and does become a purchaser or assignee of Lessor's interest in this Lease or
the mortgagee's interest in any mortgage or the Lessor's interest in the
Superior Lease.
ARTICLE 27 - ASSIGNMENTS, SUBLEASES AND MORTGAGES
SECTION 27.01.A. Except as otherwise specifically provided in this Article,
neither this Lease, nor the Term and estate hereby granted, nor any part
thereof, nor the interest of Lessee in any sublease or the rental thereunder,
shall be assigned, mortgaged, pledged, encumbered or otherwise transferred by
Lessee or Lessee's legal representatives or successors in interest, by operation
of law or otherwise, and neither the Demised Premises, nor any part thereof, nor
any Lessee's Property, shall be encumbered in any manner by reason of any act or
omission on the part of Lessee or anyone claiming under or through Lessee, or
shall be sublet or be used or occupied or permitted to be used or occupied or
utilized for desk or storage space by anyone other than Lessee or for any
purpose other than as specifically permitted by this Lease, without the prior
written consent of Lessor in each case, which consent may be withheld for any
reason whatsoever. If Lessee is other than a public company, a transfer
(including any issuance of stock) of an aggregate of fifty (50%) percent or more
stock, partnership interest or other equity interest in Lessee by any party or
parties in interest shall be deemed an assignment of this Lease.
B. If Lessee is a corporation, upon at least thirty (30) days prior notice
to Lessor, this Lease in its entirety may be assigned without Lessor's consent
to a corporation into which Lessee merges or consolidates, or which controls, is
controlled by or under common control with Lessee, so long as the Demised
Premises continue to be used for the use described in Article 4 of this Lease;
the transfer is not principally for the purpose of transferring the leasehold
estate created hereby; the net worth of the assignee is at least equal to or in
excess of the net worth of Lessee at the time of execution of this Lease and
immediately prior to such assignment or the assignee can otherwise secure and
guaranty the payment to Lessor of all rent and any other amounts due from Lessee
pursuant to this Lease in a manner reasonably satisfactory to Lessor; the
assignee assumes by documents satisfactory to Lessor all of Lessee's obligations
to be performed under this Lease, and; provided such assignment shall be subject
to all of the other terms and conditions of this Lease.
SECTION 27.02. If this Lease be assigned, whether or not in violation of
the provisions of this Lease, Lessor may collect rent from the assignee, and
Lessor shall be entitled to receive, as Additional, Rent, all the excess
consideration paid to Lessee in connection with such assignment as shall for any
period exceed the aggregate of the Rents payable under this Lease (the "Excess
Consideration"). Such Excess Consideration shall be reduced by the reasonable
cost of tenant improvements, rent concessions, and brokerage commissions
reasonably incurred by Lessee for such assignment, and the net amount thereof
shall be paid to Lessor either: (i) in a lump sum, (ii) or allocated to such
period on a straight line basis over the term of such assignment if paid in
installments, as the case may be, promptly after receipt thereof by Lessee. The
provisions of the preceding sentence shall be in full force and effect
notwithstanding that Lessee has sought the protection of any provisions of the
bankruptcy law (as hereinafter defined) or if a petition has been filed against
Lessee under such bankruptcy law. If the Demised Premises or any part thereof
be sublet or be used or occupied by anybody other than Lessee, whether or not in
violation of this Lease, Lessor may, after default by Lessee and expiration of
Lessee's time to cure such default, if any, collect rent from the sublessee or
occupant. In either event, Lessor may apply the net amount collected to the
rents herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 27.01,
or the acceptance of the assignee, sublessee or occupant as tenant, or a release
of Lessee from the further performance by Lessee of Lessee's obligations under
this Lease. The consent by Lessor to an assignment, mortgaging or subletting
pursuant to any provision of this Lease shall not in any way be considered to
relieve Lessee from obtaining the express consent of Lessor for any other or
further assignment, mortgaging or subletting. References in this Lease to use
or occupancy by anyone other than Lessee shall not be construed as limited to
sublessees and those claiming under or through sublessees but as including also
licensees and others claiming under or through Lessee, immediately or remotely.
The listing of any name other than that of Lessee on any door of the Demised
Premises or on any sign on the Demised Premises, or
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otherwise, shall not operate to vest in the person so named any right or
interest in this Lease or in the Demised Premises, or be deemed to constitute,
or serve as a substitute for, any prior consent of Lessor required under this
Article, and it is understood that any such listing shall constitute a privilege
extended by Lessor which shall be revocable at Lessor's will by notice to
Lessee. Lessee agrees to pay to Lessor any reasonable counsel fees incurred by
Lessor in connection with any proposed assignment of Lessee's interest in this
Lease or any proposed subletting of the Demised Premises or any part thereof.
Neither any assignment of Lessee's interest in this Lease nor any subletting,
occupancy or use of the Demised Premises or any part thereof by any person other
than Lessee as provided in this Article, nor any application of any such rent as
provided in this Article shall, under any circumstances, relieve Lessee herein
named of its obligations fully to observe and perform the terms, covenants and
conditions of this Lease on Lessee's part to be observed and performed.
SECTION 27.03.A. Notwithstanding anything contained in Sections 27.01 and
27.02, in the event that, at any time or from time to time during the Term,
Lessee desires to sublet all or any part of the Demised Premises, Lessee shall
notify Lessor of such desire and shall: (i) submit to Lessor in writing the name
and address of the proposed subtenant, a reasonably detailed statement of the
proposed subtenant's business, reasonably detailed financial references for the
proposed subtenant and any other information reasonably requested by Lessor, and
(ii) submit to Lessor a copy of the proposed sublease.
B. If a proposed assignment or sublease requires Lessor's consent, then
upon receipt of such notice Lessor shall thereupon have the option and right,
exercisable within ten (10) days of receipt of such notice from Lessee, to
terminate this Lease effective as of a date specified by Lessor in such notice
which date shall not be later than thirty (30) days after the date of Lessor's
notice. Notwithstanding the foregoing, Lessor shall not have the right to
terminate this Lease in connection with a collateral assignment of the Lease
which Lessor has consented to.
C. If within fifteen (15) days after Lessee shall have requested the
consent of Lessor to any assignment or subletting under this Article, and shall
have submitted all items required hereby, Lessor does not exercise its option to
terminate this Lease, the term of the proposed assignment or sublease may
commence upon Lessor's consent, which consent may not be unreasonably withheld,
it being agreed that if within such fifteen (15) day period Lessor does not
advise Lessee that such consent is not granted, such consent shall be deemed
granted by Lessor. Lessor, however, shall not in any event be obligated to
consent to the proposed sublease or the commencement of the term unless: (i) in
the reasonable judgment of Lessor the proposed subtenant is of a character and
financial worth such as is in keeping with the standards of Lessor in those
respects for the Demised Premises, and the nature of the proposed subtenant's
business and its reputation are in keeping with the character of the Demised
Premises and the use thereof, (ii) the purpose for which the proposed subtenant
intends to use the portion of the Demised Premises sublet to it are uses
expressly permitted by and not expressly prohibited by this Lease; (iii) the
proposed sublease shall prohibit any further assignment or subletting, except in
accordance with the terms of this Lease; (iv) no Event of Default shall have
occurred and be continuing and (v) Lessee shall reimburse Lessor for all
reasonable costs that may be incurred by Lessor in connection with any sublease
or assignment, including the costs of making investigations as to the
acceptability of a proposed subtenant or assignee and legal costs incurred in
connection with the granting of any requested consent.
D. With respect to each and every subletting authorized by the provisions
of this Article it is further agreed and understood between Lessor and Lessee
that: (i) the subletting shall be, and each such sublease shall expressly
provide that is, subject and subordinate at all times and in all respects, to
this Lease, (ii) no subletting shall be for a term ending later than one day
prior to the Expiration Date originally provided for herein and that part, if
any, of the proposed term of any sublease which shall extend beyond a date one
day prior to the Expiration Date originally provided for herein (or any sooner
date of the expiration of the term or termination of this Lease) is hereby
deemed to be a nullity, (iii) there shall be delivered to Lessor, within ten
(10) days after the commencement of the term of the proposed sublease, notice of
such commencement and a fully executed copy of the proposed sublease (unless
previously submitted) and (iv) Lessee shall pay to Lessor, as Additional Rent,
all of the rents, additional charges and other consideration arising from such
subletting as shall for any period exceed the aggregate of the Rents payable
under this Lease for the subleased space of the same period less the brokerage
commissions and attorneys' fees and disbursements reasonably incurred by Lessee
for such subletting, allocated to such period on a straight line basis over the
term of such subletting.
E. Anything herein contained to the contrary notwithstanding: (i) Lessee
shall not advertise but may list its space for subletting or assignment, and may
list its space at a rental rate
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lower than the rental rate then being paid by Lessee to Lessor only with respect
to subletting (but not assignment) and (ii) No assignment or subletting shall be
made to any person or entity which shall at that time otherwise be a tenant,
sub-tenant or other occupant of any part of the Property or which shall within
the prior six (6) months have been negotiating with Lessor to become such a
tenant, sub-tenant or occupant of the Property, unless such person or entity
desires the Demised Premises solely for expansion purposes and not for
relocating its business and Lessor has no space available to satisfy such person
or entity's needs.
ARTICLE 28 - SUBORDINATION
SECTION 28.01. Subject to the provisions of Section 28.02, this Lease, and
all rights of Lessee hereunder, are and shall be subject and subordinate in all
respects to (a) all present and future ground leases, overriding leases and
underlying leases and/or grants of term of the Property, the Building, the
Building Equipment and/or any appurtenance thereto of which Lessor has notified
Lessee (collectively, the "Superior Lease"), (b) all mortgages and building loan
agreements, including leasehold mortgages, deeds of trust, and building loan
agreements, which may now or hereafter affect the Property, the Building, the
Building Equipment and/or any appurtenance thereto, of which Lessor has notified
Lessee (collectively, the "Mortgage"), whether or not the Mortgage shall also
cover other land and/or buildings, and (c) each and every advance made or
hereafter to be made under the Mortgage and to all renewals, modifications,
replacements, substitutions and extensions of any Superior Lease and the
Mortgage and spreaders and consolidations of the Mortgage. The provisions of
this Section shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, Lessee shall promptly
execute and deliver, at its own cost and expense, an instrument in recordable
form to evidence such subordination. If, in connection with the obtaining,
continuing or renewing of financing for which the Demised Premises or the
interest of the lessee under the Superior Lease represents collateral in whole
or in part, a bank, insurance company or other lender shall request reasonable
modifications of this Lease as a condition of such financing, Lessee will not
unreasonably withhold or delay its consent thereto, provided that such
modifications do not increase the monetary obligations of Lessee under this
Lease or materially increase the other obligations of Lessee hereunder or
materially and adversely affect the rights of Lessee under this Lease.
Notwithstanding the foregoing, Lessor represents that as of the date hereof, the
Property and Building are not encumbered by a Superior Lease or Mortgage.
SECTION 28.02. The subordination provided in Section 28.01 shall be
effective as between Lessee herein named and any lessor under a future Superior
Lease, or any holder of a future Mortgage, as the case may be, only if such
lessor or holder delivers to Lessee an agreement providing in substance, that if
and so long as no Event of Default shall have occurred and be continuing, this
Lease shall continue upon its then executory terms and conditions and possession
of the Demised Premises held by Lessee herein named will not be disturbed by
such person in the event of a default under the underlying lease or the
Mortgage, as the case may be. The foregoing provisions of this Section shall
endure to the benefit of Lessee herein named and shall apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of the
Superior Lease, or the foreclosure (including judgment of foreclosure and sale)
of the Mortgage.
SECTION 28.03. If at any time prior to the expiration of the Term, the
holder of the Mortgage shall become the owner of the Demised Premises as a
result of foreclosure of its mortgage or by reason of an assignment of the
lessee's interest under any such lease or conveyance of the Demised Premises,
Lessee agrees, at the election and upon demand of any owner of the Demised
Premises, or of the holder of any Mortgage or Superior Lease (including a
leasehold mortgage) in possession of the Demised Premises, to attorn, from time
to time, to any such owner, or lessee, upon the then executory terms and
conditions of this Lease, provided that such owner, holder or lessee, as the
case may be, shall then be entitled to possession of the Demised Premises. No
such owner, holder or lessee shall be liable for any previous acts or omission
of Lessor under this Lease (except that this provision shall not be construed to
relieve such person from any obligation thereafter to be performed), nor shall
such owner, holder or Lessee be subject to any offset which shall have
theretofore accrued to Lessee against Lessor, or be bound by any previous
modification of this Lease, not expressly provided for in this Lease, entered
into after the date of the Mortgage, or Superior Lease, or by any previous
prepayment of more than one month's Fixed Rent. The foregoing provisions of
this Section shall enure to the benefit of any such owner, holder or lessee,
shall apply notwithstanding that, as a matter of law, this Lease may terminate
upon the termination of the Superior Lease, or the foreclosure (including
judgment of foreclosure and sale) of the Mortgage, shall be self-operative upon
any such demand, and no further instrument shall be required to give effect to
said provisions. Lessee, however, upon demand of any such owner, holder or
lessee, agrees to execute, from time
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to time, instruments in confirmation of the foregoing provisions of this
Section, acknowledging such attornment and setting forth the terms and
conditions of its tenancy. Nothing contained in this Section shall be construed
to impair any right otherwise exercisable by any such owner, holder or lessee.
