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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-23709
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DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3870996
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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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:
COMMON STOCK $.001 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] 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 or any
amendment to this Form 10-K.
[ ] Yes [x] No
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 15, 2000 was approximately $10,587,600,000 (based on
the last reported sale price on the NASDAQ National Market on that date). The
number of shares outstanding of the registrant's common stock as of
December 31, 1999 was 112,453,892.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
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DOUBLECLICK INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
ITEM 1. Business.................................................... 3
ITEM 2. Properties.................................................. 27
ITEM 3. Legal Proceedings........................................... 27
ITEM 4. Submission of Matters to a Vote of Security Holders......... 29
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters Price Range of Common Stock........... 29
ITEM 6. Selected Consolidated Financial Data........................ 31
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
ITEM 7A. Quantative and Qualitive Disclosures About Market Risk...... 41
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 67
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 67
ITEM 11. Executive Compensation...................................... 67
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 67
ITEM 13. Certain Relationships and Related Transactions.............. 70
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 71
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THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. DOUBLECLICK UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading provider of technology-driven marketing and advertising
solutions to thousands of advertisers, advertising agencies, Web publishers and
e-commerce merchants worldwide. We provide a broad range of media, technology
and data products and services. Our products and services for Web publishers are
designed to optimize revenues. For our advertising, advertising agency and
e-commerce merchant customers, our products and services are designed to enhance
the effectiveness of their ad and marketing campaigns on the Internet and
through other interactive media.
Our patented DART technology is the platform for many of our solutions and
enables our customers to use preselected criteria to deliver the right ad to the
right person at the right time. DART is also a sophisticated tracking and
reporting tool that our customers rely on to measure ad performance and provide
dynamic ad space inventory management. We currently serve ads for over 1,800
clients, and in December 1999 delivered nearly 30 billion advertisements to
targeted Internet users.
Our revenues are derived from three principal lines of business:
DOUBLECLICK MEDIA. DoubleClick Media offers advertising and marketing
solutions to both publishers (i.e., AltaVista, the Dilbert Zone, Kelley
Blue Book and Macromedia) and advertisers. We aggregate the advertising
inventory of hundreds of Web sites into one of several domestic and
international networks based on size, traffic and content. We offer Web
publishers outsourced ad sales, ad delivery and related services to
generate advertising revenue. We offer advertisers the ability to advertise
on these networks and to target users on a local, national and
international basis. We deliver advertising on these networks using our
DART technology.
DOUBLECLICK TECHSOLUTIONS. DoubleClick TechSolutions is comprised of
comprehensive service and software solutions designed specifically for the
needs of our three targeted customer segments: advertisers and agencies,
Web publishers and e-commerce merchants. Our solutions include the DART
Service for Publishers, the AdServer family of software products for
publishers and e-commerce merchants, the DART Service for Advertisers, and
the DARTmail Service. We have professional service teams to support these
solutions and provide education, consulting services and around-the-clock
support. We acquired the AdServer family of software products through our
merger with NetGravity, Inc. in October 1999.
DOUBLECLICK DATA SERVICES. DoubleClick Data Services, through our Abacus
division, is a leading provider of information products and marketing
research services to the direct marketing industry. Through Abacus, we have
developed a comprehensive and productive source of information regarding
consumer purchasing behavior by creating a database that includes consumer
purchasing data contributed from over 1,500 alliance members. We use this
proprietary database and our advanced statistical modeling technology to
provide direct marketers with information and analysis which is designed to
increase response rates and profits from their direct mail marketing
campaigns. We merged with Abacus Direct Corporation in November 1999.
The Internet has emerged as an attractive new medium for advertisers due to
the rapid growth in the number of Web users, the amount of time such users spend
on the Web, the increase in electronic commerce, the interactive nature of the
Web, the Web's global reach and a variety of other factors. We believe the
number of U.S. online households will grow from
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39 million in 1999 to 63 million in 2004 and consumer e-commerce will reach $108
billion in 2003. Consequently, we believe that U.S. online advertising spending
will grow from $2.8 billion in 1999 to $22.2 billion in 2004. In addition, we
believe that markets outside the U.S. will become an increasingly important
component of Internet advertising, growing from $500 million in 1999 to $10.5
billion in 2004, accounting for approximately 33% of worldwide Internet
advertising. We believe that we are well positioned to capitalize on this large
market opportunity.
TECHNOLOGY OVERVIEW
We continue to enhance and develop our technology platforms. These include:
DART TECHNOLOGY. Many of our products and services are powered by our
patented DART technology, which enables centralized ad management, delivery
and reporting. In September 1999, we received a U.S. patent covering
fundamental aspects of our DART technology. We use our DART technology to
deliver advertising on Web sites independent from how content is delivered.
Content is delivered through the particular Web site's services, while our
servers contemporaneously select an appropriate advertisement for that Web
page and user based on various targeting criteria and deliver that
advertisement to the user within milliseconds. The following diagram
illustrates the architecture of the DART Service for Publishers:
Diagram illustrating the typical function of the DoubleClick DART service.
Shows a diagram with the following text:
[1. Web user visits a Web site of a Web publisher utilizing the Company's
DART Solutions.]
[Stylized picture of user]
[2. User's browser requests a targeted advertisement from a DoubleClick
ad server.]
[3. DART receives the request and assembles a user profile. The user
profile can include geographic location of the user's server, user
interests, organization name and size, domain type (i.e., commercial,
government, education, network), operating system, server type and
version and keywords.]
[4. DoubleClick DART then compares the user's profile with the targeting
criteria of the hundreds of ads available in its database and delivers a
dynamically targeted ad. This entire process is completed in milliseconds.]
[Stylized picture of user viewing targeted ad]
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Our DART technology dynamically targets and delivers ads to Web users based
on pre-selected criteria, including the Web site category, time of day and
regional geographic location. If the user responds to an advertisement by
'clicking on' the ad, our servers direct the user's browser to the
advertiser's Web site for more information. These methods of data
collection and centralized ad delivery offer a number of advantages to Web
publishers, advertisers and consumers, including system reliability, proven
targeting capabilities, sophisticated ad inventory management, consistent
Web-based reporting and enhanced relevance of the advertising to the user.
Because DART technology is Web-based, continuous enhancements to the
technology can be made without the need for our customers to upgrade or
purchase new equipment or software upgrades.
ADSERVER TECHNOLOGY. We license, and offer consulting and support services
for, the AdServer family of software products for e-commerce merchants and
Web publishers. Using our AdServer software solution, e-commerce merchants
and Web publishers can directly manage their own advertising inventory,
consumer data, mission-critical advertising business processes, and
relationships with advertisers and advertising agencies. The AdServer
family of software products are designed to allow Web publishers to predict
inventory available for sale, to deliver targeted advertisements to
consumers and to provide reports and analysis to advertisers. Additionally,
our AdServer software solution can be integrated with content management,
billing and commerce systems. AdServer is designed to be extensible, fault-
tolerant, scalable and platform-independent to meet the needs of even our
largest customers. Our AdServer software also supports industry standard
operating environments including popular Unix systems, Microsoft Windows
NT, standard relational databases, Web servers from Netscape and Microsoft
and Java-enabled Web browsers.
DATA SERVICE TECHNOLOGY. Our Data Service technology employs modeling
software which uses predictive scoring and analytical techniques to improve
response rates from customer lists. We also use process automation software
that integrates and automates virtually all states of model development and
list production and allows us to quickly and cost effectively generate
dozens of models for a given client.
OUR SOLUTIONS
DOUBLECLICK MEDIA
Solutions for Publishers
DoubleClick Media offers a comprehensive set of media solutions designed to
optimize advertising revenues for Web publisher clients on our worldwide
networks. We pay each Web publisher whose Web sites are on the networks a
service fee calculated as a percentage of the amount we charge advertisers for
delivering advertisements on the networks. In addition, we typically are
responsible for billing and collecting for ads delivered on the networks and
typically assume the risk of non-payment from advertisers. By outsourcing these
functions, Web publishers avoid the need to develop an internal ad sales
capacity, are relieved of ad management requirements, including billing,
tracking and reporting, and do not incur the expense associated with
establishing, maintaining, upgrading and operating ad servers.
DoubleClick Media service and product offerings for Web publishers consist
of the following:
DOUBLECLICK SELECT. DoubleClick Select is the advertising solution for Web
publishers of well-known Web sites that wish to completely outsource ad
sales, ad management, ad serving and reporting. Announced in January 1999,
DoubleClick Select features a collection of high quality branded Web sites
on which our experienced sales force and sponsorship specialists sell
advertising on an exclusive basis. Through exclusive representation,
DoubleClick Select positions its sites for high value, premium ad products
such as site specific campaigns and sponsorships.
DOUBLECLICK NETWORK. Web publishers complement their in-house ad sales
efforts with the DoubleClick Network. The DoubleClick Network helps Web
publishers realize revenue from
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their advertising inventory by allowing Web publishers to take advantage of
the global sales force of DoubleClick Media to maximize their Web site's
revenue potential. The largest DoubleClick Media network is the DoubleClick
Network. Our representation of Web publishers is typically on a
non-exclusive basis in the U.S., and on an exclusive basis internationally.
SONAR NETWORK. On January 31, 2000, we announced the launch of the Sonar
Network, our new, separately branded network of small and medium-sized Web
sites and unsold inventory from larger Web sites. The Sonar Network is
focused on providing ad sales services for Web publishers offering reach
and user-based audience-targeting to advertisers looking for lower cost ad
solutions.
To take advantage of the global reach of the Internet, we have established
and continue to establish networks in Europe, Asia and other international
markets. DoubleClick Media currently offers our services and products in
Australia, Canada, France, Germany, the United Kingdom, Benelux (the
Netherlands, Belgium and Luxembourg), Iberoamerica (Spain, Portugal and Latin
America), Ireland and Scandinavia (Sweden, Norway, Denmark and Finland), and
operates through business partners in Japan, Asia (Hong Kong, Taiwan and
Singapore) and Italy. Further, we locate ad servers in foreign locations to
facilitate the rapid delivery of Internet advertising in international markets.
Web publishers seeking to add their Web sites to one of our DoubleClick
Media networks must meet defined inclusion and maintenance criteria. For the
DoubleClick Network and for DoubleClick Select, these factors include:
demographics of the particular Web site's users;
quality of the Web site's content;
brand name recognition of the Web site;
level of existing and projected traffic on the Web site; and
ability to provide sponsorship opportunities on the Web site.
By maintaining these defined criteria, we enhance an advertiser's ability to
have its advertisements seen by the targeted audience which, in turn enhances
the value of a Web publisher's inventory.
We will continue to target Web publishers of high quality directories,
search engines and premium Web sites for addition to the existing categories of
interest in the networks of DoubleClick Media. We will also continue to expand
into additional categories of interest based on advertisers' targeting needs.
Solutions for Advertisers
DoubleClick Media provides advertisers and their agencies with the ability
to reach their desired audience online. Over 4,300 advertisers from a variety of
industries used the DoubleClick Media advertiser solutions during the fourth
quarter of 1999, including many of the leading Internet advertisers. In some
instances, advertisers promote a number of products at one time. In turn, there
may be a number of advertising campaigns being run simultaneously for each
product, each with a number of advertisements. Further, many advertisers use
advertising agencies to place their advertisements. As a result, DoubleClick
Media maintains relationships with, and focuses its sales and marketing efforts
on, both advertisers and advertising agencies. We offer the following media
solutions to help advertisers reach their desired audiences online:
U.S. NETWORKS. The DoubleClick Media networks within the United States
consist of six categories of premium content Web sites grouped together in
the following areas of interest: Auto, Business, Entertainment, Technology,
Travel and Women/Health. Additional sub-categories including sports, youth
and finance allow advertisers to more efficiently reach their desired
audiences. With special programs for mass reach, run-of-category and
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site-specific targeting, advertising placements on the sites in the U.S.
networks can be customized to meet the needs of any advertiser.
INTERNATIONAL NETWORKS. Our international DoubleClick Media operations
allow U.S. advertisers to target users worldwide or in specific countries
and enable overseas advertisers to focus their advertising either in their
own domestic market, the United States market or globally. With over 650
publishers featured in separate networks grouped together by country and
area of interest in Canada and eighteen countries in Western Europe and
Asia, we offer advertisers the ability to run global campaigns with one
media placement.
DOUBLECLICK LOCAL. Launched in July 1998, DoubleClick Local is among the
first Internet advertising solutions for regional and local businesses. By
using the advanced geographic targeting capabilities of our DART technology
in conjunction with our U.S. networks, regional businesses can now reach
their desired regional and local markets on national name-brand Web sites.
DOUBLECLICK SHOPPING. Launched in May 1999, DoubleClick Shopping offers
advertisers the ability to place ads on shopping Web sites we create for
Web publishers in the DoubleClick Media networks using the Web publishers'
premium branded content.
BOOMERANG. Launched in October 1998, the Boomerang feature of our DART
technology allows advertisers to reach users on the DoubleClick Media
networks who have previously visited the advertiser's Web site. Advertisers
can re-market to frequent buyers, to new customers, or to people who
visited a site but have not responded or made a purchase.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions are designed specifically to meet the needs of
advertisers, agencies, Web publishers and e-commerce merchants. These solutions
have been designed to address the rapidly evolving needs of each of the
following online marketing segments:
ADVERTISERS AND AGENCIES. Advertisers and their agencies are interested in
optimizing outbound advertising campaign results by delivering the right
message to the right person at the right time, and in justifying
expenditures through reliable, detailed, post-click campaign performance
reports.
WEB PUBLISHERS. Web publishers are interested in maximizing advertising
profits through advanced inventory management, precision targeting
capabilities, streamlined business processes, and reliable and detailed ad
performance reports to effectively package and sell one site or a network
of sites.
E-COMMERCE MERCHANTS. Online merchants are interested in using information
about their customers to deliver real-time, targeted marketing messages,
acquiring new customers at the lowest acquisition cost possible and
retaining customers to maximize lifetime value.
Our TechSolutions services and products include:
DART SERVICE FOR PUBLISHERS. Since January 1997, our DART Service for
Publishers has provided Web publishers with a comprehensive Web-based
service bureau that enables Web publishers that sell their own advertising
inventory to optimize their ad management, ad serving and reporting
functions through the Web-based DART technology. The DART Service provides
a Web publisher with the dynamic ad matching, targeting and delivering
features of the DART technology. With ad servers located throughout the
world, the DART Service for Publishers offers the scalability, reliability
and power needed to deliver large volumes of ads. Customers using the DART
Service for Publishers include Ask Jeeves, CBS Marketwatch, theglobe.com,
Mail.com and Wall Street Journal Interactive Edition.
DOUBLECLICK ADSERVER. Our AdServer software products offer an online
advertising and marketing management software solution for publishers and
merchants. AdServer software automates critical processes needed to run a
successful online marketing business, including sophisticated inventory and
order management, precision targeting, dynamic delivery, tracking and
detailed campaign reporting. AdServer software enables our clients to
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customize and integrate this solution with other key back-end systems.
Licensees of the AdServer family of software products include CNN
Interactive, KnightRidder New Media, Unicast and the World Wrestling
Federation.
DART SERVICE FOR ADVERTISERS. DART for Advertisers offers effective
campaign planning, management and optimization to allow advertisers to
streamline and control their online ad campaigns, understand their
customers and act quickly on knowledge gained. The DART Service for
Advertisers uses the same globally distributed system architecture and ad
servers that support the DART Service for Publishers. Advertiser and agency
clients of the DART Service for Advertisers product include Beyond
Interactive, CKS/US Web, First USA, MediaSmith and more.com.
DARTMAIL SERVICE. Our DARTmail Service offers advertisers and merchants a
full service advertising campaign management solution for direct e-mail
marketing. Our DARTmail Service enables marketers to deliver highly
personalized e-mail communications to their customers for the purposes of
building long-term, profitable relationships with their existing customers
and acquiring new customers. We first offered our DARTmail Service in early
December 1999, immediately following the acquisition of Opt-in E-mail.com.
Our DARTmail Service clients include iWon.com, Mail.com,
Metro-Goldwyn-Mayer, Microsoft and ShopNow.com.
DoubleClick TechSolutions are backed worldwide by support teams offering
service twenty-four hours a day, seven days a week. Through our professional
services group, we provide comprehensive education and consulting services that
help enable our customers to maximize the value of our TechSolutions services
and products. These services include customizing and extending existing
TechSolutions products and services in order to capitalize on additional revenue
opportunities, integrating DoubleClick TechSolutions into existing
infrastructure and data assets, and training employees on maximizing online
advertising effectiveness.
DOUBLECLICK DATA SERVICES
DoubleClick Data Services is a leading provider of information products and
marketing research services to the direct marketing industry through our Abacus
division. Through Abacus, we have developed a comprehensive and predictive
source of information regarding consumer purchasing behavior by creating a
database that includes consumer purchasing data contributed from over 1,500
alliance members. We use this proprietary database and its advanced statistical
modeling technology to provide direct marketers with information and analysis
which is designed to increase response rates and profits from their direct mail
marketing campaigns.
Abacus has addressed the need for a comprehensive source of information on
purchasing behavior by forming the Abacus Alliance. Our Abacus Alliance is a
cooperative arrangement through which direct mail marketers and offline
retailers contribute their customers' purchasing histories to our database in
exchange for the right to purchase the full range of Abacus's information and
market research services.
Our Abacus database contains over 88 million buyer profiles compiled from
records of over 3 billion purchasing transactions. This database includes a
combination of transactional, geographic, demographic, lifestyle and behavioral
profile data, enabling marketers to gain a better understanding of consumer
behaviors and conduct more effective marketing campaigns. Abacus's products and
services support the direct mail marketing of Alliance participants.
During the fourth quarter of 1999, we formed the Abacus Online Alliance to
extend the Abacus relationships, data and tools to the Internet and other
interactive media. This will enable our customers to deliver personally tailored
advertising to those users who have received prior notice of and an opportunity
to opt-out from this type of targeting. We are currently adding participants,
including e-commerce merchants, to our Abacus Online Alliance, and developing
our Abacus Online products and services. We do not currently offer any Abacus
Online products or services.
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We offer the following services and products to our Abacus customers:
PROSPECT LISTS. Our prospect lists service provides a client with a list of
prospective consumers ranked according to the likelihood that the consumers
will respond to a particular direct marketing campaign. The criteria for
ranking include recency, frequency, time of year and dollar amount of
catalog purchases. This service helps enable catalog companies to expand
their business base and offset consumer attrition.
HOUSEFILE SCORING. Our housefile scoring service offers our clients a
ranking of the consumers contained on each client's own customer list
according to the probability that an individual consumer will make a repeat
purchase. This service also allows our clients to identify inactive
customers who are most likely to respond to a renewed sales initiative. Our
housefile program helps enable our client companies to profitably manage
promotional programs targeted at their existing customers and cost
effectively determine when to solicit customers who have not made recent
purchases.
LIST OPTIMIZATION. Our list optimization service eliminates unresponsive
names from lists that a client has purchased from or exchanged with other
companies, enabling the client to identify and target the most likely
buyers. This process not only increases the potential profitability of
lists a client currently uses, but permits the client to use lists that
were previously considered unprofitable.
MARKETING INFORMATION REPORTS. Our marketing information reports service
offers our clients detailed information regarding the catalog industry,
which was not previously available to catalog companies. Our Data Services
group uses the data contributed by our Abacus Alliance members to create
comprehensive reports that accurately describe catalog market size, share,
activity and other key marketing data that allow clients to develop their
strategic marketing initiatives. The marketing information reports provide
our clients information on: (1) seasonality, to help identify optimal mail
dates; (2) cross-category catalog purchasing behavior, to allow the
refinement of the catalog's merchandise mix; and (3) transaction histories
and demographics, to aid in planning, advertising, promotions and mail
frequency.
SALES AND MARKETING
UNITED STATES
We sell our solutions in the United States through a sales and marketing
organization which consisted of 505 employees as of December 31, 1999. These
employees are located at our headquarters in New York, and in our offices in
Atlanta, Boston, Broomfield (CO), Chicago, Dallas, Detroit, Los Angeles, San
Francisco, San Mateo, and Seattle. Our sales organization is divided into
dedicated groups that separately sell our service and product offerings, and
within these groups, our sales representatives are further divided into separate
teams to serve the needs of our diverse client base.
To support our direct sales efforts and to actively promote the DoubleClick
brand, we conduct comprehensive marketing programs, including public relations,
print advertisements, online advertisements over our DoubleClick networks and
our newly introduced Sonar Network and, on the Web sites of Web publishers
unaffiliated with our DoubleClick Networks, Web advertising seminars, trade
shows and ongoing customer communications programs.
INTERNATIONAL
Our international operations are based out of our Irish subsidiary located
in Dublin, Ireland. We sell our services and products through our directly and
indirectly owned subsidiaries in Australia, Canada, France, Germany, the United
Kingdom, Benelux (the Netherlands, Belgium and Luxembourg), Iberoamerica (Spain,
Portugal and Latin America), Ireland and Scandinavia (Sweden, Norway, Denmark
and Finland), and operate through business partners in Japan, Asia (Hong Kong,
Taiwan and Singapore) and Italy. We sell our services and products
internationally in
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a number of countries including France, Germany, Japan, Norway, Sweden and the
United Kingdom through our global sales organization. Our international sales
and marketing organization consisted of 209 employees as of December 31, 1999.
CORPORATE HISTORY; RECENT MERGERS, ACQUISITIONS AND INVESTMENTS
We were incorporated in Delaware on January 23, 1996, as DoubleClick
Incorporated and changed our name to DoubleClick Inc. on May 14, 1996. On
February 25, 1998, we completed our initial public offering of common stock,
receiving net proceeds of approximately $62.5 million. On December 10, 1998, we
received net proceeds of approximately $93.7 million in connection with our
follow-on offering of common stock. On March 16, 1999, we completed the sale of
our 4.75% Convertible Subordinated Notes due 2006 through a private offering
under Rule 144A, and received approximately $244.7 million in net proceeds. On
April 2, 1999, we paid to stockholders of record on March 22, 1999 a stock
dividend of one share of common stock for each share held. On January 10, 2000,
we paid to each stockholder of record as of December 31, 1999 a stock dividend
of one share of common stock for each share held. Our service and product
offerings are grouped into three lines of business: DoubleClick Media,
DoubleClick TechSolutions and DoubleClick Data Services. See Note 12 to the
Consolidated Financial Statements for revenues and gross profit attributable to
each of our lines of business and revenues and long-lived asset information by
geographic area.
We have recently completed the following mergers and acquisitions:
On October 26, 1999, we merged with NetGravity, Inc., a leading provider of
interactive online advertising and direct marketing software solutions.
On November 4, 1999, we acquired the remaining 90 percent of the
outstanding shares of DoubleClick Iberoamerica that we did not previously
own.
On November 23, 1999, we merged with Abacus Direct Corporation, a leading
provider of specialized consumer information and analysis for the direct
marketing industry.
On November 30, 1999, we merged with Opt-In E-mail.com, a leader in
Internet e-mail marketing, publishing and list management.
On December 29, 1999, we acquired the remaining 90.7 percent of the
outstanding shares of DoubleClick Scandinavia AB that we did not previously
own.
In addition, on January 11, 2000, we entered into an agreement to make a cash
and stock investment in ValueClick, Inc., a provider of cost-per-click Internet
advertising solutions, in exchange for a 30% equity interest in ValueClick.
Under the terms of the agreement, ValueClick will receive $75.7 million in our
common stock and $10 million in cash. ValueClick will also have registration
rights covering these shares. In addition, we will receive a warrant to purchase
additional equity, which will enable us to own up to 45 percent of the equity of
ValueClick and will be exercisable until 15 months following the consummation of
our investment. We intend to consummate this investment once we receive
Hart-Scott-Rodino regulatory clearance. ValueClick filed a registration
statement on Form S-1 for its initial public offering of its common stock on
October 12, 1999.
COMPETITION
The market for interactive marketing solutions is intensely competitive. We
expect this competition to continue to increase since there are low barriers to
entry. Competition may also increase as a result of industry consolidation.
We believe that our ability to compete depends on many factors both within
and beyond our control, including the following:
the timing and market acceptance of new solutions and enhancements to
existing solutions developed by either us or our competitors;
customer service and support efforts;
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sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
DoubleClick Media competes for Internet advertising revenues with large Web
publishers and Web portals, such as America Online, Excite@Home, Microsoft,
GO.com and Yahoo!. We also compete with the traditional advertising media of
television, radio, cable and print for a share of advertisers' total advertising
budgets. Furthermore, our DoubleClick networks compete with a variety of
Internet advertising networks, including 24/7 Media, AdSmart and Flycast. We
also encounter competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies, and other companies which facilitate Internet advertising.
DoubleClick TechSolutions competes with providers of ad server software and
related services, including Accipiter and Real Media. We also face competition
for outsourced ad services by AdForce, AdKnowledge, AvenueA, Excite@Home
(through its MatchLogic unit), L90 and Sabela Media. 24/7 Media has recently
announced an agreement to acquire Sabela Media. Additionally, we face sales
challenges from the internal capabilities of some potential customers, as some
large and popular online content publishers use internally developed interactive
marketing and advertising solutions rather than the commercial solutions offered
by DoubleClick and our competition. Our DARTmail Service competes with providers
of e-mail delivery and list management services, such as Exactis and
MessageMedia.
DoubleClick Data Services, through the Abacus database and services,
competes with companies such as Z-24, which is a subsidiary of Experian, and
marketing intermediaries such as Junkbusters, as well as list brokers and
individual companies that sell their customer lists. Our Abacus Online Alliance
will compete with providers of profiling technology, such as MatchLogic and
Engage. A number of DoubleClick's competitors, including Engage, AdForce,
AdKnowledge, AdSmart and Flycast, are affiliates of CMGI.
PRIVACY
The growth of our business and of the Internet depends on user trust in the
integrity of the Internet. We believe that fostering user confidence in online
privacy is an integral component of our mission to deliver the right message to
the right user at the right time. We have been a leader in providing notice and
choice to users about our use of non-personally identifiable information
collected about them in the delivery of Internet advertising. With the
development of our Abacus Online division, we are developing ways to provide
notice to users about the marketing uses of personally identifiable information
collected online and the choice not to participate.
In associating online and offline information about a user, we believe we
have an obligation to the user community to protect their privacy. Therefore, in
connection with our Abacus Online services and products, which are currently
under development, we will not associate any personally identifiable information
about a user with his or her Internet browser unless that user has first been
provided with notice about the collection and use of personally identifiable
information about that user, and the choice not to participate. In addition, we
believe that some sensitive information, such as health-related information, is
inappropriate for advertising targeting, and we will not make that sensitive
information part of our targeting systems.
We built our DART technology with user privacy concerns in mind. Since 1997,
we have offered users a selective opt-out that makes it impossible for us to
associate any online behavior with the user's browser or to associate any
personally identifiable information with a browser that has opted out. This
opt-out is available to all users, whether or not we have any personally
identifiable information linked to that person's browser. We call this opt-out
selective because, unlike deleting cookies, our opt-out only impacts our ability
to recognize a user. None of the user's other personalization efforts (e.g.,
customized home pages) are affected.
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As a founding member of the Network Advertising Initiative, we are
developing industry self-regulating principles for the collection and use of
user information by network advertising companies like DoubleClick. As a member
of the Online Privacy Alliance, we encourage our business alliances and
customers to adopt the principles of the Online Privacy Alliance. Further, we
actively monitor privacy laws and regulations, and seek to comply with all
applicable privacy requirements.
We are a defendant in several pending class action lawsuits alleging, among
other things, that we unlawfully obtain and sell Internet users' personal
information. We believe that these lawsuits are without merit and intend to
vigorously defend ourselves against them. We are also the subject of a Federal
Trade Commission inquiry concerning our collection and maintenance of
information concerning Internet users and a request for information from the
New York Attorney General's office relating to our collection, maintenance and
sharing of information concerning, and our disclosure of those practices to,
Internet users. Further, the press has reported that the Michigan Attorney
General commenced legal proceedings against us under Michigan's consumer
protection laws. We may receive additional regulatory inquiries and intend to
cooperate fully. Class action litigation and regulatory inquiries of these
types are often expensive and time-consuming and their outcome is uncertain.
We cannot quantify the amount of monetary or human resources that we will be
required to use to defend ourselves in these proceedings. We may need to spend
significant amounts on our legal defense, senior management may be required to
divert their attention from other portions of our business, new product launches
may be deferred or canceled as a result of these proceedings, and we may be
required to make changes to our present and planned products or services, any
of which could materially and adversely affect our business, financial condition
and results of operations. If, as a result of any of these proceedings, a
judgment is rendered or a decree is entered against us, it may materially and
adversely affect our business, financial condition and results of operations.
SEASONALITY AND CYCLICALITY
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. Our revenue could be
materially reduced by a decline in the economic prospects of advertisers and
direct marketers or in the economy in general, which could alter current or
prospective advertisers' and direct marketers' spending priorities or budget
cycles or extend our sales cycle.
PROPRIETARY RIGHTS
We protect our proprietary technologies through a combination of patent,
copyright, trade secret, unfair competition and trademark law, as well as
contractual agreements. In September 1999, the U.S. Patent Office issued to us a
patent that covers the DART technology. We have filed a patent infringement suit
against each of L90, Inc. and Sabela Media, Inc. in order to enforce our patent.
We have also filed patent applications in the United States and internationally
for our DART technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK, DART, and ABACUS. We have applied to
register our trademarks in the U.S. and internationally. We have received
registrations for the marks DOUBLECLICK and ABACUS, among others. We cannot
assure you that any of our current or future patent applications or trademark
applications will be approved. Even if they are approved, these patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our
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licensees may take actions that could materially and adversely affect the value
of our proprietary rights and reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business alliances, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We collect and compile information in databases for the product offerings of
all our businesses. Individuals have claimed, and may claim in the future, that
our collection of this information is illegal. Although we believe that our
ability to do so will remain lawful, and that we have the right to collect, use
and compile the information in our databases, we cannot assure you that any
trade secret, copyright or other intellectual property protection will be
available for our databases, or that statutory protection that is or becomes
available for databases will enhance our rights. In addition, others may claim
rights to the information in our databases. Further, pursuant to our contracts
with Web publishers using our solutions, we are obligated to keep certain
information regarding each Web publisher confidential and, therefore, may be
restricted from further using that information in our business. In addition,
some of our contracts with Web publishers prevent us from developing profiles of
users of their Web sites. The current debate about data collection practices may
cause additional Web publishers to seek similar contractual provisions in their
agreements with us. Computer users may also use software designed to filter or
prevent the delivery of advertising to their computers. We cannot assure you
that the number of computer users who employ filtering software will not
increase or that additional Web publishers will not seek contractual provisions
barring us from developing profiles of users of their Web sites, either of which
could materially and adversely affect our business, results of operations and
financial condition.
EMPLOYEES
As of December 31, 1999, we employed 1,386 persons, including 714 in sales
and marketing, 209 of whom serve international markets, 225 in engineering and
product development, 249 in business operations, consulting and customer
support, and 198 in general administration. We are not subject to any collective
bargaining agreements and believe that our relationships with our employees are
good.
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RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks occur, our business, results of operations and financial
condition could be harmed, the trading price of our common stock could decline,
and you could lose all or part of your investment.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in January 1996 and have a limited operating history.
An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet advertising market. Our risks include:
ability to sustain historical revenue growth rates;
relying on our DoubleClick networks;
managing our expanding operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining our current, and developing new, strategic relationships with
Web publishers;
dependence on a continuing relationship with AltaVista;
ability to anticipate and adapt to the changing Internet market; and
attracting and retaining a large number of advertisers from a variety of
industries.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. Please see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' for detailed information on our limited
operating history.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES
We incurred net losses of $4.0 million for the year ended December 31, 1996,
$7.7 million for the year ended December 31, 1997, and $18.0 million for the
year ended December 31, 1998. For the year ended December 31, 1999, we incurred
a net loss of $55.8 million and, as of December 31, 1999, our accumulated
deficit was $109.8 million. We have not achieved profitability and expect to
continue to incur operating losses in the future. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenues to achieve and maintain profitability. Although
our revenues have grown in recent quarters, we cannot assure you that we will
achieve sufficient revenues for profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM WEB SITES OF A LIMITED
NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS CUSTOMERS COULD
HARM OUR BUSINESS
We derive a substantial portion of our DoubleClick Media revenues from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
Over 20% of our revenues for each of the years ended December 31, 1999 and 1998
resulted from ads delivered on the Web sites of the top four Web publishers on
our DoubleClick networks. Our business, results of operations and financial
condition could be materially and adversely affected by the loss of one or more
of the Web publishers that account for a significant portion of the revenues
from our DoubleClick networks or any significant reduction in traffic on these
Web publisher's Web sites.
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The loss of these Web publishers could also cause advertisers or other Web
publishers to leave our networks, which could materially and adversely affect
our business, results of operations and financial condition. Typically we enter
into short-term contracts with Web publishers for inclusion of their Web sites
in our DoubleClick networks. Since these contracts are short-term, we will have
to negotiate new contracts or renewals in the future, which may have terms that
are not as favorable to us as the terms of the existing contracts. Our business,
results of operations and financial condition could be materially and adversely
affected by such new contracts or renewals.
WE RELY HEAVILY ON OUR RELATIONSHIP WITH ALTAVISTA AND ANY CHANGE IN THIS
RELATIONSHIP COULD HARM OUR BUSINESS
Approximately 10.8% and 26.9% of revenues for the years ended December 31,
1999 and 1998, respectively, resulted from advertisements delivered on or
through the AltaVista Web site. On June 29, 1999, CMGI, Inc. acquired a
controlling interest in AltaVista from Compaq. Compaq and its wholly owned
subsidiary, Digital Equipment Corporation, contributed the assets and
liabilities comprising AltaVista's business, including the Advertising Services
Agreement, which governed our relationship with AltaVista, to AltaVista Company,
a new company of which CMGI owns approximately 83%, with the remainder owned by
Compaq. Recently, CMGI acquired several Internet advertising and marketing
companies, including AdForce, AdKnowledge and Flycast Communications. As a
result of these transactions, CMGI now owns several companies, including AdSmart
Network and Engage Technologies, that compete with DoubleClick's Internet
advertising solutions, and Engage Technologies, which is majority owned by CMGI,
has announced an agreement to acquire AdSmart and Flycast. In November 1999, we
entered into an Interim Advertising Services Agreement with AltaVista, as
successor to Compaq, which temporarily suspends until January 2001 the
Advertising Services Agreement we entered into with Compaq in January 1999. The
Interim Advertising Services Agreement allows for us to continue to sell
advertisements throughout AltaVista's network and provides for AltaVista to
maintain and service some advertising accounts previously serviced by us. The
loss of AltaVista as a customer or any significant reduction in traffic on or
through the AltaVista Web site would materially and adversely affect our
business, results of operations and financial condition.
OUR BUSINESS MAY BE SIGNIFICANTLY ADVERSELY AFFECTED BY RECENTLY FILED LAWSUITS
RELATED TO PRIVACY AND OUR BUSINESS PRACTICES
As explained in detail in the Legal Proceedings section of this report, we
are a defendant in several pending class action lawsuits alleging, among other
things, that we unlawfully obtain and sell Internet users' personal information.
We are also the subject of a Federal Trade Commission inquiry concerning our
collection and maintenance of information concerning Internet users, and a
request for information from the New York Attorney General's office relating to
our collection, maintenance and sharing of information concerning, and our
disclosure of those practices to, Internet users. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings
against us under Michigan's consumer protection laws. We may receive additional
regulatory inquiries and intend to cooperate fully. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings against
us under Michigan's consumer protection laws. We may receive additional
regulatory inquiries and intend to cooperate fully. Class action litigation
and regulatory inquiries of these types are often expensive and time-consuming
and their outcome is uncertain. We cannot quantify the amount of monetary or
human resources that we will be required to use to defend ourselves in these
proceedings. We may need to spend significant amounts on our legal defense,
senior management may be required to divert their attention from other portions
of our business, new product launches may be deferred or canceled as a result
of these proceedings, and we may be required to make changes to our present and
planned products or services, any of which could materially and adversely
affect our business, financial condition and results of operations. If, as a
result of any of these proceedings, a judgment is rendered or a decree is
entered against us, it may materially and adversely affect our business,
financial condition and results of operations.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM ADVERTISEMENTS WE DELIVER
TO WEB SITES ON OUR DOUBLECLICK NETWORKS AND A DECREASE IN TRAFFIC LEVELS COULD
HARM OUR BUSINESS
We derive a large portion of our revenues from advertisements we deliver to
Web sites on our DoubleClick networks. We expect that our DoubleClick networks
will continue to account for a substantial portion of our revenues for the
foreseeable future. Our DoubleClick networks consist of Web sites of Web
publishers with which we have short-term contracts. We cannot assure you that
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these Web publishers will remain associated with our DoubleClick networks, that
any DoubleClick network Web site will maintain consistent or increasing levels
of traffic over time, or that we will be able to timely or effectively replace
any existing DoubleClick network Web site with other Web sites with comparable
traffic patterns and user demographics. Our failure to successfully market our
DoubleClick networks, the loss of one or more of the Web publishers that account
for a significant portion of our revenues from our DoubleClick networks, or the
failure of the Web sites on our DoubleClick networks to maintain consistent or
increasing levels of traffic would materially and adversely affect our business,
results of operations and financial condition.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include:
advertiser, Web publisher and direct marketer demand for our solutions;
changes in fees paid by advertisers;
changes in service fees payable by us to Web publishers in our networks;
the introduction of new Internet advertising services by us or our
competitors;
variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and
general economic conditions.
For the foreseeable future, our revenues from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. These future revenues are
difficult to forecast. In addition, we plan to significantly increase our
operating expenses so that we can increase our sales and marketing operations,
continue our international expansion, upgrade and enhance our DART technology
and expand our product and service offerings, and market and support our
solutions. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenues in relation to
our expenses, or if our expenses precede increased revenues, then our business,
results of operations and financial condition could be materially and adversely
affected. These results would likely affect the market price of our common stock
in a manner which may be unrelated to our long term operating performance.
As a result, we believe that period-to-period comparisons of our results of
operations may not be meaningful. You should not rely on past periods as
indicators of future performance.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL
AND INFORMATION SYSTEM RESOURCES
In recent years, we have experienced significant growth, both internally and
through acquisitions, that has placed considerable demands on our managerial,
operational and financial resources. To continue to successfully implement our
business plan in our rapidly evolving markets requires an effective planning and
management process. We continue to increase the scope of our operations both
domestically and internationally, and we have grown our workforce substantially.
As of December 31, 1998, we had a total of 482 employees (without giving effect
to our acquisitions) and, as of December 31, 1999, we had a total of 1,386
employees. In addition, we plan to continue to expand our sales and marketing
and customer support organizations both domestically and internationally. The
anticipated future growth in our operations will continue to place a significant
strain on our management systems and resources. We expect that we will need to
continue to improve our financial and managerial controls and reporting systems
and procedures, and will need to continue to expand, train and manage our
workforce. We cannot assure you that if we continue to grow, management will be
effective in attracting and retaining additional qualified personnel, expanding
our physical facilities, integrating acquired businesses or otherwise managing
growth. We also cannot assure you that our information systems, procedures
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or controls will be adequate to support our operations or that our management
will be able to achieve the rapid execution necessary to successfully offer our
services and implement our business plan. Our future performance may also depend
on our effective integration of acquired businesses. Even if successful, this
integration may take a significant period of time and expense, and may place a
significant strain on our resources. Our inability to effectively manage our
growth could materially and adversely affect our business, financial condition
and results of operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL
A significant part of our business model is to generate revenues by
providing interactive marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for this business model is unproven. To be
successful, both Internet advertising and our solutions will need to achieve
broad market acceptance by advertisers, ad agencies and Web publishers. Our
ability to generate significant revenues from advertisers will depend, in part,
on our ability to contract with Web publishers that have Web sites with adequate
available ad space inventory. Further, these Web sites must generate sufficient
user traffic with demographic characteristics attractive to our advertisers. The
intense competition among Internet advertising sellers has led to the creation
of a number of pricing alternatives for Internet advertising. These alternatives
make it difficult for us to project future levels of advertising revenues and
applicable gross margin that can be sustained by us or the Internet advertising
industry in general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services, including our new products and services
such as the Sonar Network, Abacus Online Alliance and the DARTmail Services.