ARTICLE 29 - SURRENDER; REMOVAL OF LESSEE'S PROPERTY
SECTION 29.01. On the last day of the Term or on the earlier termination of
the Term, Lessee shall peaceably and quietly leave, surrender and deliver the
Demised Premises to Lessor, together with (a) all alterations, changes,
additions and improvements, which may have been made upon the Demised Premises,
and (b) except for Lessee's Property, all fixtures and articles of personal
property of any kind or nature which Lessee may have installed or affixed on,
in, or to the Demised Premises for use in connection with the operation and
maintenance of the Demised Premises (whether or not said property be deemed to
be fixtures), all of the foregoing to be surrendered in good, substantial and
sufficient repair, order and condition, reasonable use, wear and tear, and
damage by fire or other casualty, excepted, and free of occupants and
sublessees.
SECTION 29.02. On or prior to the Expiration Date or any earlier
termination of this Lease, Lessee shall remove Lessee's Property, and any items
referred to in clauses (a) or (b) of Section 29.01, which Lessor shall request
Lessee to remove (unless Lessor shall have waived such right as to any item
referred to in clause (a) of Section 29.01 at the time of the granting of
consent with respect thereto under Article 25), and Lessee shall pay or cause to
be paid the cost of repairing or remedying any damage caused thereby, provided
that no item of Lessee's Property may be removed if its removal would impair the
integrity (structural or otherwise) of the Building or Building Equipment. All
property not so removed shall be deemed abandoned and may either be retained by
Lessor as its property or disposed of, without accountability, at Lessee's sole
cost, expense and risk, in such manner as Lessor may see fit.
SECTION 29.03. If the Demised Premises are not surrendered in accordance
with the provisions of this Article upon the expiration or termination of this
Lease, Lessor shall have all rights given at law or in equity, in the case of
holdovers, to remove Lessee and anyone claiming through or under Lessee. In any
event, Lessee shall and does hereby indemnify Lessor against all loss or
liability arising from delay by Lessee in so surrendering the Demised Premises,
including any claims made by and succeeding lessees founded on such delay.
Lessee expressly waives, for itself and for any person claiming through or under
Lessee (including creditors), any rights which Lessee or any such person may
have under the provisions of any law in connection with any holdover summary
proceedings which Lessor may institute to enforce the provisions of this
Article. Lessee's obligations under this Article shall survive the expiration
or termination of this Lease.
SECTION 29.04. Lessee acknowledges the extreme importance to Lessor that
possession of the Demised Premises be surrendered at the expiration or sooner
termination of this Lease. In the event that Lessee fails to vacate the Demised
Premises at the expiration or sooner termination of this Lease, Lessee shall be
obligated to pay Lessor damages in an amount equal to twice the amount of annual
Fixed Rent and Additional Rent provided for on the day preceding the Expiration
Date for such period of time that Lessee holds over on a per diem basis.
ARTICLE 30 - RENEWAL TERM
SECTION 30.01. Lessee named herein, shall have the right, at its option, to
extend this Lease for a term ("Renewal Term") of five (5) years (to commence on
the Expiration Date originally provided for herein and to end at noon on the
Fifth (5th) Anniversary of such Expiration Date originally provided for herein)
by giving Lessor notice of such election at any time but not less than Nine (9)
months prior to the Expiration Date originally provided for herein (time being
of the essence with respect thereto), and upon the giving of such notice this
Lease thereupon shall, subject to the provisions of Section 30.02, be
automatically extended for the Renewal Term with the same force and effect as if
the Renewal Term had been originally included in the Term, without the execution
of any further instrument.
SECTION 30.02. Any notice of election to exercise the option to extend as
hereinbefore provided must be in writing and sent to Lessor as provided in
Article 21. Neither the option granted to Lessee in this Article to extend the
Term, nor the exercise of such option by Lessee, named herein shall prevent
Lessor from exercising any option or right granted or reserved to Lessor in this
Lease to terminate this Lease, and the effective exercise of any such right of
termination by Lessor shall terminate any such renewal or extension and any
right of Lessee to
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any such renewal or extension, whether or not Lessee shall have exercised any
such option to extend the Term. Any such option or right on the part of Lessor
to terminate this Lease pursuant to the provisions hereof shall continue during
any Renewal Term.
SECTION 30.03. All of the terms, covenants and conditions of this Lease
shall continue in full force and effect during the Renewal Term except that
(i) the Fixed Rent for the Renewal Term shall be as provided in Section 30.04
(all other rent and charges payable by Lessee remaining unaffected), and
(b) there shall be no further privilege of extension of this Lease beyond the
Renewal Term.
SECTION 30.04.A. During the Renewal Term, Lessee shall pay to Lessor annual
Fixed Rent, at the same times and in the same manner as in the Term originally
provided for, at the annual rate equal to the annual fair rental value of the
Demised Premises (with deduction for the cash value of free rent and leasehold
improvements), which renewing, non-equity tenants are then receiving in
connection with a lease for comparable space in a building of the same age,
quality, size, location, services, amenities, quality of construction and
appearance to that of the Building on the date of the commencement of the
Renewal Term with a term equal to the Renewal Term and otherwise containing the
same provisions as this Lease contains, as determined by agreement between
Lessor and Lessee. If, prior to the commencement of the Renewal Term, Lessor
and Lessee are unable to agree on the amount of the annual Fixed Rent during the
Renewal Term, then in such event, the determination of such annual fair rental
value shall be made by arbitration pursuant to the provisions of
Section 30.04.B. hereof. If the Renewal Term shall commence prior to
determination of the amount of annual Fixed Rent payable during the Renewal
Term, either by agreement or by decision of the arbitrators, Lessee, in the
meantime, shall pay the monthly installments of Fixed Rent at the annual rate
payable under this Lease for the year ending on the Expiration Date originally
provided for herein. If monthly installments of the amount agreed upon by
Lessor and Lessee, or found by the arbitrators, shall be greater than such
amount, then Lessee, forthwith after such agreement or arbitrator's decision,
shall pay to Lessor, for the period from the commencement of the Renewal Term to
the last day of the calendar month in which the agreement or the arbitrators'
decision takes effect, the difference between the monthly installments actually
paid and the monthly installments which should have been paid in accordance with
such agreement or arbitrators' decision, together with interest at the prime
rate plus two (2%) percent from the respective due dates of each monthly
installment to the date of payment pursuant to this paragraph; and, thereafter,
Lessee shall pay the monthly installments at the new rate. In no event shall
the annual Fixed Rent during the Renewal Term be less than the annual Fixed Rent
payable immediately prior to the Renewal Term.
B.(1) In the event that Lessor and Lessee are unable to agree on the amount
of the annual Fixed Rent during the Renewal Term, then either Lessor or Lessee
(hereinafter referred to as the "Initiating Party") may give the other party
(hereinafter called the "Responding Party") a notice designating the name and
address of the arbitrator designated by the Initiating Party to act on its
behalf in the arbitration process hereinafter described (the "Review Notice").
(2) If the Initiating Party gives a Review Notice, then within twenty (20)
days after giving of such Review Notice, the Responding Party shall give notice
to Initiating Party specifying in such notice the name and address of the
arbitrator designated by the Responding Party to act on its behalf. In the
event the Responding Party shall fail to give such notice within such twenty
(20) day period, then the appointment of such arbitrator shall be made in the
same manner as hereinafter provided for the appointment of a third arbitrator in
a case where two arbitrators are appointed hereunder and the parties are unable
to agree to such appointment. The two arbitrators so chosen shall meet within
thirty (30) days after the second arbitrator is appointed and shall exchange
sealed envelopes each containing such arbitrators written determination of the
fair market rent of the Demised Premises based on the criteria set forth in
Section 30.04.A. The fair market rent specified by Lessor's arbitrator shall be
called the "Lessor's Submitted Value" and the fair market rent specified by
Lessee's arbitrator shall be called the "Lessee's Submitted Value." Copies of
such written determinations shall promptly be sent to both Lessor and Lessee.
Any failure of either such arbitrator to meet and exchange such determinations
shall be acceptance of the other party's arbitrator's determination as to fair
market rent, if, and only if, such failure persists for five (5) days after
notice to whom such arbitrator is acting, and, provided that such five (5) day
period shall be extended by reason of any Unavoidable Delay. If the higher
determination of the fair market rent for the Demised Premises is not more than
one hundred and five (105%) percent of the lower determination of the fair
market rent, then the fair market rent for such space shall be deemed to be the
average of the two determinations. If, however, the higher determination is
more than one hundred and five (105%) percent of the lower determination, then
within ten (10) days of the date the arbitrators submitted their respective fair
market rent determinations, the two arbitrators shall appoint a third
arbitrator. In the event of
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their being unable to agree upon such appointment within ten (10) days after the
exchange of the sealed envelopes, the third arbitrator shall be selected by the
parties themselves if they can agree thereon within a further period of 10 days.
If the parties do not so agree, then either party, on behalf of both and on
notice to the other, may request such an appointment by the American Arbitration
Association (or any successor organization) in accordance with its rules then
prevailing or if the American Arbitration Association (or any successor
organization) shall fail to appoint said third arbitrator within fifteen (15)
days after such request is made, then either party may apply for such
appointment, on notice to the other, to the President of the Westchester County
Bar Association (who may consult with the Chairman of the Real Property Law
Committee of the Westchester County Bar Association). Within ten (10) days
after the appointment of such third arbitrator, the Lessor's arbitrator shall
submit Lessor's Submitted Value to such third arbitrator and the Lessee's
arbitrator shall submit Lessee's Submitted Value to such third arbitrator. Such
third arbitrator shall, within thirty (30) days after the end of such fifteen
(15) day period, make his own determination of the fair market rent of the
Demised Premises using the criteria set forth in Section 30.04.A. hereof, and
send copies of his determination promptly to both Lessor and Lessee specifying
whether Lessor's Submitted Value or Lessee's Submitted Value was closer to the
determination by such third arbitrator of the fair market rent of the Demised
Premises. Whichever of Lessor's Submitted Value or Lessee's Submitted Value
shall be closer to the determination by such third arbitrator shall conclusively
be deemed to be the fair market rent of the Demised Premises.
(3) In no event shall the arbitrators enlarge upon, or alter or amend, this
Lease or Lessor's or Lessee's rights as provided in this Lease, it being
understood that the sole issue for determination by the arbitrators shall be the
single issue of fact of the annual fair rental value of the Demised Premises as
provided in paragraph A of this Section 30.01.
(4) Except as otherwise provided in the following sentence, the fees and
expenses of an arbitration proceeding shall be borne by the parties equally.
The fees of respective counsel engaged by the parties the fees and expenses of
expert witnesses and other witnesses called and the cost of transcripts shall be
borne by the parties engaging such counsel or, calling such witness or ordering
such transcripts.
SECTION 30.05. The rights provided to Lessee to extend this Lease as
provided in Section 30.01 is conditioned in all respects upon (i) there being no
Event of Default in the observance or performance of any term, covenant,
condition or agreement of Lessee's part to be observed or performed under this
Lease both at the time the notice of exercise is given and immediately prior to
commencement of the Renewal Term, and (ii) there being no sublease in effect
(other than subleases with related corporations) with respect to the Demised
Premises or any part thereof during the two (2) year period immediately
preceding the Expiration Date originally provided for herein. Any termination,
cancellation or surrender of this Lease shall terminate any right of extension
hereunder for the Renewal Term.
ARTICLE 31 - FIBER OPTIC NETWORK SERVICES
SECTION 31.01. From and after the Commencement Date, Lessor agrees that
Lessee shall have the right, subject to the rights of other lessees, and
Lessor's reasonable consent, which shall not be unreasonably withheld,
conditioned or delayed, to install, maintain, repair, remove and operate in the
Demised Premises and penetrate the Building in a location reasonably designated
by Lessor and utilize existing Building conduits and risers for the installation
and maintenance of fiber optic cables, PROVIDED, HOWEVER, that such fiber optic
cables do not exceed four (4) inches in diameter, in connection with Lessee's
fiber optic network (the "Fiber Optic Network") for the Term of this Lease or
any Renewal Term. Lessee shall notify Lessor of its intention to install, use
and maintain the Fiber Optic Network in accordance with the provisions of this
Lease.
SECTION 31.02. If Lessor shall grant its consent to the installation, use
or maintenance of the Fiber Optic Network, then the same shall (i) be installed
and maintained at the sole cost and expense of Lessee, (ii) be installed and
maintained in a good and workmanlike manner, in a location reasonably designated
by Lessor, and in compliance with all applicable Legal Requirements (including
existing zoning requirements), Insurance Requirements and Environmental Laws,
(iii) be consistent with the use of the Demised Premises provided for herein,
(iv) be performed in accordance with plans and specifications approved prior to
the commencement of any work by the appropriate Governmental Authorities and by
Lessor, which approval by Lessor will not be unreasonably withheld, conditioned
or delayed, (v) be of such nature so as not to lessen the fair market value of
the Building or Property, and (vi) be performed under the supervision of a
licensed architect reasonably approved by Lessor and in accordance
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with Lessor's STANDARD REQUIREMENTS FOR ALTERATIONS TO BE PERFORMED BY LESSEES,
as may be reasonably amended from time to time.
SECTION 31.03.A. Unless Lessor shall otherwise expressly indicate in
writing at the time of granting its consent to the installation of the Fiber
Optic Network, Lessee shall, on or before the expiration or sooner termination
of this Lease as and when provided in Section 29.02, remove the Fiber Optic
Network and restore the affected portion of the Demised Premises and Building to
the state or condition thereof existing prior to the installation of the Fiber
Optic Network.
B. Any and all contractors to be involved in performing work shall be
subject to Lessor's prior approval, which shall not be unreasonably withheld,
conditioned or delayed.
C. Prior to installing the Fiber Optic Network, Lessee shall furnish Lessor
with evidence reasonably satisfactory to Lessor of such insurance as Lessor may
require and such insurance shall be in full force and effect during such
installation and will cover, by endorsement or otherwise, the risk during the
course of such installation.
SECTION 31.04. All of the terms, covenants and conditions of this Lease
shall continue in full force and effect.
SECTION 31.05. The right of Lessee to install, use or maintain the Fiber
Optic Network as provided in Section 31.01 is conditioned in all respects upon
there being no material Event of Default in the observance or performance of any
term, covenant, condition or agreement on Lessee's part to be observed or
performed under this Lease both at the time the notice is given. Any
termination, cancellation or surrender of this Lease shall terminate Lessee's
right to install, use or maintain the Fiber Optic Network.
ARTICLE 32 - BROKERS
SECTION 32.01. The parties represent that in connection with this Lease it
dealt with no broker other than Austin Corporate Properties, Inc. and
Insignia/ESG (the "Brokers"), nor has either party had any correspondence or
other communication in connection with this Lease with any other person who is a
broker, and that so far as the parties are aware the Brokers are the only
brokers who negotiated this Lease. Each party hereby indemnifies the other
party and holds it harmless from any and all loss, cost, liability, claim,
damage, or expense (including court costs and attorneys' fees) arising out of
any inaccuracy of the above representation. Lessor agrees to pay the Brokers
all commissions due for their services pursuant to a separate written agreement.
ARTICLE 33 - SECURITY DEPOSIT
SECTION 33.01.A. Lessee shall deposit with Lessor, upon execution of this
Lease, the sum of One Hundred and Thirty-Six Thousand, Eight Hundred and Four
and 00/100 ($136,804.00) Dollars either in cash or by Letter of Credit as
provided in Section 33.02 as security for the faithful performance and
observance by Lessee of the terms, provisions, conditions and covenants of this
Lease (the "Security Deposit"). Lessee agrees that, in the event that Lessee
defaults, beyond all applicable grace and cure periods after notice, in respect
of any terms, provisions, conditions and covenants of this Lease (including the
payment of Rent), Lessor may use, apply or retain the whole or any part of the
cash security so deposited or may notify the Issuing Bank (as such term is
defined in Section 33.02) and thereupon receive all of the monies represented by
the said Letter of Credit and use, apply, or retain the whole or any part of
such proceeds, as the case may be, to the extent required for the payment of
Rent, or any other sums as to which Lessee is in default, or for any sum that
Lessor may expend or may be required to expend by reason of Lessee's default, in
respect of the terms, provisions, conditions and covenants of this Lease
(including any damages or deficiency accrued before or after summary proceedings
or other re-entry by Lessor). In the event that Lessor applies or retains any
portion or all of such cash security or proceeds of such Letter of Credit, as
the case may be, Lessee shall forthwith restore the amount so retained or
applied.
B. In the event that the Security Deposit hereunder is in cash, Lessor
agrees to maintain such cash in an interest bearing account with the interest to
be added as additional security, except that Lessor shall be entitled to an
administrative fee of One (1%) percent per annum to administer the account.
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SECTION 33.02. In lieu of a cash deposit, Lessee may deliver to Lessor a
clean, irrevocable and unconditional Letter of Credit issued by and drawn upon
any commercial bank reasonably acceptable to Lessor (the "Issuing Bank") with
offices for banking purposes in the City of New York, which Letter of Credit
shall have a term of not less than one year, be in a form and content reasonably
satisfactory to Lessor, be for the account of Lessor and be in the amount of One
Hundred and Thirty-Six Thousand, Eight Hundred and Four and 00/100 ($136,804.00)
Dollars, subject to reduction as provided for herein. The Letter of Credit
shall provide that:
A. the Issuing Bank shall pay to Lessor an amount up to the face
amount of the Letter of Credit upon presentation of only the Letter of
Credit, a sight draft in the amount to be drawn and an affidavit of
default;
B. the Letter of Credit shall be deemed to be automatically renewed,
without amendment, for consecutive periods of one year during the Term of
this Lease, unless the Issuing Bank sends written notice ("Non-Renewal
Notice") to Lessor by certified or registered mail, return receipt
requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of Credit that it elects not to renew such
Letter of Credit;
C. Lessor, after receipt of the Non-Renewal Notice, shall have the
right, exercisable by a sight draft only, to receive the moneys represented
by the Letter of Credit (which moneys shall be held by Lessor as a cash
deposit pursuant to the terms of this Article 33 pending replacement of
such Letter of Credit); and
D. Upon Lessor's sale of the Property, or Lessor's interest therein,
or a leasing of the Property, the Letter of Credit shall be transferable by
Lessor as provided in Section 33.04.
SECTION 33.03. In the event of a sale of the Property, or Lessor's interest
therein, or of a leasing of the Property, Lessor shall transfer the cash
security or Letter of Credit, as the case may be, deposited hereunder to the
vendee or lessee, and Lessor shall thereupon be released by Lessee from all
liability for the return of such cash security or Letter of Credit to a new
lessor, provided that such new lessor assumes all of Lessor's obligations with
respect to such cash security or Letter of Credit. Lessee shall execute such
documents as may be necessary to accomplish such transfer or assignment of the
Letter of Credit.
SECTION 33.04. Lessee covenants that it will not assign or encumber, or
attempt to assign or encumber the monies or Letter of Credit deposited hereunder
as security, and that neither Lessor nor its successors and/or assigns shall be
bound by any such assignment, or attempted encumbrance.
SECTION 33.05. In the event that Lessee shall fully and faithfully comply
with all of the terms, provisions, conditions and covenants of this Lease, and
provided further, that no Event of Default shall have occurred and be
continuing, the Security Deposit shall be returned to Lessee within thirty (30)
days after Lessee delivers possession of the Demised Premises to Lessor as
provided for in this Lease.
ARTICLE 34 - DEFINITIONS
SECTION 34.01. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(a) "Additional Rent" shall mean all sums of money, other than Fixed
Rent, as shall become due from and payable by Lessee hereunder.
(b) "Building" shall mean the building, structures and improvements,
and related facilities, including paved areas and all parking lots adjacent
and/or appurtenant thereto (other than "Building Equipment," as such term
is herein defined) known as The Gateway and located at One North Lexington
Avenue, White Plains, New York 10601, now or hereafter erected, constructed
or situated on the land underlying or appurtenant to the Building or any
part thereof, together with all alterations, additions and improvements
thereto and all restorations and replacements thereof.
(c) "Building Equipment" shall mean all machinery, systems, apparatus,
facilities, equipment and fixtures of every kind whatsoever now or
hereafter belonging, attached to and used exclusively (whether or not same
constitute fixtures), or procured
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for exclusive use, in connection with the operation or maintenance of the
Building and/or Property, including water, sewer and gas connections, all
heating, electrical, lighting, and power equipment, engines, furnaces,
boilers, pumps, tanks, dynamos, motors, generators, conduits, plumbing,
cleaning, fire prevention, refrigeration, ventilating, air cooling, air
conditioning equipment and apparatus, cranes, elevators, escalators, ducts
and compressors and any and all replacements thereof and additions thereto;
but excluding, however, (i) Lessee's Property, (ii) property of any
sublessee which sublessee may be authorized to remove from the Building
upon and subject to the terms and conditions of its sublease and this
Lease, (iii) property of contractors servicing the Building, and
(v) improvements for water, gas, and electricity and other similar
equipment or improvements owned by any public utility company or any
governmental agency or body.
(d) "Cost" shall mean that Lessor will perform all such services on a
"cost plus" basis, whereby Cost shall include, but not be limited to, the
reasonable cost of sub-contractors, material, equipment rental,
transportation and delivery items, permits, fees, taxes, insurance's,
debris removal, demolition, safety protection, labor, supervision, project
management, purchasing, expediting and material handling, and shall also
include a contingency, based on the complexity of the work to be performed,
of up to five percent (5%) of the total of all such items otherwise
included within such definition (hereinafter collectively referred to as
the "Trades"). In addition, with respect to Lessor's Work as provided for
in Article 8 of this Lease or Alterations as provided for in Article 25 of
this Lease, Cost shall also include Lessor's fee for acting as general
contractor which shall be equal to: (i) Eighteen and Eighty Hundredths
(18.80%) of the total cost of the Trades, if such cost does not exceed One
Hundred Thousand and 00/100 ($100,000.00) Dollars; (ii) Sixteen and Sixty-
Three Hundredths (16.63%) Percent of the total cost of the Trades, if such costs
are between One Hundred, Thousand and One and 00/100 ($100,001.00) Dollars and
Three Hundred and Ninety Nine Thousand, Nine Hundred and Ninety-Nine and 99/100
($399,999.99) Dollars; or (iii) Fifteen and Fifty-Six Hundredths (15.56%)
Percent of the total cost of the Trades, if such costs are in excess of Four
Hundred Thousand and 00/100 ($400,000.00) Dollars, PROVIDED, HOWEVER, that with
respect to decorating only, such fee shall be applicable to labor and costs of
installation, but shall not be applicable to the cost of furniture, art and
similar items otherwise included therein. Lessee agrees that the same shall be
collectible as Additional Rent pursuant to the Lease, and in default of payment
thereof Lessor shall, in addition to all other remedies, have the same rights as
in the event of default of payment of rent.
(e) "Environmental Laws" shall mean any and all federal, state, local,
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements of any Governmental Authority regulating, relating
to or imposing liability or standards of conduct concerning environmental
conditions at the Demised Premises, Building or Property as now or may at
any time hereafter be in effect, including but not limited to and without
limiting the generality of the foregoing, The Clean Water Act also known as
the Federal Water Pollution Control Act, 88 U.S.C. Sections 1251 ET SEQ.,
the Toxic Substance Control Act, 15 U.S.C. Sections 2601 ET SEQ., the Clean
Air Act, 42 U.S.C. Sections 7401 ET SEQ., the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. Sections 186 ET SEQ., the Safe
Drinking Water Act, 42 U.S.C. Sections 300f ET SEQ., the Surface Mining
Control and Reclamation Act, Section 1201 ET SEQ., 80 U.S.C. Section 1201
ET SEQ., the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 ET SEQ., the Superfund
Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100
Stat. Section 1818, the Emergency Planning and Community Right to Know Act,
42 U.S.C. Sections 1101 ET SEQ., the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. Sections 6901 ET SEQ., and the Occupational Safety and
Health Act as amended ("OSHA"), 29 U.S.C. Section 655 and Section 657,
together with any amendments thereto, regulations promulgated thereunder
and all substitutions thereof.
(f) "Hazardous Material" shall mean (i) Any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for the
purpose of) CERCLA, SARA, BCRA, or any other Environmental Law as now or at
any time hereafter in effect; (ii) any other waste, substance or material
that exhibits any of the characteristics enumerated in 40 C.F.R. Sections
261.20 through 261.24, inclusive, and those extremely hazardous substances
listed under Section 902 of SARA that are present in threshold planning or
reportable quantities as defined under SARA and toxic or hazardous chemical
substances that are present in quantities that exceed exposure standards as
those terms are defined under Sections 6 and 8 of OSHA and 29 C.F.R. Part
1910; (iii) any asbestos or
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asbestos containing substances whether or not the same are defined as
hazardous, toxic, dangerous waste, a dangerous substance or dangerous
material in any Environmental Law, (iv) "Red Label" flammable materials;
(v) all laboratory waste and by-products; and (vi) all biohazardous
materials.