Enterprises may be reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing direct marketing systems. In addition,
since online direct marketing is emerging as a new and distinct market apart
from online advertising, potential adopters of online direct marketing services
will increasingly demand functionality tailored to their specific requirements.
We may be unable to meet the demands of these clients.
Market acceptance of our new solutions will depend on the continued
emergence of Internet commerce, communication and advertising, and market demand
for our solutions. We cannot assure you that the market for our new solutions
will develop or that demand for our new solutions will emerge or become
sustainable.
DISRUPTION OF OUR SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES COULD HARM
OUR BUSINESS
Our DART technology resides on a computer system located in our New York
City offices and in our data centers in New Jersey and California and in Europe,
Asia and Latin America. This system's continuing and uninterrupted performance
is critical to our success. Customers may become dissatisfied by any system
failure that interrupts our ability to provide our services to them, including
failures affecting our ability to deliver advertisements without significant
delay to the viewer. Sustained or repeated system failures would reduce the
attractiveness of our solutions to advertisers, ad agencies and Web publishers.
Slower response time or system failures may also result from straining the
capacity of our deployed software or hardware due to an increase in the volume
of advertising delivered through our servers. To the extent that we do not
effectively address any capacity constraints or system failures, our business,
results of operations and financial condition could be materially and adversely
affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, interruptions in our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. Our business, results of
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operations and financial condition could be materially and adversely affected by
any damage or failure that interrupts or delays our operations.
COMPETITION IN THE MARKETS FOR INTERNET ADVERTISING AND RELATED PRODUCTS AND
SERVICES IS INTENSE AND LIKELY TO INCREASE IN THE FUTURE, AND WE MAY NOT BE ABLE
TO SUCCESSFULLY COMPETE
The market for Internet advertising and related products and services is
intensely competitive. We expect competition to continue to increase because
this market poses no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. We believe that our ability to
compete depends upon many factors both within and beyond our control, including
the following:
the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
customer service and support efforts;
sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
We compete for Internet advertising revenues with large Web publishers and
Web portals, such as America Online, Excite@Home, Microsoft, GO.com and Yahoo!.
Further, our DoubleClick networks compete with a variety of Internet advertising
networks, including 24/7 Media. In marketing our DoubleClick networks and DART
Service to Web publishers, we also compete with providers of ad servers and
related services. Recently, CMGI acquired several Internet advertising and
marketing companies, including AdForce, AdKnowledge and Flycast. As a result of
these transactions, CMGI now owns several companies, including AdSmart Network
and Engage Technologies, that compete with our Internet advertising solutions,
and Engage Technologies, which is majority owned by CMGI, has announced an
agreement to acquire AdSmart and Flycast. We also encounter competition from a
number of other sources, including content aggregation companies, companies
engaged in advertising sales networks, advertising agencies, and other companies
which facilitate Internet advertising.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. These factors may allow them to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. It
may also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers and Web publishers. We cannot assure you that our competitors will
not develop products or services that are equal or superior to our solutions or
that achieve greater market acceptance than our solutions. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective advertising,
ad agency and Web publisher customers. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share. We cannot assure you that we will be able to compete
successfully or that competitive pressures will not materially and adversely
affect our business, results of operations or financial condition.
WE MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print (traditional advertising media) for a
share of advertisers' total advertising
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budgets. Advertisers may be reluctant to devote a significant portion of their
advertising budget to Internet advertising if they perceive the Internet to be a
limited or ineffective advertising medium.
OUR REVENUES ARE SUBJECT TO SEASONAL FLUCTUATIONS
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. Our revenue could be
materially reduced by a decline in the economic prospects of advertisers and
direct marketers or in the economy in general, which could alter current or
prospective advertisers' and direct marketers' spending priorities or budget
cycles or extend our sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES
We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding our acquiring, or investing in, their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms. If we buy a company, we could have
difficulty in integrating that company's personnel and operations. In addition,
the key personnel of the acquired company may decide not to work for us. If we
make other types of acquisitions, we could have difficulty in integrating the
acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations
due to accounting requirements such as amortization of goodwill. Furthermore, we
may incur debt or issue equity securities to pay for any future acquisitions.
The issuance of equity securities could be dilutive to our existing
stockholders.
WE ARE DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND RECRUITING FOR
OUR FUTURE SUCCESS
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, in particular,
Kevin O'Connor, our Chief Executive Officer and Chairman of the Board of
Directors, Kevin Ryan, our President and Chief Operating Officer, and Dwight
Merriman, our Chief Technical Officer. We have no employment agreements with any
of these executives. The loss of the services of Messrs. O'Connor, Ryan or
Merriman, or certain other key employees, would likely materially and adversely
affect our business, results of operations and financial condition. Our future
success also depends on our continuing to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications.
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IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES
Our success and ability to effectively compete are substantially dependent
on the protection of our internally developed technologies and our trademarks,
which we protect through a combination of patent, copyright, trade secret,
unfair competition and trademark law as well as contractual agreements. In
September 1999, the U.S. Patent Office issued to us a patent that covers the
DART technology. We have filed a patent infringement suit against each of L90,
Inc. and Sabela Media, Inc. in order to enforce our patent. 24/7 Media has
recently announced an agreement to acquire Sabela Media. We have also filed
patent applications for some of our other technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK, DART, and ABACUS. We have applied to
register our trademarks in the U.S. and internationally. We have received
registrations for the marks DOUBLECLICK and ABACUS, among others. We cannot
assure you that any of our current or future patent applications or trademark
applications will be approved. Even if they are approved, these patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our licensees may take actions that could
materially and adversely affect the value of our proprietary rights and
reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We cannot assure you that any of our proprietary rights will be viable or of
value in the future since the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related industries is uncertain and
still evolving. Furthermore, third parties may assert infringement claims
against us. From time to time we have been, and we expect to continue to be,
subject to claims in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties by us or the Web publishers with Web sites in our DoubleClick
networks. Such claims and any resultant litigation, should it occur, could
subject us to significant liability for damages, and we could be restricted from
using our ad delivery technology or other intellectual property. Any claims or
litigation from third parties may also result in limitations on our ability to
use the intellectual property, including our ad delivery technology, which are
the subject of such claims or litigation unless we enter into arrangements with
the third parties responsible for such claims or litigation which may be
unavailable on commercially reasonable terms, if at all. In addition, even if we
prevail, such litigation could be time-consuming and expensive to defend, and
could result in the diversion of our time and attention, any of which could
materially and adversely affect our business, results of operations and
financial condition.
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OUR RIGHT TO KEEP INFORMATION COLLECTED IN OUR DATABASES MAY BE CHALLENGED IN
THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS
We collect and compile information in databases for the product offerings of
all our businesses. Individuals have claimed, and may claim in the future, that
our collection of this information is illegal. Although we believe that we have
the right to use and compile the information in these databases, we cannot
assure you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our business.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. Our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions and
services to address our customers' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions and services. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors. Our
failure to successfully design, develop, test and introduce new services, or the
failure of our recently introduced services to achieve market acceptance, could
prevent us from maintaining existing client relationships, gaining new clients
or expanding our markets and could materially and adversely affect our business,
financial condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO SUCCESSFULLY EXPAND OUR
INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established our DoubleClick networks in
Australia, Brazil, Canada, France, Germany, Benelux (Belgium, the Netherlands
and Luxembourg), Scandinavia (Sweden, Norway, Finland, and Denmark), Spain and
the United Kingdom. In Asia (Taiwan, Singapore, and Hong Kong), and under
separate agreement, Japan and Italy, we are working with our business partners
to conduct operations, establish local networks, aggregate Web publishers and
coordinate sales and marketing efforts. Our success in such markets is directly
dependent on the success of our business partners and their dedication of
sufficient resources to our relationship.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO OTHER INHERENT RISKS, INCLUDING:
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive privacy regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
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fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may materially and adversely affect our business, results of
operations or financial condition.
WE HAVE INCURRED SIGNIFICANT DEBT OBLIGATIONS WHICH COULD HARM OUR BUSINESS
We incurred $250 million of indebtedness in March 1999 from the sale of our
4.75% Convertible Subordinated Notes due 2006. Our ratio of long-term debt to
total equity was approximately 70.6% as of December 31, 1999. As a result of the
sale of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our debt service obligations will depend on our future performance, which will
be subject to financial, business, and other factors affecting our operations,
many of which are beyond our control.
IF WE DO NOT SUCCESSFULLY INTEGRATE ABACUS AND NETGRAVITY OR THE MERGERS'
BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE
MARKET PRICE FOR OUR COMMON STOCK MAY DECLINE
We entered into merger agreements with Abacus and NetGravity with the
expectations that these mergers will result in significant benefits. We have
virtually no experience in Abacus's business and little direct experience with
NetGravity's primary business model. Furthermore, Abacus's principal offices are
located in Broomfield, Colorado, and NetGravity's principal offices are located
in San Mateo, California, while our principal offices are located in New York,
New York. There are currently no plans to relocate any of these principal
offices. We will need to overcome these significant issues in order to realize
any benefits or synergies from the mergers. Our successful execution of these
post-merger events will involve considerable risk and may not be successful.
The market price of our common stock may decline, and we may lose key
personnel and customers as a result of our mergers if:
we do not successfully integrate operations and personnel of the
businesses;
we do not achieve the perceived benefits of the mergers as rapidly or to
the extent anticipated by financial or industry analysts; or
the effect of the mergers on our financial results is not consistent with
the expectations of financial or industry analysts.
IF WE FAIL TO SUCCESSFULLY CROSS-MARKET THE PRODUCTS OF DOUBLECLICK MEDIA,
DOUBLECLICK TECHSOLUTIONS AND DOUBLECLICK DATA SERVICES OR TO DEVELOP NEW
PRODUCTS, WE MAY NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUES
We intend to initially offer the respective products and services
historically offered by DoubleClick, Abacus and NetGravity to our collective
customers. We cannot assure you that any company's customers will have any
interest in the other company's products and services. The failure of our
cross-marketing efforts may diminish the benefits we realize from the mergers.
In addition, we intend to develop new products and services that combine the
knowledge and resources of DoubleClick Media, DoubleClick TechSolutions and
DoubleClick Data Services. We cannot assure you that these products or services
will be developed or, if developed, will be successful or that we can
successfully integrate or realize the anticipated benefits of the mergers. As a
result, we may not be able to increase or maintain our customer base. We cannot
assure you that the transactions or other data in Abacus's database will be
predictive or useful in other sales channels, including Internet advertising. To
date, we have not thoroughly investigated the obstacles, technological,
market-driven or otherwise, to developing and marketing these new products and
services in a timely and efficient way. We cannot assure you that we will be
able to
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overcome the obstacles in developing new products and services, or that there
will be a market for the new products or services developed by us after the
mergers. An inability to overcome such obstacles or a failure of such a market
to develop could materially and adversely affect our business, financial
condition and results of operations or could result in loss of key personnel. In
addition, the attention and effort devoted to the integration of the acquired
companies will significantly divert management's attention from other important
issues, and could seriously harm our business, financial condition and results
of operations.
IF THE COSTS ASSOCIATED WITH THE MERGERS EXCEED THE BENEFITS REALIZED, WE MAY
EXPERIENCE INCREASED LOSSES
We have incurred one-time charges related to the Abacus and NetGravity
mergers. If the benefits of the mergers do not exceed the costs associated with
them, including any dilution to our stockholders resulting from the issuance of
shares in connection with the mergers, our financial results could be adversely
affected.
IF THE ABACUS OR NETGRAVITY MERGER FAILS TO QUALIFY AS A POOLING OF INTERESTS,
WE WOULD BE REQUIRED TO TAKE CHARGES AGAINST EARNINGS IN FUTURE PERIODS, WHICH
WOULD INCREASE THE AMOUNT OF OUR LOSSES
If we cannot account for one or both of the mergers as a pooling of
interests, a significant portion of the purchase price for the merger will be
allocated to goodwill and other intangible assets, which we would amortize over
their estimated useful lives. The availability of pooling of interests
accounting treatment for the mergers depends upon circumstances and events
occurring both before and after each merger's completion. For example, no
significant changes in the business of the combined company may occur, including
significant dispositions of assets, for a period of two years following the
effective time of the merger. If pooling is not available, we would take charges
against our earnings in the future, which could materially and adversely affect
our reported financial results and, likely, the price of our common stock.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY
Some of the provisions of our certificate of incorporation, our by-laws and
Delaware law could, together or separately:
discourage potential acquisition proposals;
delay or prevent a change in control;
impede the ability of our stockholders to change the composition of our
board of directors in any one year; and
limit the price that investors might be willing to pay in the future for
shares of our common stock.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our common stock at or above the purchase price.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
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attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
As of December 31, 1999, we had 112,453,892 shares of common stock
outstanding, excluding 23,110,571 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $124.56 per share. On February 14, 2000, we filed with the
Securities and Exchange Commission a preliminary prospectus which was part of
Amendment No. 1 to our registration statement on Form S-3 relating to the
proposed sale of an aggregate of 7,500,000 shares of our common stock, including
5,733,411 shares to be sold by us and 1,766,589 shares to be sold by selling
stock, and up to an aggregate of 1,125,000 additional shares by us which may be
sold in connection with the underwriters' over-allotment option. Additionally,
we intend to file one or more registration statements in compliance with these
registration rights. We cannot predict the effect, if any, that future sales of
common stock or the availability of shares of common stock for future sale, will
have on the market price of common stock prevailing from time to time. Certain
holders of our common stock have registration rights with respect to their
shares. Sales of substantial amounts of common stock (including shares included
in such registration statements, issued upon the exercise of stock options or
issued upon the conversion of our Convertible Subordinated Notes), or the
perception that such sales could occur, may materially and adversely affect
prevailing market prices for common stock.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE MARKET FOR INTERNET ADVERTISING
FAILS TO GROW AS PREDICTED OR DIMINISHES
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. The adoption of Internet
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business, exchanging information and advertising products and
services. These customers may find Internet advertising to be less effective for
promoting their products and services relative to traditional advertising media.
In addition, most of our current and potential Web publisher customers have
little experience in generating revenues from the sale of advertising space on
their Web sites. We cannot assure you that current or potential advertising
customers will continue to allocate a portion of their advertising budget to
Internet advertising or that the market for Internet advertising will continue
to develop to sufficiently support Internet advertising as a significant
advertising medium. If the market for Internet advertising develops more slowly
than we expect, then our business, results of operations and financial condition
could be materially and adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising and standard measurements may need to be developed to
support and promote Internet advertising as a significant advertising medium.
Our advertising customers may challenge or refuse to accept our or third-party
measurements of advertisement delivery results, and our customers may not accept
any errors in such measurements. In addition, the accuracy of database
information used to target advertisements is essential to the effectiveness of
Internet advertising that may be developed in the future. The information in our
database, like any database, may contain inaccuracies which our customers may
not accept.
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A significant portion of our revenues are derived from the delivery of
advertisements placed on Web sites which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if we
are unable to deliver the features or measuring capabilities requested by
advertisers, the long-term growth of our online advertising business could be
limited and our revenue levels could decline. Also, there are 'filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUES AND INCREASE OUR
COSTS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the United States Congress and state
legislatures. Any legislation enacted or restrictions arising from current or
future government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be materially and
adversely affected by the adoption or modification of laws or regulations
relating to the Internet.
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit our
collection and use of information regarding Internet users in Europe. At this
stage, our DART technology targets advertising to users through the use of
'cookies' and other non-personally-identifying information, with the exception
of advertising delivered to German Web sites where we do not currently use
cookies. We are developing new capabilities that would permit our DART
technology to target users through the use of personally identifiable
information collected with prior notice and the opportunity for a user to
opt-out of such targeting and collection. The effectiveness of our DART
technology could be limited by any regulation limiting the collection or use of
information regarding Internet users. Since many of the proposed laws or
regulations are just being developed, we cannot yet determine the impact these
regulations may have on our business.
In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the direct marketing industry and to increased federal and
state regulation. The Direct Marketing Association, or DMA, the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of this information which it recommends participants, such as us, through
DoubleClick Data Services, in the direct marketing industry follow. We are also
subject to various federal and state regulations concerning the collection,
distribution and use of information regarding individuals. These laws include
the Federal Drivers Privacy Protection Act of 1994 and state laws which limit or
preclude the use of voter registration and drivers license information, as well
as laws which govern the collection and release of consumer credit information.
Although our compliance with the DMA's guidelines and applicable federal and
state laws and regulations has not had a material adverse
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effect on us, we cannot assure you that the DMA will not adopt additional, more
burdensome guidelines or that additional, more burdensome federal or state laws
or regulations, including antitrust and consumer privacy laws, will not be
enacted or applied to us or our clients, which could materially and adversely
affect the business, financial condition and results of operations of
DoubleClick Data Services.
CHANGING REQUIREMENTS FOR FAIR INFORMATION COLLECTION PRACTICES AND POTENTIALLY
HEIGHTENED SCRUTINY OF OUR PRODUCTS OR SERVICES COULD REQUIRE OR CAUSE ADVERSE
CHANGES IN THE WAY WE CONDUCT OR PLAN TO CONDUCT OUR BUSINESS
There has been public debate about how fair information collection practices
should be formulated for the online and offline collection, distribution and use
of information about a consumer. Some of the discussion has focused on the fair
information collection practices that should apply when information about an
individual that is collected in the offline environment is associated with
information that is collected over the Internet about that individual. Following
our announcement of the Abacus merger, we have seen a heightened public
discussion and speculation about the information collection practices that will
be employed in the industry generally, and specifically by us. We have publicly
committed that no personally identifiable offline information about a consumer
will be associated with online information about that consumer for the delivery
of personally-targeted Internet advertising without first providing the consumer
with notice and an opportunity to opt out of the targeted advertising. In
addition, some of our contracts with Web publishers prevent us from developing
profiles of users of their Web sites. The current debate about data collection
practices may cause additional Web publishers to seek similar contractual
provisions in their agreements with us. Computer users may also use software
designed to filter or prevent the delivery of advertising to their computers. We
cannot assure you that the number of computer users who employ filtering
software will not increase or that additional Web publishers will not seek
contractual provisions barring us from developing profiles of users of their Web
sites, either of which could materially and adversely affect our business,
results of operations and financial condition. Also, as a consequence of
governmental legislation or regulation or enforcement efforts or evolving
standards of fair information collection practices, we may be required to make
changes to our products or services in ways that could diminish the
effectiveness of the product or service or its attractiveness to potential
customers, which could materially and adversely affect our business, financial
condition or results of operations.
OUR BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO EFFECTIVELY
SUPPORT THE GROWTH IN DEMAND PLACED ON IT
Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. These outages and delays could
impact the Web sites of Web publishers using our solutions and the level of user
traffic on Web sites on our DoubleClick networks.
DOUBLECLICK DATA SERVICES IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING
INDUSTRY FOR ITS FUTURE SUCCESS
The future success of DoubleClick Data Services is dependent in large part
on the continued demand for our services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to us. Most of our Data Services clients are
large consumer merchandise catalogs operators in the United States. A
significant downturn in the direct marketing industry generally, including the
catalog industry, or
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withdrawal by a substantial number of catalogs operators from the Abacus
Alliance, would have a material adverse effect on our business, financial
condition and results of operations. Many industry experts predict that
electronic commerce, including the purchase of merchandise and the exchange of
information via the Internet or other media, will increase significantly in the
future. To the extent this increase occurs, companies which now rely on catalogs
or other direct marketing avenues to market their products may reallocate
resources toward these new direct marketing channels and away from
catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for our data services. In addition, the effectiveness of
direct mail as a marketing tool may decrease as a result of consumer saturation
and increased consumer resistance to direct mail in general.
INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA SERVICES
The direct marketing activities of our Abacus Alliance clients are adversely
affected by postal rate increases, especially increases that are imposed without
sufficient advance notice to allow adjustments to be made to marketing budgets.
Higher postal rates may result in fewer mailings of direct marketing materials,
with a corresponding decline in the need for some of the direct marketing
services offered by us. Increased postal rates can also lead to pressure from
our clients to reduce our prices for our services in order to offset any postal
rate increase. Higher paper prices may also cause catalog companies to conduct
fewer or smaller mailings which could cause a corresponding decline in the need
for our services. Our clients may aggressively seek price reductions for our
services to offset any increased materials cost. Any of these occurrences could
materially and adversely affect the business, financial condition and results of
operations of our Abacus business.
ITEM 2. PROPERTIES
Our principal executive offices are currently located in a facility in New
York, New York consisting of an aggregate of approximately 240,000 square feet.
On January 26, 1999, we entered into a lease agreement with an initial term of
eleven years with an option to renew for an additional five years. We lease
approximately 75,000 square feet of office space in Broomfield, Colorado, under
a lease that terminates in April 2006 and is renewable for two consecutive five
year terms. This facility was the headquarters for Abacus before our merger. We
also lease approximately 26,500 square feet of office space in San Mateo,
California under a lease that expires in October 2005. This facility was the
headquarters for NetGravity before our merger. In addition, we lease space for
our offices in California, Colorado, Georgia, Illinois, Massachusetts, Michigan,
Texas and Washington, as well as in Australia, Brazil, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Norway, Spain,
Sweden and the United Kingdom. We incurred non-recurring charges of
approximately $2.9 million in 1999 relating to our relocation to our current New
York offices. We are continually evaluating our facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
Prior to our NetGravity merger, NetGravity and several of its directors were
sued in the San Mateo County, California, Superior Court, alleging that the
defendants breached their fiduciary duties to NetGravity's shareholders in
connection with the proposed merger with DoubleClick. The California complaint
asks the court to enjoin the consummation of the merger or, alternatively, seeks
a rescission of the merger or an award of unspecified damages from the
defendants in the event the merger is consummated. Following the consummation of
our merger in November 1999, we succeeded to this action. We believe the claims
asserted in the complaint are without merit and are vigorously contesting them.
Also prior to our merger with NetGravity, we and NetGravity were named in a
complaint filed in the Chancery Court of the State of Delaware in connection
with the proposed merger. In January 2000, the plaintiffs dismissed the
complaint without prejudice.
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In November 1999, we filed suit in the U.S. District Court for the Eastern
District of Virginia against L90, Inc. for infringement of our DART patent. In
December 1999, we filed suit in the U.S. District Court for the Southern
District of New York against Sabela Media, Inc., also for infringement of our
patent. Both cases are currently in the early stages of discovery.
We are a defendant in several recently filed lawsuits concerning Internet
user privacy and our data collection and other business practices:
On January 27, 2000, Judnick v. DoubleClick, Inc. was filed against us in
the Superior Court of the State of California, in Marin County. The
complaint alleges that we engaged in unfair business practices and false
and misleading advertising in violation of certain California consumer
protection statutes by allegedly improperly collecting and utilizing
information about Internet users. The complaint seeks injunctive relief and
restitution on behalf of the general public of the State of California.
On January 28, 2000, Bruce v. DoubleClick, Inc. was filed against us in the
U.S. District Court for the Northern District of California. The complaint
alleges that we have improperly collected and used Internet users'
information, allegedly in violation of certain federal electronics privacy
statutes and common law privacy rights. The complaint seeks damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Healy v. DoubleClick Inc. was filed against us in the
U.S. District Court for the Southern District of New York. The complaint
alleges that we improperly collected and used information concerning
Internet users allegedly in violation of certain federal electronics
privacy statutes, as well as common law trespass and invasion of privacy.
The complaint seeks damages and injunctive relief on behalf of a defined
class of Internet users.
On January 28, 2000, DeCorse v. Doubleclick, Inc. was filed in the Superior
Court of the State of California, Marin County. The complaint alleges that
we engaged in unlawful business practices by improperly obtaining and using
information about Internet users allegedly in violation of California
statutory and common law. The complaint seeks unspecified damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Steinbeck v. Doubleclick, Inc. was filed in the United
States District Court for the Central District of California. The complaint
alleges that we engaged in unlawful business practices by improperly
obtaining and using information about Internet users allegedly in violation
of federal statutes and Internet users' privacy rights. The complaint seeks
unspecified damages and injunctive relief on behalf of a defined class of
Intenet users.
On February 1, 2000, Donaldson v. DoubleClick Inc. was filed against us in
the U.S. District Court for the Southern District of New York. The
complaint alleges that we improperly collected and used information
concerning Internet users allegedly in violation of certain federal
electronics privacy statutes and common law privacy rights. The complaint
seeks damages and injunctive relief on behalf of a defined class of
Internet users.
These lawsuits have only recently been filed. We believe these lawsuits are
without merit and we intend to vigorously defend ourselves against them.
Additionally, we received a letter from the Federal Trade Commission
('FTC'), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. We are cooperating fully with the
FTC's inquiry.
In addition, we are subject to a request for information from the New York
Attorney General's office relating to our collection, maintenance and sharing
of information concerning, and our disclosure of those practices to, Internet
users. We may receive additional regulatory inquiries and intend to cooperate
fully.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our special meeting held on November 23, 1999 in connection with our
merger with Abacus Direct Corporation, we submitted the following matters to a
vote of our stockholders through a proxy solicitation:
To consider and vote upon a proposal to approve the issuance of our shares
of common stock pursuant to a merger agreement with Abacus Direct
Corporation.
To grant our Board of Directors discretionary authority to adjourn the
special meeting to solicit additional votes for approval of the share
issuance.
To consider and vote upon a proposal to approve the DoubleClick Inc.
Employee Stock Purchase Plan.
The results of the voting at the special meeting were as follows:
<TABLE>
<CAPTION>
AFFIRMATIVE VOTES
PROPOSAL VOTES AGAINST ABSTENTIONS
- -------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C>
Share Issuance 25,305,111 37,712 53,662
Discretionary Authority to Adjourn 19,764,694 1,894,428 1,737,363
Employee Stock Purchase Plan 22,685,654 620,712 90,119
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol DCLK since our initial public offering on February 20, 1998. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of the common stock as reported on the Nasdaq National Market.
All prices have been restated to reflect our two-for-one stock splits effected
as stock dividends on April 5, 1999 and January 10, 2000.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999:
Fourth Quarter.......................................... $127.72 $54.88
Third Quarter........................................... 62.63 30.25
Second Quarter.......................................... 88.00 33.75
First Quarter........................................... 50.00 11.00
1998:
Fourth Quarter.......................................... 14.50 3.38
Third Quarter........................................... 19.28 4.55
Second Quarter.......................................... 12.43 7.72
First Quarter (since February 20)....................... 9.25 6.53
</TABLE>
On February 15, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $111.44 per share. As of January 26, 2000, we had
approximately 766 holders of record of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
During the three-month period ended December 31, 1999, we issued an
aggregate of approximately 1,062,092 shares of our common stock (after giving
effect to our two-for-one stock split effected on January 10, 2000) in exchange
for the outstanding shares of capital stock of BusinessLink Incorporated (d/b/a
Opt-in Email.com) and the outstanding shares of DoubleClick Scandinavia AB that
we did not previously own. Of these shares, an aggregate of 200,000 shares were
issued on November 30, 1999 to the stockholders of Opt-in Email.com and an
aggregate of 862,092 shares were issued on December 29, 1999 to the shareholders
of DoubleClick Scandinavia AB. In connection with the DoubleClick Scandinavia
transaction, additional shares of our common stock may be issued in the future.
No underwriters were involved and there were no underwriting discounts or
commissions. The securities were issued in reliance upon the exemption
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from registration provided under Section 4(2) of the Securities Act based on the
fact that we issued the shares of common stock in a sale not involving a public
offering. These sales were made without general solicitation or advertising. We
intend to file a Registration Statement on Form S-3 covering the resale of these
shares.
USE OF PROCEEDS FROM IPO
On February 19, 1998, the Securities and Exchange Commission declared
effective our Registration Statement on Form S-1 (File No. 333-42323). Pursuant
to this Registration Statement, and the Abbreviated Registration Statement filed
on February 19, 1998 pursuant to Rule 462(b) promulgated under the Securities
Act of 1933, as amended, we completed our initial public offering of 16,100,000
shares of our common stock at an initial public offering price of $4.25 per
share on February 25, 1998. The number of shares and offering price have been
restated to reflect our two-for-one stock splits in April 1999 and January 2000.
Our initial public offering was managed by Goldman, Sachs & Co., BT Alex.Brown
and Cowen & Company. Proceeds to us from our initial public offering, after
calculation of the underwriters discount and commission of approximately $4.8
million and offering costs of $1.1 million, totaled approximately $62.5 million.
None of the expenses incurred in our initial public offering were direct or
indirect payments to our directors, officers, general partners or their
associates, to persons owning ten percent or more of any class of our equity
securities or to our affiliates. As of December 31, 1999, we have used all of
the proceeds from our initial public offering toward general corporate purposes,
including working capital, and toward the expansion of our international
operations and sales and marketing capabilities. None of these expenses were
direct or indirect payments to our directors, officers, general partners or
their associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends for the foreseeable
future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
DoubleClick's consolidated statement of operations for each of the years ended
December 31, 1999, 1998 and 1997 and with respect to DoubleClick's consolidated
balance sheet as of December 31, 1999 and 1998 have been derived from the
audited financial statements of DoubleClick which are included elsewhere herein.
The selected consolidated financial data set forth with respect to DoubleClick's
consolidated statement of operations for each of the periods ended December 31,
1996 and 1995 and with respect to DoubleClick's consolidated balance sheet as of
December 31, 1997, 1996 and 1995 are derived from the audited financial
statements of DoubleClick which are not included herein. The selected
consolidated financial data set forth below is qualified in its entirety by, and
should be read in conjunction with, 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the consolidated financial
statements and the notes to those statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $258,294 $138,724 $ 67,926 $25,985 $ 9,331
Income (loss) from operations................ (58,715) (14,970) (3,828) (1,419) 2,983
Income (loss) before income taxes............ (47,234) (10,973) (3,432) (1,565) 2,781
Net income (loss)............................ (55,821) (18,039) (7,741) (3,954) 2,231
Basic and diluted net income (loss) per
share...................................... (0.51) (0.21) (0.16) (0.07) 0.11
Weighted average shares used in basic per
share calculation.......................... 109,756 86,248 49,048 56,516 19,630
Weighted average shares used in diluted per
share calculation.......................... 109,756 86,248 49,048 56,516 19,716
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $309,883 $184,408 $25,861 $ 4,959 $2,355
Total assets.................................. 729,407 260,361 53,641 19,749 5,536
Convertible Subordinated Notes and other...... 255,348 2,067 742 711 --
Total stockholders' equity.................... 361,662 206,771 31,428 7,256 1,178
</TABLE>
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 1999.
This information is unaudited, but in the opinion of management, it has been
prepared substantially on the same basis as the audited consolidated financial
statements appearing elsewhere in this report, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited consolidated quarterly
results of operations. The consolidated quarterly data should be read in
conjunction with our audited consolidated financial statements and the notes to
such statements appearing elsewhere in this report. The results of operations
for any quarter are not necessarily indicative of the results of operations for
any future period.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
INCOME AVERAGE AVERAGE BASIC AND DILUTED
(LOSS) NET COMMON COMMON NET LOSS
GROSS FROM INCOME SHARES -- SHARES -- PER
QUARTER ENDED REVENUES PROFIT OPERATIONS (LOSS) BASIC DILUTED COMMON SHARE
------------- -------- ------ ---------- ------ ----- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
March 31.................. $39,412 $24,051 $ (8,920) $ (8,405) $106,877 $106,877 $(0.08)
June 30................... 49,856 28,841 (6,799) (5,406) 109,758 109,758 (0.05)
September 30.............. 75,336 46,138 973 136 110,466 121,752 (0.00)
December 31............... 93,690 52,108 (43,970) (42,147) 111,325 111,325 (0.38)
1998
March 31.................. $24,089 $12,001 $ (5,146) $ (5,538) $ 64,335 $ 64,335 $(0.09)
June 30................... 28,992 13,777 (5,859) (5,883) 89,106 89,106 (0.07)
September 30.............. 39,844 22,180 (438) (2,547) 93,749 93,749 (0.03)
December 31............... 45,797 21,573 (3,527) (4,071) 96,432 96,432 (0.04)
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes included in this report.
OVERVIEW
We are a leading provider of technology-driven marketing and advertising
solutions to thousands of advertisers, advertising agencies, Web publishers and
e-commerce merchants worldwide. We provide a broad range of media, technology
and data products and services to our customers to allow them to optimize their
ad and marketing campaigns on the Internet and through other interactive media.
Our patented DART technology is the platform for many of our solutions and
enables our customers to use preselected criteria to deliver the right ad to the
right person at the right time. Our service and product offerings are grouped
into three segments:
DoubleClick Media (Media);
DoubleClick TechSolutions (Technology); and
DoubleClick Data Services (Data).
COMPARABILITY OF RESULTS
ALTAVISTA AGREEMENT
In January 1999, we changed the manner in which we report the financial
results of the services we perform for the AltaVista Web site. Effective
January 1, 1999, we entered into an Advertising Services Agreement with
AltaVista Company's predecessor-in-interest (Compaq Computer Corporation) that
superceded the previously effective Procurement and Trafficking Agreement, dated
December 1996 and amended in January 1998, between DoubleClick and Compaq
Computer Corporation's predecessor-in-interest, Digital Equipment Corp.
Until December 31, 1998, we had paid AltaVista a service fee under the
Procurement and Trafficking Agreement which was calculated as a percentage of
the revenues earned from advertisers for the delivery of advertisements to users
of the AltaVista Web site. Under that agreement, we recognized as revenues the
gross amount earned for advertising delivered to users of the AltaVista Web
site. Gross amounts billed by us, including amounts billed on behalf of
AltaVista, are referred to as 'system revenues,' and are presented solely to
facilitate the comparison of our 1998 and 1999 results of operations.
Beginning January 1, 1999, AltaVista agreed, pursuant to the Advertising
Services Agreement, to use our DART technology for ad delivery, and to outsource
domestic, international and local ad sales functions to us. For these services,
AltaVista pays us (1) a technology fee for all advertising delivered by our DART
technology to users of the AltaVista Web site, (2) a sales commission based on
the net revenues generated from all advertisements sold by DoubleClick on behalf
of AltaVista and (3) a fee for all billing and collections services we perform
for AltaVista. Under the new agreement, we recognize DART service fees, sales
commissions and billing and collection fees as revenues derived from the sale
and delivery of impressions on the AltaVista Web site and associated services.
As a result of this change in our relationship with AltaVista, although there
has been no significant change in gross profit dollars, overall gross margin
percentage has increased as we are no longer required to pay service fees to
AltaVista for impressions sold and delivered on the AltaVista Web site and
revenues include the fees earned for services rendered.
The Advertising Services Agreement expires on January 1, 2002, subject to
prior termination in limited circumstances or further extension in accordance
with the terms of the AltaVista Advertising Services Agreement. In November
1999, we entered into an Interim Advertising Services Agreement, effective from
November 1, 1999 through December 31, 2000 with AltaVista, which temporarily
suspends the Advertising Services Agreement. The Interim Services Agreement
temporarily adjusts some advertising sales arrangements between us and
AltaVista, but does not
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<PAGE>
change the manner in which we recognize revenues derived from our services for
the AltaVista Web site. In January 2001, upon the expiration of the Interim
Services Agreement, the Advertising Services Agreement will once again be
effective.
BUSINESS COMBINATIONS
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999, which have been accounted for under the pooling of interests method and
accordingly, the financial results for all periods presented have been restated.
We acquired the remaining interests not previously owned by us in DoubleClick
Scandinavia AB in December 1999 and DoubleClick Iberoamerica S.L. in November
1999. These transactions were accounted for under the purchase method.
RESULTS OF OPERATIONS
Revenues and gross profit by segment are as follows:
<TABLE>
<CAPTION>
REVENUES GROSS PROFIT
----------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Media.......................... $125,499 $ 74,180 $29,924 $ 49,955 $15,726 $ 7,047
Technology..................... 74,695 24,965 9,823 50,082 16,827 6,708
Data........................... 65,961 46,979 30,971 51,101 36,980 24,430
Intersegment elimination....... (7,861) (7,400) (2,792) -- -- --
-------- -------- ------- -------- ------- -------
Total...................... $258,294 $138,724 $67,926 $151,138 $69,533 $38,185
-------- -------- ------- -------- ------- -------
-------- -------- ------- -------- ------- -------
</TABLE>
1999 COMPARED TO 1998
1999 revenues and gross profits increased over 1998 due primarily to volume
increases both domestically and internationally and a favorable product mix,
partially offset by declines resulting from the change in the manner in which we
present revenues earned pursuant to the AltaVista Advertising Services Agreement
and in pricing of some of our technology products. Operating expenses increased
to $209.9 million from $84.5 million in 1998, including direct transaction,
integration and facility relocation charges of $41.6 million in 1999 and
$360,000 in 1998, primarily related to the business combinations discussed above
and our move to a new headquarters facility. Net loss including these charges
was $55.8 million in 1999 compared to $18.0 million in 1998. Net loss excluding
direct transaction, integration and facility relocation charges declined from
$17.7 million in 1998 to $14.2 million in 1999. As we continue to grow, we
expect operating expenses to continue to increase in absolute dollars and to be
impacted significantly in future years by amortization of goodwill related to
business combinations accounted for by the purchase method of accounting.
Revenues derived from advertising impressions delivered to the users of the
AltaVista Web site were $27.9 million, or 10.8% of total revenues, for 1999,
compared to $37.3 million, or 26.9% of total revenues, for 1998. As discussed
above, we changed the manner in which we recognize revenue pursuant to the
AltaVista Advertising Services Agreement. Had revenues from AltaVista been
subject to the Procurement and Trafficking Agreement, we would have recorded
revenues related to AltaVista of $85.5 million, or 27.0% of total system
revenues, for the year ended December 31, 1999. No other Web publisher accounted
for more than 10.0% of revenues for the year ended December 31, 1999, and no one
advertiser accounted for more than 10.0% of revenues during the same period.
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<PAGE>
REVENUES AND COST OF REVENUES
DoubleClick Media
DoubleClick Media revenues are derived primarily from the sale and delivery
of advertising impressions through third-party Web sites comprising the
worldwide DoubleClick Media networks. Cost of Media revenues consists primarily
of service fees paid to Web publishers for impressions delivered on our
worldwide DoubleClick networks and the costs of ad delivery, and technology
support provided by our DoubleClick TechSolutions.
Revenues for DoubleClick Media increased 69.1% to $125.5 million for 1999
from $74.2 million for 1998. DoubleClick Media gross margin was 39.8% for 1999
and 21.2% for 1998. The increases in DoubleClick Media revenues and gross margin
were due primarily to an increase in the number of advertisers and impressions
delivered on the worldwide DoubleClick Media networks, coupled with higher
average prices of advertising impressions and lower average site service fees.
The increase in DoubleClick Media gross margin percentage, also resulted from
the change in our relationship with AltaVista as provided in the AltaVista
Advertising Service Agreement. As described above, the manner in which we report
our financial results related to the services we provide to the Alta Vista Web
site has changed. On a basis comparable to 1998, DoubleClick Media system
revenues increased 148.0%, or $184.0 million.
DoubleClick Media revenues derived from advertising impressions delivered to
the users of the AltaVista Web site were $22.4 million, or 17.8% of DoubleClick
Media revenues for 1999 compared to $33.2 million, or 44.8% of DoubleClick Media
revenues for 1998. On a basis comparable to 1998, AltaVista system revenues
increased to $80.0 million, or 43.4% of DoubleClick Media system revenues in
1999.
DoubleClick TechSolutions
DoubleClick TechSolutions revenues are derived primarily from sales of our
DART, AdCenter and AdServer product offerings. DoubleClick TechSolutions cost of
revenues includes costs associated with the delivery of advertisements,
including internet access costs, depreciation of the ad delivery system,
facilities, and personnel related costs incurred to operate our ad delivery
system.
DoubleClick TechSolutions revenues increased 199.2% to $74.7 million for
1999 from $25.0 million for 1998. DoubleClick TechSolutions gross margin was
67.0% for 1999 and 67.4% for 1998. The increase in DoubleClick TechSolutions
revenues was due primarily to an increase in the number of DART and AdServer
clients, as well as the volume of impressions delivered for existing clients,
offset in part by lower average pricing for advertising impressions.