(g) "Insurance Requirements" shall mean the rules, regulations, orders
and other requirements of any insurance rating or regulatory organization
having jurisdiction of, and which are applicable to, the Demised Premises
and of any liability, casualty, or other insurance policy which either
Lessor or Lessee is required hereunder to maintain or may maintain
hereunder.
(h) "Legal Requirements" shall mean the requirements of every statute,
law, ordinance, regulation, rule requirement, order or directive, now or
hereafter made by any federal, state or local government or any department,
political subdivision, bureau, agency, office or officer thereof, or any
other governmental authority having jurisdiction (a "Governmental
Authority") with respect to and applicable to (i) the Demised Premises and
appurtenances thereto, and/or (ii) the condition, equipment, maintenance,
use or occupation of the Demised Premises, including the making of an
alteration or addition in or to any structure upon, connected with or
appurtenant to the Demised Premises.
(i) "Lessee's Delays" shall mean any and all delays caused by or
attributable to any action or failure or refusal of Lessee to perform a
duty of, Lessee or any person claiming through or under Lessee, or any
agent, servant, employee, director, shareholder, contractor or invitee of
Lessee or any such person.
(j) "Lessee's Property" shall mean all articles of personal property
and fixtures and other property, which have been installed or affixed on,
in or to, or brought into, the Demised Premises, at the expense of Lessee
or any permitted sublessee of Lessee or other permitted occupant of the
Demised Premises and without any credit or allowance by Lessor, which are
not replacements or any property of Lessor (whether any such replacement is
made at Lessee's expense or otherwise), and which do not constitute
alterations, changes, additions, or improvements to the Demised Premises or
any appurtenances thereto.
(k) "Lessee's Proportionate Share" shall mean a fraction the numerator
of which is equal to the rentable square footage that Lessee occupies in
the Demised Premises, and the denominator of which is equal to the total
rentable square footage of the Building as it presently exists or may
hereinafter be increased or enlarged. As of the date hereof, the total
rentable square footage of the Building shall be deemed to be Five Hundred
and Twenty-Two Thousand, Nine Hundred and Twenty (522,928). During the
period from the Initial Premises Commencement Date to the day preceding the
Additional Premises Commencement Date Lessee's Proportionate Share shall be
deemed to be Two and Eighty-Eight Hundredths (2.88%) percent. During the
period from the Additional Premises Commencement Date to the Expiration
Date (both dates inclusive) Lessee's Proportionate Share shall be deemed to
be Four and Eight Hundredths (4.08%) percent. Lessee and Lessor agree that
Lessee's Proportionate Share is not based upon any particular method of
measuring the Demised Premises and/or the Building and represents an agreed
upon percentage which shall not be contestable by Lessee at a future date.
(l) "Lessor's Agents" shall be deemed to include agents, servants,
employees, directors, officers, shareholders and contractors of Lessor.
(m) "Normal Working Hours" shall mean only those between the hours of
8:00 A.M. and 6:00 P.M., Monday through Friday, exclusive of New Years Day,
the day designated as the legal holiday for the celebration of President
Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day and
Christmas Day, and all other holidays set forth in the contract between
Lessor and its Building employees as a holiday.
(n) "Unavoidable Delays" shall mean any and all delays beyond Lessor's
reasonable control, including Lessee's Delays, governmental restrictions,
governmental preemption, strikes, labor disputes, lockouts, shortages of
labor and materials, enemy action, civil commotions, riot, insurrection and
fire, other casualty and other acts of God.
(o) "Untenantable" shall mean actual inability to use space in the
Demised Premises for the purposes permitted by Section 4.01.
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SECTION 34.02. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(a) The terms "include," "including," and "such as" shall be construed
as if followed by the phrase "without being limited to."
(b) Whenever this Lease provides that Lessee shall pay Lessor interest
at the "maximum legal rate" then interest shall be payable at the highest
rate of interest permitted at the relevant time by applicable law to be
paid by Lessee without impairing the validity or enforceability of this
Lease and without incurring any civil or criminal penalty.
(c) The term "obligations of this Lease" and words of similar import,
shall mean the covenants to pay Fixed Rent and Additional Rent and all of
the other covenants and conditions contained in this Lease. Any provision
in this Lease that one party or the other or both shall do or not do or
shall cause or permit or not cause or permit a particular act, condition or
circumstance shall be deemed to mean that such party so covenants or both
parties so covenant, as the case may be.
(d) The term "repair" shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working
order and condition.
(e) Reference to "substantially complete" and words of similar import
shall be deemed to mean, with regard to construction work, completion but
for such minor details of work, the non-completion of which would not
materially interfere with the utility of the affected space and if a
certificate is issued by an independent architect or engineer stating that
the work is substantially complete, then such determination shall be
conclusive and binding upon the parties to this Lease.
(f) Reference to "termination of this Lease" includes expiration or
earlier termination of the Term or cancellation of this Lease pursuant to
any of the provisions of this Lease or to law. Upon the termination of
this Lease, the Term and estate hereby granted by this Lease shall end at
noon on the date of termination as if such date were the date of expiration
of the Term and neither party shall have any further liability or
obligation to the other after such termination (i) except as shall be
expressly provided for in this Lease, and (ii) except for such obligations
as by their nature or under the circumstances can only be, or by the
provisions of this Lease, may be, performed after such termination, and, in
any event, unless expressly otherwise provided in this Lease, any liability
for a payment which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of this
Lease.
ARTICLE 35 - MISCELLANEOUS
SECTION 35.01. This Lease shall be governed in all respects by the laws of
the State of New York applicable to leases made and to be performed wholly
therein.
SECTION 35.02. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, single or plural, as the identity of
the person or persons or entity or entities in question may require. The term
"person" shall be deemed to include individuals, corporations, partnerships,
joint ventures, firms, associations and other entities.
SECTION 35.03. All provisions of this Lease shall be deemed and construed
to be "conditions" as well as "covenants," as though the words specifically
expressing or importing covenants and conditions were used in each separate
provision hereof.
SECTION 35.04. If any provision of this Lease or application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such provision or provisions to
persons or circumstances other than those as to whom or which it is held invalid
or unenforceable, shall not be affected thereby, and every provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
SECTION 35.05. The article headings in this Lease are inserted only as a
matter of convenience and reference and are not to be given any effect
whatsoever in construing this Lease.
SECTION 35.06. This Lease contains the entire agreement between the parties
regarding the Demised Premises and shall not be modified in any manner except by
an instrument in writing
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executed by the parties or their respective successors in interest. No waiver
or modification by either party or any provision or covenant of this Lease shall
be deemed to have been made unless such waiver is expressed in writing and
signed by the party against whom such waiver or modification is sought.
SECTION 35.07. Lessee agrees with Lessor that Lessee will not record this
Lease or any memorandum of this Lease without the prior written consent of
Lessor.
SECTION 35.08. The covenants, agreements, terms, provisions and conditions
contained in this Lease shall apply to and inure to the benefit of and be
binding upon Lessor and Lessee and their respective successors and assigns,
except as otherwise provided for herein.
SECTION 35.09. Upon request of Lessor at any time and from time to time,
Lessee and any such person shall submit to Lessor true, correct, current and
complete publicly available financial statements of Lessee and its affiliates,
if any.
SECTION 35.10. Solely for the purposes of a proceeding under the present or
future federal bankruptcy act or any other present or future applicable federal,
state or other statute or law (a "bankruptcy law"), the following terms and
conditions have been agreed upon by Lessor and Lessee:
(a) In the event of a default by Lessee under this Lease continuing
after the filing of a voluntary or involuntary petition (a "pre-petition
default") under any bankruptcy law, a period exceeding thirty (30) days for
curing such default shall in no event be deemed reasonable.
(b) In order to be deemed adequate assurance by Lessee for the cure of
any pre-petition default, Lessee, or the trustee, as the case may be, must
(i) deposit with a banking institution selected by Lessor securities, in
negotiable form, issued by the United States of America, with a fair market
value, at all relevant times, equal to twice the amount of Rent due or the
cost, as estimated by Lessor of curing the pre-petition default, as the
case may be, or (ii) grant to Lessor a security interest or lien which
shall be superior to any and all claims and liens, on any of Lessee's
property that is valued at liquidation at twice the amount of such Rent or
cost.
(c) In order to be deemed adequate assurance by Lessee, with respect
to the payment of Rent due after the filing of a voluntary or involuntary
petition under any bankruptcy law, Lessee must (i) deposit with a banking
institution selected by Lessor securities in negotiable form, issued by the
United States of America, with a fair market value, at all relevant times,
of not less than six (6) months' Rent, or (ii) grant a security interest or
lien, which shall be superior to any and all claims and liens, in any of
Lessee's property that is valued at liquidation at not less than six (6)
months' Rent.
SECTION 35.11. Lessee represents and warrants: (i) that it is a corporation
duly organized and in good standing under the laws of the State of New York,
(ii) that it has all requisite authority to execute and to enter into this Lease
and that the execution of this Lease will not constitute a violation of any
internal by-law, agreement or other rule of governance, and (iii) that the
individual executing this Lease on behalf of Lessee is so authorized and Lessee
shall supply Lessor with a verified resolution or similar written documentation
evidencing such authority upon or prior to Lessee's execution of this Lease.
SECTION 35.12. Lessor represents and warrants that the individual executing
this Lease on behalf of Lessor is so authorized and Lessor shall supply Lessee
with a verified resolution or
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similar written documentation evidencing such authority upon or prior to
Lessor's execution of this Lease.
IN WITNESS WHEREOF, the parties to this Lease have executed the same on the
day and in the year first above written.
CONNECTICUT LIFE INSURANCE COMPANY (Lessor)
By: CIGNA INVESTMENTS, INC.
By: /s/ James H. Rogers L.S.
-----------------------------------
Name: James H. Rogers
Title: Managing Director
METROMEDIA FIBER NETWORK SERVICES, INC. (Lessee)
By: /s/ Howard Finkelstein L.S.
-----------------------------------
Name: Howard Finkelstein
Title: President
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STATE OF CONNECTICUT )
) SS.:
COUNTY OF HARTFORD )
On the 9th day of February, 1998, before me personally came James H.
Rogers, to me known, who being by me duly sworn, did depose and say that he
resides in Hartford, Connecticut; that he is the Managing Director of CIGNA
INVESTMENTS, INC., a Connecticut corporation described in and which executed the
foregoing instrument; that he signed his name thereto on behalf of the
Corporation described therein by order of its board of directors and on behalf
of CONNECTICUT GENERAL LIFE INSURANCE COMPANY who authorized same pursuant to a
resolution of its board of directors dated June 11, 1985.
/s/ Donna M. Lucente
-----------------------------------------
Notary Public DONNA M. LUCENTE
NOTARY PUBLIC
STATE OF CONNECTICUT
MY COMMISSION EXPIRES JAN. 31, 2002
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 25th day of February, 1998, before me personally came HOWARD
FINKELSTEIN, to me known, who being by me duly sworn, did depose and say that he
resides in Greenwich, Connecticut; that he is the President of METROMEDIA FIBER
NETWORK SERVICES, INC., a New York corporation described in and which executed
the foregoing instrument; that he signed his name thereto on behalf of the
corporation by order of its board of directors.
/s/ Yvette Kitrosser
------------------------------------------
Notary Public VYETTE KITROSSER
Notary Public, State of New York
No. 31-5008842
Qualified in New York County
Commission Expires Mar. 1, l999
Page 40 of 40
<PAGE>
==============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
==============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
==============================================================================
EXHIBIT "A"
THE METES AND BOUNDS DESCRIPTION OF THE PROPERTY
==============================================================================
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
THE METES AND BOUNDS DESCRIPTION OF THE PROPERTY
ALL THAT certain plot, piece or parcel of land situate, lying and being in
the City of White Plains, County of Westchester and State of New York, known and
designated as Delivery Parcel No. 1, on a certain map entitled "CENTRAL RENEWAL
PROJECT, N.Y. R-37, DISPOSITION PARCELS NOS. 9, 10, 18, 19, WHITE PLAINS URBAN
RENEWAL AGENCY, WHITE PLAINS, NEW YORK", prepared by James W. Delano, Surveyor
on March 26, 1984 and filed in the Westchester County Clerk's Office, Division
of Land Records on June 5, 1984 as Map No. 21580, which parcel is more
particularly bounded and described as follows:
BEGINNING at a point on the northerly side of Main Street at the westerly
end of a curve having a radius of 20.00 feet, connecting to the westerly side of
North Lexington Avenue with the said northerly side of Main Street;
THENCE along the northerly side of Main Street, South 84 degrees, 03
minutes 34 seconds West 288.907 feet to the easterly end of a curve having a
radius of 5.00 feet, connecting to the easterly side of Bank Street with the
northerly side of Main Street;
THENCE westerly and northerly on said curve to the right having a radius of
5.00 feet, a distance of 7.854 feet to the easterly side of Bank Street;
THENCE along the easterly side of Bank Street, North 5 degrees, 56 minutes
and 26 seconds West 203.564 feet to the southerly end of a curve having a radius
of 5.00 feet, connecting the southerly side of Hamilton Avenue with the easterly
side of Bank Street;
THENCE northerly and easterly on said curve to the right having a radius of
5.00 feet, a distance of 7.929 feet to the southerly side of Hamilton Avenue;
THENCE along the southerly side of Hamilton Avenue, North 84 degrees, 55
minutes and 13 seconds East 277.676 feet to the westerly end of a curve having a
radius of 20.00 feet, connecting the westerly side of North Lexington Avenue
with the southerly side of Hamilton Avenue;
THENCE easterly and southerly on said curve to right having a radius of
20.00 feet, a distance of 29.761 feet to westerly side of North Lexington
Avenue;
THENCE along the westerly side of North Lexington Avenue, South 9 degrees,
49 minutes and 13 seconds East 169.783 feet to the northerly end of a curve
having a radius of 20.00 feet, connecting the northerly side of Main Street with
the westerly side of North Lexington Avenue;
THENCE southerly and westerly on said curve to the right having a radius of
20.00 feet, a distance of 32.77 feet to the northerly side of Main Street and
the point and place of BEGINNING.
EXHIBIT "A" Page 1 of 2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
DESCRIPTION OF
OPEN PARKING LOT
(FERRIS AVENUE)
City of White Plains
Westchester County, New York
All that certain plot, piece or parcel of land, situate, lying and being in the
City of White Plains, County of Westchester and State of New York being a
portion of lands shown on a certain map entitled "Central Renewal Project
Disposition Parcel Nos. 9, 10, 18, 19". Said map being filed in the Westchester
County Clerk's Office, Division of Land Records as Map No. 21580. Said parcel
being more particularly bounded and described as follows:
BEGINNING at the northerly terminus of a curve connecting the westerly side of
North Lexington Avenue with the northerly side of Hamilton Avenue, as shown and
delineated on Filed Maps Nos. 15553 and 21580;
THENCE southerly and westerly on a curve to the right having a radius of 20.000
feet and a central angle of 94DEG. 53' 55" for 33.126 feet to a point on the
northerly side of Hamilton Avenue;
THENCE westerly along the northerly side of Hamilton Avenue South 84DEG.
55' 13" West 255.596 feet to the easterly terminus of a curve connecting the
northerly side of Hamilton Avenue with the easterly side of Ferris Avenue;
THENCE westerly and northerly on a curve to the right having a radius of 35.000
feet and a central angle of 90DEG. 00' 00" for 54.978 feet to a point on the
easterly side of Ferris Avenue;
THENCE northerly along the easterly side of Ferris Avenue North 5DEG. 04' 47"
West 50.00 feet, and North 6DEG. 37' 25" West 134.669 feet to the northwesterly
corner of the parcel herein described;
THENCE easterly along the southerly side of New Street a right-of-way easement
designated as Easement "A" on Filed Map No. 21580 North 84DEG. 29' 20" East
279.155 feet and on a curve to the right having a radius of 20.000 feet and a
central angle of 85DEG. 57' 50" for 30.007 feet to a point on the westerly side
of North Lexington Avenue;
THENCE southerly along the westerly side of North Lexington Avenue South 9DEG.
32' 50" East 85.745 feet and South 9DEG. 58' 42" East 96.440 feet, to the
point or place of beginning.
Said parcel being subject to an easement for right of way purposes established
and delineated in accordance with direction and description by the White Plains
Urban Renewal Agency. Said easement being more particularly bounded and
described as follows:
BEGINNING at a point on the easterly side of Ferris Avenue, said point being
distant from the southerly terminus of a curve having a radius of 20.000 feet
connecting the easterly side of Ferris Avenue with the southerly side of Water
Street as follows.
South 7DEG. 51' 22" East 77.118 feet, and
South 6DEG. 37' 25" East 198.884 feet,
said point of beginning also being the northwesterly corner of the easement
herein described;
THENCE running easterly along the southerly side of New Street North 84DEG.
29' 20" East 39.803 feet to a point of curvature where the radius of said
curve, having a radius of 20.000 feet, bears South 5DEG. 30' 40" East to the
center;
THENCE generally in a southerly direction through the before described parcel,
the following courses and distances:
on a curve to the left having a radius of 20.000 feet and a central
angle of 86DEG. 32' 43" for 30.210 feet;
South 2DEG. 03' 23" East 103.334 feet;
South 5DEG. 03' 48" East 72.778 feet, and
on a curve to the left having a radius of 25.000 feet and a central
angle of 90DEG. 01' 00" for 39.277 feet;
to the northerly side of Hamilton Avenue;
THENCE westerly along the northerly side of Hamilton Avenue South 84DEG.
55' 13" West 0.881 feet to the easterly terminus of a curve connecting the
northerly side of Hamilton Avenue with the easterly side of Ferris Avenue;
THENCE westerly and northerly on a curve to the right having a radius of 35.000
feet and a central angle of 90DEG. 00' 00" for 54.978 feet to a point on the
easterly side of Ferris Avenue;
THENCE northerly along the easterly side of Ferris Avenue as follows:
North 5DEG. 04' 47" West 50.000 feet, and
North 6DEG. 37' 25" West 134.669 feet,
to the point or place of beginning.
EXHIBIT "A" Page 2 of 2
<PAGE>
===============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
===============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
===============================================================================
EXHIBIT "B"
THE FLOOR PLANS OF THE DEMISED PREMISES
===============================================================================
<PAGE>
[FLOOR PLAN
OF
THE GATEWAY BUILDING]
<PAGE>
===============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
===============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
===============================================================================
EXHIBIT "B-1"
THE FLOOR PLANS OF THE ADDITIONAL PREMISES
===============================================================================
<PAGE>
[THE FLOOR PLANS
OF
THE ADDITIONAL PREMISES]
<PAGE>
===============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
===============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
===============================================================================
EXHIBIT "C"
BUILDING RULES AND REGULATIONS
===============================================================================
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
BUILDING RULES AND REGULATIONS
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Lessee or used for any purpose other than for ingress or egress from the
Demised Premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Lessor. There shall not be used in any space, or in the public hall of the
Building, either by any Lessee or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purpose other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building; and no Lessee shall sweep or throw or permit to be swept
or thrown from the Demised Premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the Building and Lessee shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the Demised Premises, or permit or suffer
the Demised Premises to be occupied or used in a manner offensive or
objectionable to Lessor or other occupants of the Building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Lessees or those
having business therein, nor shall any animals or birds be kept in or about the
Building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Lessor.
5. No Lessee shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Lessor, and as Lessor may direct. No Lessee shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the Demised Premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
6. No additional locks or bolts of any kind shall be placed upon any of the
doors or window by any Lessee, nor shall any changes be made in existing locks
or mechanisms thereof. Each Lessee must, upon the termination of its tenancy,
restore to Lessor all keys of offices and toilet rooms, either furnished to, or
otherwise procured by, such Lessee, and in the event of the loss of any keys, so
furnished, such Lessee shall pay to Lessor the cost thereof.
7. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Demised Premises
and/or Building only on the freight elevators and through the service entrances
and corridors, and only during hours and in a manner approved by Lessor. Lessor
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations of the Lease or which these Rules and Regulations are a part.
8. Canvasing, soliciting and peddling in the Building is prohibited and
each Lessee shall cooperate to prevent the same.
9. Lessor reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 8:00 a.m. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the Building signed by Lessee. Lessor will
furnish passes to persons for whom any Lessee requests same in writing. Each
Lessee shall be responsible for all persons for whom he requests such pass and
shall be liable to Lessor for all acts of such persons.
10. Lessor shall have the right to prohibit any advertising by any Lessee
which in Lessor's opinion, tends to impair the reputation of the Building or its
desirability as a Building of offices, and upon written notice from Lessor,
Lessee shall refrain from or discontinue such advertising.
11. Lessee shall not bring or permit to be brought or kept in or on the
Demised Premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any
EXHIBIT "C" Page 1 of 2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
odors of cooking or other processes, or any unusual or other objectionable odors
to permeate in or emanate from the Demised Premises.
12. If the Building contains central air conditioning and ventilation,
Lessee agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by the Lessor with respect to such services.
13. Lessee shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the Demised Premises and/or the Building
without Lessor's prior written consent. If such safe, machinery, equipment,
bulky matter or fixtures requires special handling, all work in connection
therewith shall comply with all Legal Requirements, Insurance Requirements
and/or Environmental Laws and shall be done during such hours as Lessor may
designate.
EXHIBIT "C" Page 2 of 2
<PAGE>
============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
============================================================================
EXHIBIT "D"
CLEANING SPECIFICATIONS
============================================================================
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
CLEANING SPECIFICATIONS
1. The Lessor shall perform the following General Office Cleaning
services between the hours of 6:00 p.m. and 7:00 a.m., Monday through Friday of
each week and said cleaning shall not be rescheduled by Lessee's overtime or
extraordinary use of the Building or Demised Premises.
a. Empty all wastepaper baskets, damp wipe ashtrays and receptacles.
b. Sweep and/or dustmop all hard surfaced flooring with mops so treated
as to preserve the sheen and appearance of such flooring.
c. Carpet sweep all areas requiring same. Said areas to be vacuumed
clean twice weekly, conduct spot cleaning where necessary.
d. Deposit all wastepaper from baskets in plastic bags (to be supplied by
Contractor), placing same in locations as shall be designated convenient for the
remove thereof. Lessor shall not be responsible for the removal of large boxes,
wooden pallets or abnormal amounts of waste paper.
e. Hand dust all desks, chairs, worktables, office furniture and
equipment, window sills and moldings, filing cabinets, bookcases, open shelving
and all other forms of office furniture and fixtures within normal arms reach,
and vacuum upholstered furniture where necessary.
f. Damp dust and wipe clean all glass tops and all desks and tables,
removing all finger marks and smudges from same.
g. Wipe clean of finger marks and maintain all brass and other bright
work.
h. Wash and clean tops of all water coolers and fountains and floors and
wall areas surrounding them.
i. Hand dust all doors and other ventilation louvers located within
normal arms reach.
j. Dust clean interior of all wastepaper baskets and disposal cans.
k. Dust and sweep all open closet flooring.
l. Lift and dust under all telephones and other such lightweight desk
appurtenances, dusting and replacing same in their proper locations. Telephones
will be sanitized once a month.
m. Whisk brush all fabric covered furniture.
n. Instruct all employees to notify their supervisor, who in turn shall
notify the proper designated representative of the building, of any irregularity
found in any office during the general office cleaning.
o. After cleaning, all electric lamps are to be extinguished, office
windows closed, office doors securely locked and the Demised Premises to be left
in a neat and orderly condition.
p. Do high dusting once per month.
2. The Lessor shall perform the following Porter Services and Janitorial
Maintenance Services in the manner and with the scheduling as set forth in the
following:
a. Scour wash all public lavatory flooring, using the proper coefficient
of disinfectant for same.
b. Thoroughly wash, scour clean and disinfect all basins, bowls and
urinals located in all public lavatories.
c. Damp dust and wipe clean all mirrors, powder shelves and enameled
surfaces located in all public lavatories.
EXHIBIT "D" Page 1 of 2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
d. Wipe clean of finger marks and maintain in a constant state of uniform
brightness, all brass and other bright work located in all public lavatories.
e. Damp wipe clean all soap dispensers, receptacles, partitions, stalls
and tiled work within normal arms reach in all public lavatories. Said areas to
be washed down at least once during the course of each weekly period.
f. Empty and clean all paper towel and sanitary disposal receptacles in
all public lavatories, depositing waste from same in designated locations.
g. Refill all toilet tissue, hand soap and towel dispensers located in
all public lavatories.
h. Wash all terrazzo lobby flooring. Same to be machine scrubbed a
minimum of once during the course of each monthly period.
i. Hand dust all lobby marble, stone work and fixtures within normal arms
reach.
j. Dustmop and/or vacuum all public corridors as situated throughout the
entire Building.
k. Thoroughly wash, wax and machine polish and/or refinish all public
corridors as situated throughout the entire building; twice during the course of
each weekly period. (Full floor lessees responsible for floor maintenance of
their entire floor; building is not responsible for the maintenance of any
elevator corridors or aisles).
l. Thoroughly wash, wax and machine polish and/or refinish all flooring
as situated within the elevator cabs.
m. Hand dust and clean all vertical surfaces located within the elevator
cabs.
n. Dust clean exterior of overhead lighting fixtures. Wash clean both
inside and outside all of the lighting fixtures, fluorescent and incandescent,
situated in the core space of the Building; once during the course of each
yearly period.
o. Dust clean all overhead pipes, ventilating louvers, air conditioning
louvers and dusts, high moldings and other high areas and surfaces situated on
all floors of the Building and not reached during the regularly scheduled tours
of nightly cleaning; twice during the course of each yearly period.
p. Damp mop all stairways and landings, dusting down all handrails,
stairway doors and frames, fire hoses, standpipe nozzles and racks located in
two sets of stairways; once during the course of each weekly period.
q. Clean and polish saddles and entrance hardware in public areas once a
month.
r. All of the foregoing porter and janitorial maintenance services are to
be rendered nightly, from Monday through Friday of each week, between the hours
of 6:00 p.m. and 7:00 a.m., unless otherwise scheduled.
s. Police parking areas of the Building as required.