DoubleClick TechSolutions revenues related to AltaVista were $5.5 million or
7.4% of total DoubleClick TechSolutions revenue in 1999 and $4.1 million or
16.4% in 1998.
DoubleClick Data Services
DoubleClick Data Services revenues are derived primarily from providing
services to catalog-based retailers such as prospecting lists, housefile
scoring, list optimization, and marketing research services. DoubleClick Data
Services cost of revenues includes expenses associated with creating, updating
and managing the Abacus Alliance database as well as building statistical
models.
DoubleClick Data Services revenues increased 40.4% to $66.0 million for 1999
from $47.0 million for 1998. Gross margin declined slightly from 78.7% in 1998
to 77.5% in 1999. The increase in revenues was due primarily to an increase in
sales to existing and new clients and revenues from direct marketing clients
outside the catalog industry. The decline in gross margin was due primarily to
increases in personnel related costs, facilities, depreciation and processing
costs associated with supporting higher revenues. We expect to incur a
disproportionate amount of expenses during 2000 related to the development and
expansion of internet data products and services which will result in a lower
gross margin.
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<PAGE>
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions,
advertising, trade show expenses, seminars and costs of marketing materials.
Sales and marketing expenses were $103.6 million, or 40.1% of revenues for 1999
and $52.5 million, or 37.9% of revenues for 1998. The increase was primarily
attributable to the increase in sales personnel and costs associated with growth
and the expansion of our international operations of approximately
$24.8 million, in addition to increases in other costs associated with our
personnel growth, commissions associated with the increase in revenues of
approximately $7.2 million, costs related to the continued development and
implementation of our marketing and branding campaigns of approximately $3.3
million, and increase in the provision for doubtful accounts by approximately
$5.6 million. The increase in the provision for doubtful accounts is
commensurate with our increase in revenues and level of business activity. The
increase in sales and marketing expenses as a percentage of revenues resulted
from our continuing effort to build our sales and marketing infrastructure. We
expect sales and marketing expenses to increase in absolute dollars as we hire
additional personnel, expand into new markets and continue to promote the
DoubleClick brand, but decrease as a percentage of revenues.
General and Administrative
General and administrative expenses consist primarily of compensation and
professional services fees. General and administrative expenses were $36.3
million, or 14.1% for 1999 and $19.4 million, or 14.0% of revenues for 1998. The
increase in absolute dollars was primarily the result of increased personnel and
related expenses of approximately $7.8 million, in addition to increases in
other costs associated with our personnel growth, and increased professional
service fees of $3.6 million. Increased professional service fees related
largely to our continued expansion, including international corporate
development. We expect general and administrative expenses to continue to
increase in absolute dollars but expect these expenses to decrease as a
percentage of revenues as we hire additional personnel and incur additional
costs related to the growth of our business and operations.
Product Development
Product development expenses consist primarily of compensation and
consulting expenses and enhancements to our DART, AdCenter and AdServer product
offerings. To date, all product development costs have been expensed as
incurred. Product development expenses were $28.4 million, or 11.0% of revenues
for 1999 and $12.2 million, or 8.8% of revenues for 1998. The increase in
absolute dollars was due primarily to increases in product development personnel
and related expenses of approximately $10.1 million, in addition to increases in
other costs associated with our personnel growth, and consulting expenses of
approximately $2.0 million. The increase in product development expenses as a
percentage of revenues resulted from our continuing development of our
technology. We believe that continued investment in product development is
critical to attaining our strategic objectives and, as a result, expect product
development expenses to increase in absolute dollars.
Direct Transaction, Integration and Facility Relocation Charges
For 1999, we incurred direct transaction costs of approximately $31.1
million and integration costs of approximately $7.6 million in connection with
the transactions accounted for under the pooling of interests method. Direct
transaction costs consist of approximately $26.1 million in investment banking
fees and $5.0 million in professional fees and filing and printing costs.
Integration costs include approximately $3.9 million in personnel related costs
and $3.7 million in costs related to redundant systems, integration consulting,
and asset impairments.
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<PAGE>
For 1999, we incurred approximately $2.9 million in costs associated with
the relocation of our corporate headquarters. As a result of our planned
relocation, completed in December 1999, we incurred a non-recurring charge for
the impairment of fixed assets of approximately $1.4 million on assets with a
carrying value of $2.1 million (primarily leasehold improvements). These assets
were abandoned and not relocated to our new headquarters building. Our
management made an assessment of the carrying value of the assets to be disposed
of and determined that their carrying value was in excess of their estimated
fair value. The estimated fair value of the assets was determined based on an
estimate of the recoverability of the assets carrying amount over their
remaining useful life to the abandonment date using their initial cost recovery
rate. Depreciation and amortization of $729,000 associated with assets disposed
of is presented outside of direct transaction, integration and facility
relocation and other in the consolidated statements of operations. In addition,
duplicative equipment and rental costs of approximately $1.5 million were
incurred. All facility relocation charges incurred in 1998 related to costs
incurred by Abacus.
Loss From Operations
Net loss from operations was $58.7 million for 1999 and $15.0 million for
1998. The increase in the loss from operations was due largely to the direct
transaction, integration and facility relocation charges discussed above. We
plan to continue to grow and expand our business and therefore anticipate future
losses from operations. Goodwill amortization, which has not previously been a
material expense, will have a significant impact on our loss from operations as
a result of our acquisitions of DoubleClick Scandinavia AB in December 1999 and
DoubleClick Iberoamerica S.L. in November 1999.
Interest and Other, Net
Interest and other, net was $11.5 million in 1999 and $4.0 million in 1998.
Interest and other, net included $22.6 million of interest income in 1999
partially offset by $9.4 million of interest expense, and $4.3 million of
interest income in 1998 partially offset by $200,000 of interest expense. The
increase in interest income was attributable to interest earned on the cash,
cash equivalents and investments in marketable securities primarily from the net
proceeds from the issuance in March 1999 of our $250 million 4.75% Convertible
Subordinated Notes due 2006 and proceeds from the issuance of our common stock
during 1999. In addition, our average yield increased due to holdings in
investments with longer-term maturities. The increase in interest expense is
largely attributable to interest due on our convertible subordinated notes.
Interest and other, net in future periods may fluctuate as a result of the
average cash and future debt balances we maintain and changes in the market
rates of our investments.
Income Taxes
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit.
The provision for income taxes recorded in 1999 and 1998 relates to the
standalone results of Abacus prior to our merger on November 23, 1999. For
periods subsequent to our merger in November 1999, the provision for income
taxes will be dependent on the taxable income or loss, including utilization of
net operating loss carryovers of the combined companies.
1998 COMPARED TO 1997
1998 revenues increased over 1997 due primarily to volume increases both
domestically and internationally. Product mix fluctuated greatly between 1998
and 1997 due to the varying relationships of each segment to the total,
resulting in the overall decline in gross margin. Operating expenses increased
to $84.5 million in 1998 from $42.0 million in 1997, commensurate with the
approximate 100% increase in revenues. Net loss increased from $7.7 million in
1997 to $18.0 million in 1998 due largely to higher costs associated with our
expansion efforts.
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<PAGE>
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site were $37.3 million or 26.9% of revenues for 1998, compared to
$13.7 million, or 20.2% for 1997. No other Web site accounted for more than
10.0% of revenues for 1998, and no one advertiser accounted for more than 10.0%
of revenues during the same period.
REVENUES AND COST OF REVENUES
DoubleClick Media
DoubleClick Media revenues increased 147.9% to $74.2 million for 1998 from
$29.9 million for 1997. DoubleClick Media gross margin was 21.2% for 1998 and
23.5% for 1997. The increase in revenues was due primarily to an increase in the
number of advertisers and impressions delivered on the worldwide DoubleClick
networks, offset in part by lower average prices of advertising impressions. The
decrease in gross margin percent was due to the decrease in prices of
advertising impressions noted above coupled with an unfavorable change in the
mix of Web site service fee arrangements.
DoubleClick Media revenues derived from advertising impressions delivered to
users of the AltaVista Web site were $33.2 million or 44.8% of DoubleClick Media
revenues for 1998, compared to $11.6 million or 38.9% of DoubleClick Media
revenues for 1997. Approximately $3.0 million of revenues for 1998 resulted from
sales of inventory on the AltaVista Web site, which was derived from an
arrangement between AltaVista and another search engine that expired on June 30,
1998, and was therefore non-recurring.
DoubleClick TechSolutions
DoubleClick TechSolutions revenues increased 154.1% to $25.0 million for
1998 from $9.8 million for 1997. This increase was primarily as a result of an
increase in the number of DART, AdCenter and AdServer customers, both
domestically and internationally. Gross margin for our DoubleClick TechSolutions
for 1998 compared to 1997 declined from 68.3% to 67.4% primarily due to the mix
of DART and AdServer sales. DART sales benefited from increased DoubleClick
Media revenues as it supported the DoubleClick Media customer base.
AltaVista represented 16.4% of DoubleClick TechSolutions segment revenues
for 1998 and 20.9% for 1997. We expect AltaVista's revenues to continue to
decline as a percentage of total DoubleClick TechSolutions revenues.
DoubleClick Data Services
DoubleClick Data Services revenues increased 51.7% to $47.0 million for 1998
from $31.0 million for 1997 due primarily to an increase in sales to existing
and new catalog clients and revenues generated from other direct marketing
clients. Gross margin declined from 78.9% in 1997 to 78.7% in 1998, due
primarily to an increase in employee and non-employee staffing levels and higher
software, hardware and systems processing costs.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses were $52.5 million, or 37.9% of revenues for
1998 and $24.9 million, or 36.6% of revenues for 1997. The increase was
primarily attributable to the increase in sales personnel and the expansion of
our international operations of approximately $14.6 million, in addition to
increases in other costs associated with our personnel growth, commissions
associated with the increase in revenues of approximately $3.6 million, and
costs related to the continued development and implementation of our marketing
and branding campaigns of approximately $1.8 million. In addition, the provision
for doubtful accounts increased by approximately $2.1 million. The increase in
the provision for doubtful accounts is commensurate with our increase in
revenues and level of business activity. The increase in sales and marketing
38
<PAGE>
expenses as a percentage of revenues resulted from our continuing effort to
build our sales and marketing infrastructure. We expect sales and marketing
expenses to increase in absolute dollars as we hire additional personnel, expand
into new markets and continue to promote the DoubleClick brand, but decrease as
a percentage of revenues.
General and Administrative
General and administrative expenses were $19.4 million, or 14.0% of revenues
for 1998, and $11.9 million, or 17.6% for 1997. The increase in absolute dollars
was primarily the result of expenses related primarily to increased personnel
and related expenses of approximately $3.1 million, in addition to increases in
other costs associated with our personnel growth, and increased professional
service fees of $1.6 million. Increased professional service fees related
largely to continued expansion, including international corporate development.
We expect general and administrative expenses to continue to increase on an
absolute dollar basis as we hire additional personnel and incur additional costs
related to the growth of our business and operations, but decrease as a
percentage of revenues.
Product Development
To date, all product development costs have been expensed as incurred.
Product development expenses were $12.2 million, or 8.8% of revenues for 1998,
and $5.1 million, or 7.5% for 1997. The increase in absolute dollars was due
primarily to increases in product development personnel and related expenses of
approximately $4.8 million, in addition to increases in other costs associated
with our personnel growth, and consulting expenses of approximately $500,000.
The increase in product development expenses as a percentage of revenues
resulted from our continuing development of our technology. We believe that
continued investment in product development is critical to attaining our
strategic objectives and, as a result, we expect product development expenses to
increase in absolute dollars.
LOSS FROM OPERATIONS
Net loss from operations was $15.0 million for 1998 and $3.8 million for
1997. The increase in the loss from operations was primarily due to the hiring
of additional personnel, particularly in sales and marketing, and product
development. We expect to hire additional personnel and increase spending for
sales and marketing, upgrade and enhance our DART, AdCenter and AdServer
technologies, and continue our international expansion. However, we expect that
the loss from operations may decrease both in absolute dollars and as a
percentage of revenues in the future.
INTEREST AND OTHER, NET
Interest and other, net was $4.0 million in 1998 and $396,000 in 1997.
Interest and other, net included $4.3 million of interest income in 1998 offset
by $200,000 of interest expense, and $900,000 of interest income in 1997 offset
by $450,000 of interest expense. Interest income was attributable to cash, cash
equivalents and investments in marketable securities primarily as a result of
the net proceeds received from our public offerings of common stock in 1998.
Interest and other, net in future periods may fluctuate as a result of the
average cash and future debt balances we maintain and changes in the market
rates of our investments.
INCOME TAXES
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit.
The provision for income taxes recorded in 1998 and 1997 relates to the
standalone results of Abacus. For periods subsequent to our merger in November
1999, the provision for income taxes will be dependent on the taxable income or
loss, including utilization of net operating loss carryovers of the combined
companies.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception we have financed our operations primarily through private
placements of equity securities, and public offerings of our common stock and
Convertible Subordinated Notes.
Net cash used in operating activities was $41.1 million, $8.8 million and
$4.2 million for 1999, 1998 and 1997, respectively. Cash used in operating
activities resulted primarily from net losses, and increases in accounts
receivable and advances, which were partially offset by increases in accounts
payable, accrued expenses and deferred revenue. Net cash used in investing
activities was $367.3 million, $36.4 million and $11.5 million for 1999, 1998
and 1997, respectively. We continued to acquire equipment to support growth and
expansion, as well as invest in marketable securities with proceeds from common
stock and Convertible Subordinated Notes issuances. Net cash provided by
financing activities was $366.5 million, $188.0 million and $27.6 million for
1999, 1998 and 1997, respectively. Cash provided by financing activities
consisted primarily of net proceeds from our Convertible Subordinated Notes
offering in 1999, our public offerings of common stock in 1999 and 1998, and our
issuances of preferred stock in 1997.
As of December 31, 1999, we had $119.2 million of cash and cash equivalents
and $325.6 million in investments in marketable securities. As of December 31,
1999, our principal commitments consisted of our Convertible Subordinated Notes
and obligations under operating leases. Although we have no material commitments
for capital expenditures, we anticipate that we will experience a substantial
increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel, and the
continued build-out of our newly leased New York headquarters facility. We
currently anticipate that we will continue to experience significant growth in
our operating expenses for the foreseeable future and that our operating
expenses will be a material use of our cash resources.
On February 14, 2000, we filed with the Securities and Exchange Commission a
preliminary prospectus which was part of Amendment No. 1 to our registration
statement on Form S-3 relating to the proposed sale of an aggregate of
7,500,000 shares of our common stock, including 5,733,411 shares to be sold by
us and 1,766,569 shares to be sold by elling stockholders, and up to an
aggregate of 1,125,000 additional shares by us which may be sold in connection
with the underwriters' over-allotment option. Assuming an initial price to the
public equal to the last reported sale price of our common stock on the Nasdaq
National Market on February 11, 2000, or $111.13, we estimate that the net
proceeds we will receive from this offering will be approximately $615.3
million after deducting underwriting discounts and commissions and estimated
offering expenses, or approximately $737.2 million if the underwriters fully
exercise their over-allotment option.
We believe that the net proceeds of our prior offerings of common stock and
convertible notes, together with our existing cash and cash equivalents and
investments in marketable securities will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months.
YEAR 2000 COMPLIANCE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our Year
2000 preparedness activities. However, we cannot assure that we will not
experience disruptions in the future as a consequence of the Year 2000 bug. We
cannot quantify the amount of our potential exposure, but do not believe it to
be material.
NEW ACCOUNTING PRONOUNCEMENTS
We continually assess the effects of recently issued accounting standards.
The impact of all recently adopted and issued accounting standards has been
disclosed in the Consolidated Financial Statements.
40
<PAGE>
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
investments in marketable securities in a variety of securities, including both
government and corporate obligations and money market funds.
The following table presents the amounts of our financial instruments that
are subject to interest rate risk by year of expected maturity and average
interest rates as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2006 FAIR VALUE
---- ---- ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $119,238 -- -- $119,238
Average interest rate............................. 5.63%
Fixed rate investments in marketable securities... 179,776 $145,789 -- 325,565
Average interest rate............................. 5.60% 6.12%
Convertible Subordinated Notes.................... -- -- $250,000 764,800
Average interest rate............................. 4.75%
</TABLE>
We did not hold derivative financial instruments as of December 31, 1999,
and have never held these instruments in the past.
FOREIGN CURRENCY RISK
We transact business in various foreign countries. Accordingly, we are
subject to exposure from adverse movements in foreign currency exchange rates.
This exposure is primarily related to revenues and operating expenses in the
U.K. and other countries whose currency is the Euro. The effect of foreign
exchange rate fluctuations for 1999 was not material. We do not use financial
instruments to hedge operating activities denominated in the local currency. We
assess the need to utilize financial instruments to hedge currency exposures on
an ongoing basis. As of December 31, 1999 we had $6.9 million in cash and cash
equivalents denominated in foreign functional currencies, earning an average
interest rate of 1.97%.
The introduction of the Euro has not had a material impact on how we conduct
business and we do not anticipate any changes in how we conduct business as a
result of increased price transparency.
Our international business is subject to risks typical of an international
business, including, but not limited to differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, our future
results could be materially and adversely affected by changes in these or other
factors.
41
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... 43
Report of KPMG LLP, Independent Accountants................. 44
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 45
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 46
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...... 47
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 48
Notes to Consolidated Financial Statements.................. 49
Schedule II -- Valuation and Qualifying Accounts............ 66
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of DoubleClick Inc:
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of DoubleClick
Inc. and its subsidiaries (the 'Company') at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements give retroactive effect to the mergers of
Abacus Direct Corporation ('Abacus') and NetGravity, Inc. ('NetGravity') on
November 23, 1999 and October 26, 1999, respectively, in transactions accounted
for as pooling of interests, as described in Note 2 to the consolidated
financial statements. We did not audit the financial statements of NetGravity as
of December 31, 1998, which statements reflect total assets of $33,420,000 and
$9,887,000 as of December 31, 1998 and 1997, respectively, and total revenues of
$11,557,000 and $6,358,000 for the years ended December 31, 1998 and 1997,
respectively. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for NetGravity, is based solely on the report
of the other auditors. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
NEW YORK, NEW YORK
JANUARY 18, 2000, EXCEPT AS TO NOTE 11(b) WHICH IS AS OF FEBRUARY 11, 2000
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NetGravity, Inc. and Subsidiaries:
We have audited the consolidated balance sheets of NetGravity, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1998. 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NetGravity, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
SAN FRANCISCO, CALIFORNIA
JANUARY 27, 1999
44
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 119,238 $161,670
Investments in marketable securities.................... 179,776 20,206
Accounts receivable, less allowances of $15,004 and
$5,094 at December 31, 1999 and 1998, respectively.... 89,792 49,150
Prepaid expenses and other current assets............... 33,474 4,905
--------- --------
Total current assets................................ 422,280 235,931
Investments in marketable securities........................ 145,789 --
Property and equipment, net................................. 61,980 21,702
Intangible assets, net...................................... 94,475 247
Other assets................................................ 4,883 2,481
--------- --------
Total assets........................................ $ 729,407 $260,361
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 32,846 $ 22,095
Accrued expenses........................................ 49,337 20,550
Deferred revenue........................................ 29,783 7,904
Current portion of long-term obligations and notes...... 431 974
--------- --------
Total current liabilities........................... 112,397 51,523
Long-term obligations and notes............................. 5,348 2,067
Convertible subordinated notes.............................. 250,000 --
Stockholders' equity:
Preferred stock, par value $0.001; 5,000,000 shares
authorized at December 31, 1999 and 1998; none
outstanding at December 31, 1999 or 1998.............. -- --
Common stock, par value $0.001; 400,000,000 and
240,000,000 shares authorized at December 31, 1999 and
1998, respectively; 112,453,892 and 106,784,868
outstanding at December 31, 1999 and 1998,
respectively.......................................... 112 107
Additional paid-in capital.............................. 475,565 262,780
Deferred compensation................................... (1,106) (2,147)
Accumulated deficit..................................... (109,831) (54,010)
Other comprehensive income (loss)....................... (3,078) 41
--------- --------
Total stockholders' equity.......................... 361,662 206,771
--------- --------
Total liabilities and stockholders' equity.......... $ 729,407 $260,361
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................... $258,294 $138,724 $67,926
Cost of revenues............................................ 107,156 69,191 29,741
-------- -------- -------
Gross profit................................................ 151,138 69,533 38,185
Operating expenses:
Sales and marketing..................................... 103,578 52,525 24,855
General and administrative.............................. 36,306 19,424 11,948
Product development..................................... 28,364 12,194 5,108
Direct transaction, integration and facility relocation
charges............................................... 41,605 360 102
-------- -------- -------
Total operating expenses............................ 209,853 84,503 42,013
-------- -------- -------
Loss from operations........................................ (58,715) (14,970) (3,828)
Interest and other, net..................................... 11,481 3,997 396
-------- -------- -------
Loss before income taxes.................................... (47,234) (10,973) (3,432)
Provision for income taxes.................................. 8,587 7,066 4,309
-------- -------- -------
Net loss.................................................... $(55,821) $(18,039) $(7,741)
-------- -------- -------
-------- -------- -------
Basic and diluted net loss per common share................. $ (0.51) $ (0.21) $ (0.16)
-------- -------- -------
-------- -------- -------
Weighted average shares used in basic and diluted
net loss per share calculation............................ 109,756 86,248 49,048
-------- -------- -------
-------- -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON COMMON
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................................ 1,233,400 $ 1 15,763,560 $ 16 20,472,912 $ 21
Net loss....................................................
Cumulative foreign currency translation.....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization..................
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 1,928,600 2
Exchange of Class A shares for Class B shares............... (1,087,080) (1) 1,087,080 1
--
Exchange of Class A, B and C shares for Common shares....... (14,791,480) (15) (5,975,444) (6)
--
Class B and C shares redeemed............................... (15,584,548) (16)
Common shares issued upon exercise of stock options......... 115,000
Repurchase of common stock..................................
Issuance of common stock upon conversion of convertible note
payable to related party...................................
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1997................................ 3,162,000 3 -- -- -- --
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization..................
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 406,280 1
Conversion of Preferred Stock............................... (3,568,280) (4)
Issuance of Common Stock, net of issuance costs.............
Common shares issued from exercise of stock options.........
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1998................................ -- -- -- -- -- --
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Issuance of common stock for acquisition....................
Deferred compensation, net of amortization..................
Issuance of common stock, net of issuance costs.............
Common shares issued upon exercise of stock options and
warrants...................................................
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1999................................ -- $ -- -- $ -- -- $ --
----------- ---- ----------- ---- ----------- ----
----------- ---- ----------- ---- ----------- ----
<CAPTION>
CLASS C COMMON
COMMON STOCK ADDITIONAL
--------------- -------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................................ 8 $ -- 22,523,700 $ 22 $10,442 $ --
Net loss....................................................
Cumulative foreign currency translation.....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization.................. 3,451 (2,726)
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 49,545
Exchange of Class A shares for Class B shares...............
Exchange of Class A, B and C shares for Common shares....... (4) 20,766,928 21
Class B and C shares redeemed............................... (4)
Common shares issued upon exercise of stock options......... 1,048,012 1 306
Repurchase of common stock.................................. (310,800) (121)
Issuance of common stock upon conversion of convertible note
payable to related party................................... 3,117,208 3 4,997
Tax benefit upon exercise of stock options.................. 1,456
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1997................................ -- -- 47,145,048 47 70,076 (2,726)
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization.................. 1,427 579
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 3,249
Conversion of Preferred Stock............................... 28,420,936 29 (25)
Issuance of Common Stock, net of issuance costs............. 29,369,040 29 182,045
Common shares issued from exercise of stock options......... 1,849,844 2 2,947
Tax benefit upon exercise of stock options.................. 3,061
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1998................................ -- -- 106,784,868 107 262,780 (2,147)
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Issuance of common stock for acquisition.................... 862,092 1 87,851
Deferred compensation, net of amortization.................. 1,134 1,041
Issuance of common stock, net of issuance costs............. 2,191,572 2 114,013
Common shares issued upon exercise of stock options and
warrants................................................... 2,615,360 2 7,620
Tax benefit upon exercise of stock options.................. 2,167
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1999................................ -- $ -- 112,453,892 $112 $475,565 $ (1,106)
----- ---- ----------- ---- ------- ---------
----- ---- ----------- ---- ------- ---------
<CAPTION>
OTHER TOTAL
ACCUMULATED COMPREHENSIVE SHAREHOLDERS
DEFICIT INCOME EQUITY
------- ------ ------
<S> <C> <C>
Balance at December 31, 1996................................ $(3,246) $ -- $ 7,256
Net loss.................................................... (7,741) (7,741)
Cumulative foreign currency translation..................... (1) (1)
------- -------- --------
Comprehensive income (loss)................................. (7,741) (1) (7,742)
Deferred compensation, net of amortization.................. 725
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 49,547
Exchange of Class A shares for Class B shares............... --
Exchange of Class A, B and C shares for Common shares....... --
Class B and C shares redeemed............................... (24,984) (25,000)
Common shares issued upon exercise of stock options......... 307
Repurchase of common stock.................................. (121)
Issuance of common stock upon conversion of convertible note
payable to related party................................... 5,000
Tax benefit upon exercise of stock options.................. 1,456
------- -------- --------
Balance at December 31, 1997................................ (35,971) (1) 31,428
Net loss.................................................... (18,039) (18,039)
Cumulative foreign currency translation..................... 40 40
Unrealized gain on marketable securities.................... 2 2
------- -------- --------
Comprehensive income (loss)................................. (18,039) 42 (17,997)
Deferred compensation, net of amortization.................. 2,006
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 3,250
Conversion of Preferred Stock............................... --
Issuance of Common Stock, net of issuance costs............. 182,704
Common shares issued from exercise of stock options......... 2,949
Tax benefit upon exercise of stock options.................. 3,061
------- -------- --------
Balance at December 31, 1998................................ (54,010) 41 206,771
Net loss.................................................... (55,821) (55,821)
Cumulative foreign currency translation..................... (885) (885)
Unrealized gain on marketable securities.................... (2,234) (2,234)
------- -------- --------
Comprehensive income (loss)................................. (55,821) (3,119) (58,940)
Issuance of common stock for acquisition.................... 87,852
Deferred compensation, net of amortization.................. 2,175
Issuance of common stock, net of issuance costs............. 114,015
Common shares issued upon exercise of stock options and
warrants................................................... 7,662
Tax benefit upon exercise of stock options.................. 2,167
------- -------- --------
Balance at December 31, 1999................................ ($109,831) $ (3,078) $361,662
------- -------- --------
------- -------- --------
</TABLE>
47
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. $ (55,821) $(18,039) $ (7,741)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................ 14,628 5,070 1,967
Equity in losses of investee......................... 783 53 --
Integration and facility relocation.................. 4,153 185 10
Deferred income taxes................................ 797 (323) (190)
Amortization of deferred compensation................ 2,175 2,006 725
Provision for bad debts and advertiser discounts..... 20,528 9,631 3,778
Changes in operating assets and liabilities, net of
effect of businesses acquired
Accounts receivable.................................. (61,170) (38,550) (16,095)
Prepaid expenses and other current assets............ (29,296) (1,128) (520)
Accounts payable..................................... 10,751 13,427 6,237
Accrued expenses..................................... 29,504 13,159 4,647
Income taxes receivable.............................. -- 2,003 1,128
Deferred revenue..................................... 21,879 3,726 1,860
--------- -------- --------
Cash used in operating activities................ (41,089) (8,780) (4,194)
--------- -------- --------
INVESTING ACTIVITIES
Purchases of investments in marketable securities........ (399,379) (25,183) (8,340)
Proceeds from maturities of marketable securities........ 91,786 10,851 2,466
Purchases of property and equipment...................... (56,146) (18,977) (5,430)
Investments in affiliates and other assets............... (435) (3,082) (211)
Acquisition of businesses, net of cash acquired.......... (3,120) -- --
--------- -------- --------
Cash used in investing activities................ (367,294) (36,391) (11,515)
--------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net.............. 114,015 184,818 283
Proceeds from issuance of Convertible
Subordinated Notes, net................................ 244,747 1,000 1,185
Proceeds from issuance of preferred stock, net........... -- 3,249 49,547
Redemption of common stock............................... -- (23) (25,124)
Proceeds from exercise of stock options
and issuance of warrants............................... 9,789 229 27
Payments of notes and capital lease obligations.......... (2,005) (1,273) (15)
Advances from related party, net of repayments........... -- -- 1,662
--------- -------- --------
Cash provided by financing activities............ 366,546 188,000 27,565
--------- -------- --------
Effect of exchange rate changes on cash.................. (595) 42 (1)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents..... (42,432) 142,871 11,855
--------- -------- --------
Cash and cash equivalents at beginning of period......... 161,670 18,799 6,944
--------- -------- --------
Cash and cash equivalents at end of period............... $ 119,238 $161,670 $ 18,799
--------- -------- --------
--------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DoubleClick Inc. together with its subsidiaries, ('DoubleClick') is a
leading provider of comprehensive global interactive marketing and advertising
solutions. DoubleClick offers a broad range of integrated media, technology and
data solutions to advertisers, ad agencies, Web publishers and merchants.
DoubleClick is organized in three segments: Media, Technology and Data based
on types of service provided. DoubleClick Media consists of the worldwide
DoubleClick Networks, which provide fully outsourced and highly effective
advertising sales, delivery and related services to a worldwide group of
advertisers and publishers. DoubleClick TechSolutions consists of the DART-
based service bureau offering, the AdServer family of software products and
DARTmail for Advertisers service bureau offering. DoubleClick Data Services
includes the Abacus Direct and Abacus Online divisions, currently consisting of
a proprietary database of consumer buying behavior used for target marketing
purposes.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DoubleClick
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Investments in entities that are 20% to 50% owned
over which DoubleClick has significant influence are accounted for using the
equity method. Investments in less than 20% owned business partners over which
DoubleClick does not have the ability to exercise significant influence are
accounted for using the cost method of accounting.
DoubleClick consummated mergers with NetGravity, Inc. ('NetGravity'), Abacus
Direct Corporation ('Abacus'), and Business Link Incorporated (d/b/a Opt-In
Email.com 'Opt-In'), which have been accounted for using the pooling of
interests method, and accordingly, the consolidated financial statements for all
periods presented and the accompanying notes have been restated to reflect
DoubleClick's consoldiated financial position and results of its operations (see
note 2).
CASH, CASH EQUIVALENTS AND INVESTMENTS IN MARKETABLE SECURITIES
Cash and cash equivalents represent cash and highly liquid investments with
a remaining contractual maturity at the date of purchase of three months or
less.
DoubleClick classifies its investments in marketable securities as
available-for-sale. Accordingly, these investments are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. DoubleClick recognizes gains and losses when
securities are sold using the specific identification method. For the years
ended December 31, 1999, 1998, and 1997, DoubleClick did not recognize any
material gains or losses upon the sale of securities.
49
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
At December 31, 1999, cash and cash equivalents and investments in
marketable securities consist of the following:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
COST LOSSES GAINS ESTIMATED FAIR VALUE
---- ------ ----- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 14,341 $ -- $-- $ 14,341
Money market funds....................... 23,425 -- -- 23,425
Municipal bonds and notes................ 56,385 -- -- 56,385
Corporate securities..................... 25,087 -- -- 25,087
-------- -------- --- --------
$119,238 $ -- $-- $119,238
-------- -------- --- --------
-------- -------- --- --------
Investments in marketable securities:
Municipal bonds and notes................ $ 65,993 $ (362) $ 4 $ 65,635
Corporate securities..................... 261,806 (1,931) 55 259,930
-------- -------- --- --------
$327,799 $ (2,293) $59 $325,565
-------- -------- --- --------
-------- -------- --- --------
</TABLE>
At December 31, 1998, the fair value of investments in marketable securities
approximated cost and the unrealized holding gains or losses were not material.
The following schedule summarizes the estimated fair value of DoubleClick's
cash, cash equivalents and investments in marketable securities as of December
31, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents:
Cash.................................................. $ 2,158
Money market funds.................................... 39,338
Municipal bonds and notes............................. 18,000
Corporate securities.................................. 102,174
--------
$161,670
--------
--------
Investments in marketable securities:
Municipal bonds and notes............................. $ 9,643
Corporate securities.................................. 10,563
--------
$ 20,206
--------
--------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
leases, whichever is shorter.
INTANGIBLE ASSETS
DoubleClick records as goodwill the excess of purchase price over the fair
value of the identified net assets acquired. Goodwill is amortized using the
straight-line method over its estimated useful life, generally three years.
Goodwill amortization expense for the year ended 1999 was $417,000. No
goodwill amortization was recorded in 1998 or 1997. Accumulated amortization was
$417,000 and $0 at December 31, 1999 and 1998, respectively.
50
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
REVENUE RECOGNITION
Media. Revenues are derived primarily from the sale and delivery of
advertising impressions through third-party Web sites within the DoubleClick
worldwide networks (the 'networks'). Revenues are recognized in the period the
advertising impressions are delivered provided collection of the resulting
receivable is reasonably assured.
DoubleClick becomes obligated to make payments to third-party Web sites,
which have contracted with DoubleClick to be part of the networks, in the period
the advertising impressions are delivered. Such expenses are classified as cost
of revenues in the consolidated statement of operations.
Deferred license and service fees related to media, which are included in
deferred revenue on the consolidated balance sheet, represent payments received
in advance from third parties or affiliated companies for use of DoubleClick's
trademarks, access to DoubleClick's proprietary technology, and certain
personnel during fixed periods of time which range from two to four years. Such
fees will be recognized as revenues ratably over the terms of the applicable
agreements. DoubleClick is obligated to provide any enhancements or upgrades it
develops and other support over the term of the applicable agreements.
Technology. Revenues include fees earned from independent publishers and
advertisers who use DART, DoubleClick's Web based solution, to deliver ad
impressions. Revenues derived from the use of DART are recognized in the period
the advertising impressions are delivered provided collection of the resulting
receivable is reasonably assured.
For AdServer, DoubleClick's licensed software solution, revenues are
recognized upon completion of product installation, which is generally when
customers begin utilizing the product, there is pervasive evidence of an
arrangement, collection is reasonably assured, the fee is fixed or determinable,
and vendor-specific objective evidence exists to allocate the total fees to all
elements of the arrangement.
A portion of the initial Ad Server software license fee is attributed to the
customer's right to receive, at no additional charge, software upgrades released
during the subsequent twelve months. Revenues attributable to software upgrades
are deferred and recognized ratably over the period covered by the software
license agreement, generally one year. Revenues from consulting services are
recognized as the services are performed and customer-support revenues are
deferred and recognized ratably over the period covered by the customer support
agreement, generally one year.
In October 1997, the Accounting Standards Executive Committee ('AcSEC')
issued Statement of Position ('SOP') 97-2 'Software Revenue Recognition,' as
amended in 1998 by SOP 98-4 and further amended by SOP 98-9, which is effective
for transactions entered into in fiscal years beginning after March 15, 1999.
These SOP's provide guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions, requiring deferral
of part or all of the revenue related to a specific contract depending on the
existence of vendor specific objective evidence and the ability to allocate the
total contract value to all elements within the contract. During 1999,
DoubleClick implemented the guidelines of these SOP's and there was no material
change to its accounting for software revenues.
Data. DoubleClick provides services to its clients that result in a
deliverable product in the form of marketing data or customized written reports.
DoubleClick recognizes revenues when the product is shipped to the client
provided collection of the resulting receivable is reasonably assured. In
certain cases, DoubleClick provides subscriptions to unlimited products for a
fixed fee and over a fixed period of time, over which revenue is recognized
ratably.
51
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
DoubleClick's revenues are presented net of a provision for advertiser
discounts and sales returns and allowances, which is estimated and established
in the period in which the services are provided.
PRODUCT DEVELOPMENT COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of DoubleClick's products and general release have substantially
coincided. As a result, DoubleClick has not capitalized any software development
costs.
ADVERTISING EXPENSES
DoubleClick expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing in the consolidated
statements of operations and totaled $7.6 million, $3.8 million and $1.5 million
for the years ended December 31, 1999, 1998, and 1997, respectively.
INTERNAL-USE SOFTWARE
Effective January 1, 1999, DoubleClick adopted SOP 98-1, 'Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.' This
standard requires certain direct development costs associated with internal-use
software to be capitalized including external direct costs of material and
services and payroll costs for employees devoting time to the software projects.
Costs incurred during the preliminary project stage, as well as for maintenance
and training are expensed as incurred. The adoption of this statement has not
had a material impact on DoubleClick's consolidated financial statements.
CONCENTRATIONS OF RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments which potentially subject DoubleClick to
concentrations of credit risk consist principally of cash and cash equivalents,
investments in marketable securities, accounts receivable and advances.
Credit is extended to customers based on an evaluation of their financial
condition, and collateral is not required. DoubleClick performs ongoing credit
evaluations of its customers and maintains an allowance for doubtful accounts.
An advance to a single publisher of approximately $20 million at
December 31, 1999 is included in prepaid expenses and other current assets on
the consolidated balance sheets. The advance is collateralized by a security
interest in the underlying cash, which is maintained in a separate bank account.
In January 1999, we changed the manner in which we report the financial
results of the services we perform for the AltaVista Web site. Effective
January 1, 1999, we entered into an Advertising Services Agreement with
AltaVista Company's predecessor in interest (Compaq Computer Corporation) that
superceded the previously effective Procurement and Trafficking Agreement, dated
December 1996 and amended in December 1997, between DoubleClick and Compaq
Computer Corporation's predecessor-in-interest, Digital Equipment Corp.
Until December 31, 1998, we had paid AltaVista a service fee under the
Procurement and Trafficking Agreement, which was calculated as a percentage of
the revenues earned from
52
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
advertisers for the delivery of advertisements to users of the AltaVista Web
site. Under that agreement, we recognized as revenues the gross amount earned
for advertising delivered to users of the AltaVista Web site. Gross amounts
billed by us, including amounts billed on behalf of AltaVista, are referred to
as 'system revenues,' and are presented solely to facilitate the comparison of
our 1998 and 1999 results of operations.
Beginning January 1, 1999, AltaVista agreed, pursuant to the Advertising
Services Agreement, to use our DART technology for ad delivery, and to outsource
domestic, international and local ad sales functions to us. For these services,
AltaVista pays us (1) a technology fee for all advertising delivered by our DART
technology to users of the AltaVista Web site, (2) a sales commission based on
the net revenues generated from all advertisements sold by DoubleClick on behalf
of AltaVista and (3) a fee for all billing and collections services we perform
for AltaVista. Under the new agreement, we recognize DART service fees, sales
commissions and billing and collection fees as revenues derived from the sale
and delivery of impressions on the AltaVista Web site and associated services.
As a result of this change in our relationship with AltaVista, although there
has been no significant change in gross profit dollars, overall gross margin
percentage has increased as we are no longer required to pay service fees to
AltaVista for impressions sold and delivered on the AltaVista Web site and
revenues include the fees earned for services rendered.
The Advertising Services Agreement expires on December 31, 2001, subject to
prior termination in limited circumstances or further extension in accordance
with the terms of the AltaVista Advertising Services Agreement. In November
1999, we entered into an Interim Advertising Services Agreement, effective from
November 1, 1999 through December 31, 2000 with AltaVista, which temporarily
suspends the Advertising Services Agreement. The Interim Services Agreement
temporarily adjusts some advertising sales arrangements between us and
AltaVista, but does not change the manner in which we recognize revenues derived
from our services for the AltaVista Web site. In January 2001, upon the
expiration of the Interim Services Agreement, the Advertising Services Agreement
will once again be effective.
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site represented 10.8%, 26.9% and 20.2% of DoubleClick's revenues
for the period ended December 31, 1999, 1998 and 1997, respectively. No other
Web site on the networks was responsible for 10% or more of DoubleClick's total
revenues during the periods presented in the consolidated statements of
operations. No single customer accounted for more than 10% of DoubleClick's net
revenues for the years ended December 31, 1999, 1998, and 1997 or accounts
receivable at December 31, 1999 and 1998.
DoubleClick's financial instruments consist of cash and cash equivalents,
investments in marketable securities, accounts receivable, accounts payable,
accrued expenses and convertible subordinated notes. At December 31, 1999 and
1998 the fair value of these instruments approximated their financial statement
carrying amount with the exception of the Convertible Notes at December 31,
1999. The fair value of the Convertible Subordinated Notes was $764.8 million at
December 31, 1999, calculated based on the continuous time version of the
Black-Scholes Option Pricing Model.
INCOME TAXES
DoubleClick uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and to operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or
53
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, realization is not assured.
FOREIGN CURRENCY
The functional currencies of DoubleClick's subsidiaries are the local
currencies. The financial statements maintained in the local currency are
translated to United States dollars using period-end rates of exchange for
assets and liabilities and average rates during the period for revenues, cost of
revenues and expenses. Translation gains and losses are accumulated as a
component of stockholders' equity. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not significant during the periods presented.
EQUITY BASED COMPENSATION
DoubleClick accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees', and related interpretations. As such, compensation
expense related to employee stock options is recorded over the vesting period
only if, on the date of grant, the fair value of the underlying stock exceeds
the exercise price. DoubleClick adopted the disclosure-only requirements of
Statement of Financial Accounting Standard ('SFAS') No. 123 'Accounting for
Stock-Based Compensation', which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
grants made as if the fair value based method of accounting in SFAS No. 123 had
been applied to these transactions.
IMPAIRMENT OF LONG-LIVED ASSETS
DoubleClick reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by its disposition or use. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock outstanding, including the
number of common shares issued upon the conversion of Convertible Preferred
Stock, as of the date of the conversion.
Diluted net loss per share is based on the potential dilution that would
occur on exercise or conversion of securities into common stock. At December 31,
1999, 1998 and 1997, outstanding options of 12.8 million, 10.5 million and 7.7
million, respectively, with weighted average per share exercise prices of
$15.25, $2.82 and $1.40, respectively, to purchase shares of common stock were
not included in the computation of diluted net loss per share because to do so
would have had an antidilutive effect for the periods presented. Similarly, the
computation of diluted net loss per share for 1999 excludes the effect of shares
issuable upon the conversion of $250 million 4.75% Convertible Subordinated
Notes due 2006, and for 1998 and 1997, 40,000 shares of Convertible Preferred
Stock, since their inclusion would have had an antidilutive effect. The 4.75%
54
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Convertible Subordinated Notes initially may be converted into an aggregate of
6,060,604 shares of DoubleClick common stock. As a result, the basic and diluted
net loss per share amounts are equal for all periods presented.
CLARIFICATION OF PREVIOUSLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 100, 'Restructuring and Impairment Charges.' In
December 1999, the SEC issued SAB No. 101, 'Revenue Recognition in Financial
Statements.' SAB No. 100 expresses the views of the SEC staff regarding the
accounting for and disclosure of certain expenses not commonly reported in
connection with exit activities and business combinations. This includes the
accrual of exit and employee termination costs and the recognition of impairment
charges. SAB No. 101 expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues.
DoubleClick has concluded that these SABs do not have a material impact on its
financial position or its results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.
NOTE 2 -- BUSINESS COMBINATIONS
NetGravity, Inc.
On October 26, 1999, DoubleClick consummated its merger with NetGravity, a
leading provider of interactive online advertising and direct marketing software
solutions. Under the terms of the merger, which has been accounted for under the
pooling of interests method, each share of NetGravity common stock was converted
to 0.28 shares of DoubleClick common stock, totaling approximately 10.2 million
shares.
Abacus Direct Corporation
On November 23, 1999, DoubleClick consummated its merger with Abacus, a
leading provider of specialized consumer information and analysis for the direct
marketing industry. Under the terms of the merger, which has been accounted for
under the pooling of interests method, each share of Abacus common stock was
converted to 1.05 shares of DoubleClick common stock, totaling approximately
21 million shares.
Opt-In EMail.com
On November 30, 1999, DoubleClick consummated its merger with Opt-In, a
leader in Internet email marketing, publishing and list management. Under the
terms of the merger, which
55
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
has been accounted for under the pooling of interests method, 200,000 shares of
DoubleClick common stock were issued in exchange for 100% of the outstanding
common shares of Opt-In.
Results of operations of pooling transactions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue
NetGravity........................................ $16,979 $ 11,557 $ 6,358
Abacus............................................ 48,987 46,979 30,971
Opt-In............................................ 611 -- --
Net Income (loss)
NetGravity........................................ (7,393) (11,293) (6,882)
Abacus............................................ 11,558 11,426 7,497
Opt-In............................................ 69 -- --
</TABLE>
DoubleClick Scandinavia AB
On December 29, 1999, DoubleClick acquired the 90.7% of the outstanding
shares of DoubleClick Scandinavia AB it did not previously own in a business
combination accounted for using the purchase method. In the transaction, the
shares of DoubleClick Scandinavia AB not owned by DoubleClick were exchanged for
an aggregate of approximately 862,000 shares of DoubleClick common stock.
DoubleClick acquired the outstanding shares of DoubleClick Scandinavia AB in
exchange for DoubleClick common stock valued at $87.9 million, assumed a working
capital deficiency of $3.1 million, and incurred costs of $1.4 million. In
connection with the acquisition, DoubleClick recorded approximately
$92.4 million of goodwill that is being amortized on a straight-line basis over
three years. Additional shares of common stock are contingently issuable in
March 2001 and 2002. The maximum value of the contingently issuable shares is
approximately $60.0 million. DoubleClick expects that a portion of the purchase
price attributable to the contingently issuable shares will be recorded as stock
based compensation. The results of operations are included in the consolidated
statement of operations from December 29, 1999.
DoubleClick Iberoamerica S.L.
On November 4, 1999, DoubleClick acquired the 90% of the outstanding shares
of DoubleClick Iberoamerica it did not previously own in exchange for cash of
$1.3 million, assumed a working capital deficiency of $800,000 and incurred
costs of $400,000. The acquisition has been accounted for under the purchase
method, whereby goodwill of approximately $2.5 million will be amortized on the
straight-line basis over three years. The results of operations are included in
the consolidated statement of operations from November 4, 1999.
56
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The following unaudited pro forma results of operations have been prepared
assuming that the acquisitions of DoubleClick Scandinavia AB and DoubleClick
Iberoamerica S.L. occurred at the beginning of the respective periods presented.
The pro forma financial information is not necessarily indicative of the
combined results that would have occurred, nor is it necessarily indicative of
the results that may occur in the future.
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.................................................... $270,601 $142,513
Goodwill amortization....................................... 31,633 31,633
Net loss.................................................... $(88,967) $(51,144)
Net loss per basic and diluted share........................ (0.81) (0.59)
</TABLE>
NOTE 3 -- DIRECT TRANSACTION, INTEGRATION AND FACILITY RELOCATION CHARGES
For the year ended December 31, 1999, DoubleClick incurred direct
transaction and integration costs of approximately $31.1 million and $7.6
million, respectively, in connection with the transactions accounted for under
the pooling of interests method. Direct transaction costs consist of
approximately $26.1 million in investment banking fees and $5.0 million in
professional fees and filing and printing costs. Integration costs include
approximately $3.9 million in personnel related costs and $3.7 million in costs
related to redundant systems, integration consulting, and asset impairments.
For the year ended December 31, 1999, DoubleClick incurred approximately
$2.9 million in costs associated with the relocation of its corporate
headquarters. As a result of DoubleClick's planned relocation, completed in
December 1999, DoubleClick incurred a non-recurring charge for the impairment of
fixed assets of approximately $1.4 million on assets with a carrying value of
$2.1 million (primarily leasehold improvements). These assets were abandoned and
not relocated to DoubleClick's new headquarters building. DoubleClick's
management made an assessment of the carrying value of the assets disposed of
and determined that their carrying value was in excess of their estimated fair
value. The estimated fair value of the assets was determined based on an
estimate of the recoverability of the assets carrying amount over their
remaining useful life to the abandonment date using their initial cost recovery
rate. Depreciation and amortization of $729,000 associated with asset
impairments is presented outside of direct transaction, integration and facility
relocation charges in the consolidated statements of operations. In addition,
duplicative equipment and rental costs of approximately $1.5 million were
incurred.
NOTE 4 -- INVESTMENTS
During the year ended December 31, 1998, DoubleClick purchased a 10%
interest in DoubleClick Italy s.r.l. During 1997, DoubleClick purchased a 10%
voting interest in DoubleClick Japan Inc. DoubleClick has the option to purchase
an additional 12% voting interest in DoubleClick Japan Inc. for the then current
value as defined. These business partners were formed to establish international
networks for publishers in Italy and Japan, respectively, to provide
comprehensive Internet advertising solutions for advertisers.
DoubleClick has a 50% ownership interest in Abacus Direct Europe B.V., which
was formed in 1998 to provide services to the European Community. The investment
is accounted for under the equity method. DoubleClick contributed approximately
$435,000 and $54,000 during the years ended December 31, 1999 and 1998,
respectively and recorded losses related to the investment of $783,000 and
$53,000, respectively, included in interest and other, net on the consolidated
statements of operations.
57
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
DoubleClick also entered into agreements to provide its business partners
with use of DoubleClick's trademarks and the right to access DoubleClick's
proprietary technology and certain personnel during the term of the agreements,
which range from two to four years. For the years ended December 31, 1998 and
1997 DoubleClick received approximately $1,025,000 and $700,000, respectively
from its business partners. No such fees were received in 1999. These amounts
are presented in the consolidated balance sheet in deferred revenue. DoubleClick
has agreed to provide the business partners with any product enhancements and
upgrades it develops, technical support, and maintenance. Further, DoubleClick
and the business partners have agreed to certain arrangements whereby each party
shall be paid a commission for the sale of advertising impressions to be
delivered on the other parties' networks.
NOTE 5 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED USEFUL -----------------
LIFE 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment and purchased software................ 1-3 years $55,590 $23,931
Furniture and fixtures................................... 5 years 5,570 2,035
Leasehold improvements................................... 1-15 years 18,696 3,835
Capital work-in-progress................................. -- 696
------- -------
79,856 30,497
Less accumulated depreciation and amortization........... (17,876) (8,795)
------- -------
$61,980 $21,702
------- -------
------- -------
</TABLE>
Depreciation and amortization expense related to property and equipment was
approximately $12.9 million, $4.8 million, and $2.0 million in 1999, 1998, and
1997, respectively.
NOTE 6 -- INCOME TAXES
The federal and state and local provision for income taxes relates to the
standalone results of Abacus. Subsequent to November 23, 1999, the effective
date of the merger with Abacus, the provision for income taxes is based on the
taxable income or loss of the combined companies.
Loss before income taxes consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S......................................................... $(41,796) $ (4,585) $(2,794)
Foreign..................................................... (5,438) (6,388) (638)
-------- -------- -------
$(47,234) $(10,973) $(3,432)
-------- -------- -------
-------- -------- -------
</TABLE>
58
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax provision:
Federal................................................. $6,261 $6,204 $3,998
State and local......................................... 1,248 1,185 501
Foreign................................................. 281 -- --
------ ------ ------
Total current tax provision................................. 7,790 7,389 4,499
------ ------ ------
------ ------ ------
Deferred tax provision (benefit):
Federal................................................. 717 (276) (186)
State and local......................................... 80 (47) (4)
Foreign................................................. -- -- --
------ ------ ------
Total deferred tax provision (benefit)...................... 797 (323) (190)
------ ------ ------
$8,587 $7,066 $4,309
------ ------ ------
------ ------ ------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. Federal income tax rate......................... $(16,532) $(3,840) $(1,201)
State taxes, net of federal income tax effect............... 63 (1,035) (719)
Nondeductible transaction costs............................. 10,331 -- --
Nondeductible compensation.................................. 1,607 616 40
Change in valuation allowance............................... 13,325 11,755 5,610
Other....................................................... (207) (430) 579
-------- ------- -------
Income tax provision........................................ $ 8,587 $ 7,066 $ 4,309
-------- ------- -------
-------- ------- -------
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and advertiser
discounts............................................. $ 4,619 $ 1,896
Property and equipment.................................. 1,568 429
Accrued expenses and other.............................. 1,002 324
Net operating loss carryforwards........................ 53,476 16,913
Tax credit carryforwards................................ 1,354 944
-------- --------
Total deferred tax assets................................... 62,019 20,506
Valuation allowance......................................... (62,019) (19,709)
-------- --------
Net deferred tax assets..................................... $ -- $ 797
-------- --------
-------- --------
</TABLE>
The Company has recorded a full valuation allowance against its net deferred
tax assets for the year ended December 31, 1999 since management believes that
after considering all the available objective evidence, both positive and
negative, historical and prospective, with greater weight given to historical
evidence, it is not more likely than not that these assets will be realized. The
current portion of the deferred tax asset of $727,000 as of December 31, 1998 is
included in
59
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
prepaid and other current assets the consolidated balance sheet. The non-current
portion of $70,000 is included in other assets.
At December 31, 1999, the Company had approximately $137.2 million of
federal, state and foreign net operating loss carryforwards available to offset
future taxable income. Approximately $73.1 million of these net operating loss
carryforwards relate to the exercise of employee stock options and any tax
benefit derived therefrom, when realized, will be accounted for as a credit to
additional paid-in capital rather than a reduction to the income tax provision.
In addition, the Company had $1.4 million of research tax credit carryforwards.
The federal net operating loss and research tax credit carryforwards expire in
various years beginning in 2012 through 2020. The utilization of a portion of
the net operating loss and research tax credit carryforwards may be subject to
limitations under U.S. federal income tax laws.
NOTE 7 -- CONVERTIBLE SUBORDINATED NOTES
On March 17, 1999, DoubleClick issued 4.75% Convertible Subordinated Notes
due 2006 with a principal amount of $250 million (the 'Convertible Notes'). The
Convertible Notes are convertible into DoubleClick's common stock at a
conversion price of $41.25 per share, subject to adjustment in certain events
and at the holders' option. Interest on the Convertible Notes is payable
semiannually in arrears on March 15 and September 15 of each year, which
commenced on September 15, 1999. The Convertible Notes are unsecured and are
subordinated to all existing and future Senior Indebtedness (as defined in
Convertible Notes indenture) of DoubleClick. If certain events occur (as
described in the Convertible Notes indenture), the Convertible Notes may be
redeemed at the option of DoubleClick, in whole or in part, beginning on March
20, 2001 at the redemption prices set forth in the Convertible Notes indenture.
In May 1999, DoubleClick filed a shelf registration statement covering resales
of the Convertible Notes and the common stock issuable upon conversion of the
Convertible Notes. This registration statement was declared effective in August
1999.
Upon occurrence of a Designated Event (as defined in the Convertible Notes
indenture) prior to the maturity of the Convertible Notes, each holder of the
Convertible Notes has the right to require DoubleClick to redeem all or any part
of the holder's Convertible Notes at a price equal to 100% of the principal
amount, plus any accrued interest, of the Convertible Notes being redeemed.
DoubleClick has used or may use the net proceeds from the offering of the
Convertible Notes for general corporate purposes, including working capital to
fund anticipated operating losses, the expansion of DoubleClick's product
offerings, investments in new business products, technologies and markets,
capital expenditures, and acquisitions or investments in complementary
businesses, products and technologies.
DoubleClick incurred approximately $5.3 million in issuance costs, which are
included in other assets in the consolidated balance sheets, net of
approximately $525,000 of accumulated amortization. The issuance costs are being
amortized over the term of the Convertible Notes. Interest expense relating to
the Convertible Notes was approximately $9.3 million for the year ended December
31, 1999.
NOTE 8 -- STOCKHOLDERS' EQUITY
DoubleClick's Certificate of Incorporation, as initially filed, authorized
40,000,000 shares of $.001 par value common stock designated as Class A, B, C,
or common stock. The rights and privileges of DoubleClick's four classes of
common stock were generally similar, although Class C common stockholders had
certain super-voting privileges, and Class B shares are non-voting. In
60
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
February 1998, DoubleClick's Certificate of Incorporation was amended to
authorize 5,000,000 shares of preferred stock and increase the number of shares
of common stock to 60,000,000. In June 1999, it was amended to increase the
number of shares of authorized common stock to 400,000,000 shares.
During 1997 and 1998, DoubleClick authorized and issued 1,928,600 and
406,280 shares, respectively, of Convertible Preferred Stock. Upon the closing
of DoubleClick's public offerings in 1998, all issued and outstanding shares of
DoubleClick's Convertible Preferred Stock converted into 28,420,936 shares of
common stock. As of December 31, 1999, 5,000,000 shares of preferred stock are
authorized, none of which are outstanding.
In 1998, DoubleClick completed public offerings of 29,369,040 shares of
common stock generating proceeds of $182.0 million, net of offering costs of
$3.1 million. In 1999, DoubleClick completed public offerings of 2,145,046
shares of common stock generating proceeds of $113.1 million, net of offering
costs of $860,000.
Certain holders of common stock are subject to substantial restrictions on
transfer and also have certain 'piggyback' and demand registration rights which,
with certain exceptions, require DoubleClick to use its best efforts to include
in any of DoubleClick's registration statements any shares requested to be so
included. Further, DoubleClick will pay all expenses directly incurred on its
behalf in connection with such registration.
STOCK SPLITS
On December 15, 1997, DoubleClick's stockholders ratified a one-for-two
reverse stock split of all issued and outstanding common stock of DoubleClick.
In April 1999 and January 2000, DoubleClick effected two-for-one stock
splits in the form of 100 percent stock dividends. The splits were approved for
shareholders of record as of March 22, 1999 and December 31, 1999, respectively.
Accordingly, all share and per share amounts affecting net loss per share,
weighted average number of common stock outstanding, common stock issued and
outstanding, additional paid-in capital and all other stock transactions
presented in these consolidated financial statements and related notes have been
restated to reflect the stock splits.
STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan (the '1997 Plan') was adopted by the Board of
Directors on November 7, 1997 and was subsequently approved by the stockholders.
Under the 1997 Plan, 30,348,152 shares of common stock are reserved for the
issuance of incentive and nonqualified stock options. Such share reserve
consists of (i) the number of shares which were available for issuance under the
Predecessor Plan on the Plan Effective Date including the shares subject to
outstanding options, (ii) an additional 6,200,000 shares of common stock,
(iii) an additional 2,348,152 share increase effected on January 4, 1999, and
(iv) the 16,000,000 share increase approved by the stockholders at the 1999
Annual Stockholders Meeting. The number of shares of common stock reserved for
issuance under the 1997 Plan automatically increases on the first trading day of
each calendar year, beginning with the 1999 calendar year, by an amount equal to
three percent (3%) of the total number of shares of common stock outstanding on
the last trading day of the immediately preceding calendar year, provided that,
no such increase will exceed 2,400,000 shares.
When an employee option holder leaves DoubleClick's service, shares
underlying unvested option are returned to the reserve of common stock issuable
under the 1997 Plan on the employee's date of termination, and shares that are
subject to a vested option are returned to the reserve issuable under the 1997
Plan generally at the end of the three-month period following the
61
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
employee's date of termination, to the extent not exercised and issued before
the end of that period. To the extent that an option grant permits the exercise
of unvested shares and is subject to repurchase by DoubleClick upon an
employee's termination of service, those unvested shares of common stock that
are subsequently repurchased by DoubleClick, whether at the exercise price or
direct issue paid per share, will be added to the reserve of common stock
available for issuance under the 1997 Plan. In no event, however, may any one
participant in the 1997 Plan receive option grants or direct stock issuances for
more than 1,500,000 shares of common stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
On the Plan Effective Date, all outstanding options under the Predecessor
Plan were incorporated into the 1997 Plan, and no further option grants have
been made under the Predecessor Plan. The incorporated options will continue to
be governed by their existing terms, unless the 1997 Plan Administrator elects
to extend one or more features of the 1997 Plan to those options. The options
have substantially the same terms as are in effect for grants made under the
1997 Plan.
Generally, options granted under the Plan vest ratably over a period of
three to four years from the date of grant and expire 10 years from the date of
grant and terminate, to the extent unvested, on the date of termination, and to
the extent vested, generally at the end of the three-month period following the
termination of employment.
In October 1999, DoubleClick implemented the 1999 Non-Officer Stock
Incentive Plan, pursuant to which 750,000 shares of Common Stock have been
authorized for issuance.
A summary of stock option activity for the three years ended December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED
NUMBER OF AVERAGE EXERCISE
OPTIONS PRICE
----------- ----------------
<S> <C> <C>
Balance at December 31, 1996................................ 7,300,612 $ 0.82
Options granted............................................. 5,945,676 2.72
Options exercised........................................... (1,162,602) 3.80
Options canceled............................................ (992,241) 0.40
---------- ------
Balance at December 31, 1997................................ 11,091,445 1.66
Options granted............................................. 5,142,436 8.96
Options exercised........................................... (1,835,774) 1.60
Options canceled............................................ (927,550) 3.25
---------- ------
Balance at December 31, 1998................................ 13,470,557 4.45
Options granted............................................. 13,355,844 59.70
Options exercised........................................... (2,530,380) 2.84
Options canceled............................................ (1,185,450) 15.70
---------- ------
Balance at December 31, 1999................................ 23,110,571 $35.95
---------- ------
---------- ------
Exercisable at December 31, 1999............................ 6,073,326 $11.30
---------- ------
---------- ------
Available for future grants................................. 3,983,912
----------
----------
</TABLE>
During the years ended December 31, 1998 and 1997, deferred compensation of
$1.4 million and $3.3 million was recorded for options granted of which
$2,175,000, $2,006,000 and $605,000 was amortized to compensation expense in
1999, 1998 and 1997, respectively. The remaining deferred compensation will be
amortized over the balance of the four-year vesting period of the stock options.
All stock options granted in 1999 were granted with exercise prices at fair
market value.
62
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Had DoubleClick determined compensation expense of employee stock options
based on the minimum value of the stock options at the grant date, consistent
with the guidelines of SFAS 123, DoubleClick's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss:
As reported................................................. $ (55,821) $(18,039) $(7,741)
Pro forma per SFAS 123...................................... (116,537) (25,672) (9,936)
Net loss per share:
As reported................................................. $ (0.51) $ (0.21) $ (0.16)
Pro forma per SFAS 123...................................... (1.06) (0.30) (0.20)
</TABLE>
The per share weighted average fair value of options granted for the years
ended December 31, 1999, 1998 and 1997 was $38.44, $5.63, and $1.58
respectively, on the grant date with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield..................................... 0% 0% 0%
Risk-free interest rate..................................... 5.42% 5.17% 6.05%
Expected life............................................... 4 years 4.2 years 4.2 years
Volatility.................................................. 90% 84% 13%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING REMAINING AVERAGE NUMBER WEIGHTED
ACTUAL RANGE OF AT CONTRACTUAL EXERCISE EXERCISABLE AVERAGE
EXERCISE PRICES 12/31/99 LIFE PRICE AT 12/31/99 EXERCISE PRICE
--------------- -------- ---- ----- ----------- --------------
<S> <C> <C> <C> <C> <C>
.03 - 1.75.................... 5,053,273 6.66 0.25 3,189,571 0.19
2.00 - 8.91.................... 3,025,774 8.05 4.34 696,973 3.74
9.00 - 13.21.................... 2,615,640 8.39 11.50 770,047 11.94
14.73 - 50.00.................... 3,968,078 8.75 32.41 756,735 23.57
50.94 - 124.56.................... 8,447,806 9.23 77.90 660,000 58.15
</TABLE>
NOTE 9 -- ADDITIONAL FINANCIAL INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest:................................... $5,852 $ 156 $ 435
Cash paid for income taxes:............................... $7,807 $6,155 $1,893
</TABLE>
Non-cash investing activities: During the years ended December 31, 1999 and
1998, DoubleClick incurred approximately $230,000 and $340,000, respectively
under capital leases.
Non-cash financing activities: On June 4, 1997, DoubleClick converted $5.0
million of advances from the related party into a $5.0 million convertible note.
On December 30, 1997, the convertible note was converted into 3,117,208 shares
of DoubleClick's common stock.
63
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The following summarizes the components of interest and other, net:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.......................................... $(22,550) $(4,348) $(859)
Interest expense......................................... 9,422 219 452
Equity investment losses................................. 783 56 --
Other.................................................... 864 79 11
-------- ------- -----
$(11,481) $(3,994) $(396)
-------- ------- -----
-------- ------- -----
</TABLE>
NOTE 10 -- BENEFIT PLAN
DoubleClick has a defined contribution plan offered to all eligible
employees and is qualified under section 401(k) of the Internal Revenue Code.
Participating employees may contribute a percentage of their salary to the plan.
Employee contributions are invested at the direction of the employee in one or
more funds or DoubleClick common stock. Beginning February 2000, DoubleClick
will partially match employee contributions in DoubleClick common stock; prior
to which the matching was in cash. DoubleClick contributed $435,000, $216,000
and $163,000 to the Plan during the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
(a) LEASES
DoubleClick leases facilities under operating lease agreements expiring
through 2009. Future minimum lease payments under these leases are as follows:
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
------------------------- --------------
<S> <C>
2000.......................................... $ 12,023
2001.......................................... 12,092
2002.......................................... 11,542
2003.......................................... 12,723
2004.......................................... 15,089
Thereafter.................................... 134,569
</TABLE>
Rent expense for 1999, 1998 and 1997 was $8.5 million, $3.1 million, and
$1.3 million respectively.
(b) LEGAL
Various legal actions, proceedings and claims are pending, seeking damages
of an indeterminable amount, against DoubleClick alleging that DoubleClick has
unlawfully obtained and sold consumers' personal information. DoubleClick
intends to vigorously contest these claims.
There have been a number of political, legislative, regulatory, and other
developments relating to online data collection that have received wide-spread
media attention. These developments may negatively affect the outcomes of
related legal actions and encourage the commencement of additional similar
litigation. The Federal Trade Commission has notified DoubleClick that it is
commencing an inquiry into DoubleClick's ad serving and data collection
practices. DoubleClick is complying with Federal Trade Commission's request for
additional information. In addition, we are also cooperating with the New York
State Attorney General's office in connection with its request for information
from us about our business, and the press has reported that the Michigan
Attorney General intends to file a notice of intended action to file a suit
against us under Michigan's consumer laws. We may receive additional
regulatory inquiries and intend to cooperate fully. It is impossible to predict
the outcome of such events on pending litigation or the results of the
litigation itself, all of which may have a material adverse effect on
DoubleClick's business, financial condition and results of operations.
64
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Determinations of liability against other companies that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
legal proceedings against DoubleClick and its affiliates and could encourage an
increase in the number of such claims.
DoubleClick believes that, notwithstanding the quality of defenses
available, it is possible that the financial condition and results of operations
could be materially adversely affected by the ultimate outcome of the pending
litigation. As of December 31, 1999, no provision has been made for any damages
which may result upon the resolution of these uncertainties.
NOTE 12 -- SEGMENT REPORTING
Effective December 31, 1998 DoubleClick adopted SFAS No. 131, 'Disclosures
about Segments of an Enterprise and Related Information.' SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
DoubleClick is organized in three segments: Media, Technology, and Data
based on types of service provided. DoubleClick Media is represented by the
worldwide DoubleClick Networks, which provide fully outsourced and highly
effective advertising sales, delivery and related services to a worldwide group
of advertisers and publishers. DoubleClick TechSolutions consists of the DART-
based service bureau offering, the AdServer family of software products and
DARTmail for Advertisers service bureau offering. DoubleClick Data services
includes Abacus Direct and Abacus Online divisions, currently consisting of a
proprietary database of consumer buying behavior used for target marketing
purposes.
Revenues and gross profit by segment are as follows:
<TABLE>
<CAPTION>
REVENUES GROSS PROFIT
----------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Media.......................... $125,499 $ 74,180 $29,924 $ 49,955 $15,726 $ 7,047
Technology(a).................. 74,695 24,965 9,823 50,082 16,827 6,708
Data........................... 65,961 46,979 30,971 51,101 36,980 24,430
Intersegment elimination....... (7,861) (7,400) (2,792) -- -- --
-------- -------- ------- -------- ------- -------
Total.......................... $258,294 $138,724 $67,926 $151,138 $69,533 $38,185
-------- -------- ------- -------- ------- -------
-------- -------- ------- -------- ------- -------
</TABLE>
- ---------
(a) Included in Technology revenues are intersegment revenues of $7.9 million,
$7.4 million, and $2.8 million in 1999, 1998, and 1997, respectively.
The following represents revenues and long-lived asset information by
geographic area as of and for the years ended December 31:
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
----------------------------- ------------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States........................... $206,071 $123,958 $66,294 $ 65,280 $23,703
International........................... 52,223 14,766 1,632 96,058 657
-------- -------- ------- -------- -------
Total................................... $258,294 $138,724 $67,926 $161,338 $24,360
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
</TABLE>
NOTE 13 -- SUBSEQUENT EVENT
On January 11, 2000, DoubleClick acquired a 30% interest in ValueClick, Inc.
and a warrant to purchase an additional 15% interest within 15 months of the
date of the agreement for approximately 733,000 shares in common stock, with a
value of $75.7 million and $10 million in cash.
65
<PAGE>
SCHEDULE II
DOUBLECLICK INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C>
1999:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $2,580 $10,698 $ (6,644) $ 6,634
Allowances for advertiser
discounts........................ 2,514 9,830 (3,974) 8,370
------ ------- -------- -------
Total.......................... $5,094 $20,528 $(10,618) $15,004
------ ------- -------- -------
------ ------- -------- -------
1998:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $1,722 $ 5,097 $ (4,239) $ 2,580
Allowances for advertiser
discounts........................ 580 4,534 (2,600) 2,514
------ ------- -------- -------
Total.......................... $2,302 $ 9,631 $ (6,839) $ 5,094
------ ------- -------- -------
------ ------- -------- -------
1997:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $ 694 $ 2,966 $ (1,938) $ 1,722
Allowances for advertiser
discounts........................ -- 812 (232) 580
------ ------- -------- -------
Total.......................... $ 694 $ 3,778 $ (2,170) $ 2,302
------ ------- -------- -------
------ ------- -------- -------
</TABLE>
66
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 1999 by: (1) each person (or
group of affiliated persons) who is known by us to beneficially own five percent
or more of our common stock, (2) each of our directors and named executive
officers, and (3) all of our directors and executive officers as a group. All
persons listed have sole voting and investment power with respect to their
shares and can be reached at our headquarters located at 450 West 33rd Street,
New York, New York 10001 unless otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
OWNED(1) OWNERSHIP
------------ -----------
Principal Stockholders:
<S> <C> <C>
Kevin J. O'Connor(2)........................................ 9,964,750 8.9%
Kevin P. Ryan(3)............................................ 240,000 *
Dwight A. Merriman(4)....................................... 4,533,384 4.0
Jeffrey E. Epstein(5)....................................... 115,000 *
Stephen R. Collins(6)....................................... 35,000 *
Wenda Harris Millard(7)..................................... 131,600 *
Barry M. Salzman(8)......................................... 130,500 *
Christopher M. Dice(9)...................................... 77,698 *
David Rosenblatt(10)........................................ 35,000 *
David N. Strohm(11)......................................... 118,376 *
Mark E. Nunnelly(12)........................................ 161,396 *
W. Grant Gregory(13)........................................ 256,664 *
Donald Peppers(14).......................................... 50,910 *
Thomas S. Murphy(15)........................................ 25,000 *
M. Anthony White(16)........................................ 1,498,642 1.3
Janus Capital Corporation(17)............................... 7,109,016 6.3
FMR Corp.(18)............................................... 6,846,000 6.1
All directors and executive officers as a group (16
persons)(19).............................................. 17,444,920 15.5
</TABLE>
- ---------
* Less than one percent.
(footnotes on next page)
67
<PAGE>
(footnotes from previous page)
(1) Gives effect to the shares of common stock issuable within 60 days of
December 31, 1999 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect
to shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned. Shares of our common stock beneficially owned before
and after the offering are calculated based on 112,453,892 shares of our
common stock outstanding as of December 31, 1999 and 118,187,303 shares of
our common stock outstanding after this offering.
(2) Includes (i) 1,266,160 shares of common stock issuable upon the exercise of
stock options; (ii) 7,840 shares of common stock held by Nancy O'Connor,
Mr. O'Connor's wife; (iii) 200,000 shares of common stock held by the
KN Trust, of which Nancy O'Connor is a trustee; (iv) 96,618 shares of
common stock held by The Kono 1999 Charitable Remainder Trust, of which Mr.
O'Connor and his wife are the beneficiaries, but Mr. O'Connor's brother,
who does not live with Mr. O'Connor, is the trustee; and (v) 96,618 shares
of common stock held by the Kono 1999 NIM-Charitable Remainder Unitrust, of
which Mr. O'Connor and his wife are the beneficiaries. Mr. O'Connor's
brother, who does not live with Mr. O'Connor, is the trustee. Mr. O'Connor
has not retained investment control over the shares held by the Kono 1999
trusts, and, therefore, Mr. O'Connor disclaims all beneficial ownership of
these shares. Does not include 1,200,000 shares of common stock issuable
upon exercise of stock options that do not vest within 60 days of
December 31, 1999.
(3) Includes 227,000 shares of common stock issuable upon the exercise of stock
options. Does not include 2,020,000 shares of common stock issuable upon
the exercise of stock options that do not vest within 60 days of
December 31, 1999.
(4) Includes 568,400 shares of common stock issuable upon the exercise of stock
options. Does not include 600,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(5) Includes 115,000 shares of common stock issuable upon the exercise of stock
options. Does not include 310,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(6) Includes 35,000 shares of common stock issuable upon the exercise of stock
options. Does not include 380,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(7) Includes 131,600 shares of common stock issuable upon the exercise of stock
options. Does not include 475,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(8) Includes 107,000 shares of common stock issuable upon the exercise of stock
options. Does not include 387,500 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(9) Includes 77,698 shares of common stock issuable upon the exercise of stock
options. Does not include 433,097 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(10) Includes 35,000 shares of common stock issuable upon the exercise of stock
options. Does not include 388,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(11) Includes 20,000 shares of common stock issuable upon the exercise of stock
options and 180,000 shares held by the Strohm/Reavis Living Trust for which
Mr. Strohm is trustee. Does
(footnotes continued on next page)
68
<PAGE>
(footnotes continued from previous page)
not include 20,000 shares of common stock issuable upon the exercise of
stock options that do not vest within 60 days of December 31 1999.
(12) Does not include 20,000 shares of common stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1999.
(13) Includes 20,000 shares of common stock issuable upon the exercise of stock
options. Does not include 20,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(14) Includes 45,000 shares of common stock issuable upon the exercise of stock
options. Does not include 50,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(15) Includes 25,000 shares of common stock issuable upon the exercise of stock
options. Does not include 95,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(16) Includes 538,892 shares of common stock issuable upon the exercise of stock
options.
(17) Includes 96,970 shares of common stock issuable upon conversion of
convertible bonds. Janus Capital is a registered investment adviser which
furnishes investment advice to several investment companies registered
under Section 8 of the Investment Company Act of 1940 and individual and
institutional clients (collectively referred to herein as 'Managed
Portfolios'). As a result of its role as investment adviser or sub-adviser
to the Managed Portfolios, Janus Capital may be deemed to be the beneficial
owner of the shares of DoubleClick common stock held by the Managed
Portfolios. However, Janus Capital does not have the right to receive any
dividends from, or the proceeds from the sale of, the securities held in
the Managed Portfolios and disclaims any ownership associated with such
rights. The address of Janus Capital is 100 Fillmore Street, Denver,
Colorado 80206.
(18) Fidelity Management & Research Company ('Fidelity'), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp., 82
Devonshire Street, Boston, Massachusetts 02109, and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, is the
beneficial owner of 6,686,300 shares of the common stock
outstanding of DoubleClick, Inc. ('the Company') as a result of acting as
investment adviser to various investment companies registered under Section
8 of the Investment Company Act of 1940. Edward C. Johnson 3d, FMR Corp.,
through its control of Fidelity, and the funds each has sole power to
dispose of the 6,686,300 shares owned by the Funds. Neither FMR Corp. nor
Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or
direct the voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds' Boards of Trustees. Fidelity carries out the
voting of the shares under written guidelines established by the Funds'
Boards of Trustees. Fidelity Management Trust Company, 82 Devonshire
Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp.
and a bank as defined in Section 3(a) (6) of the Securities Exchange Act of
1934, is the beneficial owner of 101,960 shares of the common
stock outstanding of the Company as a result of its serving as investment
manager of the institutional account(s). Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, each has
sole dispositive power over 101,960 shares and sole power to vote or to
direct the voting of 51,560 shares, and no power to vote or to direct the
voting of 50,400 shares of common stock owned by the institutional
account(s) as reported above. Strategic Advisers, Inc., 82 Devonshire
Street, Boston, MA 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, provides investment advisory services to individuals. It does
not have sole power to vote or direct the voting of shares of certain
securities held for clients and has sole dispositive power over such
securities. As such, FMR Corp.'s beneficial
(footnotes continued on next page)
69
<PAGE>
(footnotes continued from previous page)
ownership may include shares beneficially owned through Strategic Advisers,
Inc. Members of the Edward C. Johnson 3d family are the predominant owners
of Class B shares of common stock of FMR Corp., representing approximately
49% of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
Johnson owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P. Johnson is a
Director of FMR Corp. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting common stock
and the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp. Fidelity International
Limited, Pembroke Hall, 42 Crowlane, Hamilton, Bermuda, and various
foreign-based subsidiaries provide investment advisory and management
services to a number of non-U.S. investment companies
and certain institutional investors. Fidelity International Limited
is the beneficial owner of 57,740 shares of the common stock
outstanding of the Company.
(19) Includes 6,000 shares of common stock held by Jonathan Shapiro and 65,000
shares of common stock issuable upon the exercise of stock options by Mr.
Shapiro. Does not include 250,000 shares of common stock issuable upon the
exercise of stock options by Mr. Shapiro that do not vest within 60 days of
December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DoubleClick Inc. has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on this 17th day of February, 2000.
DOUBLECLICK INC.
By: /S/ KEVIN J. O'CONNOR
..................................
KEVIN J. O'CONNOR
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 17, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<C> <S>
/S/ KEVIN J. O'CONNOR Chief Executive Officer and Chairman of the Board of
......................................... Directors (Principal Executive Officer)
KEVIN J. O'CONNOR
/S/ STEPHEN R. COLLINS Chief Financial Officer (Principal Financial Officer and
......................................... Principal Accounting Officer)
STEPHEN R. COLLINS
/S/ DWIGHT A. MERRIMAN Chief Technology Officer and Director
.........................................
DWIGHT A. MERRIMAN
/S/ DAVID N. STROHM Director
.........................................
DAVID N. STROHM
/S/ MARK E. NUNNELLY Director
.........................................
MARK E. NUNNELLY
/S/ W. GRANT GREGORY Director
.........................................
W. GRANT GREGORY
Director
.........................................
DONALD PEPPERS
/S/ THOMAS S. MURPHY Director
.........................................
THOMAS S. MURPHY
/S/ M. ANTHONY WHITE Director
.........................................
M. ANTHONY WHITE
</TABLE>
73
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.1 -- Agreement and Plan of Merger and Reorganization dated as
of June 13, 1999, by and among Registant, Atlanta Merger
Corp. and Abacus Direct Corporation (Incorporated by
reference to Exhibit 2.1 of Registrant's Current Report on
Form 8-K dated June 17, 1999).
2.2 -- Agreement and Plan of Merger and Reorganization, dated as
of July 12, 1999, among Registrant, NJ Merger Corporation
and NetGravity, Inc. (Incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K
dated July 22, 1999.
2.3 -- Agreement for the Sale and Purchase of Shares, dated as
of December 17, 1999, between Registrant and the Sellers
listed on Appendix 1 thereto (Incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K
dated January 12, 2000).
3.1 -- Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1
(Registration number 333-67459)).
3.1(a) -- Certificate of Correction of Amended and Restated
Certificate of Incorporation.
3.2 -- Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.5 of the Registrant's Registration Statement on
Form S-1 ('Registration Statement No. 333-42323')).
4.1 -- Specimen common stock certificate. (Incorporated by
reference to Registration Statement No. 333-42323).
4.2 -- Indenture, dated as of March 22, 1999, between Registrant
and the Bank of New York, as trustee, including the form
of 4.75% Convertible Subordinated Notes due 2006 attached
as Exhibit A thereto (Incorporated by reference to
Exhibit 6.1 of DoubleClick's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999).