3. Interior and exterior window cleaning shall be performed once every
four months (three times a year).
4. No cleaning services shall be rendered on any legal holiday or union
holiday, including but not limited to the following: President's Day, Columbus
Day, Election Day, Veterans Day, Good Friday, Martin Luther King Day, July 4th,
Labor Day, Thanksgiving, Christmas and New Year's Day.
EXHIBIT "D" Page 2 of 2
<PAGE>
============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
============================================================================
EXHIBIT "F"
THE PARTIES FINANCIAL CONTRIBUTIONS FOR THE WORK
============================================================================
<PAGE>
[Letterhead of Albert B. Ashforth, Inc.
Stamford Square
3003 Summer Street
Stamford, CT 06905-4392
203 359-8500 Fax: 203 327-5610]
MEMO
TO: Howard Greenberg and Steven C. Hirsch
FROM: Brian P. Heelan, RPA
RE: Metro Media Drawings - Revised for clarification
The Gateway Building
DATE: February 23, 1998
As per our conversation, I have broken out the scope of work from the drawings
provided by Milo Kleinberg and have clarified who is responsible for paying for
such work. The information requested is as follows:
ARCHITECTURAL
A1 Clean existing wallcovering in reception area, Room 401, Small Conf. Room
407, Large Conf. Room 408 and Office Room 424. TENANT EXPENSE
A2 Modify existing millwork counter at end of open area as required for copy
machine in Room 404 - RE: M3. TENANT EXPENSE
A3 Patch all existing ceiling tiles as required. LANDLORD EXPENSE
A4 Patch all damage sheetrock as required. LANDLORD EXPENSE
A5 Patch all damaged wallcovering as required. TENANT EXPENSE
A6 Remove existing V.C.T. floor flash patch, and replace with new carpet in
Room 412. TENANT EXPENSE
A7 Repair all blinds as required. LANDLORD EXPENSE
A8 Relocate wall mounted form display fixture from office Room 412 to pantry
Room 414. TENANT EXPENSE
A9 Furnish and install missing hat shelves and hang rods in all coat closet -
Re: M1. TENANT EXPENSE
A10 Furnish and install missing shelves in closet - RE: M2. TENANT EXPENSE
A11 Furnish and install missing wood shelves in Room 424 - RE: M4. TENANT
EXPENSE
A12 Remove low portion in open area and patch floor, wall, and ceiling as
required. LANDLORD EXPENSE
A13 Build new office Room 423 with matching construction of wood door, door
number 35 frames, 2X glass windows and wood frames, header/valance, aud
wood base, provide new light switch and modify existing circuits as
required. LANDLORD EXPENSE
A14 Paint entire premises. LANDLORD EXPENSE
A15 Replace all existing carpet. LANDLORD EXPENSE
A16 Relocate fire extinguisher for new layout. TENANT EXPENSE
<PAGE>
Howard Greenberg and Steven C. Hirsch
Page 2
February 23, 1998
A17 Furnish and install new door and frame with new hardware to match existing.
REMOVED FROM SCOPE BY METROMEDIA
A18 Remove existing door and frame including adjacent wall nip patch smooth
where wall is removed. REMOVED FROM SCOPE BY METROMEDIA
A19 Where demolished walls leave breaks in the ceiling plane, replace with new
tiles and ceiling components. Extend and rework grids as required to
continue existing ceiling pattern. LANDLORD EXPENSE
A20 All closets to receive same floor finish as adjacent area and paint P-1.
LANDLORD EXPENSE
ELECTRICAL
El Remove all floor outlets as required and patch smooth. LANDLORD EXPENSE
E2 Furnish and install power and required for furniture, copier fax, etc.
TENANT EXPENSE
E3 Relamp all light fixtures and make operable as required. LANDLORD EXPENSE
E4 Remove extra exit light in open area 406. LANDLORD EXPENSE
E5 Repair electrified roll down screen and make operable. TENANT EXPENSE
E6 Contractor shall trace existing branch circuit wiring in existing electric
panel and verify availabilities of existing spare circuits. Connect new
required circuits to spares, and/or provide new panel box as required.
TENANT EXPENSE
E7 Remove/Relocate light switches and modify circuits as required due to
removal of existing partition. LANDLORD EXPENSE
E8 Patch, repair and refinish all damaged walls, floor convector and ceiling
due to work done by electrician. LANDLORD SHALL PATCH AND REPAIR WHERE
NECESSARY FROM DEMOLITION. TENANT TO PATCH AND REPAIR DUE TO ANY NOW
CIRCUITS.
E9 Coordinate all core drill work, and shut down with landlord for schedule
and approval. TENANT EXPENSE
E10 Provide circuits as required for all workstations to receive minimum of
four (4) duplex receptacles. TENANT EXPENSE
MECHANICAL
M1 Clean, service and make operable the supplemental a/c unit in computer
room 402. LANDLORD EXPENSE
M2 Relocate thermostat as required for new layout. TENANT EXPENSE
M3 Repair all leaks as required. LANDLORD EXPENSE
SPRINKLER & PLUMBING
SP1 Add, relocate, and/or remove sprinkler heads as required to comply with
applicable building code. LANDLORD EXPENSE
SP1 Remove and cap off all exposed plumbing left by removal of pantry and sink.
LANDLORD EXPENSE
<PAGE>
Howard Greenberg and Steven C. Hirsch
Page 3
February 23, 1998
NOTES
- - Voice/data cable run shall be at the tenant's expense.
- - Removal of existing telephone/computer system/security system in Room 402
and 403. TENANT EXPENSE
- - Duplex and voice/date receptacles on furniture partition install outlets
and power harness provided by other. TENANT EXPENSE
- - Overhead task light, furnished by other, installed by electrician
contractor. TENANT EXPENSE
Should you have any questions, please feel free to call me.
cc: Mike Ziatyk
<PAGE>
============================================================================
LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LESSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LESSEE
============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
============================================================================
EXHIBIT "G"
STANDARD REQUIREMENTS FOR ALTERATIONS
TO BE PERFORMED BY LESSEES
============================================================================
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
STANDARD REQUIREMENTS FOR
ALTERATIONS TO BE PERFORMED BY LESSEES
For purposes of these STANDARD REQUIREMENTS FOR ALTERATIONS TO BE PERFORMED
BY LESSEES, Lessee's Alterations, as that term is defined in Article 8 of the
Lease, and Lessee's construction, work and alterations as contemplated in
Article 25 of the Lease are hereinafter sometimes collectively referred to as
the "Alterations." Whenever in this Exhibit G Lessor's approval or consent must
be sought and obtained prior to the performance of any Alterations, such
approval or consent shall not be unreasonably withheld or delayed.
SECTION 1. All Lessee's Alterations shall be performed in accordance with
all Governmental Authority, Legal Requirements, Insurance Requirements and
Environmental Laws (as those terms are defined in the Lease) and other agencies
having jurisdiction and with the over-all design and construction standards of
the Building, Building Equipment and Demised Premises. All Lessee's Alterations
shall be built in accordance with the provisions hereof, the Lease, and the
Final Plans (as hereinafter defined).
SECTION 2. All architectural and engineering plans and specifications for
the Demised Premises shall be prepared by a licensed architect employed by
Lessee at its sole cost and expense and shall describe all the work which under
this Lease is to be performed by Lessee and showing in sufficient detail the
location of all utilities, partitions, bathrooms, offices, storage and/or locker
facilities and any other matters which may affect the construction work to be
performed by Lessee in the Demised Premises and/or Building. Lessor shall make
available plans and specifications for the Building and Building Equipment, if
requested by Lessee or his architect and the actual cost thereof shall be born
by Lessee.
SECTION 3. It shall be the sole responsibility of Lessee and/or Lessee's
agent to file all drawings, plans and specifications, pay all fees and obtain
all permits and applications from all Governmental Authority having
jurisdiction, and to obtain a Certificate of Occupancy, Certificate of
Compliance and all other "sign offs" and approvals required to enable Lessee to
occupy the Demised Premises for the purposes provided for in its Lease. Lessor,
at its sole cost and expense, shall be responsible for all violations in other
parts of the Building which prevent Lessee from obtaining the Certificate of
Occupancy, Certificate of Compliance and all other "sign offs" and approval to
enable Lessee to occupy the Demised Premises
SECTION 4. Simultaneously with any request for consent to make Lessee's
Alterations as defined in Article 8 of the Lease or alterations to the Demised
Premises pursuant to Article 25 of the Lease, Lessee, at its sole cost and
expense shall cause Lessee's architect to prepare and deliver to Lessor for
Lessor's approval two (2) sets of preliminary plans for Lessee's Alterations,
prepared in strict accordance with the provisions contained herein, initialed by
Lessee. Lessor shall notify Lessee of the matters, if any, in which the
preliminary plans fail to conform to the standards established for the Property,
Building, Building Equipment and/or Demised Premises, or otherwise fail to meet
with the Lessor's approval. Lessee shall promptly upon receipt of any such
notice or notices from Lessor cause the preliminary plans to be revised in such
manner as is requisite to obtaining Lessor's approval and shall resubmit said
revised preliminary plans initialed by Lessee as aforesaid for Lessor's approval
within Thirty (30) days of said notice. When Lessor shall determine that the
preliminary plans are satisfactory to Lessor, Lessor shall cause one set thereof
to be initialed on behalf of Lessor, thereby evidencing the approval thereof by
the Lessor, and shall return such set so initialed to Lessee. The preliminary
plans or revised preliminary plans, as the case may be, so approved by Lessor
are hereinafter referred to as the "Preliminary Plans." If such Preliminary
Plans are not approved by Lessor within Fifteen (15) days after submission to
Lessor, Lessor shall advise Lessee of such disapproval and Lessee's architect
shall revise said plans at Lessee's cost and expense, and such plans shall be
deemed approved by both Lessee and Lessor.
SECTION 5. Within Thirty (30) days after Lessor's approval of Lessee's
Preliminary Plans, Lessee, at its sole cost and expense, shall cause to be
prepared and delivered to Lessor four (4) complete sets of drawings and
specifications showing Lessee's Alterations, prepared in conformity with
Preliminary Plans, and such drawings and specifications shall have been
initialed by Lessee, evidencing Lessee's approval thereof. Lessor shall notify
Lessee of the matters, if any, in which said drawings and specifications fail to
conform to the Preliminary Plans and/or standards established for the Building,
Building Equipment and/or Demised Premises. Lessee shall promptly upon receipt
of such notice from Lessor cause said drawings and specifications to be revised
in such manner as is requisite to obtaining Lessor's approval and shall resubmit
revised drawings and specifications initialed by Lessee as aforesaid for
Lessor's approval within Thirty (30) days of said notice. When Lessor shall
determine that the drawings and specifications or revised drawings and
specifications, as the case may be, conform to the Preliminary Plans and are
satisfactory to Lessor, Lessor shall cause the plans and specifications to be
initialed on behalf of Lessor, thereby evidencing the approval thereof by
Lessor, and shall return two (2)
EXHIBIT "G" Page 1 of 5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
sets initialed by Lessor to Lessee and such drawings and specifications shall be
deemed approved by both Lessee and Lessor (the "Final Plans"). Prior to
commencement of Lessee's Alterations, Lessee shall furnish to Lessor in writing,
a complete schedule for all of Lessee's Alterations in the Demised Premises
planned at the time of submission.
SECTION 6. Lessee shall reimburse Lessor promptly on demand therefor, for
any and all reasonable and architectural, engineering and construction fees,
costs and expenses (including costs and expenses incurred by or to an affiliate
of, or entity related to Lessor) incurred by Lessor in connection with
(i) Lessor's review and/or approval of Lessee's Preliminary Plans and/or Final
Plans or (ii) Lessor's inspection of Lessee's Alterations to determine whether
same are being performed in accordance with the Final Plans, the provisions of
any Mortgage, and all Legal Requirements, Insurance Requirements and
Environmental Laws, excluding Lessor's Work as defined in the Lease. Such
reimbursable costs and expenses shall include the fees of any architect or
engineer employed by Lessor or any mortgagee, or superior lessor for such
purposes.