4.3 -- Registration Agreement, dated as of March 22, 1999, by
and among Registrant and the Initial Purchasers
(Incorporated by reference to Exhibit 6.2 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
10.1 -- 1996 Stock Option Plan (Incorporated by reference to
Exhibit 10.1 of Registration Statement No. 333-42323).
10.2 -- 1997 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.2 of Registration Statement No. 333-42323).
10.3 -- DoubleClick Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.1 of DoubleClick's Registration
Statement on Form S-4 (Registration number 333-89435)).
10.4 -- Stockholders Agreement, dated as of June 4, 1997
(Incorporated by reference to Exhibit 10.4 of Registration
Statement No. 333-42323).
10.5 -- Sublease dated August 1996, between Martin, Marshall,
Jaccoma & Mitchell Advertising, Inc. and the Registrant
(Incorporated by reference to Exhibit 10.5 of Registration
Statement No. 333-42323).
10.6 -- Lease dated July 1997, between Investment Properties
Associates and the Registrant (Incorporated by reference
to Exhibit 10.6 of Registration Statement No. 333-42323).
10.7 -- Agreement of Lease, dated as of January 26, 1999, between
John Hancock Mutual Life Insurance Company, as Owner and
Landlord, and DoubleClick, as Tenant (Incorporated by
reference to Exhibit 10.2 of Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999).
10.8 -- Lease, dated August 5, 1998, by and between Norfolk
Atrium, as Landlord, and NetGravity, Inc., for
NetGravity's headquarters in San Mateo, CA.
10.9 -- Lease, dated May 22, 1998, between Western States
Ventures, LLC and Abacus Direct Corporation, for office
space in Broomfield, CO.
10.10'D' -- Procurement and Trafficking Agreement, dated December
1996, by and between Registrant and Digital Equipment
Corporation (Incorporated by reference to Exhibit 10.7 of
Registration Statement No. 333-42323).
10.11'D' -- Amendment No. 1 to Procurement and Trafficking Agreement,
dated January 1998, by and between Registrant and Digital
Equipment Corporation (Incorporated by reference to
Exhibit 10.8 of Registration Statement No. 333-42323).
10.12'DD' -- Advertising Services Agreement, effective as of
January 1, 1999, by and between Registrant and Compaq
Computer Corporation (Incorporated by reference to
Exhibit 99.1 of Registrant's Current Report on Form 8-K
dated January 20, 1999).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.13'DD' -- Interim Amended and Restated Advertising Services
Agreement, effective as of November 1, 1999, by and
between Registrant, AltaVista Company (as successor to
Compaq Computer Corporation) and AV Internet Solutions
Ltd. (Incorporated by reference to Exhibit 99.1 of
Registrant's Current Report on Form 8-K dated November 1,
1999).
10.14 -- Form of Employment Agreement between Registrant and
Christopher M. Dice.
11.1 -- Statement re: Computation of Per Share Earnings.
12.1 -- Statement re: Computation of Rations.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of KPMG LLP.
27.1 -- Financial Data Schedule. (Incorporated by reference to
Exhibit 27.1 of Registrant's Registration Statement on
Form S-3 (Registration number 333-96133)).
99.1 -- NetGravity, Inc. 1998 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 99.1 of Registrant's
Registration Statement on Form S-8 (Registration number
333-95105).
</TABLE>
- ---------
'D' Confidential treatment granted for certain portions of this Exhibit
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
'DD' Confidential treatment granted for certain portions of this Exhibit
pursuant to the rules and regulations of the Securities Exchange Act of
1934, as amended.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'
The dagger symbol shall be expressed as................................ 'D'
The double dagger symbol shall be expressed as........................ 'DD'
CERTIFICATE OF CORRECTION OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DOUBLECLICK INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is DoubleClick Inc.
2. The Amended and Restated Certificate of Incorporation of the
Corporation, which was filed by the Secretary of State of Delaware on
February 23, 1998, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
The words "below five (5) or above fifteen (15)" are being added in the
first sentence of Article V, Section A after the words "the number of directors"
and before "unless at least 66.67%." These words were omitted as a result of a
typographical error. The added words correct the unintended ambiguity as to the
requirements for increasing and decreasing the number of directors.
4. The portion of the instrument in corrected form is as follows:
Article V
A. Number. The number of directors of the Corporation shall be such number,
not less than five (5) nor more than fifteen (15) (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be set forth from time to time in the bylaws,
provided that no action shall be taken to decrease or increase the number of
directors below five (5) or above fifteen (15) unless at least 66.67% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose approve
such decrease or increase. Vacancies in the Board of Directors of the
Corporation, however caused, and newly created directorships shall be filled by
a vote of a majority of the directors then in office, whether or not a quorum,
and any director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which the director has
been chosen expires and when the director's successor is elected and qualified.
Dated: December 21, 1999
/s/ Stephen R. Collins
-------------------------------
Name: Stephen R. Collins
Title: CFO, Secretary & Treasurer
<PAGE>
EXHIBIT 10.8
THE ATRIUM
OFFICE LEASE
by and between
NORFOLK ATRIUM,
a California limited partnership,
as Lessor
and
NETGRAVITY, INC.,
a Delaware corporation,
as Lessee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. SUMMARY OF LEASE PROVISIONS ................................... 1
2. PREMISES DEMISED .............................................. 2
3. TERM .......................................................... 2
4. POSSESSION..................................................... 4
5. RENT .......................................................... 4
6. SECURITY DEPOSIT............................................... 5
7. PERIODIC COST OF LIVING, PROJECT TAXES AND OPERATING EXPENSE
ADJUSTMENTS.................................................... 6
8. USE............................................................ 11
9. COMPLIANCE WITH LAWS........................................... 12
10. ALTERATIONS AND ADDITIONS...................................... 13
11. REPAIRS........................................................ 14
12. LIENS.......................................................... 14
13. ASSIGNMENT AND SUBLETTING...................................... 15
14. HOLD HARMLESS.................................................. 17
15. SUBROGATION.................................................... 17
16. LESSEE'S INSURANCE............................................. 18
17. SERVICES AND UTILITIES......................................... 18
18. RULES AND REGULATIONS.......................................... 19
19. HOLDING OVER................................................... 20
20. ENTRY BY LESSOR................................................ 20
21. RECONSTRUCTION................................................. 20
22. DEFAULT........................................................ 21
23. REMEDIES UPON DEFAULT.......................................... 22
24. EMINENT DOMAIN................................................. 23
25. OFFSET STATEMENT; MODIFICATIONS FOR LENDER..................... 23
26. PARKING........................................................ 23
27. AUTHORITY ..................................................... 24
28. SURRENDER OF PREMISES.......................................... 24
29. LESSOR DEFAULT AND MORTGAGEE PROTECTION........................ 25
30. RIGHTS RESERVED BY LESSOR...................................... 25
31. EXHIBITS....................................................... 25
32. WAIVER......................................................... 25
33. NOTICES........................................................ 25
34. JOINT OBLIGATIONS.............................................. 26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
35. MARGINAL HEADINGS ............................................. 26
36. TIME........................................................... 26
37. SUCCESSORS AND ASSIGNS......................................... 26
38. RECORDATION.................................................... 26
39. QUIET POSSESSION .............................................. 26
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST..................... 26
41. PRIOR AGREEMENTS............................................... 26
42. INABILITY TO PERFORM........................................... 26
43. ATTORNEYS' FEES ............................................... 27
44. SALE OF PREMISES BY LESSOR..................................... 27
45. SUBORDINATION/ATTORNMENT....................................... 27
46. NAME........................................................... 27
47. SEVERABILITY................................................... 27
48. CUMULATIVE REMEDIES............................................ 27
49. CHOICE OF LAW.................................................. 27
50. SIGNS.......................................................... 27
51. GENDER AND NUMBER.............................................. 28
52. CONSENTS....................................................... 28
53. BROKERS ....................................................... 28
54. SUBSURFACE AND AIRSPACE ....................................... 28
55. COMMON AREA.................................................... 28
56. LABOR DISPUTES................................................. 28
57. REASONABLENESS................................................. 29
58. LESSEE'S FINANCIAL STATEMENTS.................................. 29
59. LESSOR NOT A TRUSTEE........................................... 29
60. MERGER......................................................... 29
61. NO PARTNERSHIP OR JOINT VENTURE................................ 29
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS................... 29
63. PLANS.......................................................... 29
64. RIGHT OF FIRST OPPORTUNITY..................................... 29
65. WAIVER OF JURY................................................. 30
66. JOINT PARTICIPATION............................................ 30
67. COUNTERPARTS................................................... 30
</TABLE>
<PAGE>
THE ATRIUM
OFFICE LEASE
For and in consideration of rentals, covenants, and conditions hereinafter
set forth, Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the herein described Premises for the term, at the rental rate
specified herein and subject to and upon all of the terms, covenants and
agreements set forth in this lease ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
a. LESSEE: NETGRAVITY, INC., a Delaware corporation ("Lessee").
b. LESSOR: NORFOLK ATRIUM, a California limited partnership ("Lessor").
c. DATE OF LEASE (FOR REFERENCE PURPOSES ONLY): August 5, 1998.
d. PREMISES: That certain office space commonly known as 1900 South
Norfolk Street, Suite 150, San Mateo, California, and shown cross-hatched
on the reduced floor plan attached hereto as Exhibit "A," consisting of
approximately twenty-six thousand five hundred two (26,502) square feet
of Rentable Area ("the Premises"). (ARTICLE 2)
e. TERM: Eighty-four (84) months. (ARTICLE 3)
f. COMMENCEMENT DATE: As defined in Exhibit "C" attached hereto. (ARTICLE 3)
g. LEASE TERMINATION: The date which is eighty-four (84) months following
the Commencement Date ("Expiration Date"), unless sooner terminated
pursuant to the terms of this Lease. (ARTICLE 3)
h. BASE RENT: Eighty-Six Thousand Six Hundred Sixty-One and 54/100ths
Dollars ($86,661.54) per month (based upon Three and 27/100ths Dollars
($3.27) per month per square foot of Rentable Area in the Premises);
subject to increase on each anniversary of the Commencement Date
occurring during the Term, including, without limitation, during the
Extended Term, if applicable (except on the commencement of such
Extended Term, when Base Rent shall be adjusted in accordance with
Article 3.b. below), to equal one hundred three percent (103%) of the
monthly Base Rent in effect immediately prior to such adjustment date.
(ARTICLE 5)
i. SECURITY DEPOSIT: See Article 6. (ARTICLE 6)
j. LESSEE'S PERCENTAGE SHARE: Sixteen and 37/100ths percent (16.37%).
(ARTICLE 7)
k. BASE EXPENSES: Eight Dollars ($8.00) per square foot per year of
Rentable Area within the Building. (ARTICLE 7)
1. PARKING: Non-Exclusive right to use no more than three and one-half
(3.5) unreserved, uncovered spaces per each one thousand (1,000) square
feet of Rentable Area in the Premises (rounded to the nearest whole
number) without charge during the Term, subject to the provisions of
Article 26. (ARTICLE 26)
m. ADDRESSES FOR NOTICES:
Lessor: c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065-1517
Attn: Mr. Sanford Diller
Telephone No.: (650) 596-5300
Fax No.: (650) 596-5377
with a concurrent copy to:
c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065-1517
Attn: Ms. Vicki Mullins
Telephone No.: (650) 596-5300
Fax No.: (650) 596-5377
-1-
<PAGE>
and with a concurrent copy to the
Project Management Office at:
1900 South Norfolk Street, Suite 230
San Mateo, California 94403
Attn: Property Manager
Telephone No.: (650) 570-6619
Fax No.: (650) 570-4380
Lessee: Prior to Commencement Date: Following Commencement Date
NetGravity, Inc. NetGravity, Inc.
1700 South Amphlett Blvd., 1900 South Norfolk Street,
Suite 250 Suite 150
San Mateo, California 94402 San Mateo, California 94403
Attn: Chief Financial Officer Attn: Chief Financial Officer
Telephone No.: (650) 655-2586 Telephone No.: _______________
Fax No.: (650) 655-2259 Fax No.: _____________________
n. BROKERS: BT Commercial, as Lessor's broker, and The Staubach
Company, as Lessee's broker. (ARTICLE 53)
o. LESSEE IMPROVEMENT ALLOWANCE: Eight and 50/100ths Dollars ($8.50) per
square foot of Rentable Area in the Premises. (EXHIBIT "C")
p. SUMMARY PROVISIONS IN GENERAL. Parenthetical references in this
Article 1 to other articles in this Lease are for convenience of reference,
and designate some of the other Lease articles where applicable provisions
are set forth. All of the terms and conditions of each such referenced
article shall be construed to be incorporated within and made a part of each
of the above referred to Summary of Lease Provisions. If any conflict exists
between any Summary of Lease Provisions as set forth above and the balance of
the Lease, then the latter shall control.
2. PREMISES DEMISED. Lessor does hereby lease to Lessee and Lessee hereby
leases from Lessor the Premises described in Article 1.d., subject,
nevertheless, to all of the terms and conditions of this Lease.
Notwithstanding anything to the contrary contained in this Lease, the
Premises shall be deemed for all purposes of this Lease to contain the amount
of Rentable Area specified in Article 1.d. above, notwithstanding any
deviation in actual Rentable Area of the Premises from such amount.
Calculation of the actual "Rentable Area" of the Building and Project shall
be performed by Lessor's architect in accordance with Building measurement
standards, which calculation shall be conclusive and binding upon Lessor and
Lessee. The Premises is approximately as shown as cross-hatched on the floor
plan(s) attached hereto as Exhibit "A". As used in this Lease, the term
"Building" shall mean the building at the address listed in Article 1.d.
above in which the Premises is located. The Building is situated upon the
parcel(s) of land shown on Exhibit "B" attached hereto (collectively, the
"Parcel"). The Building and the "Exterior Common Area" (as defined in Article
55 below) and all other improvements as now or hereafter located on the
Parcel, if any, are herein sometimes referred to collectively as the
"Project".
3. TERM; OPTION TO EXTEND.
a. TERM. The term of this Lease shall be for the period designated
in Article 1.e., commencing on the Commencement Date and ending on the
Expiration Date set forth in Article 1.g., unless sooner terminated pursuant
to this Lease ("Term"). The expiration or sooner termination of the Lease is
hereinafter referred to as "Lease Termination".
b. OPTION TO EXTEND. Lessee shall have the option to extend the Term
for a period of sixty (60) months immediately following the expiration of the
initial Term (the "Extended Term"), on all provisions contained in this Lease
(subject to adjustment of Base Rent upon the commencement of the Extended
Term as described below, and except for such terms and conditions of this
Lease as are specifically or by their operation limited to the initial Term
only (including, without limitation, Exhibit "C" attached hereto and
provisions respecting construction of Lessee Improvements and payment of a
Lessee Improvement Allowance) and except that Lessee shall have no further
right or option to extend the term upon the expiration of the Extended Term),
by giving notice of exercise of the option (the "Option Notice") to Lessor at
least twelve (12) months but not more than eighteen (18) months before the
expiration of the then applicable Term.
Lessor's ability to plan for the orderly transaction of its rental
business, to accommodate the needs of other existing and potential tenants,
and to enjoy the benefits of increasing rentals at such times as Lessor is
able to do so in its sole and absolute discretion, are fundamental elements
of Lessor's willingness to provide Lessee with the option to extend contained
herein. Accordingly, Lessee hereby acknowledges that strict compliance with
the notification provisions contained herein, and Lessee's strict compliance
with the time period for such notification contained herein, are material
elements of the bargained for exchange between Lessor and Lessee and are
material elements of Lessee's consideration paid to Lessor in exchange for
the grant of the option. Therefore, Lessee's failure to adhere strictly and
completely to the provisions and time frame contained in this provision shall
render the option automatically null, void and of no further force or effect,
without notice, acknowledgement, or any action of any nature or sort,
required of Lessor. Lessee acknowledges that no other act or notice, other
than the express written notice set forth hereinabove, shall act to put
Lessor on notice of Lessee's intent to extend, and Lessee hereby waives any
claims to the contrary, notwithstanding any other actions of Lessee during
the Term of this Lease or any statements, written or oral, of Lessee to
Lessor to the contrary during the Term of this Lease. Notwithstanding the
-2-
<PAGE>
foregoing, if Lessee is in default (after the expiration of any applicable
period for cure pursuant to Article 22 below) on the date of giving the
Option Notice, the Option Notice shall be totally ineffective, or if Lessee
is in default (after the expiration of any applicable period for cure
pursuant to Article 22 below) on the date the Extended Term is to commence,
in addition to any and all other remedies available to Lessor under this
Lease, at Lessor's election, the exercise of the option shall be deemed null
and void, the Extended Term shall not commence, and this Lease shall expire
at the end of the Term.
The option to extend granted pursuant hereto is personal to original
Lessee signatory to this Lease and cannot be assigned, transferred or
conveyed to, or exercised for the benefit of, any other person or entity
(voluntarily, involuntarily, by operation of law or otherwise) including,
without limitation, to any assignee or subtenant permitted under Article 13,
other than a "Permitted Transferee" (as defined in Article 13). All of
Lessee's rights under this Article 3.b. shall terminate upon the expiration
of the initial Term or sooner termination of this Lease.
The parties shall have thirty (30) days after Lessor receives the Option
Notice in which to agree upon the Base Rent to be payable during the Extended
Term. The Base Rent payable during the Extended Term shall be an amount
equal to the then current "Fair Market Rental Value" (defined below) of the
Premises at the time of commencement of the proposed Extended Term. However,
in no event shall the Base Rent during the Extended Term be less than the
Base Rent payable at the expiration of the initial Term. The term "Fair
Market Rental Value" of the Premises as used in this Lease shall mean the
then prevailing fair market rent for the Premises as of the commencement of
the Extended Term. In determining such rate, the parties may consider
non-sublease lease renewal transactions for first class office space
comparable in size and quality to the Premises, if any, located in the San
Mateo/Foster City area and located in the Building and other buildings
comparable in size and quality to the Building in which the Premises is
located, and taking into consideration all other factors normally considered
when determining fair market rental value (including, without limitation, the
duration of the Extended Term), provided that the parties shall not consider
the then value of any alterations or improvements to the Premises made by
Lessee at Lessee's cost.
Upon determination of the Fair Market Rental Value for the Premises, the
parties shall immediately execute an amendment to this Lease stating the Base
Rent to be paid during the Extended Term. In the event Lessee has retained
the services of a real estate broker to represent Lessee during the
negotiations in connection with the Extended Term, it is expressly understood
that Lessor shall have no obligation for the payment of all or any part of a
real estate commission or other brokerage fee to Lessee's real estate broker
in connection with the Extended Term. Lessee shall be solely responsible for
payment of fees for services rendered to Lessee by such broker in connection
with the Extended Term.
If the parties are unable to agree, in their sole and absolute
discretion, on the Fair Market Rental Value for the Premises within such
thirty (30) day period, then the Fair Market Rental Value for the Extended
Term shall be determined as follows:
a. Following the expiration of such thirty (30) day period, Lessor
and Lessee shall meet and endeavor in good faith to agree upon a licensed
commercial real estate agent with at least seven (7) years full-time
experience as a real estate agent active in leasing of commercial office
buildings in the area of the Premises to appraise and set the Fair Market
Rental Value for the Extended Term. If Lessor and Lessee fail to reach
agreement upon such agent within fifteen (15) days following the expiration
of such thirty (30) day period, then, within fifteen (15) days thereafter,
each party, at its own cost and by giving notice to the other party, shall
appoint a licensed commercial real estate agent with at least seven (7) years
full-time experience as a real estate agent active in leasing of commercial
office buildings in the area of the Premises to appraise and set the Fair
Market Rental Value for the Extended Term. If a party does not appoint an
agent within fifteen (15) days after the other party has given notice of the
name of its agent, the single agent appointed shall be the sole agent and
shall set the Fair Market Rental Value for the Extended Term. If there are
two (2) agents appointed by the parties as stated above, the agents shall
meet within ten (10) days after the second agent has been appointed and
attempt to set Fair Market Rental Value for the Extended Term. If the two
(2) agents are unable to agree on such Fair Market Rental Value within
fifteen (15) days after the second agent has been appointed, they shall,
within fifteen (15) days after the last day the two (2) agents were to have
set such Fair Market Rental Value, attempt to select a third agent who shall
be a licensed commercial real estate agent meeting the qualifications stated
above. If the two (2) agents are unable to agree on the third agent within
such fifteen (15) day period, either Lessor or Lessee may request the
President of the local chapter of the Society of Industrial and Office
Realtors (SIOR) or a then equivalent organization if SIOR is not then in
existence to select a third agent meeting the qualifications stated in this
subsection. Each of the parties shall bear one-half (1/2) of the cost of
appointing the third agent and of paying the third agent's fee. No agent
shall be employed by, or otherwise be engaged in business with or affiliated
with, Lessor or Lessee, except as an independent contractor.
b. Within fifteen (15) days after the selection of the third agent, a
majority of the agents shall set the Fair Market Rental Value for the
Extended Term. If a majority of the agents are unable to set such Fair Market
Rental Value within the stipulated period of time, each agent shall make a
separate determination of such Fair Market Rental Value and the three (3)
appraisals shall be added together and the total shall be divided by three
(3). The resulting quotient shall be the Fair Market Rental Value for the
Premises for the Extended Term. If, however, the low appraisal and/or high
appraisal is/are more than twenty percent (20%) lower and/or higher than the
middle appraisal, the low appraisal and/or the high appraisal shall be
disregarded. If only one (1) appraisal is disregarded, the remaining two (2)
appraisals shall be added together and their total divided by two (2), and
the resulting quotient shall be Fair Market Rental Value for the Extended
Term. If both the low appraisal and the high appraisal are disregarded as
stated in this subsection, the middle appraisal shall be the Fair Market
Rental Value for the Extended Term.
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c. Each agent shall hear, receive and consider such information as
Lessor and Lessee each care to present regarding the determination of Fair
Market Rental Value for the Extended Term and each agent shall have access to
the information used by each other agent. Upon determination of the Fair
Market Rental Value for the Extended Term, the agents shall immediately
notify the parties hereto in writing of such determination by certified mail,
return receipt requested. Notwithstanding anything to the contrary contained
herein, in the event the Fair Market Rental Value is determined by appraisal
by licensed commercial real estate agent(s) as provided herein, Lessee shall
have the right to rescind its exercise of the option to extend the Term by
the Extended Term by written notice delivered to Lessor within fifteen (15)
days following Lessee's receipt of notice of such determination, in the event
of which rescission, notwithstanding anything to the contrary contained in
the foregoing, (i) Lessee shall be solely responsible for all costs of such
appraisal process (including, without limitation, fees and costs of all real
estate agents in such appraisal process), and (ii) Lessee shall have no
further right or option to extend the Lease Term and the Lease Term shall
expire at the end of the initial eighty-four (84) month Term.
4. POSSESSION.
a. CONSTRUCTION OF IMPROVEMENTS/DELAY IN POSSESSION. Lessor and
Lessee agree to the provisions set forth in the work letter attached hereto
as Exhibit "C" ("Work Letter"), if any. Lessee agrees that its construction
within the Premises of the improvements described in the Work Letter (the
"Lessee Improvements") shall be upon and subject to the provisions thereof.
The parties acknowledge that the Premises is presently vacant and available
for occupancy by Lessee and, accordingly, agree that Lessor shall have
delivered possession of the Premises to Lessee upon the execution of this
Lease by Lessee and Lessor. However, if for any reason whatsoever, Lessor
cannot deliver possession of the Premises to Lessee by such date, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any
loss or damage resulting therefrom.
b. EARLY POSSESSION. Notwithstanding that Lessee shall occupy the
Premises prior to the Lease Commencement Date for purposes of construction of
the Lessee Improvements, this Lease shall be fully effective from and after
the date of the execution of this Lease by Lessee and Lessor. Lessee's
occupancy of the Premises following the delivery of possession of the
Premises to Lessee by Lessor and prior to the Commencement Date shall be
subject to all terms and conditions of this Lease other than Lessee's
obligation for payment of monthly Base Rent and Excess Expenses.
c. CERTIFICATES AND LICENSES. Prior to occupancy, Lessee shall provide
to Lessor the certificate(s) of insurance required by Article 16 and a copy of
all licenses and authorizations that may be required for the lawful operation
of Lessee's business upon the Premises, including any City business licenses
as may be required.
d. CONDITION OF PREMISES ON DELIVERY. Lessee acknowledges that except
as specifically otherwise provided in this Lease, (i) the lease of the
Premises by Lessee pursuant hereto shall be on in its present "AS IS"
condition, in the broadest sense of that term, with all faults, if any, (ii)
neither Lessor nor any employee, representative or agent of Lessor has made
any representation or warranty, express or implied, with respect to the
Premises or any other portion of the Project, and (iii) Lessor shall have no
obligation to improve or alter the Premises or Project for the benefit of
Lessee. Without regard to Lessee's particular use of, or Alterations to, the
Premises, upon the delivery of possession of the Premises to Lessee shall be
in "broom clean" condition, free of debris, and the HVAC, electrical,
plumbing, lighting and integrated Building mechanical systems serving the
Premises shall be in good working condition. In the event it is established
within sixty (60) days following delivery of possession of the Premises that,
other than as a result of work necessitated by Lessee's particular use of, or
Lessee Improvements or Alterations to, the Premises, the HVAC, electrical,
plumbing, lighting and/or integrated Building mechanical systems serving the
Premises were not in good working condition as of the delivery of possession
of the Premises, Lessor shall promptly thereafter commence and diligently
prosecute to completion the work necessary to restore such systems to working
order (provided that Lessor shall not be responsible for any increased costs
of performance of such work resulting from Lessee's particular use (as
opposed to mere general office use) of, or Lessee Improvements or Alterations
to, the Premises). Without regard to Lessee's particular use of, or
Alterations (including, without limitation, the Lessee Improvements) to, the
Premises, to Lessor's actual knowledge, as of the delivery of possession, the
Premises shall comply with the all applicable laws (as enforced upon the
execution of this Lease; the parties hereby acknowledging that the foregoing
reference to "as enforced" shall be deemed to relate to changes in the manner
of interpretation and/or enforcement of the requirements of current laws as
opposed to a failure of governmental authorities to have identified
pre-existing non-compliance with applicable laws in effect upon the execution
of this Lease) other than any pre-existing non-compliance where compliance
work is not presently required to be performed (as opposed to pre-existing
non-compliance where compliance work is legally mandated even in the absence
of subsequent improvements, alterations or change in use). If it is
determined following the delivery of possession that upon the delivery of
possession the Premises was not in compliance with all applicable laws (as
enforced upon the execution of this Lease) where the correcting compliance
work was required to be performed as of the execution of this Lease (as
opposed to pre-existing non-compliance where compliance work was not legally
mandated in the absence of subsequent improvements, alterations or change in
use), then Lessor shall promptly thereafter commence and diligently prosecute
to completion, at Lessor's expense, the work necessary to cause such
compliance (provided that Lessor shall not be responsible for any increased
costs of causing such compliance resulting from Lessee's particular use (as
opposed to mere general office use) of, or Alterations (including, without
limitation, the Lessee Improvements) to, the Premises).
5. RENT. Lessee agrees to pay to Lessor as rental for the Premises, without
offset, deduction, prior notice or demand, the monthly Base Rent designated
in Article 1.h., as the same may be adjusted from time to time in accordance
therewith and (as to adjustment of Base Rent upon the commencement of the
Extended Term, if applicable), in accordance with Article 3.b. above. Base
Rent shall be payable monthly in advance on or before the first day of each
calendar month during the Term, except that Base Rent for the first full
calendar month during the
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Term shall be paid upon the execution of this Lease, and if the Commencement
Date is other than the first day of a calendar month, Base Rent for the
initial partial calendar month during the Term shall be prorated and paid
upon the Commencement Date. Base Rent for any period during the Term which
is for less than one (1) month shall be prorated based upon a thirty (30) day
month. Base Rent and all other amounts owing to Lessor pursuant to this
shall be paid to Lessor in lawful money of the United States of America which
shall be legal tender at the time of payment, at the office of the Project,
or to such other person or at such other place as Lessor may from time to
time designate in writing.
6. SECURITY DEPOSIT.
a. Concurrent with the execution of this Lease, Lessee has deposited
with Lessor an unconditional, irrevocable letter of credit (the "Letter of
Credit") in favor of Lessor in an amount equal to the "L C Amount" (as
hereinafter defined) in form and from an issuer reasonably acceptable to
Lessor, having an expiration date not sooner than one (1) year following the
date thereof, which Letter of Credit shall be renewed or replaced annually,
at least fifteen (15) days prior to the expiration date thereof for
additional one-year periods until the expiration of the Term, as security for
the full and faithful performance of every provision of this Lease to be
performed by Lessee (such Letter of Credit and/or any proceeds thereof are
collectively referred to herein as the "Security Deposit"). As used herein,
the "LC Amount" shall mean an amount equal to the sum of (i) the Lessee
Improvement Allowance plus (ii) all commissions payable by Lessor to the
Brokers referenced in Article I.n. above in connection with this Lease;
provided, however, that the LC Amount shall be reduced by twenty percent
(20%) of the original amount thereof on each anniversary of the Commencement
Date occurring during the Term, provided that in no event shall the LC Amount
be reduced below the amount of the last month's Base Rent payable under this
Lease. All costs of obtaining, maintaining, replacing, renewing and/or
restoring the Letter of Credit in accordance with this Article 6 shall be
born by Lessee. Such Letter of Credit shall be such that it may be drawn
upon in part or in full, periodically, or at one time, upon presentation of
only the Letter of Credit, a draft from Lessor in the amount to be drawn, and
certification from Lessor that Lessor is entitled to draw upon the Letter of
Credit pursuant to the provisions of this Lease. If Lessor shall at any time
draw upon such Letter of Credit in accordance with this Article 6, Lessee
shall immediately restore such Letter of Credit to the then applicable full
LC Amount. Lessee agrees that the Letter of Credit may be presented by
Lessor for payment (1) upon the occurrence of a default by Lessee under this
Lease (after Lessee's receipt of written notice thereof from Lessor and the
expiration of any applicable cure period provided in Article 22 below), (2)
in the event Lessee has not, within fifteen (15) days prior to the expiration
of the then term of the Letter of Credit, delivered to Lessor a renewed or
replacement Letter of Credit complying with all of the requirements of this
Lease, and/or (3) in the event Lessor draws upon the Letter of Credit in the
event of Lessee's default pursuant to clause (1) above, and Lessee does not,
within ten (10) days after written demand therefor, restore the Letter of
Credit to its original amount. Lessee shall not in any manner interfere with
the payment to Lessor of the proceeds of the Letter of Credit pursuant to
this case either prior to or following presentment by Lessor pursuant hereto,
and Lessee shall be liable to Lessor for any loss suffered by Lessor as a
result of such interference, including, without limitation, any attorneys'
fees and costs. Lessee hereby agrees that it may be enjoined from
interfering or attempting to interfere, directly or indirectly, with Lessor's
negotiation of the Letter of Credit. The proceeds of the Letter of Credit
paid to Lessor upon presentment thereof shall be the Security Deposit for use
in the manner set forth in this Article 6. Notwithstanding anything to the
contrary contained herein, Lessee may at any time replace the Letter of
Credit with a cash security deposit in the amount of the then applicable LC
Amount, in which event such cash shall be held as the Security Deposit in
accordance with this Lease and Lessor shall return to Lessee the Letter of
Credit then held by Lessor.
b. The Security Deposit shall be held by Lessor as security for the
faithful performance by Lessee of all of the terms, covenants, and conditions
of this Lease to be kept and performed by Lessee during the Term. If Lessee
defaults with respect to any provisions of this Lease, including but not
limited to the provisions relating to the payment of Rent, which default is
not cured within any applicable period for cure following Lessee's receipt of
written notice thereof from Lessor pursuant to this Lease, Lessor may (but
shall not be required to) use, apply or retain all or any part of the
Security Deposit for the payment of any Rent or any other sum in default, or
for the payment of any other amount which Lessor may spend or become
obligated to spend by reason of Lessee's default or to compensate Lessor for
any loss or damage which Lessor may suffer by reason of Lessee's default (at
Lessor's option, by application of any cash portion of the Security Deposit,
to the extent of funds available from prior drawing upon the Letter of Credit
or from funds deposited by Lessee as replacement for the Letter of Credit or
for prior drawing upon the Letter of Credit and/or by drawing upon the Letter
of Credit in accordance herewith). If any portion of the Security Deposit is
so used or applied, Lessee shall, within ten (10) days after demand therefor,
deposit cash with Lessor and/or deliver to Lessor a replacement Letter of
Credit in accordance herewith, as applicable, in an amount sufficient to
restore the Security Deposit to the then required LC Amount and Lessee's
failure to do so shall be a default under this Lease. Lessor shall not be
required to keep the Security Deposit separate from its general funds, and
Lessee shall not be entitled to interest on such Security Deposit. Provided
Lessee shall not be in default under this Lease within thirty (30) days
following the later to occur of (i) the expiration of the Term or sooner
termination of this Lease, or (ii) Lessee's vacating of the Premises, any
balance of the Security Deposit then remaining with Lessor (in cash and/or in
the form of the Letter of Credit) shall be returned to Lessee. The Letter of
Credit shall inure to the benefit of Lessor and its successors and assigns.
Should Lessor convey or assign its interest in the Premises during the Term
hereof and if Lessor deposits with the assignee the then unappropriated funds
deposited by Lessee as aforesaid and, to the extent not previously presented
for payment, assigns its interest in the Letter of Credit (Lessee hereby
agreeing that if Lessor is unable to transfer the Letter of Credit to a
successor or assign due to restrictions on transferability, Lessee shall
provide a replacement Letter of Credit meeting all of the requirements of
this Paragraph in favor of such successor or assign if necessary to permit
drawing upon such Letter of Credit by such successor or assign and Lessor
shall return the Letter of Credit to Lessee that is so replaced), thereupon
Lessor shall be discharged from any further liability with respect to such
Security Deposit and, if applicable, Letter of Credit.
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7. PROJECT TAXES AND OPERATING EXPENSE ADJUSTMENTS.
a. Intentionally omitted.
b. BUILDING TAXES AND BUILDING OPERATING EXPENSES. From and after
January 1, 1999, during the term of this Lease, Lessee shall pay to Lessor,
as additional rent and without deduction or offset, Lessee's percentage share
set forth in Article l.j. ("Lessee's Percentage Share") of the amount (if
any) by which the sum of annual "Building Taxes" and "Building Operating
Expenses" (as such terms are defined below) for each year during the Term
exceed the Base Expenses amount set forth in Article l.k. above (the amount
of such excess is referred to herein as the "Excess Expenses"); provided,
however, that notwithstanding anything to the contrary contained in the
following provisions, Lessee shall not be responsible for payment of Excess
Expenses with respect to the calendar year 1999 until the reconciliation of
actual Building Taxes and Building Operating Expenses for such year to the
Base Expenses amount, at which time Excess Expenses for the calendar year
1999 shall be due by lump sum payment from Lessee to Lessor within thirty
(30) days following Lessor's delivery to Lessee of "Lessor's Statement" (as
hereinafter defined) with respect to the calendar year 1999. Lessee's
Percentage Share shall be determined by dividing the Rentable Area of the
Premises by the total Rentable Area in the Building. Lessee's Percentage
Share shall be subject to an equitable adjustment upon a condemnation, sale
by Lessor of part of the Building, reconstruction after damage or destruction
or expansion or reduction of the areas within the Building. Lessee's
Percentage Share of Excess Expenses shall be payable during the Term in equal
monthly installments on the first day of each month in advance, without
deduction, offset or prior demand.
At any time during the Term after the expiration of the calendar year
1999, Lessor may give Lessee notice of Lessor's estimate of the Excess
Expenses for the current calendar year. An amount equal to one twelfth
(1/12) of Lessee's Percentage Share of the estimated Excess Expenses shall be
payable monthly by Lessee as aforesaid, commencing on the first day of the
calendar month following thirty (30) days written notice and continuing until
receipt of any notice of adjustment from Lessor given pursuant to this
paragraph. Until notice of the estimated Excess Expenses for a subsequent
calendar year is delivered to Lessee, Lessee shall continue to pay its
Percentage Share of Excess Expenses on the basis of the prior year's
estimate. Lessor may at any time during the Term adjust estimates of the
Excess Expenses to reflect current expenditures and following Lessor's
written notice to Lessee of such revised estimate, subsequent payments by
Lessee shall be based upon such revised estimate.
If the Commencement Date is on a date other than the first day of a
calendar year, the amount of the Excess Expenses payable by Lessee in such
calendar year shall be prorated based upon a fraction, the numerator of which
is the number of days from the Commencement Date to the end of the calendar
year in which the Commencement Date falls, and the denominator of which is
three hundred sixty (360).
Within one hundred twenty (120) days after the end of each calendar year
during the Term or as soon thereafter as practicable, Lessor will furnish to
Lessee a statement ("Lessor's Statement") setting forth in reasonable detail
the actual Building Taxes and Building Operating Expenses paid or incurred by
Lessor during the preceding year and the amount of the Excess Expenses (if
any), and thereupon within thirty (30) days an adjustment will be made by
Lessee's payment to Lessor or credit to Lessee by Lessor against the Excess
Expenses next becoming due from Lessee (or in the event the Lease has
terminated and Lessee has satisfied all remaining obligations under the
Lease, a reimbursement by Lessor to Lessee), as the case may require, to the
end that Lessor shall receive the entire amount of Lessee's Percentage Share
of Excess Expenses for such calendar year and no more. If, based on Lessor's
Statement a payment from Lessee is required, Lessee shall not have the right
to withhold or defer such payment pending a review of Lessor's books and
records pursuant to the following paragraph or the resolution of any dispute
relating to Excess Expenses. If the Expiration Date is on a day other than
the last day of a calendar year, the amount of Excess Expenses payable by
Lessee for the calendar year in which Lease Termination falls shall be
prorated on the basis which the number of days from the commencement of such
calendar year to and including such Expiration Date bears to three hundred
sixty (360). The termination of this Lease shall not affect the obligations
of Lessor and Lessee pursuant to this Article 7. In the event that the sum of
Building Taxes and Building Operating Expenses for any calendar year are less
than Base Expenses, Lessee shall not receive a credit against any Rent
payable hereunder as a result thereof.
Within sixty (60) days after Lessee receives a statement of actual
Building Taxes and Building Operating Expenses paid or incurred for a
calendar year, Lessee shall have the right, upon written demand and
reasonable notice, to inspect Lessor's books and records relating to the
Excess Expenses for the calendar year covered by Lessor's Statement for the
purpose of verifying the amount set forth in such statement. Such inspection
shall be made during Lessor's normal business hours, at the place where such
books and records are customarily maintained by Lessor. In no event may any
such inspection be performed by a person or entity being compensated on a
contingency fee basis or based upon a share of any refund obtained by Lessee.
Information obtained by such inspection shall be kept in the strictest
confidence by Lessee. Unless Lessee asserts in writing a specific error
within ninety (90) days following Lessee's receipt of Lessor's Statement, the
amounts set forth in Lessor's Statement shall be conclusively deemed correct
and binding on Lessee. Lessor shall refund to Lessee any overpayment of
Excess Expenses which is determined to have been made by Lessee. In addition,
if it is determined that Lessor has overstated the sum of actual Building
Taxes and Building Operating Expenses for a particular calendar year by more
than five percent (5%) and such overstatement results in Lessor owing a
reimbursement to Lessee of more than Five Hundred Dollars ($500.00), then
Lessor shall also reimburse Lessee's reasonable third-party out of pocket
expenses incurred in conducting such inspection), within thirty (30) days
following Lessee's submission to Lessor of reasonable evidence of such
expenses.
(i) OPERATING EXPENSES. As used in this Lease, "Building Operating
Expenses" means all of the Building Service Expenses and an allocable portion
of the Project Expenses as follows:
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(A) BUILDING SERVICE EXPENSES. Building Operating Expenses shall
include all costs of operation, maintenance, repair (which for purposes of
this Lease shall be deemed to include, without limitation, replacement as and
when deemed appropriate by Lessor) and management of the Building and
Building Common Area (defined in Article 55), hereinafter collectively
referred to as "Building Service Expenses," as determined by Lessor's
standard accounting practices. Building Service Expenses as used herein
shall include, but not be limited to, all sums expended in connection with
all general maintenance, repairs, painting, cleaning, sweeping and janitorial
services; maintenance and repair of signs, indoor plants, and atriums; trash
removal; sewage; electricity, gas, water and any other utilities (including
any temporary or permanent utility surcharge or other exaction whether now or
hereafter imposed); maintenance and repair of any fire protection systems,
elevator systems, lighting systems, storm drainage systems, heating,
ventilation and air conditioning systems and other utility and/or mechanical
systems; any governmental imposition or surcharge imposed upon Lessor with
respect to the Building or assessed against the Building; all costs and
expenses pertaining to a security alarm system or other security services or
measures for the Building, if Lessor deems necessary in Lessor's sole
business judgment; materials; supplies; tools; depreciation on maintenance
and operating machinery and equipment (if owned) and rental paid for such
machinery and equipment (if rented); service agreements on equipment;
maintenance, and repair of the roof (including repair of leaks and
resurfacing) and the exterior surfaces of all improvements (including
painting); maintenance and repair of structural parts (including repair of
leaks and resurfacing) and the exterior surfaces of all improvements
(including painting); maintenance and repair of structural parts (including
foundation, floor slabs and load bearing walls); window cleaning; elevator or
escalator services; materials handling; fees for licenses and permits
relating to the Building; the cost of complying with rules, regulations and
orders of governmental authorities; Building office rent or rental value;
accounting and legal fees; the cost of contesting the validity or
applicability of any governmental enactment which may affect Building
Service Expenses; personnel to implement such services (including, without
limitation, if Lessor deems necessary, the cost of security guards,
maintenance personnel, engineers and valet attendants); public liability,
environmental impairment, property damage and fire and extended coverage
insurance on the Building (in such amounts and providing such coverage as
determined in Lessor's sole discretion and which may include, without
limitation, liability, all risk property, lessor's risk liability, war risk,
vandalism, malicious mischief, boiler and machinery, rental income,
earthquake, flood and worker's compensation insurance); compensation and
fringe benefits payable to all persons employed by Lessor in connection with
the operation, maintenance, repair and management of the Building; and a
commercially reasonable management fee not to exceed five percent (5%) of
gross receipts from the Building (including, without limitation, all rentals
and parking receipts from Building tenants and/or visitors). Lessor may
cause any or all of said services to be provided by an independent contractor
or contractors, or they may be rendered by Lessor. It is the intent of the
parties hereto that Building Service Expenses shall include every cost paid
or incurred by Lessor in connection with the operation, maintenance, repair
and management of the Building, and the specific examples of Building Service
Expenses stated in this Article 7 are in no way intended to, and shall not,
limit the costs comprising Building Service Expenses, nor shall such examples
be deemed to obligate Lessor to incur such costs or to provide such services
or to take such actions, except as may be expressly required of Lessor in
other portions of this Lease, or except as Lessor, in its sole discretion,
may elect. The maintenance of the Building shall be at the sole discretion
of Lessor and all costs incurred by Lessor in good faith shall be deemed
conclusively binding on Lessee. If less than one hundred percent (100%) of
the Rentable Area of the Building is occupied during any calendar year, then
in calculating Building Service Expenses for such year, the components of
Building Service Expenses which vary based upon occupancy level shall be
adjusted to equal Lessor's reasonable estimate of the amount of such Building
Service Expenses had one hundred percent (100%) of the total Rentable Area of
the Building been occupied during such year. Notwithstanding anything to the
contrary contained in this Lease, in no event shall Building Service Expenses
include (1) any costs relating to the structural repairs to maintain the
structural integrity of the Building (including, without limitation, the
structural repairs to the structural elements of the exterior, walls, roof,
columns, footings and floor slab of the Building), (2) costs, including permit,
license and inspection costs, incurred with respect to the installation of
tenant improvements to other tenant's leased premises within the Building or
incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant leasable space within the Building, (3) costs in order to
market space to potential tenants, leasing commissions, and attorneys' fees in
connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments or other costs in
connection with lease, sublease and/or assignment negotiations with present
or prospective tenants or other occupants of the Building, (4) costs incurred
for restoration following condemnation to the extent reimbursed by
condemnation award or for repair of damage to the Building to the extent
reimbursed by insurance proceeds or to the extent the same would have been
reimbursed by insurance proceeds had Lessor maintained the insurance required
of Lessor under this Lease (provided that insurance deductibles and uninsured
casualty damage up to $50,000.00 per occurrence (or such higher amount, not
to exceed $100,000.00, as may be then commercially reasonable as an insurance
deductible for comparable buildings in the San Mateo/Foster City area) shall
be included in Building Service Expenses), (5) reserves for future expenses
beyond anticipated expenses for the current year, (6) ground lease rental on
any underlying ground lease or interest, principal, points and/or fees on
debts or amortization on any mortgage or mortgages or any other debt
instrument encumbering the Building, (7) to the extent any employee of Lessor
spends only a portion of his or her time working with respect to the Building
(as opposed to full time work with respect to the Building), a prorated
amount of such employee's wages, salaries and compensation based on the
portion of time spent by such employee with respect to the projects other
than the Building, (8) costs of correcting any presently existing
non-compliance of the Building with applicable laws (as enforced upon the
execution of this Lease; the parties hereby acknowledging that the foregoing
reference to "as enforced" shall be deemed to relate to changes in the manner
of interpretation and/or enforcement of the requirements of current laws as
opposed to a failure of governmental authorities to have identified
pre-existing non-compliance with applicable laws in effect upon the execution
of this Lease) other than any such existing non-compliance where compliance
work is not presently required to be performed (as opposed to existing
non-compliance where compliance work is legally mandated even in the absence
of subsequent improvements, alterations or change in use), (9) costs
resulting from the negligence or wilful misconduct of Lessor, any other
Building tenant or any of their respective agents, employees or contractors,
or (10) costs of the annual premium for earthquake insurance to the extent in
excess of two hundred percent (200%) of the costs of such annual premium for
earthquake insurance for the year including the Commencement Date. In
addition, (x) if any capital expenditure (as determined in accordance
accounting
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principles customarily applied in the real estate industry) otherwise
includable in Building Service Expenses costs more than Fifty Thousand
Dollars ($50,000.00), then such capital expenditure shall be amortized over
the useful life of the applicable item as reasonably determined by Lessor,
and Building Service Expenses shall not include the entire cost of such
expenditure as is so required to be amortized in the year incurred, but shall
include annual amortization of such expenditure during each year of such
useful life; and (y) if the aggregate amount of any capital expenditures (as
determined in accordance accounting principles customarily applied in the
real estate industry) otherwise includable in Building Service Expenses and
the Building's share of Project Expenses in any year and which are not
required to be amortized as provided in clause (x) above and/or in clause (x)
of subparagraph (B) below, exceeds One Hundred Thousand Dollars
($100,000.00), then the portion of such capital expenditures in excess of the
initial such One Hundred Thousand Dollars ($100,000.00) of such capital
expenditures shall be amortized over the respective useful lives of the
applicable capital expenditure items as reasonably determined by Lessor, and
Building Service Expenses or Project Expenses, as applicable, shall not
include the entire cost of such expenditures as are so required to be
amortized in the year incurred, but shall include annual amortization of such
expenditures during each year of their respective useful lives. There shall
be no duplication of items included in Building Service Expenses and Project
Expenses.
(B) PROJECT EXPENSES. Building Operating Expenses shall include
the Building's equitable share of all direct costs of operation, maintenance,
repair and management of the Project (as opposed to expenses relating solely to
the Building or any other particular building within the Project) and/or the
Exterior Common Area, determined by Lessor's standard accounting practices
(collectively, "Project Expenses"). Such costs shall be allocated by Lessor
between the Building containing the Premises and the other buildings containing
Rentable Area located within the Project from time to time, if any, in such
manner as Lessor reasonably determines in good faith. If the Building is the
only building within the Project containing Rentable Area, then the Building's
share of Project Expenses shall equal one hundred percent (100%). Project
Expenses as used herein shall include, but not be limited to, all sums expended
in connection with all general maintenance, repairs, resurfacing, painting,
restriping, cleaning, sweeping, and janitorial services; maintenance and repair
of sidewalks, curbs, signs and other Exterior Common Areas; maintenance and
repair of sprinkler systems, planting, and landscaping; trash removal; sewage;
electricity, gas, water and any other utilities (including any temporary or
permanent utility surcharge or other exaction whether now or hereafter
imposed); maintenance and repair of directional signs and other markers and
bumpers; maintenance and repair of any fire protection systems, elevator
systems, lighting systems, storm drainage systems and other utility systems;
any governmental imposition or surcharge imposed upon Lessor or assessed
against the Exterior Common Area or the Project; materials; supplies, tools;
depreciation on maintenance and operating machinery and equipment (if owned)
and rental paid for such machinery and equipment (if rented); service
agreements on equipment; maintenance and repair of parking areas and parking
structures, if any; maintenance and repair of structural parts (including
foundation and floor slabs); elevator services, if applicable; material
handling; fees for licenses and permits relating to the Exterior Common Area;
the cost of complying with rules, regulation and orders of governmental
authorities; accounting and legal fees; the cost of contesting the validity or
applicability of any governmental enactment which may affect Project Expenses;
personnel to implement such services, including if Lessor deems necessary, the
cost of security guards and valet attendants; all annual assessments and
special assessments levied or charged against the Project and/or Lessor
pertaining to the Project by any owner's association to which the Project is
subject and/or otherwise under any matters of record to which the Project is
subject; public liability, environmental impairments, property damage and fire
and extended coverage insurance on Exterior Common Area (in such amounts and
providing such coverage as determined in Lessor's sole discretion and which may
include, without limitation, liability, all risk property, lessor's risk
liability, war risk, vandalism, malicious mischief, sprinkler leakage, boiler
and machinery, parking income, earthquake, flood and worker's compensation
insurance); compensation and fringe benefits payable to all persons employed by
Lessor in connection with the operation, maintenance, repair and management of
the Exterior Common Area; and a commercially reasonable management fee not to
exceed five percent (5%) of gross receipts from the Project (exclusive of
amounts collected from tenants of any building within the Project under their
respective leases). Lessor may cause any or all of said services to be
provided by an independent contractor or contractors, or they may be rendered
by Lessor. It is the intent of the parties hereto that Project Expenses shall
include every cost paid or incurred by Lessor in connection with the operation,
maintenance, repair and management of the Exterior Common Area, and the
specific examples of Project Expenses stated in this Article 7 are in no way
intended to, and shall not limit the costs comprising Project Expenses, nor
shall such examples be deemed to obligate Lessor to incur such costs or to
provide such services or to take such actions except as Lessor may be expressly
required in other portions of this Lease, or except as Lessor, in its sole
discretion, may elect. The maintenance of the Exterior Common Areas shall be
at the sole discretion of Lessor and all costs incurred by Lessor in good faith
shall be deemed conclusively binding on Lessee. If less than one hundred
percent (100%) of the Rentable Area of the Project is occupied during any
calendar year, then in calculating Project Expenses for such year, the
components of Project Expenses which vary based upon occupancy level shall be
adjusted to equal Lessor's reasonable estimate of the amount of such Project
Expenses had one hundred percent (100%) of the total Rentable Area of the
Project been occupied during such year. Notwithstanding anything to the
contrary contained in this lease, in no event shall Project Expenses include
(1) any costs relating to the structural repairs to maintain the structural
integrity of the Project, (2) costs, including permit, license and inspection
costs, incurred with respect to the installation of tenant improvements to
other tenant's leased premises within the Project or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant leasable space
within the Project, (3) costs in order to market space to potential tenants,
leasing commissions, and attorneys' fees in connection with the negotiation and
preparation of letters, deal memos, letters of intent, leases, subleases and/or
assignments or other costs in connection with lease, sublease and/or assignment
negotiations with present or prospective tenants or other occupants of the
Project, (4) costs incurred for restoration following condemnation to the
extent reimbursed by condemnation award or for repair of damage to the Project
to the extent reimbursed by insurance proceeds or to the extent the same would
have been reimbursed by insurance proceeds had Lessor maintained the insurance
required of Lessor under this Lease (provided that insurance deductibles and
uninsured casualty damage up to $50,000.00 per occurrence (or such higher
amount, not to exceed $100,000.00, as may be then commercially reasonable as an
insurance deductible for comparable buildings in the San Mateo/Foster City
area) shall
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be included in Project Expenses), (5) reserves for future expenses beyond
anticipated expenses for the current year, (6) ground lease rental on any
underlying ground lease or interest, principal, points and/or fees on debts
or amortization on any mortgage or mortgages or any other debt instrument
encumbering the Project, (7) to the extent any employee of Lessor spends only
a portion of his or her time working with respect to the Project (as opposed
to full time work with respect to the Project), a prorated amount of such
employee's wages, salaries and compensation based upon the portion of time
spent by such employee with respect to the projects other than the Project,
(8) costs of correcting any presently existing non-compliance of the Project
with applicable laws (as enforced upon the execution of this Lease; the
parties hereby acknowledging that the foregoing reference to "as enforced"
shall be deemed to relate to changes in the manner of interpretation and/or
enforcement of the requirements of current laws as opposed to a failure of
government authorities to have identified pre-existing non-compliance with
applicable laws in effect upon the execution of this Lease) other than any
such existing non-compliance where compliance work is not presently required
to be performed (as opposed to existing non-compliance where compliance work
is legally mandated even in the absence of subsequent improvements,
alterations or change in use), (9) costs resulting from the negligence or
wilful misconduct of Lessor, any other Project tenant or any of their
respective agents, employees or contractors, or (10) costs of the annual
premium for earthquake insurance to the extent in excess of two hundred
percent (200%) of the costs of such annual premium for earthquake insurance
for the year including the Commencement Date. In addition, (x) if the
Building's share of any capital expenditure (as determined in accordance
accounting principles customarily applied in the real estate industry)
otherwise includable in Project Expenses costs more than Fifty Thousand
Dollars ($50,000.00), then such capital expenditure shall be amortized over
the useful life of the applicable item as reasonably determined by Lessor,
and Project Expenses shall not include the entire cost of such expenditure
as is so required to be amortized in the year incurred, but shall include
annual amortization of such expenditure during each year of such useful life;
and (y) if the aggregate amount of any capital expenditures (as determined in
accordance accounting principles customarily applied in the real estate
industry) otherwise includable in the Building's share of Project Expenses
and Building Service Expenses in any year and which are not required to be
amortized as provided in clause (x) above and/or pursuant to clause (x) of
subparagraph (A) above, exceeds One Hundred Thousand Dollars ($100,000.00),
then the portion of such capital expenditures in excess of the initial such
One Hundred Thousand Dollars ($100,000.00) of such capital expenditures shall
be amortized over the respective useful lives of the applicable capital
expenditure items as reasonably determined by Lessor, and Project Expenses or
Building Service Expenses, as applicable, shall not include the entire cost
of such expenditures as are so required to be amortized in the year incurred,
but shall include annual amortization of such expenditures during each year
of their respective useful lives. There shall be no duplication of items
included in Building Service Expenses and Project Expenses.
(ii) PROJECT TAXES. "Building Taxes" as used in this Lease, shall
mean those items of "Project Taxes" (as hereinafter defined) which relate
solely to the Building, plus an equitable share of Project Taxes which relate
to the land underlying the Project, to the Exterior Common Areas and/or to
the Project as a whole (as opposed to Project Taxes relating solely to the
Building or any other particular building within the Project), which
equitable share shall be allocated by Lessor between the Building and the
other buildings located within the Project from time to time, if any, in such
manner as Lessor reasonably determines in good faith. The term "Project
Taxes" as used in this Lease shall collectively mean (to the extent any of
the following are not paid by Lessee pursuant to Article 7.c. below) all:
real estate taxes and general or assessments (including, but not limited to,
assessments for public improvements or benefits); personal property taxes;
taxes based on vehicles utilizing parking areas on the Parcel; taxes computed
or based on rental income (including without limitation any municipal
business tax but excluding federal, state and municipal net income taxes);
Environmental Surcharges; excise taxes; gross receipts taxes; sales and/or
use taxes; employee taxes; water and sewer taxes, levies, assessments and
other charges in the nature of taxes or assessments (including, but not
limited to, assessments for public improvements or benefit); and all other
governmental, quasi-governmental or special district impositions of any kind
and nature whatsoever, regardless of whether now customary or within the
contemplation of the parties hereto and regardless of whether resulting from
increased rate and/or valuation, or whether extraordinary or ordinary,
general or special, unforeseen or foreseen, or similar or dissimilar to any
of the foregoing which during the Lease Term are laid, levied, assessed or
imposed upon Lessor and/or become a lien upon or chargeable against the
Project or the Premises, Building, Common Area and/or Parcel under or by
virtue of any present or future laws, statutes, ordinances, regulations, or
other requirements of any governmental authority or quasi-governmental
authority or special district having the direct or indirect power to tax or
levy assessments whatsoever. The term "Environmental Surcharges" shall
include any and all expenses, taxes, charges or penalties imposed by the
Federal Department of Energy, Federal Environmental Protection Agency, the
Federal Clean Air Act, or any regulations promulgated thereunder, or imposed
by any other local, state or federal governmental agency or entity now or
hereafter vested with the power to impose taxes, assessments or other types
of surcharges as a means of controlling or abating environmental pollution or
the use of energy in regard to the use, operation or occupancy of the Project
including the Premises, Building, Common Area and/or Parcel; provided,
however, that in no event shall Project Taxes or other taxes for which Lessee
is responsible pursuant to Article 7.c. below include any charge or cost
relating to remediation of Hazardous Materials upon, within, or beneath the
Project. The term "Project Taxes" shall include (to the extent the same are
not paid by Lessee pursuant to Article 7.c. below), without limitation: the
cost to Lessor of contesting the amount or validity or applicability of any
Project Taxes described above; and all taxes, assessments, levies, fees,
impositions or charges levied, imposed, assessed, measured, or based in any
manner whatsoever upon or with respect to the use, possession, occupancy,
leasing, operation or management of the Project (including, without
limitation, the Premises, Building, Common Area and/or Parcel) or in lieu of
or equivalent to any Project Taxes set forth in this article 7.b.(ii). In no
event shall Project Taxes include Lessor's net income, succession, transfer,
gift, franchise, estate or inheritance taxes. In addition, Project Taxes
shall be calculated as if real property assessments were paid in the maximum
number of installments permitted (and Project Taxes shall therefore include,
without limitation, interest payable as a result of such payment in
installments), whether or not actually so paid.
If at any time during the Term, Project Taxes are under-assessed by the
taxing authorities so that they are not computed on a fully-completed and
occupied basis in accordance with the then applicable taxing authority of the
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governmental entities having jurisdiction, Lessor shall have the right, but not
the obligation, to adjust the components of Project Taxes which vary depending
upon the occupancy level of the Project to reflect the amount that Project
Taxes would be if the Project were assessed on a fully-completed and occupied
basis, as determined in Lessor's reasonable discretion, and such adjusted
amount shall be allocated to the Project in accordance with the terms of this
Lease.
c. OTHER TAXES. Lessee shall pay the following:
(i) Lessee shall pay (or reimburse Lessor as additional rent if
Lessor is assessed), before delinquency, any and all taxes levied or assessed,
and which become payable for or in connection with any period during the Term,
upon all of the following (collectively, "Leasehold Improvements and Personal
Property"): Lessee's Alterations, Lessee Improvements, equipment, furniture,
furnishings, fixtures, merchandise, inventory, machinery, appliances and other
personal property located in the Premises; except only that which has been paid
for by Lessor or is the standard of the Building. Lessee hereby acknowledges
receipt of a copy of a schedule setting forth the improvements comprising the
standard of the Building. If any or all of the Leasehold Improvements and
Personal Property are assessed and taxed with the Project, Lessee shall pay to
Lessor such taxes within ten (10) days after delivery to Lessee by Lessor of a
statement in writing setting forth the amount applicable to the Leasehold
Improvements and Personal Property. If the Leasehold Improvements and Personal
Property are not separately assessed on the tax statement or bill, Lessor's
reasonable good faith determination of the amount of such taxes applicable to
the Leasehold Improvements and Personal Property shall be a conclusive
determination of Lessee's obligation to pay such amount as so determined by
Lessor.
(ii) Lessee shall pay (or reimburse Lessor if Lessor is assessed, as
additional rent), prior to delinquency or within ten (10) days after receipt of
a statement thereof, any and all other taxes, levies, assessments, or
surcharges payable by Lessor or Lessee and relating to this Lease, the Premises
or Lessee's activities in the Premises (other than Lessor's net income,
succession, transfer, gift, franchise, estate, or inheritance taxes), whether
or not now customary or within the contemplation of the parties hereto, now in
force or which may hereafter become effective, including but not limited to
taxes: (1) upon, allocable to, or measured by the area of the Premises or on
the Rentals payable hereunder, including without limitation any gross income,
gross receipts, excise, or other tax levied by the state, any political
subdivision thereof, city or federal government with respect to the receipt of
such Rentals; (2) upon or with respect to the use, possession, occupancy,
leasing, operation and management of the Premises or any portion thereof, (3)
upon this transaction or any document to which Lessee is a party creating or
transferring an interest or an estate in the Premises; or (4) imposed as a
means of controlling or abating environmental pollution or the use of energy,
including, without limitation, any parking taxes, levies or charges or
vehicular regulations imposed by any governmental agency; provided, however,
that in no event shall taxes, levies or other charges for which Lessee is
responsible pursuant to this Article 7.c. include any charge or cost relating
to remediation of Hazardous Materials upon, within, or beneath the Project.
Lessee shall also pay, prior to delinquency, all privilege, sales, excise, use,
business, occupation, or other taxes, assessments, license fees, or charges
levied, assessed, or imposed upon Lessee's business operations conducted at the
Premises. If any such taxes are payable by Lessor and it shall not be lawful
for Lessee to reimburse Lessor for such taxes, then the Rentals payable
hereunder shall be increased to net Lessor the net Rental after imposition of
any such tax upon Lessor as would have been payable to Lessor prior to the
imposition of any such tax.
(iii) Any payments made by Lessee directly to the applicable taxing
authority pursuant to this subsection 7.c. shall be made prior to the
applicable delinquency date for such payment, and Lessee shall deliver
evidence of such payment to Lessor within fifteen (15) days thereafter.
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8. USE.
a. In no event shall Lessee use or permit the use of the Premises for any
purpose other than general office use (which may include, without limitation,
software research, development and training, subject to compliance with
applicable laws and governmental requirements, all not involving Hazardous
Materials (other than "Standard Office Hazardous Materials", as hereinafter
defined), and all in a manner consistent with operation within a first-class
general office use building, so as not to exceed the capacity of the mechanical
and utility systems serving, and/or the floor load capacity of, the Premises or
interfere with the use or occupancy of any other occupant of the Building).
Lessor and Lessee hereby acknowledge and agree that the foregoing use
restriction is an absolute prohibition against a change in use of the Premises
as contemplated under California Civil Code Section 1997.230. Lessee shall not
do or permit to be done in or about the Premises nor bring or keep anything
therein which will in any way increase the existing rate of or affect any fire
or other insurance upon the Building or the Project or any of its contents, or
cause cancellation of any insurance policy covering the Building or the Project
or any part thereof or any of its contents. Lessee shall not, without prior
consent of Lessor, bring into the Building or the Premises or use or
incorporate in the Premises any apparatus, equipment or supplies that may cause
substantial noise, odor, or vibration or overload the Premises or the Building
or any of its utility or elevator systems or jeopardize the structural
integrity of the Building or any part thereof. Lessee and/or Lessee's agents,
officers, employees, representatives, contractors, servants, invitees and/or
guests (collectively "Lessee's Agents") shall not use, store, or dispose of any
"Hazardous Materials" (defined below) on any portion of the Project, except,
however, that nothing contained in this Lease shall be deemed to prohibit
Lessee's use of customary general office supplies typically used in an office
area in the ordinary course of business, such as copier toner, liquid paper,
glue and ink, for use in the manner for which they were designed, in such
amounts and in a manner as is normal for first-class general office use but
containing substances technically constituting Hazardous Materials under this
Lease (collectively, "Standard Office Hazardous Materials"). Without limiting
the generality of the foregoing, Lessee shall not (either with or without
negligence) cause or permit the escape, disposal or release of any Hazardous
Materials in, on or below the Premises or any other portion of the Project
(other than the disposal of Standard Office Hazardous Materials in a manner
customary for use of such Standard Office Hazardous Materials and in compliance
with both manufacturer's recommendations and all applicable laws). If any
lender or governmental agency shall ever require testing to ascertain whether
or not there has been any release or other use of Hazardous Materials at the
Premises during the Term of this Lease, then the reasonable costs thereof shall
be reimbursed by Lessee to Lessor upon demand as additional rent if such
testing is required as a result of the acts of, or if as a result of such
testing it is determined that Hazardous Materials are present on the Premises
as a result of the acts of, Lessee, any subtenant of Lessee and/or any of their
respective employees, agents, representatives, contractors and/or invitees.
In addition, Lessee shall execute such affidavits, representations and
certifications as may be reasonably required by Lessor from time to time
concerning Lessee's best knowledge and belief regarding the presence of
Hazardous Materials at the Premises. Lessee shall indemnify, defend with
counsel acceptable to Lessor, and hold Lessor and Lessor's employees, agents,
partners, officers, directors and shareholders harmless from and against any
and all claims, actions, suits, proceedings, orders, judgment, losses, costs,
damages, liabilities, penalties, or expenses (including, without limitation,
attorneys' fees) arising in connection with the breach by Lessee of Lessee's
obligations described in any of the previous four sentences, and the
obligations of Lessee pursuant hereto and under the previous four sentences
shall survive the Lease Termination. As used in this paragraph, "Hazardous
Materials" means any chemical, substance or material which has been determined
or is hereafter determined by any federal, state, or local governmental
authority to be capable of posing risk of injury to health or safety,
including, without limitation, petroleum, asbestos, polychlorinated biphenyls,
radioactive materials, radon gas, and/or biologically and/or chemically active
materials. Without limiting the generality of the foregoing, the definition of
"Hazardous Materials" shall include those definitions found in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. 'SS''SS' 9601 et seq., the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. 'SS''SS' 6901 et seq., the Hazardous Materials
Transportation Authorization Act, 49 U.S.C. 'SS''SS' 5101 et seq., the
National Environmental Policy Act, 42 U.S.C. 'SS''SS' 4321 et seq., the
Clean Water Act, 33 U.S.C. 'SS''SS' 1251 et seq., the Clean Air Act, 42
U.S.C. 'SS''SS' 7401 et seq., the Toxic Substances Control Act, 15
U.S.C. 'SS''SS' 2601 et seq., the Safe Drinking Water Act, 42 U.S.C.
'SS''SS' 300f et seq., the Occupational Safety and Health Act, 29
U.S.C. 'SS''SS' 651 et seq., Division 20 of the California Health and Safety
Code commencing at Section 24000, Division 7 of the California Water Code
commencing at Section 13000, each as amended from time to time, and all similar
federal, state and local statutes and ordinances and all rules, regulations or
policies promulgated thereunder. Lessee shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or the Project or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Lessee cause, maintain or
permit any nuisance in, on or about the Premises. Lessee shall not commit or
suffer to be committed any waste in or upon the Premises.
Lessor represents and warrants to Lessee that Lessor has no actual
knowledge (without duty of investigation or imputation of knowledge) of any
Hazardous Materials presently existing in or about the Premises or other
portions of the Project at levels in violation of applicable laws or which
otherwise pose a material risk of having a material and adverse affect upon the
operation of Lessee's business from the Premises (including, without
limitation, access to and/or use of the Premises and parking areas serving the
Project). Notwithstanding anything to the contrary contained herein, Lessee
shall not be responsible (either directly or as an item of Building Service
Expenses, as an item of Project Expenses, as an item of Project Taxes or as an
item of taxes for which Lessee is responsible pursuant to Article 7.c above)
for costs related to, and Lessor hereby releases Lessee and Lessee's employees,
agents, representatives and contractors from any liability or costs related to,
the testing, remediation and/or presence of Hazardous Materials on or about the
Premises or Project except to the extent caused to be present thereon or
thereabout by Lessee, any subtenant of Lessee and/or any of their respective
employees, agents, representatives, contractors and/or invitees.
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b. EFFECT OF USE RESTRICTION. Lessor and Lessee hereby acknowledge and
agree that the use restriction set forth in subsection 8.a. above shall be
deemed reasonable in all respects and under all circumstances. Lessor and
Lessee further acknowledge and agree that, notwithstanding any provision of
this Lease to the contrary, (i) in the event Lessee requests Lessor's consent
to a proposed assignment of this Lease or subletting of the Premises, Lessor
shall be deemed reasonable in withholding its consent to such assignment or
subletting if the proposed assignee or subtenant desires to use the Premises
for any purpose other than as expressly provided in subsection 8.a. above, and
(ii) in the event of a default by Lessee under the Lease, the enforcement of
the use restriction set forth in subsection 8.a. above shall be deemed
reasonable for purposes of computing the rental loss that could be or could
have been reasonably avoided by Lessor pursuant to California Civil Code
Section 1951.2 and in connection with the exercise of Lessor's remedies under
California Civil Code Section 1951.4.
Notwithstanding the preceding to the contrary, if Lessor withholds its
consent to an assignment of the Lease or subletting of the Premises based upon
the desire of the proposed assignee or subtenant to use the Premises for any
purpose other than as expressly provided in subsection 8.a. above, or if Lessee
is in default under this Lease, then, prior to commencing or pursuing any
claim or defense against Lessor based upon the unreasonableness of the use
restriction set forth in subsection 8.a. above, Lessee shall provide Lessor
with written notice (by certified mail, postage prepaid and return receipt
requested) setting forth Lessee's objections to the enforcement of the use
restriction in such instance, the basis upon which Lessee intends to
demonstrate that the enforcement of such use restriction would be unreasonable
in such instance, and the use(s) which Lessee believes Lessor should allow
Lessee or its proposed assignee or subtenant, as the case may be, to make of
the Premises. Within thirty (30) days of Lessor's receipt of Lessee's written
notice of objection, Lessor shall provide Lessee with written notice of
Lessor's election to either (A) enforce the use restriction set forth in
subsection 8.a. above, or (B) permit a change in the use of the Premises,
provided that such proposed use shall in no event (1) require the use, storage
or disposal of Hazardous Materials (other than Standard Office Hazardous
Materials in accordance with this Lease) on or about the Premises or the
Project, (2) increase or affect any fire or other insurance covering the
Building or the Project, (3) interfere with the rights of other tenants of the
Building or Project, including, without limitation, any exclusive use rights of
such tenants, (4) be in violation of applicable federal, state or local laws,
rules, regulations, codes or ordinances, or (5) require Lessor to construct or
install, or to provide any allowance for the construction or installation of,
any tenant improvements in the Premises. Notwithstanding the preceding to the
contrary, in no event shall Lessor have any obligation to allow a change in the
use of the premises, it being expressly understood by the parties that the use
restriction set forth in subsection 8.a. above is an absolute prohibition
against a change in use of the Premises. In the event Lessor fails to provide
Lessee with written notice of its election to either enforce the use
restriction or allow a change in use of the Premises within said thirty (30)
day period, Lessor shall be deemed to have elected to enforce the use
restriction. In the event Lessor elects or is deemed to have elected to
enforce the use restriction as provided hereinabove, Lessee shall have the
right to pursue such valid claims or defenses against Lessor as may be
permitted under California Civil Code section 1997.040 and which Lessee is able
to prove.
9. COMPLIANCE WITH LAWS. Lessee shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with or
violate any law, statute, ordinance, order or governmental rule or regulation
or requirement of duly constituted public authorities or quasi-public
authorities now in force or which may hereafter be enacted or promulgated.
Lessee shall, at its sole cost and expense, promptly comply with all laws,
statutes, ordinances, orders and governmental or quasi-governmental rules,
regulations or requirements now in force or which may hereafter be in force and
with all recorded documents which relate to or affect the condition, use or
occupancy of the Premises, and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted,
relating to, or affecting the condition, use or occupancy of the Premises,
excluding structural changes or changes to the integrated Building utility
and/or mechanical systems unless related to or affected by Lessee's
improvements, acts or particular use of the Premises. The judgment of any
court of competent jurisdiction or the admission of Lessee in any action
against Lessee, whether Lessor be a party thereto or not, that Lessee has
violated any law, statute, ordinance, or governmental or quasi-governmental
rule, regulation or requirement, shall be conclusive of that fact as between
the Lessor and Lessee. Lessee shall obtain, prior to taking possession of the
Premises, all permits, licenses, or other authorizations for the lawful
operation of its business at the Premises. Lessee shall indemnify, defend with
counsel acceptable to Lessor and hold Lessor and Lessor's employees, agents,
partners, officers, directors and shareholders harmless from and against any
claim, action, suit, proceeding, order, judgment, liability, penalty or expense
(including, without limitation, attorneys' fees) arising out of the failure of
Lessee to comply with the provisions of this Article. Lessee acknowledges that
Lessee has independently investigated and is satisfied that the Premises are
suitable for Lessee's intended use and that neither Lessor nor any of its
agents, employees, representatives or contractors has made any representation
or warranty as to whether the Building and/or Premises meets applicable
governmental and quasi-governmental requirements for such intended use (except
as may be specifically otherwise provided in this Lease).
Lessor and Lessee acknowledge that, in accordance with the provisions of
the Americans with Disabilities Act of 1990 (the "ADA"), responsibility for
compliance with the terms and conditions of Title III of the ADA may be
allocated as between Lessor and Lessee. In this regard and notwithstanding
anything to the contrary contained in the Lease, Lessor and Lessee agree that
the responsibility for compliance with the ADA (including, without limitation,
the removal of architectural and communications barriers and the provision of
auxiliary aids and services to the extent required) shall be allocated as
follows: (i) Lessee shall be responsible for compliance with the previsions of
Title I of the ADA, and of Title II and Title III of the ADA as Titles II and
III relate to any construction, renovations, alterations and repairs made
within the Premises if such construction, renovations, alterations and repairs
are made by Lessee, at its expense without the assistance of Lessor; (ii)
Lessor shall be responsible for compliance with the provisions of Title II and
III of the ADA for all construction, renovations, alterations and repairs which
Lessor is required, under this Lease, to make within the Premises, whether
(pursuant to the relevant provisions of the Lease) at Lessor's or Lessee's
expense; and (iii) Lessor shall be responsible for compliance with the
provisions of Title III of the ADA for all exterior and interior areas of the
Building not included within the Premises except to the extent such
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compliance is necessitated as a result of Lessee's particular use of, or
alterations to, the Premises. Lessor agrees to indemnify, defend and hold
Lessee harmless from and against any claims, damages, costs and liabilities
arising out of Lessor's failure, or alleged failure, as the case may be, to
comply with the ADA, to the extent such compliance has been allocated to
Lessor herein, which indemnification obligation shall survive the expiration
or termination of this Lease if the Lease has not been terminated by reason
of a default by Lessee. Lessee agrees to indemnify, defend and hold Lessor
harmless from and against any claims, damages, costs and liabilities arising
out of Lessee's failure, or alleged failure, as the case may be, to comply
with the ADA to the extent such compliance has been allocated to Lessee
herein, which indemnification obligation shall survive the expiration or
termination of this Lease. Lessor and Lessee each agree that the allocation
of responsibility for ADA compliance shall not require Lessor or Lessee to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth
in this Article 9. Lessor shall, in complying with the ADA (to the extent
such compliance has been allocated to Lessor herein), be entitled to rely
upon representations made to, or information given to Lessor by Lessee in
regard to Lessee's use of the Premises, Lessee's employees, and other matters
pertinent to compliance with the ADA. The indemnity of Lessee set forth
above shall apply as to any liability arising against Lessor by reason of any
misrepresentations or misinformation given by Lessee to Lessor. The
allocation of responsibility for ADA compliance between Lessor and Lessee,
and the obligations of Lessor and Lessee established by such allocations,
shall supersede any other provisions of the Lease that may contradict or
otherwise differ from the requirements of this Article 9; except, however,
that in the event of any conflict between the provisions of Article 4.d.
above and the provisions of this Article 9, the provisions of Article 4.d.
above shall control.
10. ALTERATIONS AND ADDITIONS.
a. LESSEE'S ALTERATIONS. Lessee shall not make or suffer to be made
any alterations, additions, changes or improvements (collectively,
"Alterations") to or of the Premises, or any part thereof without Lessor's
prior written consent, which consent shall not, except as otherwise expressly
provided in the Lease, be unreasonably withheld; except, however, that
without Lessor's consent but upon at least fifteen (15) days prior written
notice to Lessor, Lessee may make interior, non-structural Alterations
costing less than Twenty-Five Thousand Dollars ($25,000.00) per work of
Alterations and not (1) requiring the demolition of any material existing
improvements, or (2) affecting the mechanical or utility systems serving the
Premises or the exterior appearance of the Building. Lessor may impose, as a
condition to the aforesaid consent, such requirements as Lessor may deem
necessary in its reasonable discretion, including without limitation: the
manner in which the work is done; a right of approval of the contractor by
whom the work is to be performed; the times during which such work is to be
accomplished; in the event of proposed Alterations estimated to cost more
than Fifty Thousand Dollars ($50,000.00), the requirement that Lessee post a
lien and completion bond (or its equivalent) in an amount equal to one and
one-half times any and all estimated Alterations costs and otherwise in form
satisfactory to Lessor to insure Lessor against any liability for mechanics'
and materialmen's liens and to insure completion of the work; the requirement
that Lessee reimburse Lessor, as additional rent, for Lessor's reasonable
costs incurred in reviewing any proposed Alterations, whether or not Lessor's
consent is granted; and, unless otherwise approved by Lessor at the time
Lessee makes such Alterations, the requirement that at Lease Termination,
either (i) Lessee, at its expense, will remove any and all such Alterations
installed by Lessee and shall, at its cost, promptly repair all damages to
the Project caused by such removal, or (ii) the Alterations made by Lessee
shall remain with the Premises, be a part of the realty, and belong to
Lessor. If Lessor consents to any Alterations to the Premises by Lessee, the
same shall be made by Lessee at Lessee's sole cost and expense in accordance
with plans and specifications approved by Lessor. Any Alterations made by
Lessee (whether or not Lessor's consent is required therefor) shall be
performed in accordance with all applicable laws, ordinances and codes and in
a first class workmanlike manner, and shall not weaken or impair the
structural strength or lessen the value of the Building, shall not
invalidate, diminish, or adversely affect any warranty applicable to the
Building or any other improvements located within the Project, including any
equipment therein, and shall be performed in a manner causing Lessor and
Lessor's agents and other tenants of the Building the least interference and
inconvenience practicable under the circumstances. In making any such
Alterations, Lessee shall, at Lessee's sole cost and expense:
(i) File for and secure any necessary permits or approvals from
all governmental departments or authorities having jurisdiction, and any
utility company having an interest therein,
(ii) Notify Lessor in writing at least fifteen (15) days prior to
the commencement of work on any Alteration, so that Lessor can post and
record appropriate notices of non-responsibility, and
(iii) Provide Lessor with copies of all drawings and
specifications prior to commencement of construction of any Alterations, and
provide Lessor with "as built" plans and specifications (on CAD diskette if
available) following completion of such Alterations.
In no event shall Lessee make or suffer to be made any Alteration to the
mechanical or utility systems of the Building, to the Common Area or the
structural portions of the Building or any part thereof without Lessor's
prior written consent, which consent may be withheld in Lessor's sole
discretion.
b. REMOVAL. Upon Lease Termination, Lessee shall, upon written demand
by Lessor at Lessee's sole cost and expense, forthwith and with all due
diligence remove any Alterations made by Lessee, which is then designated by
Lessor to be removed (provided that Lessor has, at the time of Lessor's
consent to such Alterations (or if no consent is required pursuant hereto,
within fifteen (15) days following Lessor's receipt of written notice from
Lessee of such Alterations not requiring Lessor's consent), notified Lessee
that such removal may be required) and Lessee shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Project
caused by such removal. Without limiting the generality of the foregoing,
Lessor may not require removal of any of the initial Lessee Improvements
unless at the time of Lessor's approval of the Final Working Drawings, Lessor
notified Lessee that removal thereof may be required upon Lease Termination.