SECTION 7.1A. Until completion and final acceptance of the Lessee's
Alterations, the Lessee and/or Lessee's contractors, subcontractors and/or
materialmen involved in the performance of Lessee's Alterations, shall each, at
their sole cost and expense, furnish and maintain the following insurance:
(a) commercial general liability insurance, including contractual
liability, completed operations insurance, covering the Demised Premises and
Lessor's interest therein against "all risks" on an occurrence basis having a
combined single limit of not less than Two Million ($2,000,000.00) Dollars,
protecting Lessor, any Lessor's agent which is acting as a property manager for
the purpose of furnishing services at the Demised Premises, the holder of any
Mortgage and Superior Lease and Lessee as insureds (and naming each such person
as an insured party or as an additional insured) against any and all claims for
bodily injury, death or property damage occurring, during the period of Lessee's
Alterations and during any period of time when Lessee or Lessee's agents,
employees, or contractors, subcontractors and/or materialmen may enter the
Demised Premises to perform work, in or upon the Demised Premises, Building and
Property;
(b) insurance (herein sometimes referred to as "Lessee's fire (casualty)
insurance") against loss or damage by any and all risks and hazards to Lessee's
Property (as hereinafter defined) for the full replacement value thereof
(including coverages which are currently sometimes referred to as "all risk"
with coverage written on a replacement cost basis);
(c) workers' compensation and employees liability insurance in accordance
with the laws of the State of New York and all other Governmental Authorities
having jurisdiction over the Alterations being performed; and
(d) comprehensive automobile liability insurance, including all owned,
non-owned and hired vehicles, with limits of liability not less than:
(i) $2,000,000.00 single limits coverage for bodily injury, including
death; and
(ii) $500,000.00 single limits coverage for property damage.
B. Prior to the commencement or any Lessee's Alterations, Lessee's
contractors, subcontractors and/or materialmen, shall each furnish to Lessor an
original or duplicate original policies, or certificates of insurance in
triplicate, evidencing coverage for all of the items described above. Each of
the foregoing insurance policies shall (i) be written in form and substance
reasonably satisfactory to Lessor by an insurance company, licensed to do
business in the State of New York, which shall be rated by Best's Insurance
Rating Service with at least a rating equal to A:IX, (ii) include a provision to
the effect that the same will not be canceled or modified except upon thirty
(30) days prior written notice to the Lessor, (iii) provide that any renewals or
endorsements thereto shall also be deposited with Lessor, not less than thirty
(30) days prior to the expiration date of the policy being renewed, replaced or
endorsed, to the end that said insurance shall be in full force and effect at
all times during Lessee's Alterations, and (iv) contain the following clauses
(with all blanks shown being filled in with the required and relevant
information): "Includes Contractual Coverage for liability assumed under
contract with _____________ dated _________, 199_," and "XC & U" exclusion
deleted.
C. Notwithstanding the providing to Lessor of the insurance policies
hereintofore described, and in addition thereto it is further agreed as follows:
(1) Lessee's contractors, subcontractors and/or materialmen shall be solely
responsible and liable for and shall fully protect, defend, indemnity and save
harmless the Lessor from and against all claims, suits, judgments and damages
brought, recovered or exacted against the Lessor or against any person or
EXHIBIT "G" Page 2 of 5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
persons (including the employees of the contractors, subcontractors and/or
materialmen but not limited thereto) or for any claim for any injury or damage
to property (including property of the contractors, subcontractors and/or
materialmen but not limited thereto) or the property of any other person or
company occasioned by or arising out of our resulting from the performance of
the Lessee's Alterations provided for in the agreement or occurring in
connection therewith on the part of the contractors, subcontractors and/or
materialmen, their agents, servants, employees, vendors, or any other person
having anything whatsoever to do in connection with the Lessee's Alterations of
the contractors, subcontractors and/or materialmen, whether such injuries
(including death) or damages be based upon or attributable to the acts or
omissions, whether intentional or otherwise, of the Lessor, its officers,
directors, agents, servants, employees or otherwise, or participation or
omission in the wrong by the Lessor, its officers, directors, agents, servants,
employees or otherwise, or upon any alleged breach of any law, ordinance or
regulation or of any statutory duty or obligation on the part of the Lessor
relating to any Lessee's Alterations to be performed hereunder, including, but
not limited to and without limiting the generality of the foregoing, all
Governmental Authority, Legal Requirements, Insurance Requirements and/or
Environmental Laws, and the contractors, subcontractors and/or materialmen agree
to assume on behalf of the Lessor, its officers, directors, agents, servants,
employees or otherwise, the defense of any action at law or in equity which may
be brought against the Lessor, its officers, directors, agents, servants,
employees or otherwise, upon any such claim and to pay all costs and expenses of
whatever nature resulting therefrom and in connection therewith and to pay on
behalf of the Lessor, its officers, directors, agents, servants, employees or
otherwise, upon their demand the amount of any judgment that may be recovered or
entered against the Lessor, its officers, directors, agents, servants, employees
or otherwise, in any such action, including reasonable attorneys' fees and
disbursements.
(2) The obligation of the contractors, subcontractors and/or materialmen to
indemnify and save harmless the Lessor, its officers, directors, agents,
servants, employees or otherwise, as hereinabove set forth is absolute and not
dependent upon any question of negligence on the part of the Lessor, its
officers, directors, agents, servants, employees or otherwise, or the
contractors, subcontractors and/or materialmen, their respective agents,
servants, employees, vendors, or any other person or company having anything
whatsoever to do in connection with the Lessee's Alterations or the contractors,
subcontractors and/or materialmen. The approval by the Lessor of the methods of
doing the Lessee's Alterations or failure of the Lessor to call attention to
improper or inadequate methods or to require a change in methods or to direct
the contractors, subcontractors and/or materialmen to take any particular
precautions or to refrain from doing any particular thing shall not excuse the
contractors, subcontractors and/or materialmen in case of any such injury to
person (including death) or damage to property.
(3) The Lessor and contractors, subcontractors and/or materialmen, to the
extent they are insured, waive any right of recovery they may have against the
other for loss or damage to property.
(4) The Lessor shall not be liable for any loss or damage no matter how
caused to any tools, machinery, equipment materials or supplies of the
contractors, subcontractors and/or materialmen.
(5) The contractors, subcontractors and/or materialmen shall obtain from
their respective insurance carriers, an endorsement waiving the insurance
carrier's right of subrogation against the Lessor.
(6) In the event the contractors, subcontractors and/or materialmen sublets
all or part of the Lessee's Alterations, such subcontractor shall be bound by
the same terms and conditions as outlined herein.
SECTION 8. It is agreed that Lessee assumes the entire responsibility and
liability due to Lessee's acts or omissions whether intentional or otherwise,
including statutory or common law for any and all injuries or death of any or
all persons, including Lessee's contractor and subcontractors, employees and for
any and all damages to property of third parties and Lessor caused by or
resulting from or arising out of, any act or omission on the part of Lessee,
Lessee's contractors, subcontractors and/or materialmen, their respective
agents, servants, employees, vendors, or any other person or company having
anything whatsoever to do in connection with the performance of the Lessee's
Alterations thereunder and with respect to this Lessee's Alterations agrees to
indemnify and save harmless Lessor, and any Mortgagee, or the holder of any
Superior Lease, and any of the other lessees in the Property, from and against
all losses and/or expense, including legal fees and expenses which they may
suffer or pay as the result of claims or lawsuits due to, because of or arising
out of any and all such injuries or death and/or damage, whether real or alleged
and Lessee and Lessee's contractors, subcontractors and/or materialmen shall
assume and defend at their own expense all such claims or lawsuits. The Lessee
agrees to insure this assumed liability in its Comprehensive General Liability
Policy and the original of the policy that Lessee will present to Lessor shall
so indicate this contractual coverage.
SECTION 9. Lessee's Alterations shall be coordinated with any other work
being done or to be performed by Lessor, including Lessor's Alterations and any
other lessees in the Building so that Lessee's
EXHIBIT "G" Page 3 of 5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
Alterations will not interfere with or delay the completion of any other such
construction in the Building. Lessor or its agents, shall have access to
Demised Premises at all times to supervise and/or inspect Lessee's Alterations.
If the scheduling of any of Lessor's Work shall require the immediate
installation of any of Lessee's Alterations, Lessor shall notify Lessee in
writing requesting that said Lessee's Alterations be installed. If said work is
not completed within a reasonable length of time from date of Lessor's
notification, Lessor shall notify Lessee in writing of his failure regarding
same and Lessor at its option shall cause said work to be installed. Lessee
shall reimburse Lessor on demand, for all costs of planning and performing such
work together with interest thereon at the maximum legal rate.
SECTION 10. Lessor shall not be obligated to perform any Lessee's
Alterations for Lessee without written authorization for same together with
payment in advance for such Lessee's Alterations, except as otherwise provided
for in the Lease.
SECTION 11. Unless specifically waived in writing by Lessor, Lessee,
and/or its contractors, subcontractors and/or materialmen shall furnish a bond
in an amount equal to One Hundred and Ten (110%) percent of the cost of the
alterations, naming Lessor as co-obligees and covering payment and performance
of the Lessee's Alterations as well as labor and material payments in connection
therewith. Said bond shall be with a surety company and in a form acceptable to
Lessor, and the original thereof shall be delivered to Lessor prior to
commencement of Lessee's Alterations.
SECTION 12. Lessee shall submit to Lessor for approval plans for all roof
penetrations and roof structures, if any, which are to be installed by Lessee.
Roof structures shall not be more than three (3) feet in overall height,
measured from the top of the dunnage steel mounted on stub up to the top most
point of the structure. All such roof opening and structures shall be located
in areas as directed by Lessor. Repairs for patching required for Lessee's
Alterations, including the cutting of roof penetrations, installations of
necessary curbs and flashing shall be performed by Lessor's roofer acting as
Lessee's own agent and contractor at Lessee's sole expense. The Lessee's
Alterations shall be done in such a manner that Lessor's roofing guarantee and
the work performed by others will not be affected. All HVAC units shall be
painted a color which has been previously approved in writing by Lessor's
architect.
SECTION 13. Lessee furnished items, fixtures and/or equipment that is to
be mounted on or hung from the Demised Premises and/or Building must be approved
in advance by Lessor. Lessee shall notify Lessor of the loads involved and, if
they exceed design load of the Demised Premises and/or Building, Lessee, shall
either modify the loads or pay all expenses involved, including architectural
and engineering costs and fees, in the modification of the Demised Premises
and/or Building to accommodate the excessive load.
SECTION 14. Lessee shall permit Lessor or his agent to install and
maintain in the ceiling space and/or under the concrete slab electrical, water
or other line and/or ducts that may be required to service others in the
Building.
SECTION 15. It shall be Lessee's responsibility to cause each of Lessee's
contractors, subcontractors and/or materialmen to maintain continuous protection
of adjacent premises in such a manner as to prevent any damage to Lessee's
Alterations or adjacent property and improvements by reason of the performance
of Lessee's Alterations. Each contractor, subcontractor and/or materialmen
shall properly protect Lessee's Alterations with lights, guard rails and
barricades and shall secure all parts of Lessee's Alterations against accident,
storm and any other hazard.
SECTION 16. Lessee's contractors, subcontractors and/or materialmen
performing Lessee's Alterations shall be required to remove and dispose of, at
least once a week and more frequently as Lessor may direct, all debris and
rubbish caused by or resulting from the construction of the Lessee's
Alterations, and upon completion of the Lessee's Alterations, remove all
temporary structures, surplus materials, debris and rubbish of whatever kind
remaining on the Demised Premises, Property or Building. If at any time
Lessee's contractors, subcontractors and/or materialmen shall neglect, refuse,
or fail to remove any such debris, rubbish, surplus materials, or temporary
structures within two (2) days from and after notice to Lessee from Lessor with
respect thereof, Lessor may cause the same to be removed and charge the cost
thereof to Lessee, which cost shall be paid to Lessor upon demand therefor, as
Additional Rent.
SECTION 17. Lessee's contractors, subcontractors and/or materialmen
participating in Lessee's Alterations shall guarantee that the portion thereof
for which he is responsible will be free from any defects in workmanship and
materials for a period of not less than one (1) year from date of completion
thereof. Lessee shall also require that any such contractors, subcontractors
and/or materialmen performing such Lessee's Alterations shall be responsible for
the placement or repair without additional charge to Lessor of any and all
Lessee's Alterations done or furnished by or through such contractors,
subcontractors and/or materialmen which shall become defective within one (1)
year after completion of
EXHIBIT "G" Page 4 of 5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
Lessee's Alterations. The correction of such Lessee's Alterations shall include
without additional charge to Lessor all additional expenses and damages in
connection with such removal, replacement of, or any part of the Lessee's
Alterations or any part of the Property or Building or Demised Premises which
may be damaged or disturbed thereby. All warranties or guarantees as to
materials or workmanship or with respect to Lessee's Alterations shall be
contained in the contract or subcontract which shall be so written that such
guarantees or warranties shall inure to the benefit of both Lessor and Lessee as
their respective interests may appear, and can be directly enforced by either.
Lessee covenants to give to Lessor any assignment or other assurance necessary
to effect such right to direct enforcement.