Lessee shall also, upon Lease Termination
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and provided that Lessee is not then in default hereunder, remove Lessee's
movable equipment, furnishings, trade fixtures and other personal property
(excluding any Alterations made by Lessee not specifically designated by
Lessor to be removed), provided that Lessee shall, forthwith and with all due
diligence at its sole cost and expense, repair any damages to the Project
caused by such removal. Unless Lessor elects to have Lessee remove any such
Alterations, all such Alterations except for movable furniture and trade
fixtures of Lessee not affixed to the Premises, shall become the property of
Lessor upon Lease Termination (without any payment therefor) and remain upon
and be surrendered with the Premises.
c. ALTERATIONS REQUIRED BY LAW. Subject to Article 4.d. above, Lessee
shall pay to Lessor as additional rent, the cost of any structural or
non-structural alteration, addition or change to the Building and/or at
Lessor's election, shall promptly make, at Lessee's sole expense and in
accordance with the provisions of subsection 10.a. above, any structural or
non-structural alteration, addition or change to the Premises required to
comply with laws, regulations, ordinances or orders of any public agencies,
whether now existing or hereinafter promulgated, where such alterations,
additions or changes are required by reason of: Lessee's or Lessee's Agents'
acts; Lessee's particular use (as opposed to mere occupancy for general
office use) or change of use to the Premises; alterations or improvements to
the Premises made by or for Lessee; or Lessee's application for any permit or
governmental approval.
d. LESSOR'S IMPROVEMENTS. All fixtures, improvements or equipment
which are installed, constructed on or attached to the Premises, or any part
of the Project by Lessor at its expense shall be a part of the realty and
belong to Lessor.
11. REPAIRS.
a. BY LESSEE. Subject to the express provisions of this Lease, by
taking possession of the Premises, Lessee shall be deemed to have accepted
the Premises as being in good and sanitary order, condition and repair and to
have accepted the Premises in their condition existing as of the date of such
possession, subject to all applicable laws, covenants, conditions,
restrictions, easements, and other matters of public record and the Rules and
Regulations from time to time promulgated by Lessor governing the use of any
portion of the Project. Lessee shall at Lessee's sole cost and expense, keep
every part of the Premises in good condition and repair, except for ordinary
wear and tear, repairs or restoration work due to casualty damage or
condemnation governed by Article 21 or Article 24 below (except that Lessee
shall be obligated for performance of its obligations under such Articles),
and work which is specified to be the obligation of Lessor pursuant to this
Lease. If Lessee fails to maintain the Premises as required by this Lease,
Lessor may give Lessee notice to do such acts as are reasonably required to
so maintain the Premises and if Lessee fails to commence such work
immediately in an emergency or where immediate action is required to protect
the Premises or any portion of the Project, or within ten (10) days after
such notice is given under other circumstances, and diligently prosecute it
to completion, then Lessor or Lessor's agents, in addition to all of the
rights and remedies available hereunder or by law and without waiving any
alternative remedies, shall have the right to enter the Premises and to do
such acts and expend such funds at the expense of Lessee as are reasonably
required to perform such work. Any amount so expended by Lessor shall be
paid by Lessee to Lessor as additional rent, upon demand. With respect to any
work performed by Lessor pursuant to this Article 11.a., Lessor shall be
liable to Lessee only for physical damage caused to Lessee's personal
property located within the Premises to the extent such damage is caused by
Lessor's active negligence or willful misconduct and is not covered by the
insurance required to be maintained by Lessee pursuant to this Lease. In no
event shall Lessor have any liability to Lessee for any other damages, or for
any inconvenience or interference with the use of the Premises by Lessee, or
for any consequential damages, including lost profits, as a result of
performing any such work. Except as specifically provided in an addendum, if
any, to this Lease, Lessor shall have no obligation whatsoever to alter,
remodel, improve, repair, decorate or paint the Premises or any part thereof
and the parties hereto affirm that Lessor has made no representations or
warranties, express or implied, to Lessee respecting the condition of the
Premises or any part of the Project except as specifically set forth in this
Lease.
b. BY LESSOR. The costs of repairs and maintenance which are the
obligation of Lessor under this Lease or which Lessor elects to perform under
this Lease except such repairs and maintenance which are the responsibility
of Lessee hereunder, shall be an Operating Expense. Lessor shall repair and
maintain the structural portions of the Building and the basic plumbing,
air conditioning, heating, electrical and integrated Building mechanical
systems installed or furnished by Lessor, unless such maintenance or repairs
are caused in part or in whole by the act, neglect, fault or omission
of any duty by Lessee or Lessee's Agents, in which case Lessee shall pay to
Lessor the reasonable cost of such maintenance or repairs as additional rent.
Lessor shall not be liable for any failure to make any such repairs or to
perform any maintenance for which Lessor is responsible as provided above
unless Lessor fails to commence such work for a period of more than thirty
(30) days after written notice of the need of such repairs or maintenance is
given to Lessor by Lessee and the failure is due solely to causes within
Lessor's reasonable control. Except as provided in Article 21 of this Lease,
there shall be no abatement of Rentals, and in any event there shall be no
liability of Lessor by reason of any injury to or interference with Lessee's
business arising from the making of any repairs, alterations or improvements
in or to any portion of the Project or in or to fixtures, appurtenances and
equipment therein. Lessee waives the benefits of any statute now or
hereafter in effect (including, without limitation, the provisions of
subsection 1 of Section 1932, Section 1941 and Section 1942 of the California
Civil Code and any similar or dissimilar law, statute or ordinance now or
hereafter in effect) which would otherwise afford Lessee the right to make
repairs at Lessor's expense (or to deduct the cost of such repairs from
Rentals due hereunder) or to terminate this Lease because of Lessor's failure
to keep the Premises in good and sanitary order.
12. LIENS. Lessee shall keep the Premises and every portion of the Project
free from any and all mechanics', materialmen's and other liens, and claims
thereof, arising out of any work performed, materials furnished or
obligations incurred by or for Lessee. Lessee shall indemnify and defend with
counsel acceptable to Lessor and hold Lessor harmless from and against any
liens, demands, claims, actions, suits, proceedings, orders, losses, costs,
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damages, liabilities, penalties, expenses, judgments or encumbrances
(including without limitation, attorneys' fees) arising out of any work or
services performed or materials furnished by or at the direction of Lessee or
Lessee's Agents or any contractor employed by Lessee with respect to the
Premises. Should any claims of lien relating to work performed, materials
furnished or obligations incurred by Lessee be filed against, or any action
be commenced affecting the Premises, any part of the Project, and/or Lessee's
interest therein, Lessee shall give Lessor notice of such lien or action
within three (3) days after Lessee receives notice of the filing of the lien
or the commencement of the action. If Lessee does not, within twenty (20)
days following the imposition of any such lien, cause such lien to be
released of record by payment or posting of a proper bond, Lessor shall have,
in addition to all other remedies provided herein and by law, the right, but
not the obligation, to cause the same to be released by such means as it
shall deem proper, including by payment of the claim giving rise to such lien
or by posting a proper bond, or by requiring Lessee to post for Lessor's
benefit a bond, surety, or cash amount equal to one and one-half (1-1/2)
times the amount of lien and sufficient to release the Premises and Project
from the lien. All sums paid by Lessor pursuant to this Article 12 and all
expenses incurred by it in connection therewith including attorneys' fees and
costs shall be payable to Lessor by Lessee as additional rent on demand.
13. ASSIGNMENT AND SUBLETTING.
a. PROHIBITIONS IN GENERAL. Lessee shall not (whether voluntarily,
involuntarily, or by operation of law) assign this Lease or allow all or any
part of the Premises to be sublet, without Lessor's prior written consent in
each instance, which consent shall not be unreasonably withheld, subject,
nevertheless, to the provisions of this Article 13. Notwithstanding anything
to the contrary contained herein, Lessee shall have the right without
Lessor's prior consent and without being subject to Article 13.e. or 13.g.
below, but upon not less than fifteen (15) days prior written notice to
Lessor, to assign this Lease or sublet the Premises to any entity (i)
controlling, controlled by or having fifty percent (50%) or more common control
with Lessee, or (ii) resulting from a merger or consolidation with Lessee or
acquiring substantially all of the assets and/or substantially all of the
stock of Lessee; provided that any such entity shall have a tangible net
worth no less than Lessee's tangible net worth as of the execution of this
Lease, such entity shall replace the Letter of Credit (if necessary) or post
a cash Security Deposit in the then applicable LC Amount in accordance with
Article 6 above, and such entity shall assume the obligations and liabilities
of Lessee under this Lease, and no such assignment or sublease shall in any
manner release Lessee from its primary liability under this Lease. For all
purposes of this Lease, a "Permitted Transferee" shall mean an assignee or
subtenant of Lessee under an assignment or subletting which is permitted
without Lessor's prior consent pursuant to clause (i) or (ii) above. Except
as otherwise specifically provided in this Article 13, Lessee shall not
(whether voluntarily, involuntarily, or by operation of law) (1) allow all or
any part of the Premises to be occupied or used by any person or entity other
than Lessee, (2) transfer any right appurtenant to this Lease or the
Premises, (3) mortgage, hypothecate or encumber the Lease or Lessee's
interest in the Lease or Premises (or otherwise use the Lease as a security
device) in any manner, or (4) permit any person to assume or succeed to any
interest whatsoever in this Lease, without Lessor's prior written consent in
each instance, which consent may be withheld in Lessor's sole and absolute
discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively "Transfer") without Lessor's consent shall be voidable.
Lessor's consent to any one Transfer shall not constitute a waiver of the
provisions of this Article 13 as to any subsequent Transfer nor a consent to
any subsequent Transfer. The provisions of this subsection 13.a. expressly
apply to all heirs, successors, sublessees, assigns and transferees of
Lessee. If Lessor consents to a proposed Transfer, such Transfer shall be
valid and the transferee shall have the right to take possession of the
Premises only if the Assumption Agreement described in subsection 13.c. below
is executed and delivered to Lessor, Lessee has paid the costs and fees
described in subsection 13.i. below, and an executed counterpart of the
assignment, sublease or other document evidencing the Transfer is delivered
to Lessor and such transfer document contains the same terms and conditions
as stated in Lessee's notice given to Lessor pursuant to subsection 13.d.
below, except for any such modifications Lessor has consented to in writing.
The acceptance of Rentals by Lessor from any person or entity other than
Lessee shall not be deemed to be a waiver by Lessor of any provision of this
Lease or to be a consent to any Transfer. In addition to and without
limitation upon the other provisions of this Article 13, in the event of
Lessor's consent to a Transfer to a transferee having a tangible net worth
which is less than Lessee's tangible net worth as of the execution of this
Lease then Lessor may require as a condition to such Transfer (in addition to
the other requirements under this Article 13), that the transferee post a
letter of credit as additional security for the performance of such entity's
performance of its obligations, which letter of credit shall be governed in
all respects by the provisions of Article 6 above, except that the "LC
Amount" applicable thereto shall in no event to exceed the original LC Amount
under Article 6 and such "LC Amount" applicable thereto shall not be subject
to reduction in manner in which the original LC Amount is subject to
reduction in accordance with Article 6.
b. COLLECTION OF RENT. Lessee irrevocably assigns to Lessor, as
security for Lessee's obligations under this Lease, all rent not otherwise
payable to Lessor by reason of any Transfer of all or any part of the
Premises or this Lease. Lessor, as assignee of Lessee, or a receiver for
Lessee appointed on Lessor's application, may collect such rent and apply it
toward Lessee's obligations under this Lease; provided, however, that until
the occurrence of any default by Lessee or except as provided by the
provisions of subsection 13.f. below, Lessee shall have the right to collect
such rent.
c. ASSUMPTION AGREEMENT. As a condition to Lessor's consent to any
Transfer of Lessee's interest in this Lease or the Premises, Lessee and
Lessee's assignee, sublessee, encumbrancer, hypothecate, or transferee
(collectively "Transferee"), shall execute a written Assumption Agreement,
in a form reasonably approved by Lessor, which Agreement shall include a
provision that Lessee's Transferee shall expressly assume all obligations of
Lessee under this Lease, and shall be and remain jointly and severally
liable with Lessee for the performance of all conditions, covenants, and
obligations under this Lease from the effective date of the Transfer of
Lessee's interest in this Lease (except that as to a subletting, such
Assumption Agreement shall relate only to performance of Lessee's non-rent
payment obligations under this Lease relating to the portion of the Premises
subleased). In no event shall
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Lessor have any obligation to materially amend or modify this Lease in
connection with any proposed Transfer, including, without limitation,
amending or modifying the use restriction set forth in subsection 8.a. above.
d. REQUEST FOR TRANSFER. Lessee shall give Lessor at least thirty (30)
days prior written notice of any desired Transfer and of the proposed terms
of such Transfer, including but not limited to: the name and legal
composition of the proposed Transferee; an audited financial statement of the
proposed Transferee prepared in accordance with generally accepted accounting
principles within one year prior to the proposed effective date of the
Transfer; the nature of the proposed Transferee's business to be carried on
in the Premises; the payment to be made or other consideration to be given on
account of the Transfer; and other such pertinent information as may be
requested by Lessor, all in sufficient detail to enable Lessor to evaluate
the proposed Transfer and the prospective Transferee. Lessee's notice shall
not be deemed to have been served or given until such time as Lessee has
provided Lessor with all information specified above and all additional
information requested by Lessor pursuant to this subsection 13.d. Lessee
shall immediately notify Lessor of any modification to the proposed terms of
such Transfer.
e. EXCESS CONSIDERATION. In the event of any Transfer (other than a
Transfer to a Permitted Transferee), Lessor shall receive as additional rent
hereunder, fifty percent (50%) of Lessee's "Excess Consideration" derived
from such Transfer. If Lessee shall elect to Transfer (other than to a
Permitted Transferee), Lessee shall use reasonable and good faith efforts to
secure consideration from any such Transferee which would be generally
equivalent to then-current market rent, but in no event shall Lessee's
monetary obligations to Lessor, as set forth in this Lease, be reduced. As
used herein, "Excess Consideration" shall mean all rent, additional rent, key
money, bonus money and/or other consideration (including, without limitation,
any payment in excess of fair market value for services rendered by Lessee to
the Transferee for assets, fixtures, inventory, equipment, or furniture
transferred by Lessee to the Transferee in connection with the Transfer)
received by Lessee from a Transferee and/or paid by a Transferee on behalf of
Lessee in connection with the Transfer in excess of the rent, additional rent
and other sums payable by Lessee under this Lease (on a per square foot basis
if less than all of the Premises is subject to such Transfer), less the sum
of Lessee's reasonable out-of-pocket costs incurred for brokerage
commissions, attorneys' fees and any Alterations to the Premises in
connection with such Transfer and an amount equal to the then unamortized
cost of any Lessee Improvements made by Lessee at Lessee's cost (based upon
monthly straight line amortization over the initial eighty-four (84) month
Lease Term). If part of the Excess Consideration shall be payable by the
Transferee other than in cash, then Lessor's share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Lessor.
f. STANDARDS FOR CONSENT. Without otherwise limiting the criteria upon
which Lessor may withhold its consent to any proposed Transfer, the parties
hereby agree that it shall be deemed presumptively reasonable for Lessor to
withhold its consent to a proposed Transfer if:
(i) The proposed Transferee's net worth (according to generally
accepted accounting principles) is not sufficient in Lessor's reasonable
business judgment given the obligations to be performed by the proposed
Transferee pursuant to the proposed Transfer;
(ii) The proposed Transferee's use of the Premises is inconsistent
with the permitted use of the Premises set forth in this Lease or the
proposed Transferee is of a character or reputation which is not consistent
with the quality of the Building or Project;
(iii) As to a Transfer of less than all of the Premises, the space
to be Transferred is not regular in shape with appropriate means of ingress
and egress suitable for normal leasing purposes;
(iv) The proposed Transferee is a governmental agency or
instrumentality thereof or a person or entity (or an affiliate thereof)
currently leasing or occupying space within the Project or with whom Lessor
is then negotiating for the lease or occupancy of space within the Project;
(v) Lessee is in default under this Lease at the time Lessee
requests consent to the proposed Transfer; or
(vi) The proposed Transfer will result in more than a reasonable
and safe number of occupants per floor within the space proposed to be
Transferred or will result in insufficient parking for the Building.
g. Intentionally omitted.
h. CORPORATIONS AND PARTNERSHIPS. If Lessee is a partnership, a
withdrawal or substitution (whether voluntary, involuntary, or by operation
of law and whether occurring at one time or over a period of time) of any
partner(s) owning twenty-five percent (25%) or more of the partnership, any
assignment(s) of twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution of
the partnership shall be deemed a Transfer of this Lease. Subject to the
provisions of Article 13.a. above, if Lessee is a corporation, limited
liability company or other entity, any dissolution, merger, consolidation or
other reorganization of Lessee, any sale or transfer (or cumulative sales or
transfers) of the capital stock of or equity interests in Lessee in excess of
twenty-five percent (25%) or any sale (or cumulative sales) of more than
fifty percent (50%) of the value of the assets of Lessee shall be deemed a
Transfer of this Lease. This subsection 13.h. shall not apply to corporations
the capital stock of which is publicly traded.
i. ATTORNEYS' FEES AND COSTS. Lessee shall pay, as additional rent,
Lessor's actual costs and attorneys' fees incurred for reviewing,
investigating, processing and/or documenting any requested Transfer, whether
or not Lessor's consent is granted.
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j. MISCELLANEOUS. Regardless of Lessor's consent, no Transfer shall
release Lessee of Lessee's obligations under this Lease or alter the primary
liability of Lessee to pay the Rentals and to perform all other obligations
to be performed by Lessee hereunder. The acceptance of Rentals by Lessor
from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Upon default by any assignee of Lessee or any successor of
Lessee in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee or successor. Lessor may consent to subsequent assignments or
subletting of this Lease or amendments or modifications to this Lease with
any assignee of Lessee, without notifying Lessee, or any successor of Lessee,
and without obtaining its or their consent thereto and such action shall not
relieve Lessee of liability under this Lease.
k. REASONABLE PROVISIONS. Lessee acknowledges that, but for Lessee's
identity, financial condition and ability to perform the obligations of
Lessee under the Lease, Lessor would not have entered into this Lease nor
demised the Premises in the manner set forth in this Lease, and that in
entering into this Lease, Lessor has relied specifically on Lessee's
identity, financial condition, responsibility and capability of performing
the obligations of Lessee under the Lease. Lessee acknowledges that Lessor's
rights under this Article 13, including, without limitation, the right to
withhold consent to certain Transfers in Lessor's sole and absolute
discretion, are reasonable, agreed upon and bargained for rights of Lessor
and that the Rentals set forth in the Lease have taken into consideration
such rights. Lessee expressly agrees that the provisions of this Article 13
are not unreasonable standards or conditions for purposes of Section
1951.4(b)(2) of the California Civil Code, as amended from time to time,
under the Federal Bankruptcy Code or for any other purpose.
14. HOLD HARMLESS. Lessee shall to the fullest extent permitted by law,
indemnify, defend with counsel acceptable to Lessor, and hold Lessor and
Lessor's employees, agents, partners, officers, directors and shareholders
harmless from and against any and all claims, damages, losses, liabilities,
penalties, judgments, and costs and expenses (including, without limitation,
attorneys' fees) and any suit, action or proceeding brought pursuant thereto
(collectively, "Claims"), including, without limitation, Claims for property
damage, or personal injury including death, arising out of (i) Lessee's use
of the Premises or any part thereof, or any activity, work or other thing
done by Lessee or any of Lessee's Agents in the Premises, (ii) any activity,
work or other thing done or permitted by Lessee or any of Lessee's Agents in
the Premises, or any part thereof, (iii) any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, (including, without limitation, a failure to maintain
insurance as provided in Article 16), or (iv) any negligence or wilful
misconduct of Lessee or Lessee's Agents; provided, however, that Lessee shall
not be required to indemnity Lessor pursuant hereto for Claims to the extent
(1) arising as a result of Lessor's default under this Lease, or the
negligence or wilful misconduct of Lessor or any of Lessor's employees,
agents or contractors, and (2) not covered by the insurance required to be
maintained by Lessee pursuant to this Lease.
The indemnity herein shall extend to the costs and expenses incurred by
Lessor for administrative expenses, consultant fees, expert costs,
investigation expenses and costs incurred in settling indemnified claims,
whether such costs occurred before or after any litigation is commenced. The
obligations of Lessee pursuant to this Article 14 and elsewhere in this Lease
with respect to indemnification of Lessor shall survive the Lease
Termination and shall continue in effect until any and all claims, actions or
causes of action with respect to any of the matters indemnified against are
fully and finally barred by the applicable statute of limitations. In no
event shall any of insurance provisions set forth in Article 16 of this Lease
be construed as any limitation on the scope of indemnification set forth
herein.
Lessee as a material part of the consideration to Lessor hereby assumes
all risk of damage or loss to property or injury or death to person in, upon
or about all portions of the Project from any cause except as hereinafter
stated. Lessor or its agents shall not be liable for any damage or loss to
property entrusted to employees of any part of the Project nor for loss or
damage to any property by theft or otherwise, nor for any injury or death or
damage or loss to persons or property resulting from any accident, casualty
or condition occurring in or about any portion of the Project, or to any
equipment, appliances or fixtures therein, or from any other cause
whatsoever. Lessee's assumption of risk and the exculpation of Lessor
pursuant hereto is unqualified with the single exception that it shall not
apply to, and Lessor shall indemnify, defend and hold harmless Lessee from
and against, the portion of any claim, damage or loss to the extent arising
out of Lessor's default under this Lease or the negligence or willful
misconduct of Lessor or any of Lessor's employees, agents or contractors, and
not covered by the insurance required to be maintained by Lessee pursuant to
this Lease. Lessor or its agents shall not be liable for interference with
the light or other incorporeal hereditaments, nor shall Lessor be liable for
any latent defect in the Premises or in the Building. Notwithstanding any
other provision of this Lease, in no event shall Lessor have any liability
for loss of business (including, without limitation, lost profits) by Lessee.
Lessee shall give prompt written notice to Lessor in case of fire or
accidents in the Premises or in the Building or of defects therein or in the
fixtures or equipment.
If, by reason of any act or omission of Lessee or Lessee's Agents,
Lessor is made a party defendant to any litigation concerning this Lease or
any part of the Project or otherwise, Lessee shall indemnify, defend with
counsel acceptable to Lessor, and hold Lessor harmless from any liability and
damages incurred by (or threatened against) Lessor as a party defendant,
including without limitation all damages, costs and expenses, including
attorneys' fees.
15. SUBROGATION. Notwithstanding anything to the contrary contained in this
Lease, Lessor releases Lessee and Lessee's officers, directors, agents,
employees, partners and shareholders from any and all claims or demands for
damages, loss, expense or injury arising out of any perils to the extent
covered by first party property damage insurance carried by Lessor (or which
would have been so covered if Lessor had maintained the first party property
damage insurance required to be maintained by Lessor pursuant to this Lease),
or that are due to the negligence of Lessee or Lessee's officers, directors,
agents, employees, partners and shareholders and regardless of cost or origin,
to the extent such waiver is permitted by Lessor's insurers and does not
prejudice the insurance required to be carried by Lessor under this Lease.
Lessee releases Lessor and Lessor's officers, directors, agents,
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employees, partners and shareholders from any and all claims or demands for
damages, loss, expense or injury arising out of any perils to the extent
covered by the first party property damage insurance carried by Lessee (or
which would have been so covered if Lessee had maintained the first party
property damage insurance required to be maintained by Lessee pursuant to
this Lease), whether due to the negligence of Lessor or its officers,
directors, agents, employees, partners and shareholders and regardless of
cost or origin, to the extent such waiver is permitted by Lessee's insurers
and does not prejudice the insurance required to be carried by Lessee under
this Lease. Lessor and Lessee shall each use reasonable efforts to seek to
obtain insurance provider approval of the waiver set forth herein and each
party shall promptly notify the other in the event it is unable to obtain
such approval.
16. LESSEE'S INSURANCE.
a. Lessee shall, at Lessee's expense, obtain and keep in force during
the Term a policy of commercial general liability insurance, including the
broad form endorsement, insuring Lessor and Lessee against any liability
arising out of the ownership, use, occupancy, maintenance, repair or
improvement of the Premises and all areas appurtenant thereto. Such
insurance shall provide single limit liability coverage of not less than
Three Million Dollars ($3,000,000.00) per occurrence for bodily injury or
death and property damage. Such insurance shall name Lessor and, at Lessor's
request, Lessor's mortgagee, each as an additional insured, and shall provide
that Lessor and any such mortgagee, although an additional insured, may
recover for any loss suffered by Lessor or Lessor's agents by reason of
Lessee's or Lessee's Agent's negligence. All such insurance shall be primary
and non-contributing with respect to any insurance maintained by Lessor and
shall specifically insure Lessee's performance of the indemnity and hold
harmless agreements contained in Article 14 above although Lessee's
obligations pursuant to Article 14 shall not be limited to the amount of any
insurance required of or carried by Lessee under this Article 16 and Lessee
is responsible for ensuring that the amount of liability insurance carried by
Lessee is sufficient for Lessee's purposes. Lessee may carry said insurance
under a blanket policy provided that such policy conforms with the
requirements specified in this Article and the coverage afforded Lessor is
not diminished thereby.
b. Lessee acknowledges and agrees that insurance coverage carried by
Lessor will not cover Lessee's property within the Premises or within the
Building. Lessee shall, at Lessee's expense, obtain and keep in force during
the Term a policy of "All Risk" property insurance, including without
limitation, coverage for earthquake and flood (at Lessee's option); boiler
and machinery (if applicable); sprinkler damage; vandalism; malicious
mischief; and demolition, increased cost of construction and contingent
liability from changes in building laws on all leasehold improvements
installed in the Premises by Lessee at its expense (if any), and on all
equipment, trade fixtures, inventory, fixtures and personal property located
on or in the Premises, including improvements or fixtures hereinafter
constructed or installed on the Premises. Such insurance shall be in an
amount equal to the full replacement cost of the aggregate of the foregoing
and shall provide coverage comparable to the coverage in the Standard ISO All
Risk form, when such form is supplemented with the coverage required above.
c. If Lessee fails to procure and maintain any insurance required to be
procured and maintained by Lessee pursuant to this Lease, Lessor may, but
shall not be required to, procure and maintain all or any portion of the same,
at the expense of Lessee. Lessor's election pursuant to this subsection
16.c. to procure and maintain all or any portion of the insurance which
Lessee fails to procure and maintain is acknowledged by Lessee to be for
Lessor's sole benefit. Lessee acknowledges that any insurance procured and
maintained by Lessor pursuant to this subsection 16.c. may not be sufficient
to adequately protect Lessee. Any personal property insurance procured and
maintained by Lessor for Lessee's equipment, trade fixtures, inventory,
fixtures and personal property located on or in the Premises, including
improvements or fixtures hereinafter constructed or installed on the
Premises, may not sufficiently cover the replacement cost thereof. Any
insurance procured and maintained by Lessor pursuant to this subsection 16.c.
may provide for less coverage than is required to be maintained by Lessee
pursuant to this Lease. Lessee acknowledges and agrees that Lessee is and
shall remain solely responsible for procuring insurance sufficient for
Lessee's purposes, notwithstanding the fact that Lessor has procured or
maintained any insurance pursuant to this subsection 16.c. Any insurance
required to be maintained by Lessee hereunder shall be in companies with a
security rating of A or better, and a financial size category rating of X or
better, in the then most recently published "Best's Insurance Guide". Prior
to occupancy of the Premises (and thereafter annually with respect to
renewals, not later than thirty (30) days prior to expiration of then
existing policies), Lessee shall deliver to Lessor copies of the policies of
insurance required to be kept by Lessee hereunder, or certificates evidencing
the existence and amount of such insurance, with evidence satisfactory to
Lessor of payment of premiums. No policy shall be cancelable or subject to
reduction of coverage except after thirty (30) days prior written notice to
Lessor.
d. Not more frequently than once every year, Lessee shall increase the
amounts of insurance as reasonably recommended by Lessor's insurance broker
provided that the amount of insurance recommended by such broker shall not
exceed the amount customarily required of tenants in comparable projects
located in San Mateo, California. Any limits set forth in this Lease on the
amount or type of coverage required by Lessee's insurance shall not limit the
liability of Lessee under this Lease.
e. As an item of Building Service Expenses, Lessor hereby agrees to
maintain in effect during the Term of this Lease a policy or policies of "all
risk" insurance (or its then equivalent coverage) in an amount not less than
the replacement cost of the Building (exclusive of footings, foundations and
excavation) and Lessor shall also have the right (but not the obligation) to
maintain such other insurance coverages in such other amounts as Lessor
determines to be appropriate.
17. SERVICES AND UTILITIES. Provided that Lessee is not in default
hereunder and subject to the rules and regulations of the Building of which
the Premises are a part, Lessor agrees to furnish to the Premises during the
hours of 7:00 a.m. to 6:00 p.m., Monday through Friday, other than recognized
Building holidays (collectively, "Building Hours"), heating and
air-conditioning service which is required in Lessor's good faith judgment
for the comfortable use and occupation of the Premises, and at all times
electricity for normal lighting, water and elevator
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service which are required in Lessor's good faith judgment for the
comfortable use and occupation of the Premises. During recognized business
days for the Building, and subject to the reasonable rules and regulations of
the Building and Project, Lessor shall furnish to the Premises and the Common
Areas, janitorial service consistent with the standards of janitorial service
provided to tenants in comparable buildings in the San Mateo/Foster City
area, window washing, fluorescent tube replacement and toilet supplies;
provided, however, Lessor shall not be required to provide janitorial
services for any portion of the Premises to the extent required as a result
of the preparation or consumption of food or beverages (provided that nothing
in this paragraph shall be construed as a consent by Lessor to the
preparation or consumption of such food or beverages unless otherwise
expressly provided elsewhere in this Lease). Lessor shall also maintain and
keep lighted during such hours and after-hours (at levels sufficient for
after-hours usage) the common stairs, common entries and toilet rooms in the
Building. Lessor shall not be liable for, and Lessee shall not be entitled
to, any reduction of Rentals by reason of Lessor's failure to furnish any of
the foregoing when such failure is caused by casualty, Act of God, accident,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar,
beyond the reasonable control of Lessor. Lessor shall not be liable under
any circumstances for injury to or death of or loss or damage to persons or
property or damage to Lessee's business, however occurring, through or in
connection with or incidental to failure to furnish any of the foregoing.
Wherever heat generating machines or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Lessor reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Lessee to Lessor
upon demand by Lessor as additional rent. The costs of all utilities and
services furnished by Lessor to Lessee pursuant to this Article 17 which are
not specified as being reimbursed or paid directly by Lessee shall be
included as items of Building Operating Expenses.
Lessee will not, without the prior written consent of Lessor, use or
permit the use of any apparatus or device in or upon the Premises (including,
but without limitation thereto, machines using in excess of 120 volts), which
will in any way increase the amount of gas, electricity or water usually
furnished or supplied for the use of the Premises as general office space
(which, as to electricity consumption, the parties hereby agree to mean not
more than four (4) watts per square foot of usable area on a demand load
basis); nor will Lessee connect or permit connection of any apparatus or
device for the purpose of using gas, electric current or water with electric
current, gas or water supply lines, except for electricity through existing
electrical outlets in the Premises. If Lessee requires water or electric
current in excess of that usually furnished or supplied for the use of the
Premises as general office space (including, without limitation, as a result
of use at times other than during Building Hours), Lessee shall first procure
the written consent of Lessor to the use thereof (which consent may be
granted or withheld in Lessor's reasonable discretion, except that no such
consent shall be required for mere operation by Lessee during times other
than Building Hours) and Lessor may cause a water or gas meter or electric
current meter to be installed in the Premises so as to measure the amount of
water, gas and electric current consumed for any such use. The cost of any
such meters and of installation, maintenance and repair thereof shall be paid
for by the Lessee and Lessee agrees to pay to Lessor, as additional rent,
promptly upon demand therefor by Lessor for all such water, gas and electric
current consumed as shown by said meters, at the rates charged for such
services by the local public utility furnishing the same, plus any additional
expense incurred in keeping account of the water, gas and electric current so
consumed. If a separate meter is not installed, such excess cost for such
water, gas and electric current will be conclusively established by an
estimate made by a utility company or electrical engineer selected by Lessor.
If requested by Lessee in writing at least one (1) business day in
advance, heating, ventillation and air conditioning ("HVAC") service shall be
provided to the Premises other than during Building Hours (for a minimum
period of three (3) consecutive hours at a time, except for after-hours HVAC
service immediately following Building Hours, at which time the minimum
period shall be one (1) hour), provided that Lessee shall pay to Lessor for
each such hour of HVAC service during non-Building Hours, the then prevailing
charge by Lessor for such service (which shall equal Lessor's determination
in Lessor's reasonable business judgment of the actual cost of providing such
non-Building Hours HVAC service, including, without limitation, costs of
maintenance, labor and administration), which is presently Thirty-Five
Dollars ($35.00) per hour per zone. Amounts payable by Lessee hereunder
shall be paid as additional rent within thirty (30) days following Lessee's
receipt of Lessor's billing therefor. However, if Lessee requires
twenty-four (24) hour per day HVAC service, Lessor shall have the right to
install a separate meter, at Lessee's expense, to measure such usage, and
Lessee shall be responsible for all costs of such non-Building Hours usage in
accordance herewith.
Notwithstanding anything to the contrary contained in this Lease, during
the Term of the Lease, if Lessee is actually prevented from using all or a
material portion of the Premises as a result of an interruption in essential
utility services to the Premises which is solely the fault of Lessor or
Lessor's employees, agents or contractors, which prevention from use is not
cured within seven (7) consecutive days following Lessor's receipt of written
notice thereof from Lessee stating Lessee's intent to receive an abatement,
then monthly Base Rent and Lessee's obligation for payment of Lessee's
Percentage Share of Excess Expenses shall thereafter be equitably abated
based upon the portion of the Premises which Lessee is so prevented from
using, until and to the extent that Lessee is no longer so prevented from
using such portion of the Premises as a result of the applicable interruption
in essential utility services. Notwithstanding the foregoing, the provisions
of Article 21 below and not the provisions of this paragraph shall govern in
the event of casualty damage to the Premises or Project and the provisions of
Article 24 below and not the provisions of this paragraph shall govern in the
event of condemnation of all or a part of the Premises or Project.
18. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with
the rules and regulations that Lessor shall from time to time promulgate for
the Building and the Project. Lessor reserves the right from time to time to
make all reasonable modifications to said rules and regulations; provided
that any modification of the rules and regulations attached hereto as Exhibit
"D" shall be reasonable, shall not materially interfere with Lessee's use of
the Premises or Lessee's parking rights under this Lease, and shall not
materially increase the obligations or materially decrease the rights of
Lessee as set forth in this Lease. The additions and modifications to these
rules and regulations shall be binding upon Lessee upon delivery of a copy
of them to Lessee. Lessor shall not be responsible
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to Lessee for the non-performance of any said rules by any other tenants or
occupants. The current "Rules and Regulations" are attached hereto as
Exhibit "D". In the event of a conflict between the specific provisions of
this Lease and such Rules and Regulations, the specific provisions of this
Lease shall prevail.
19. HOLDING OVER. If Lessee remains in possession of the Premises or any
part thereof after Lease Termination, with the express written consent of
Lessor, such occupancy shall be a tenancy from month to month at a Base Rent
in the amount of one hundred fifty percent (150%) of the Base Rent in effect
immediately preceding such Lease Termination, plus all other rental charges
payable hereunder, and upon all the terms hereof applicable to a month to
month tenancy. In such case, either party may thereafter terminate this
Lease at any time upon giving not less than thirty (30) days written notice
to the other party. For any possession of the Premises after the Lease
Termination without Lessor's consent, Lessee shall be liable for all
detriment proximately caused by Lessee's possession, including without
limitation, attorneys' fees, costs and expenses, claims of any succeeding
tenant founded on Lessee's failure to vacate and for payment to Lessor of
Base Rent in an amount equal to the greater of (a) one hundred fifty percent
(150%) of the Base Rent in effect immediately preceding such Lease
Termination, or (b) the fair market rental value for the Base Rent for the
Premises, together with such other Rentals provided in this Lease to the date
Lessee actually vacates the Premises, and such other remedies as are provided
by law, in equity or under this Lease.
20. ENTRY BY LESSOR. Lessor reserves and shall at any and all reasonable
times have the right to enter the Premises, inspect the same, supply
janitorial service and any other service to be provided by Lessor to Lessee
hereunder, to submit said Premises to prospective purchasers, mortgagees,
lenders or tenants, to post notices of nonresponsibility, and to alter,
improve or repair the Premises and any portion of the Building that Lessor
may deem necessary or desirable, without any abatement of Rentals, and may
for such purposes erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, provided
that the entrance to the Premises shall not be unreasonably blocked thereby,
and further provided that the business of the Lessee shall not be interfered
with unreasonably. Lessor shall use reasonable efforts to provide Lessee
with such prior oral or written notice of any such entry as is reasonably
practicable under the circumstances, except in the event of an emergency or
entry for scheduled provision of services to the Premises. In no event shall
Lessor have any liability to Lessee for, and Lessee hereby waives any claim
for, damages or for any injury or inconvenience to or interference with
Lessee's business, any loss of occupancy or quiet enjoyment of the Premises,
and any other damage or loss occasioned thereby. For each of the aforesaid
purposes, Lessor shall at all times have and retain a key with which to
unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults, safes and files, and Lessor shall have the right to use any and all
means which Lessor may deem proper to open said doors in an emergency in
order to obtain entry to the Premises, without liability to Lessee except for
any failure to exercise due care for Lessee's property under the
circumstances of each entry. Any entry to the Premises obtained by Lessor by
any of said means or otherwise shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Lessee from the Premises or any portion thereof.
With respect to any entry by Lessor into the Premises, Lessor shall be liable
to Lessee solely for physical damage caused to Lessee's personal property
located within the Premises to the extent such damage is caused by Lessor's
active negligence or willful misconduct and which is not covered by the
insurance required to be maintained by Lessee pursuant to this Lease, and
only with respect to an entry in an non-emergency situation.
21. RECONSTRUCTION. If the Premises are damaged and rendered substantially
untenantable, or if the Building is damaged (regardless of damage to the
Premises) or destroyed, Lessor may, within ninety (90) days after the
casualty, notify Lessee of Lessor's election not to repair, in which event
this Lease shall terminate at the expiration of the ninetieth (90th) day. If
Lessor elects to repair the damage or destruction, this Lease shall remain in
effect and the then current Base Rent and Lessee's Percentage Share of Excess
Expenses shall be proportionately reduced during the period of repair. The
reduction shall be based upon the extent to which the making of repairs
interferes with Lessee's business conducted in the Premises, as reasonably
determined by Lessor. All other Rentals due hereunder shall continue
unaffected, and Lessee shall have no claim against Lessor for compensation
for inconvenience or loss of business during any period of repair or
reconstruction. Lessee shall continue the operation of its business on the
Premises during any period of reconstruction or repair to the extent
reasonably practicable from the standpoint of prudent business management.
Upon Lessor's election to repair, Lessor shall diligently repair the damage to
the extent of insurance proceeds available to Lessor. Lessor shall not be
required to repair or replace, whether injured or damaged by fire or other
cause, any items required to be insured by Lessee under this Lease including
Lessee's fixtures, equipment, merchandise, personal property, inventory,
panels, decoration, furniture, railings, floor covering, partitions or any
other improvements, alterations, additions, or property made or installed by
Lessee to the Premises. Lessee hereby waives all claims for loss or damage
to the foregoing. Lessee waives any rights to terminate this Lease if the
Premises are damaged or destroyed, including without limitation any rights
pursuant to the provisions of Subdivision 2 of Section 1932 and Subdivision 4
of Section 1933 of the Civil Code of California, as amended from time to
time, and the provisions of any similar law hereinafter enacted. If the
Lease is terminated by Lessor pursuant to this Article 21, the unused balance
of the Security Deposit and any Rentals unearned as of the effective date of
termination shall be refunded to Lessee. Lessee shall pay to Lessor any
Rentals or other charges due Lessor under the Lease, prorated as of the
effective date of termination.