SECTION 18. Upon completion of Lessee's Alterations, Lessee's contractors,
subcontractors and/or materialmen shall provide Lessor, without cost with one
(1) set of transparent "as built" plans and one (1) CADD disk of the "as built"
plans.
SECTION 19. Any approval or consent by Lessor shall in no way obligate
Lessor in any manner whatsoever in respect to the finished product designed
and/or constructed by Lessee. Any deficiency in design or construction,
although same had prior approval of Lessor, shall be solely the responsibility
of Lessee.
SECTION 20. All items of Lessee's Alterations, labor and materials, not
specifically set forth herein and designated as Lessor's Work shall be furnished
and installed by Lessee.
SECTION 21. Any reference to trade names herein are used to indicate type
and quality and do not preclude the use of products produced by other
manufacturers of equivalent nature, unless so noted, as approved by Lessor.
SECTION 22. If any dispute, interpretation or difference between Lessor
and Lessee arises out of any matter mentioned in these Standard Requirements,
Lessor's Work, Lessee's Alterations or any matter mentioned in this Exhibit, the
same shall be submitted in writing to Lessor and Lessee's architects, who shall
determine the dispute or difference within ten (10) days. Said arbitrator's
determination or award shall be final and binding and conclusive upon the
parties. Any award or determination rendered in accordance with this provision
shall be controlling and decisive of any question, matter or dispute thereafter
arising under this Lease if, and to the extent that, such question, matter or
dispute thereafter arising involves the same issues.
SECTION 23. All HVAC design criteria for the Demised Premises shall be
designed so that no effect upon the air conditioning of the Building will be
generated. Calculations attendant to Lessee's HVAC systems must be submitted to
Lessor's architect for prior written approval preceding any installation
thereof.
EXHIBIT "G" Page 5 of 5
<PAGE>
============================================================================
PARKING AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LICENSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LICENSEE.
============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
Prepared By:
THE LAW OFFICES OF
HIRSCH & KATZ, LLP
595 STEWART AVENUE
SUITE 400
GARDEN CITY, NEW YORK 11530
(516) 227-1117
<PAGE>
THIS PARKING AGREEMENT made this 9th day of March, 1998 by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY having its office and principal place
of business at 900 Cottage Grove Road, S-311, Hartford, Connecticut 06152-2311
hereinafter referred to as the Licensor, and METROMEDIA FIBER NETWORK SERVICES,
INC., with offices at 110 East 42nd Street, Suite 1502, New York, New York
10017, hereinafter referred to as the Licensee.
W I T N E S S E T H
NOW THEREFORE, in consideration of the mutual covenants and promises herein
contained, it is mutually agreed as follows:
SECTION 1.01.A. From and after the Commencement Date (as that term is
defined in the Lease, Licensor does hereby grant unto Licensee the privilege of
Thirty (30) parking spaces ("Initial Available Parking Spaces"), in an area to
be designated by Licensor within the parking garage commonly known as and
located at 85 North Lexington Avenue, White Plains, New York 10601 (the "Parking
Garage"), for a period to be coterminous with the Term of that certain Lease
between Licensor, as Lessor and Licensee, as Lessee (the "Lease") for a portion
of the premises known as the Gateway and located at One North Lexington Avenue,
White Plains, New York 10601 (the "Property") at the rates specified herein.
B. From and after the Additional Premises Commencement Date (as that term
is defined in the Lease, Licensor does hereby grant unto Licensee the privilege
of Twelve (12) additional parking spaces ("Additional Available Parking
Spaces"), in an area to be designated by Licensor within the Parking Garage, for
a period to be coterminous with the Term of the Lease at the rates specified
herein.
C. Licensee acknowledges that in the event it does not require and/or take
all of the Initial Available Parking Spaces as of the Commencement Date of the
Lease, or the Additional Available Parking Spaces as of the Additional Premises
Rent Commencement Date, as the case may be, then in such events, Lessee hereby
releases and waives its rights to those parking spaces (the "Non-Essential
Parking Spaces"). Subject to availability, Licensor hereby agrees that Licensee
shall have the right to all or a portion of the Non-Essential Parking Spaces as
it shall request, on a month to month basis, at the rates herein specified.
Notwithstanding the foregoing, the privilege to hire all or a portion of the
Non-Essential Parking Spaces, shall at all times be subject to Licensor's right
to recapture said Non-Essential Parking Spaces on thirty (30) days written
notice to Licensee and shall in no way be construed as guaranty that such
Non-Essential Parking Spaces will be available to Licensee for its use during
the term of the Lease.
SECTION 1.02. Subject to availability, Licensor hereby agrees that
Licensee shall have the right to Ten (10) additional parking spaces (the
"Additional Parking Spaces") as it shall request, on a month-to-month basis, at
the rates herein specified. Notwithstanding the foregoing, the privilege to
hire the Additional Parking Spaces granted herein, shall at all times be subject
to Licensor's right to recapture said Additional Parking Spaces on thirty (30)
days written notice to Licensee and shall in no way be construed as guaranty
that such Additional Parking Spaces will be available to Licensee for its use
during the term of the Lease.
SECTION 2.01. Licensee agrees to pay the Licensor and Licensor agrees to
accept the monthly sum of Sixty-Five Dollars ($65.00) for each non-reserved
parking space and Seventy-Five Dollars ($75.00) for each reserved parking space,
both plus tax, for each parking space that Licensee hires. Payments shall be
made in advance at the office of Licensor on the first day of each and every
month during the period that this Parking Agreement shall remain in full force
and effect.
SECTION 3.01. This Parking Agreement and the license and privilege hereby
granted shall apply only to those duly registered and operating private
passenger motor vehicle(s) owned and operated by Licensee or Licensee's
employees as more particularly set forth on EXHIBIT "A" annexed hereto and shall
not be transferable to any other person or used for any other purpose other than
as herein provided. Licensee, its employees, officers, directors, invitees, and
contractors shall at all times during the term of this Parking Agreement, obtain
and keep in full force and effect for each motor vehicle in the Parking Garage,
liability insurance in accordance with the laws of the State of New York.
SECTION 4.01. Upon failure of Licensee to promptly pay any and all charges
due hereunder, or to comply with all rules and regulations regarding the use of
the Parking Garage which may be promulgated by Licensor, from time to time, this
Parking Agreement shall, upon notice from Licensor, terminate and become null
and void and of no further force or effect. Licensor may
Page 1 of 3
<PAGE>
thereafter, if necessary, remove Licensee's motor vehicle(s) from the Parking
Garage without accountability, at Licensee's sole cost, expense and risk, in
such manner as Licensor sees fit.
SECTION 5.01. Licensor and Licensor's agents, officers, directors,
employees, independent contractors and invitees shall not be liable for any
damage, theft, fire, loss or destruction of any motor vehicle(s) owned by
Licensee or its employees, licensees, invitees and independent contractors or
any appurtenances thereto or the contents thereof, other than by Licensor's
negligence or wilful acts, caused by or resulting from any cause whatsoever,
including explosion, falling plaster, vermin, smoke, gasoline, oil, Hazardous
Materials (as that term is defined in the Lease), steam, gas, electricity,
earthquake, subsidence of land, hurricane, tornado, flood, wind or similar
storms or disturbances or water, rain, ice or snow which may be upon, or leak or
flow from, any street, road, parking lot, sewer, gas main or subsurface area, or
from any part of the Parking Garage, or leakage of gasoline, oil or other
substances from pipes, pipelines, appliances, storage tanks, sewers or plumbing
works in or at the Parking Garage, or from any other place, or from the breaking
of any electrical wire or the breaking, bursting or leaking of water or
Hazardous Materials from any plumbing or sprinkler system or any other pipe or
storage tanks in, on, under or about the Parking Garage.
SECTION 6.01. Licensor shall have no obligation to patrol, guard or
protect any motor vehicle(s) parked at the Parking Garage pursuant to this
Parking Agreement and shall not be deemed to have custody and/or care of
Licensee's motor vehicle(s) which at all times shall be deemed to remain with
Licensee.
SECTION 7.01. Except for the negligent acts or omissions of Licensor, its
agents, officers, directors, employees, independent contractors and invitees,
Licensee shall indemnify, defend and hold harmless, Licensor, its agents,
officers, directors, employees, independent contractors and invitees, against
and from any and all liability, claims, suits, demands, judgments, costs,
interest and expense (including reasonable attorney's fees and reasonable
disbursements) arising from any injury to or death of, any person or persons or
damage to or from any injury to or death of, any person or persons or damage to
property (including loss thereof) related to (a) Licensee's use of the Parking
Garage or the storage of motor vehicle(s) thereon, (b) any condition created by
or on behalf of Licensee in or about the Parking Garage, (c) any condition of
the Parking Garage due to, or resulting from any default by Licensee in the
performance of its obligations under this Parking Agreement or (d) any act,
omission or negligence of the Licensee or its agents, officers, directors,
employees, independent contractors or invitees. In the event any action or
proceeding shall be brought against Licensor by reason of any one or more
thereof, upon notice from Licensor, Licensee shall resist such action or
proceeding at Licensee's expense by counsel selected by Licensee and reasonably
satisfactory to Licensor.
SECTION 8.01. In the event Licensee ceases to be a tenant or occupant of
the Property, then in such event, this Parking Agreement shall automatically
terminate as of the date that Licensee ceases to be such tenant or occupant of
the Property.
SECTION 9.01. Licensee acknowledges that the monthly amount charged
pursuant to the terms and conditions of this Parking Agreement provided for in
Section 2 hereof is based on the current monthly rate of Seventy-Five ($75.00)
Dollars for each reserved space and Sixty-Five ($65.00) Dollars for each
non-reserved space. Licensee agrees that such rates may, from time to time, be
increased by Licensor, with not less than thirty (30) days prior written notice
to Licensee, and such increased amount shall be paid by Licensee, and shall be
the greater of: (a) the then current rate increased by an annual adjustment in
an amount equal to the consumer price index increase for Westchester County
during the prior year provided herein, or (b) the then current fair market value
for the monthly rental of parking spaces as determined by comparison to similar
facilities in the downtown White Plains business district.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, Licensor and Licensee have respectively signed and
sealed this Parking Agreement as of the day and year first above written.
CONNECTICUT LIFE INSURANCE COMPANY (Licensor)
By: Cigna Investments, Inc.
By: /s/ James H. Rogers
------------------------------------
Name: James H. Rogers
Title: Managing Director
METROMEDIA FIBER NETWORK SERVICES, INC. (Licensee)
By: /s/ Howard Finkelstein
------------------------------------
Name: Howard Finkelstein
Title: President
Page 3 of 3
<PAGE>
============================================================================
PARKING AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
AS LICENSOR,
AND
METROMEDIA FIBER NETWORK SERVICES, INC.,
AS LICENSEE
============================================================================
Premises:
THE GATEWAY
One North Lexington Avenue
White Plains, New York 10601
============================================================================
EXHIBIT "A"
THE LIST OF MOTOR VEHICLES
============================================================================
<PAGE>
EXHIBIT 21.1
METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
AS OF MARCH 23, 1998
<TABLE>
<CAPTION>
NAME JURISDICTION D/B/A
<S> <C> <C>
Metromedia Fiber Network, Inc. DE
Metromedia Fiber Network Services, Inc. DE
Metromedia Fiber Network of Illinois, Inc. DE
Metromedia Fiber Network of New Jersey, Inc. DE
Metromedia Fiber Network of New York, Inc. DE
NFN Communications, Inc. DE
International Optical Network, L.L.C. DE ION
(f/k/a MFNRAC, L.L.C.)
MFN of IL, L.L.C. DE
MFN of NY, L.L.C. DE
MFN of NJ, L.L.C. NJ
MFN of VA, L.L.C. VA
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 138,846
<SECURITIES> 0
<RECEIVABLES> 837
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 140,957
<PP&E> 17,218
<DEPRECIATION> 1,375
<TOTAL-ASSETS> 167,378
<CURRENT-LIABILITIES> 7,436
<BONDS> 0
0
0
<COMMON> 229
<OTHER-SE> 149,312
<TOTAL-LIABILITY-AND-EQUITY> 167,378
<SALES> 2,524
<TOTAL-REVENUES> 2,524
<CGS> 0
<TOTAL-COSTS> 3,572
<OTHER-EXPENSES> 26,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 741
<INCOME-PRETAX> (26,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,259)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 464
<SECURITIES> 0
<RECEIVABLES> 181
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 645
<PP&E> 7,544
<DEPRECIATION> 650
<TOTAL-ASSETS> 7,978
<CURRENT-LIABILITIES> 13,532
<BONDS> 0
0
15
<COMMON> 100
<OTHER-SE> (6,973)
<TOTAL-LIABILITY-AND-EQUITY> 7,978
<SALES> 0
<TOTAL-REVENUES> 236
<CGS> 0
<TOTAL-COSTS> 699
<OTHER-EXPENSES> 6,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,561
<INCOME-PRETAX> (10,359)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,359)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> 0
</TABLE>