Notwithstanding the foregoing, if less than thirty-three percent (33%)
of the Rentable Area of the Building is damaged from an insured casualty and
the insurance proceeds actually available to Lessor for reconstruction (net
of costs to recover such proceeds and after all claimants thereto including
lienholders have been satisfied or waive their respective claims) plus
applicable deductible amounts under such insurance policies ("Net Insurance
Proceeds") are sufficient to completely restore the Building or in the event
of a casualty due to a cause which is not covered by the insurance
maintained by Lessor (and which would not have been so covered if Lessor had
maintained the insurance required to be maintained by Lessor pursuant to this
Lease) but costing less than $500,000 to repair, Lessor agrees to make such
reparations and continue this Lease in effect. If, upon damage of less than
thirty-three percent (33%) of the Rentable Area of the Building there are not
sufficient insurance proceeds actually available (when added to
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applicable deductible amounts) to allow Lessor to completely restore the
Building, or in the event of a casualty due to a cause which is not covered
by the insurance maintained by Lessor (and which would not have been so
covered if Lessor had maintained the insurance required to be maintained by
Lessor pursuant to this Lease) but costing $500,000 or more to repair, then
Lessor shall not be obligated to repair the Building and the provisions of
the first paragraph of this Article shall control. Notwithstanding anything
to the contrary contained in this Article, Lessor shall not be permitted to
terminate this Lease following casualty damage to portions of the Project
other than the Premises unless Lessor also concurrently terminates the leases
of all similarly affected Building tenants.
Lessee shall not be entitled to any compensation or damages from Lessor
for loss of the use of the whole or any part of the Premises, or for any
damage to Lessee's business, or any inconvenience or annoyance occasioned by
such damage, or by any repair, reconstruction or restoration by Lessor, or by
any failure of Lessor to make any repairs, reconstruction or restoration
under this Article or any other provision of this Lease. However,
notwithstanding anything to the contrary contained in this Lease, in the
event of material casualty damage to the Premises not resulting in
termination of this Lease, Lessor shall deliver written notice to Lessee
within ninety (90) days following such casualty damage or occurrence setting
forth Lessor's good faith estimate of the time required for completion of
repair and/or restoration of the Premises, and if such estimated time exceeds
two hundred seventy (270) days from the occurrence of the casualty, Lessee
may elect to terminate this Lease by written notice to Lessor within fifteen
(15) days following Lessee's receipt of such notice. In addition, if such
repair is not substantially completed so as to permit Lessee's resumption of
business from the Premises without material interference from any uncompleted
repair work within two hundred forty (240) days from the occurrence of the
casualty (or such longer period as may have been estimated in Lessor's
written notice to Lessee pursuant hereto), then Lessee shall thereafter have
the right to terminate this Lease upon thirty (30) days prior written notice
to Lessor (provided that if such repair work is so substantially completed
prior to the expiration of such thirty (30) day period, then Lessee's
election to terminate shall be nullified and this Lease shall continue in
full force and effect).
22. DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
a. Lessee's failure to pay when due Base Rent or any other Rentals or
other sums payable hereunder where such failure is not cured within five (5)
days following Lessor's delivery of written notice thereof (which notice
shall be in lieu of, and not in addition to, any notice required under
applicable laws, including, without limitation, notices required under
California Code of Civil Procedure Section 1161 or any similar or successor
statute, provided such notice is served in the manner required under
California Code of Civil Procedure Section 1162 or any successor statute);
b. Lessee's abandonment of the Premises;
c. Commencement, and continuation for at least thirty (30) days, of any
case, action, or proceeding by, against, or concerning Lessee, or any
guarantor of Lessee's obligations under this Lease ("Guarantor"), under any
federal or state bankruptcy, insolvency, or other debtor's relief law,
including without limitation, (i) a case under Title II of the United States
Code concerning Lessee, or a Guarantor, whether under Chapter 7, 11, or 13 of
such Title or under any other Chapter, or (ii) a case, action, or proceeding
seeking Lessee's or a Guarantor's financial reorganization or an arrangement
with any of Lessee's or a Guarantor's creditors;
d. Voluntary or involuntary appointment of a receiver, trustee, keeper,
or other person who takes possession for more than thirty (30) days of
substantially all of Lessee's or a Guarantor's assets, or of any asset used
in Lessee's business on the Premises, regardless of whether such appointment
is as a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Lessee or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving (whether
voluntary or involuntary) the entity of Lessee or a Guarantor, if Lessee or
such Guarantor is a corporation, partnership, limited liability company or
other entity;
g. Levy of a writ of attachment or execution on Lessee's interest under
this Lease, if such writ continues for a period of ten (10) days;
h. Intentionally omitted;
i. With respect to any report that Lessee is required to submit
hereunder, the wilful submission by Lessee of a report which Lessee knows to
be materially inaccurate;
j. The use or occupancy of the Premises for any use or purpose not
specifically allowed by the terms of this Lease; or
k. Breach by Lessee of any term, covenant, condition, warranty, or
provision contained in this Lease or of any other obligation owing or due to
Lessor other than as described in subsections 22.a., b., c., d., e., f., g.,
h., i. or j. of this Article 22, where such failure shall continue for a
period of thirty (30) days after written notice thereof by Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more
than thirty (30) days are reasonably required for its cure, Lessee shall not
be deemed to be in default if Lessee commences such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to completion,
and if Lessee provides Lessor with such security as Lessor may require to
fully compensate Lessor for any loss or liability to which
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Lessor might be exposed; provided that any such notice from Lessor shall be
in lieu of, and not in addition to, any notice required under applicable
laws, including, without limitation, notices required under California Code
of Civil Procedure Section 1161 or any similar or successor statute, provided
such notice is served in the manner required under California Code of Civil
Procedure Section 1162 or any successor statute.
23. REMEDIES UPON DEFAULT. Upon any default or breach by Lessee which is
not cured within any applicable period for cure provided for in Article 22
above, at any time thereafter, with or without notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have
hereunder or otherwise at law or in equity by reason of such default or
breach Lessor may do the following:
a. TERMINATION OF LEASE. Lessor may terminate this Lease by notice to
Lessee or any other lawful means, in which case this Lease shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee:
(i) The worth at the time of award of the unpaid Rentals which
had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Rentals which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Lessee proves could have
been reasonably avoided;
(iii) The worth at the time of award (computed by discounting at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent) of the amount by which the unpaid Rentals for the
balance of the Term after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided; and
(iv) Any other amounts necessary to compensate Lessor for
detriment proximately caused by the default by Lessee or which in the
ordinary course of events would likely result, including without limitation
the reasonable costs and expenses incurred by Lessor for:
(A) Retaking possession of the Premises;
(B) Cleaning and making repairs and alterations (including
installation of leasehold improvements, whether or not the same shall be
funded by a reduction of rent, direct payment or otherwise) necessary to
return the Premises to good condition and preparing the Premises for
reletting;
(C) Removing, transporting, and storing any of Lessee's
property left at the Premises (although Lessor shall have no obligation to
remove, transport, or store any of the property);
(D) Reletting the Premises, including without limitation,
brokerage commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and court costs;
(F) Any unamortized real estate brokerage commissions paid
in connection with this Lease; and
(G) Costs of carrying the Premises, such as repairs,
maintenance, taxes and insurance premiums, utilities and security
precautions, if any.
The "worth at the time of award" of the amounts referred to in Articles
23.a.(i) and 23.a.(ii) is computed by allowing interest at an annual rate
equal to the greater of: ten percent (10%); or five percent (5%) plus the
rate established by the Federal Reserve Bank of San Francisco, as of the 25th
day of the month immediately preceding the default by Lessee, on advances to
member banks under Section 13 and 13(a) of the Federal Reserve Act, as then
in effect or hereafter from time to time amended (the "Stipulated Rate").
The computation of the amount of rental loss that could be or could have been
reasonably avoided by Lessor pursuant to California Civil Code section 1951.2
shall take into account the use restrictions set forth in Article 8.a. above
except to the extent that Lessee proves that under all circumstances the
enforcement of the use restriction would be unreasonable.
b. CONTINUATION OF LEASE. Lessor shall have the remedy described in
California Civil Code Section 1951.4 (Lessor may continue Lease in effect
after Lessee's breach and abandonment and recover rent as it becomes due, if
Lessee has right to sublet or assign, subject only to reasonable
limitations), the parties hereby agreeing and acknowledging that Lessee has
the right to sublet or assign under this Lease subject only to reasonable
limitations. The use restriction provided in Article 8.a. above shall apply
to Lessor's remedies under California Civil Code Section 1951.4 except to the
extent that Lessee proves that under all circumstances enforcement of the
use restriction would be unreasonable.
c. OTHER REMEDIES. Lessor may pursue any other remedy now or hereafter
available to Lessor under the laws or judicial decisions of the State in
which the Premises are located.
d. GENERAL. The following shall apply to Lessor's remedies:
(i) No entry upon or taking of possession of the Premises or any
part thereof by Lessor, nor any letting or subletting thereof by Lessor for
Lessee, not any appointment of a receiver, nor any other act of Lessor,
whether acceptance of keys to the Premises or otherwise, shall constitute or
be construed as an election by Lessor to
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terminate this Lease or Lessee's right to possession of the Premises unless a
written notice of such election be given to Lessee by Lessor.
(ii) If Lessor elects to terminate this Lease or Lessee's right to
possession hereunder, Lessee shall surrender and vacate the Premises in
broom-clean condition, and Lessor may re-enter and take possession of the
Premises and may eject all parties in possession or eject some and not others
or eject none. Any personal property of or under the control of Lessee
remaining on the Premises at the time of such re-entry may be considered and
treated by Lessor as abandoned.
24. EMINENT DOMAIN. If a portion of the Premises materially and adversely
affecting the operation of Lessee's business from the Premises is taken or
appropriated for any public or quasi-public use under the power of eminent
domain, or conveyed in lieu thereof, Lessee shall have the right, at its
option, to terminate this Lease by written notice to Lessor given within ten
(10) days of the date of such taking, appropriation or conveyance. If any
substantial part of the Building or the Project other than the Premises is so
taken, appropriated or conveyed, Lessor shall have the right at its option to
terminate this Lease. Notwithstanding anything to the contrary contained in
this Article, Lessor shall not be permitted to terminate this Lease following
condemnation to portions of the Project other than the Premises unless Lessor
also concurrently terminates the leases of all similarly affected Building
tenants. If this Lease is terminated as provided above: (i) the termination
shall be effective as of the date upon which title to the Premises, the
Building, the Project, or a portion thereof, passes to and vests in the
condemnor or the effective date of any order for possession if issued prior
to the date title vests in the condemnor; (ii) Lessor shall refund to Lessee
any prepaid but unearned Rentals and the unused balance of the Security
Deposit; and (iii) Lessee shall pay to Lessor any Rentals or other charges
due Lessor under the Lease, prorated as of the date of taking.
In the event of any such taking, appropriation or conveyance in lieu
thereof, (i) Lessor shall be entitled to the entirety of any and all income,
rent, award, or any interest therein whatsoever which may be paid or made
(the "Award") in connection therewith (including, without limitation, any
Award attributable to the value of any unexpired Term of this Lease), and
Lessee shall have no claim against Lessor for (and hereby assigns to Lessor
any claim which Lessee may have for) any Award attributable to the value of
any unexpired Term of this Lease, and Lessee shall be entitled to make a
claim for any separate award attributable to any taking of Lessee's trade
fixtures and any amount allocable to the then unamortized cost of any Lessee
Improvements made by Lessee at Lessee's cost (based upon monthly straight
line amortization over the initial eighty-four (84) month Lease Term); and
(ii) if this Lease is not terminated as provided above, the Rental thereafter
to be paid hereunder for the Premises shall be reduced in the same ratio that
the percentage of the area of the Premises so taken, appropriated or conveyed
bears to the total area of the Premises immediately prior to the taking,
appropriation or conveyance. In addition, if any Rentable Area in the
Building containing the Premises is so taken, appropriated or conveyed and
this Lease is not terminated by Lessor, Lessee's Percentage Share of Excess
Expenses shall be adjusted pursuant to Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all or
any portion of the Premises, the Lease shall remain in effect and Lessee
shall continue to pay and be liable for all Rentals under this Lease. Upon
such temporary taking, Lessee shall be entitled to any Award for the
temporary use of the portion of the Premises taken which is attributable to
the period prior to the date of Lease Termination, and Lessor shall be
entitled to any portion of the Award for such use attributable to the period
after Lease Termination. As used in this paragraph, a temporary taking shall
mean a taking for a period of two hundred seventy (270) days or less and does
not include a taking which is to last for an indefinite period and/or which
will terminate only upon the happening of a specified event unless it can be
determined at the time of the taking when such event will occur.
25. OFFSET STATEMENT; MODIFICATIONS FOR LENDER. Lessee shall at any time
and from time to time within fifteen (15) days following request from Lessor
execute, acknowledge and deliver to Lessor a statement in writing, (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect), (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of the
Lessor hereunder, or specifying such defaults if any are claimed, (iii)
certifying the date Lessee entered into occupancy of the Premises and that
Lessee is open and conducting business at the Premises, (iv) certifying the
date to which Rentals and other charges are paid in advance, if any, (v)
evidencing the status of this Lease as may be required either by a lender
making a loan affecting or a purchaser of the Premises, or part of the
Project from Lessor, (vi) certifying that all improvements to be constructed
on the Premises by Lessor are substantially completed (if applicable),
except for any punch list items which do not prevent Lessee from using the
Premises for its intended use, and (vii) certifying such other matters
relating to this Lease and/or the Premises as may be requested by Lessor or a
lender making a loan to Lessor or a purchaser of the Premises, or any part of
the Project from Lessor. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the Project,
or any interest therein. Lessee shall, within fifteen (15) days following
request of Lessor, deliver such other documents including Lessee's financial
statements as are reasonably requested in connection with the sale of, or
loan to be secured by, any portion of the Project, or any interest therein;
provided that if and for so long as Lessee is a corporation whose stock is
traded on a public exchange, delivery of Lessee's annual 10-K as supplemented
by an subsequent 10-Q filings with the SEC shall be sufficient to satisfy
Lessee's requirement for delivery of financial statements pursuant hereto.
If in connection with obtaining financing for all or any portion of the
Project, any lender shall request modifications of this Lease as a condition
to Lessor obtaining such financing, Lessee will not unreasonably withhold,
delay or condition its consent thereto, provided that such modifications do
not increase the financial obligations of Lessee hereunder or materially and
adversely affect the leasehold interest hereby created or Lessee's rights
hereunder.
26. PARKING. Lessee shall have the right to use the number of
non-exclusive parking spaces located within the Project as designated in
Article 1.1. without charge during the Term; except, however, notwithstanding
anything
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to the contrary contained in this Lease, if a charge, fee, tax or other
imposition is assessed against Lessor or the Project by applicable
governmental authorities based upon use of parking spaces at the Project or
is required by applicable governmental authorities to be assessed by Lessor
upon users of parking spaces at the Project, then Lessee shall pay its
equitable share of such charge, fee, tax or other imposition to Lessor
monthly in advance as additional rent. Use of all parking spaces shall be
subject to rules and regulations established by Lessor which may be altered
at any time and from time to time during the Term. The location of all
parking spaces may be designated from time to time by Lessor. Neither Lessee
nor Lessee's Agents shall at any time use more parking spaces than the number
so allocated to Lessee or park or permit the parking of their vehicles in any
portion of the Parcel not designated by Lessor as a non-exclusive parking
area. Lessee and Lessee's Agents shall not have the exclusive right to use
any specific parking space, except as expressly stated in this Article 26.
Notwithstanding the number of parking spaces designated for Lessee's
non-exclusive use, in the event by reason of any rule, regulation, order,
law, statute or ordinance of any governmental or quasi-governmental authority
relating to or affecting parking on the Parcel, or any cause beyond Lessor's
reasonable control, Lessor is required to reduce the number of parking spaces
on the Parcel, Lessor shall have the right to proportionately reduce the
number of Lessee's parking spaces and the non-exclusive parking spaces of
other tenants of the Building. Lessor reserves the right in its reasonable
discretion: to determine whether parking facilities are becoming overcrowded
and in such event to re-allocate parking spaces among Lessee and other
tenants of the Project provided that there is no reduction in the parking
made available to Lessee pursuant to this Lease pursuant to Article 1.1.
above; to have any vehicles owned by Lessee or Lessee's Agents which are
parked in violation of the provisions of this Article 26 or Lessor's rules
and regulations relating to parking, towed away at Lessee's cost, after
having given Lessee reasonable notice. In the event Lessor elects or is
required by any law to limit or control parking on the Parcel, by validation
of parking tickets or any other method, Lessee agrees to participate in such
validation or other program under such reasonable rules and regulations as
are from time to time established by Lessor. Lessor shall have the right to
close all or any portion of the parking areas at reasonable times for any
purpose, including, without limitation, the prevention of a dedication
thereof, or the accrual of rights in any person or the public therein.
Employees of Lessee shall be required to park in areas designated for
employee parking, if any. The parking areas shall not be used by Lessee or
Lessee's Agents for any purpose other than the parking of motor vehicles and
the ingress and egress of pedestrians and motor vehicles.
27. AUTHORITY. If Lessee is a corporation, partnership, limited liability
company or other entity, Lessee represents and warrants that each individual
executing this Lease on behalf of said entity is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation or on behalf of said
partnership in accordance with the partnership agreement of such partnership
or otherwise on behalf of said entity in accordance with the organizational
documents governing such entity, and that this Lease is binding upon said
entity in accordance with its terms. If Lessee is a corporation or other
entity, Lessee shall, upon execution of this Lease, deliver to Lessor a
certified copy of a resolution of the Board of Directors of said corporation
or other evidence of organizational approval authorizing or ratifying the
execution of this Lease. If Lessee fails to deliver such resolution or other
evidence to Lessor upon execution of this Lease, Lessor shall not be deemed
to have waived its right to require delivery of such resolution or other
evidence, and at any time during the Term Lessor may request Lessee to
deliver the same, and Lessee agrees it shall thereafter promptly deliver such
resolution or other evidence to Lessor. If Lessee is a corporation or other
entity, Lessee hereby represents, warrants, and covenants that (i) Lessee is
a valid and existing corporation or other entity; (ii) Lessee is qualified to
do business in California; (iii) all fees and all franchise and corporate
taxes of Lessee are paid to date, and will be paid when due; (iv) all
required forms and reports will be filed when due; and (v) the signers of
this Lease are properly authorized to execute this Lease on behalf of Lessee
and to bind Lessee hereto.
28. SURRENDER OF PREMISES.
a. CONDITION OF PREMISES. Lessee shall, upon Lease Termination,
surrender the Premises in the condition required pursuant to subsection 10.b.
above, and otherwise in broom clean, trash free, and in the same condition as
received and with approved Lessee Improvements and Alterations (unless
required to be removed at the time of approval of such Lessee Improvements or
Alterations pursuant to this Lease), reasonable wear and tear, and casualties
and condemnation excepted. By written notice to Lessee, Lessor may elect to
cause Lessee to remove from the Premises or cause to be removed, at Lessee's
expense, any logos, signs, notices, advertisements or displays placed on the
Premises by Lessee. If the Premises is not so surrendered as required by
this Article 28, Lessee shall indemnify, defend and hold harmless Lessor from
and against any loss or liability resulting from Lessee's failure to comply
with the provisions of this Article 28, including, without limitation, any
claims made by any succeeding tenant or losses to Lessor due to lost
opportunities to lease to succeeding tenants, and the obligations of Lessee
pursuant hereto shall survive the Lease Termination.
b. REMOVAL OF PERSONAL PROPERTY. Lessee shall remove all its personal
property from the Premises upon Lease Termination, and shall immediately
repair all damage to the Premises, Building and Common Area caused by such
removal. Any personal property remaining on the Premises after Lease
expiration or sooner termination may be packed, transported, and stored at a
public warehouse at Lessee's expense. If after Lease Termination and, within
ten (10) days after written demand by Lessor, Lessee fails to remove Lessee's
personal property or, if removed by Lessor, fails to pay the removal
expenses, the personal property may be deemed abandoned property by Lessor
and may be disposed of as Lessor deems appropriate. Lessee shall repair any
damage to the Premises caused by or in connection with the removal of any
personal property, including without limitation, the floor and patch and
paint the walls, when required by Lessor, to Lessor's reasonable satisfaction,
all at Lessee's sole cost and expense. The provisions of this Article 28
shall survive Lease Termination.
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29. LESSOR DEFAULT AND MORTGAGEE PROTECTION. Lessor shall not be in default
under this Lease unless Lessee shall have given Lessor written notice of the
breach, and, within thirty (30) days after notice, Lessor has not cured the
breach or, if the breach is such that it cannot reasonably be cured under the
circumstances within thirty (30) days, has not commenced diligently to
prosecute the cure to completion. The liability of Lessor pursuant to this
Lease shall be limited to Lessor's interest in the Building and any money
judgment obtained by Lessee based upon Lessor's breach of this Lease or
otherwise relating to this Lease or the Premises, shall be satisfied only out
of the proceeds of the sale or disposition of Lessor's interest in the
Building (whether by Lessor or by execution of judgment). Lessee agrees that
the obligations of Lessor under this Lease do not constitute personal
obligations of the individual partners, whether general or limited,
members, directors, officers or shareholders of Lessor, and Lessee shall
not seek recourse against the individual partners, members, directors,
officers or shareholders of Lessor or any of their personal assets for
satisfaction of any liability with respect to this Lease. Upon any breach by
Lessor under this Lease, Lessee shall give notice by registered mail to any
beneficiary or mortgagee of a deed of trust or mortgage encumbering the
Premises, and/or any portion of the Project, whose address shall have been
furnished to it, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the breach, including time to obtain possession of the
Premises, and/or Project, or any portion thereof, by appointment of a
receiver or (if appointment of a receiver is not permitted under the
circumstances) by power of sale or judicial foreclosure, if such should prove
necessary to effect a cure.
30. RIGHTS RESERVED BY LESSOR. Lessor reserves the right from time to time,
without abatement of Rentals and without limiting Lessor's other rights under
this Lease: (i) to install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other
parts of the Project above the ceiling surfaces, below the floor surfaces,
within the walls and in the central core areas, and to relocate any pipes,
ducts, conduits, wires and appurtenant meters and equipment included in the
Premises which are located in the Premises or located elsewhere outside the
Premises, and to expand any building within the Project; (ii) to designate
other land outside the current boundaries of the Project be a part of the
Project, in which event the Parcel shall be deemed to include such additional
land, and the Common Areas shall be deemed to include Common Areas upon
such additional land; (iii) to add additional buildings and/or other
improvements ('including, without limitation, additional parking structures
or extension of existing parking structures) to the Project, which may be
located on land added to the Project pursuant to clause (ii) above; (iv) to
make changes to the Common Areas, including, without limitation, changes in
the location, size, shape and number of driveways, entrances, parking spaces,
parking areas, loading and unloading areas, ingress, egress, direction of
traffic, landscape areas and walkways; (v) to close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (vi) to use the Common Areas while engaged in
making additional improvements, repairs or alterations to the Building or the
Project, or any portion thereof; (vii) to grant the right to the use of the
Exterior Common Area to the occupants of other improvements located on the
Parcel; (viii) to designate the name, address, or other designation of the
Building and/or Project, without notice or liability to Lessee; (ix) to close
entrances, doors, corridors, elevators, escalators or other Building
facilities or temporarily abate their operation; (x) to change or revise the
business hours of the Building; and (xi) to do and perform such other acts
and make such other changes in, to or with respect to the Common Areas, the
Building or any other portion of the Project as Lessor deems to be
appropriate in the exercise of its reasonable business judgment. In the
exercise of its rights under this Article, Lessor shall not materially
increase the obligations imposed on Lessee pursuant to this Lease or
materially diminish the rights granted to Lessee under this Lease, and Lessor
shall use reasonable efforts to minimize any unreasonable interference with
the operation of Lessee's business from the Premises.
31. EXHIBITS. Exhibits and riders, if any, signed by the Lessor and the
Lessee and endorsed on or affixed to this Lease are a part hereof.
32. WAIVER. No covenant, term or condition in this Lease or the breach
thereof shall be deemed waived, except by written consent of the party
against whom the waiver is claimed. Any waiver of the breach of any
covenant, term or condition herein shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other covenant, term or
condition. Acceptance by Lessor of any performance by Lessee after the time
the same shall have become due shall not constitute a waiver by Lessor of the
breach or default of any covenant, term or condition unless otherwise
expressly agreed to by Lessor in writing. The acceptance by Lessor of any
sum less than that which is required to be paid by Lessee shall be deemed to
have been received only on account of the obligation for which it is paid (or
for which it is allocated by Lessor, in Lessor's absolute discretion, if
Lessee does not designate the obligation as to which the payment should be
credited), and shall not be deemed an accord and satisfaction notwithstanding
any provisions to the contrary written on any check or contained in a letter
of transmittal. Lessor's efforts to mitigate damages caused by any default
by Lessee shall not constitute a waiver of Lessor's right to recover damages
for any default by Lessee. No custom or practice which may arise between the
parties hereto in the administration of the terms hereof shall be construed
as a waiver or diminution of Lessor's right to demand performance by Lessee
in strict accordance with the terms of this Lease.
33. NOTICES. All notices, consents and demands which may or are to be
required or permitted to be given by either party to the other hereunder
shall be in writing. All notices, consents and demands by Lessor to Lessee
shall be personally delivered, sent by overnight courier providing receipt of
delivery (such as Federal Express), or sent by United States Certified
Mail, postage prepaid return receipt requested, addressed to Lessee as
designated in Article 1.m., or to such other place as Lessee may from time to
time designate in a notice to Lessor pursuant to this Article 33. All notices
and demands by Lessee to Lessor shall be personally delivered, sent by
overnight courier providing receipt of delivery (such as Federal Express) or
sent by United States Certified Mail, postage prepaid return receipt
requested (provided that a copy of any such notice or demand so sent by
United States Certified Mail shall be concurrently sent by facsimile
transmission), addressed to Lessor as designated in Article 1.m., or to such
other person or place as Lessor may from time to time designate in a notice
to Lessee pursuant to this Article 33.
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Notices sent by overnight courier shall be deemed delivered upon the next
business day following deposit with such overnight courier for next business
day delivery. Mailed notices shall be deemed delivered two (2) business days
after deposit in the United States mail as required by this Article 33.
34. JOINT OBLIGATIONS. If Lessee consists of more than one person or
entity, the obligations of each Lessee under this Lease shall be joint and
several.
35. MARGINAL HEADINGS. The captions of paragraphs and articles of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
36. TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor except as to the delivery of
possession of the Premises to Lessee.
37. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
subject to the provisions of Article 13, apply to and bind the heirs,
successors, executors, administrators, legal representatives and assigns of
the parties hereto.
38. RECORDATION. Upon request by Lessor, Lessee shall execute and
acknowledge a short form of this Lease in form for recording which may be
recorded at Lessor's election. Lessee shall not record this Lease or a short
form or memorandum hereof without the prior written consent of Lessor.
39. QUIET POSSESSION. Upon Lessee paying the Rentals reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term, subject to all the provisions
of this Lease and subject to any ground or underlying leases, mortgages or
deeds of trust now or hereafter affecting the Premises or the Building and
the rights reserved by Lessor hereunder.
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST.
a. LATE CHARGES. Lessee acknowledges that late payment by Lessee to
Lessor of Rentals or other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which are
impracticable or extremely difficult to ascertain. Such costs include, but
are not limited to, processing and accounting charges, and late charges which
may be imposed upon Lessor by the terms of any mortgage or trust deed
covering the Premises or any part of the Project. Accordingly, if any
installment of Rentals or any other sum due from Lessee is not received by
Lessor or Lessor's designee within five (5) (days after the due date, then
Lessee shall pay to Lessor, in each case, a late charge equal to five percent
(5%) of such overdue amount; provided, however, that with respect to the
first and second such late payment in any twelve (12) month period during the
Term, such late charge shall not be payable unless such late payment by
Lessee shall not be cured within five (5) days following Lessee's receipt of
written notice from Lessor of such late payment. The parties agree that such
late charge represents a fair and reasonable estimate of the cost that Lessor
will incur by reason of late payment by Lessee. Acceptance of any late
charges by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any
of its other rights and remedies under this Lease.
b. RENTALS, ADDITIONAL RENT AND INTEREST. All taxes, charges, costs,
expenses, and other amounts which Lessee is required to pay hereunder,
including without limitation Lessee's Percentage Share of Excess Expenses,
and all interest and charges (including late charges) that may accrue thereon
upon Lessee's failure to pay the same and all damages, costs and expenses
which Lessor may incur by reason of any default by Lessee shall be deemed to
be additional rent hereunder. Upon nonpayment by Lessee of any additional
rent, Lessor shall have all the rights and remedies with respect thereto as
Lessor has for the nonpayment of Base Rent. The term "Rentals" as used in
this Lease is Base Rent and all additional rent. Any payment due from Lessee
to Lessor (including but not limited to Base Rent and all additional rent)
which is not paid within three (3) business days of when due shall bear
interest from the date when due until paid, at an annual rate equal to the
maximum rate that Lessor is allowed to contract for by law. Payment of such
interest shall not excuse or cure any default by Lessee. In addition, Lessee
shall pay all costs and attorneys' fees incurred by Lessor in collection of
such amounts. All Rentals and other moneys due under this Lease shall
survive the Lease Termination. Interest on Rentals past due as provided
herein shall be in addition to the late charges levied pursuant to 40.a.
above. All Rentals shall be paid to Lessor, in lawful money of the United
States of America which shall be legal tender at the time of payment, at the
address of Lessor a provided herein, or to such other person or at such other
place as Lessor may from time to time designate in writing. If at any time
during the Term Lessee pays any Rentals by check which is returned for
insufficient funds, Lessor shall have the right, in addition to any other
rights or remedies Lessor may have hereunder, to require that Rentals
thereafter be paid in cash or by cashier's or certified check.
41. PRIOR AGREEMENTS. This Lease contains all of the agreements of the
parties hereto with respect to the Premises, this Lease or any matter covered
or mentioned in this Lease, and no prior agreements or understanding
pertaining to any such matters shall be effective for any purpose. No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in
interest. This Lease shall not be effective or binding on Lessor until fully
executed by Lessor.
42. INABILITY TO PERFORM. This Lease and the obligations of the Lessee
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason strike, labor troubles, Acts of God,
or any other cause, similar or dissimilar beyond the reasonable control of
the Lessor.
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43. ATTORNEYS' FEES. If either party to this agreement shall bring an
action to interpret or enforce this agreement or for any relief against the
other, including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a reasonable
sum for attorney's fees, expert witness fees and other costs incurred in such
action or proceeding. Additionally, the prevailing party shall be entitled
to all additional attorney's fees and costs incurred in enforcing and
collecting any such judgment or award. Any judgment or order entered in such
action shall contain a specific provision providing for the recovery of
attorney's fees and costs incurred in enforcing such award or judgment.
44. SALE OF PREMISES BY LESSOR. Upon a sale or conveyance by the Lessor
herein named (and in case of any subsequent transfers or conveyances, the
then grantor) of Lessor's interest in the Building, other than a transfer for
security purposes only, the Lessor herein named (and in case of any
subsequent transfers or conveyances, the then grantor) shall be relieved,
from and after the date of such transfer, of all obligations and liabilities
accruing thereafter on the part of Lessor, provided that the transferee
assumes the remaining obligations of Lessor under this Lease and any funds
in the hands of Lessor or the then grantor at the time of transfer and in
which Lessee has an interest, less any deductions permitted by law or this
Lease, shall be delivered to Lessor's successor. Following such sale or
conveyance by Lessor or the then grantor, Lessee agrees to look solely to the
responsibility of the successor-in-interest of Lessor in and to this Lease as
to obligations assumed by such successor-in-interest. This Lease shall not
be affected by any such sale or conveyance and Lessee agrees to attorn to the
purchaser or assignee.
45. SUBORDINATION/ATTORNMENT. This Lease shall automatically be subject and
subordinate to all ground or underlying leases which now exist or may
hereafter be executed affecting any portion of the Project and to the lien of
any mortgages or deeds of trust (including all advances thereunder, renewals,
replacements, modifications, supplements, consolidations, and extensions
thereof) in any amount or amounts whatsoever now or hereafter placed on or
against any portion of the Project, or on or against Lessor's interest or
estate therein, or on or against any ground or underlying lease, without the
necessity of the execution and delivery of any further instruments on the
part of Lessee to effectuate such subordination. Lessee covenants and agrees
to execute and deliver upon demand and without charge therefor, such further
instruments, in commercially reasonable form, evidencing the subordination
of this Lease to such ground or underlying leases and/or to the lien of any
such mortgages or deeds of trusts as may be required by Lessor or a lender
making a loan affecting the Project; provided that such mortgagee or
beneficiary under such mortgage or deed of trust or lessor under such ground
or underlying lease agrees in writing in commercially reasonable form that so
long as Lessee is not in default under this Lease (beyond any applicable
period for cure as provided in Article 22 of this Lease), this Lease shall
not be terminated in the event of any foreclosure or termination of any
ground or underlying lease. If any mortgagee, beneficiary or lessor elects
to have this Lease prior to the lien of its mortgage, deed of trust or lease,
and shall give written notice thereof to Lessee, this Lease shall be deemed
prior to such mortgage, deed of trust or lease, whether this Lease is dated
prior or subsequent to the date of said mortgage, deed of trust, or lease or
the date of the recording thereof.
If any proceedings are brought to terminate any ground or underlying
leases or for foreclosure, or upon the exercise of the power of sale, under
any mortgage or deed of trust covering any portion of the Project, Lessee
shall attorn to the lessor or purchaser upon any such termination, foreclosure
or sale and recognize such lessor or purchaser as the Lessor under this
Lease. So long as Lessee is not in default hereunder and attorns as required
above, this Lease shall remain in full force and effect for the full term
hereof after any such termination, foreclosure or sale.
Notwithstanding anything to the contrary contained in the foregoing, (i)
it shall be a condition to Lessee's obligation to subordinate or attorn to any
mortgagee or trust deed beneficiary to whose mortgage or deed of trust this
Lease is hereafter subordinated, that such mortgagee or trust deed
beneficiary enters into with Lessee an agreement of subordination,
non-disturbance and attornment in commercially reasonable form, and (ii)
Lessor shall use commercially reasonable efforts to obtain from any existing
mortgagee or trust deed beneficiary under a mortgage or deed of trust
encumbering the Project or Building as of the execution of this Lease,
non-disturbance protection for Lessee (which shall be deemed to include an
election by such mortgagee or beneficiary to subordinate its lien to this
Lease) on commercially reasonable terms within thirty (30) days following the
execution of this Lease.
46. NAME. Lessee shall not use any name, picture or representation of the
Building or Project for any purpose other than as an address of the business
to be conducted by the Lessee in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be invalid,
void or illegal shall in no way affect, impair or invalidate any other
provision of this Lease and all such other provisions shall remain in full
force and effect; however, if Lessee's obligation to pay the Rentals is
determined to be invalid or unenforceable, this Lease shall terminate at the
option of Lessor.
48. CUMULATIVE REMEDIES. Except has otherwise expressly provided in this
Lease, no remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of the State of
California.
50. SIGNS. Lessee shall not inscribe, paint, affix or place any sign,
awning, canopy, advertising matter, decoration or lettering upon any portion
of the Premises, including, without limitation, any exterior door, window or
wall, without Lessor's prior written consent. Subject in all events to the
requirements of the City of San Mateo and other applicable governmental
requirements and any other restrictions of record or to which the Project is
subject, (a) Lessee shall be entitled to Building standard identification of
Lessee upon the common Building lobby directory board sign to be installed by
Lessor in the Building lobby; (b) Lessor shall, at Lessor's sole cost,
install Building standard
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signage identifying Lessee on the Premises entry doors; and (c) Lessee, at
Lessee's cost, shall be entitled to standard identification on the Building
monument sign, subject to compliance with applicable governmental
requirements. The exact location, size, materials, coloring and lettering of
all Lessee signage (including, without limitation, any such monument signage)
shall be subject to Lessor's prior written approval.
51. GENDER AND NUMBER. Wherever the context so requires, each gender shall
include any other gender, and the singular number shall include the plural
and vice-versa.
52. CONSENTS. Whenever the consent of Lessor is required herein, the giving
or withholding of such consent in any one or any number of instances shall
not limit or waive the need for such consent in any other or future
instances. Any consent given by Lessor shall not be binding upon Lessor
unless in writing and signed by Lessor or Lessor's agents. Notwithstanding
any other provision of this Lease, where Lessee is required to obtain the
consent of Lessor to do any act, or to refrain from the performance of any
act, Lessee agrees that if Lessee is in default with respect to any term,
condition, covenant or provision of this Lease, then Lessor shall be deemed
to have acted reasonably in withholding its consent if said consent is, in
fact, withheld.
53. BROKERS. Lessor shall be responsible, pursuant to separate written
agreement, for the payment of the commission in connection with this Lease
owing to the brokers designated in Article 1.n. above. Lessor warrants that
it has had no dealing with any real estate broker or agents in connection
with the negotiation of this Lease excepting only the broker or agent
designated in Article 1.n., and that it knows of no other real estate broker
or agent who is entitled to or can claim a commission in connection with this
Lease. Lessor agrees to indemnify, defend and hold Lessee harmless from and
against any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) with respect to any alleged leasing commission
or equivalent compensation alleged to be owing on account of Lessor's
dealings with any such other real estate broker or agent. Lessee warrants
that it has had no dealing with any real estate broker or agents in
connection with the negotiation of this Lease excepting only the broker or
agent designated in Article 1.n., and that it knows of no other real estate
broker or agent who is entitled to or can claim a commission in connection
with this Lease. Lessee agrees to indemnify, defend and hold Lessor harmless
from and against any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) with respect to any alleged leasing commission
or equivalent compensation alleged to be owing on account of Lessee's
dealings with any such other real estate broker or agent.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Lessee no rights either
with respect to the subsurface of the Parcel or with regard to airspace above
the top of the Building or above any paved or landscaped areas on the Parcel
or Common Area and Lessor expressly reserves the right to use such subsurface
and airspace areas, including without limitation the right to perform
construction work thereon and in regard thereto. Any diminution or shutting
off of light, air or view by any structure which may be erected by Lessor on
those portions of the Parcel, Common Area and/or Building reserved by Lessor
shall in no way affect this Lease or impose any liability on Lessor. Lessor
shall have the exclusive right to use all or any portion of the roof, side
and rear walls of the Premises and Building for any purpose. Lessee shall
have no right whatsoever to the exterior of the exterior walls or the roof of
the Premises or any portion of the Project outside the Premises except as
provided in Article 55 of this Lease.
55. COMMON AREA. For purposes of the Lease, "Common Area" shall collectively
mean the following:
a. EXTERIOR COMMON AREA. That portion of the Parcel other than the land
comprising the property, and all facilities and improvements on such portion
for the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, vehicle parking areas, driveways, sidewalks,
landscaped areas, and the facilities and improvements necessary for the
operation thereof (the "Exterior Common Area"); and
b. BUILDING COMMON AREA. That portion of the Building in which the
Premises are located, and all of the facilities therein, set aside by Lessor
for the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, entrances, lobbies, halls, atriums, corridors,
toilets and lavatories, passenger elevators and service areas (the "Building
Common Area").
Subject to the limitations and restrictions contained in this Lease, and
the Rules and Regulations, Lessor grants to Lessee and Lessee's Agents the
nonexclusive right to use the Common Area in common with Lessor, Lessor's
agent, other occupants of the Building and Project, other authorized users
and their agents, subject to the provisions of this Lease. The right to use
the Common Area shall terminate upon Lease Termination.
56. LABOR DISPUTES. If Lessee becomes involved in or is the object of a
labor dispute which subjects the Premises or any part of the Project to any
picketing, work stoppage, or other concerted activity which in the reasonable
opinion of Lessor is in any manner detrimental to the operation of any part
of the Project, or its tenants, Lessor shall have the right to require
Lessee, at Lessee's own expense and within a reasonable period of time
specified by Lessor, to use Lessee's reasonable efforts to either resolve
such labor dispute or terminate or control any such picketing, work stoppage
or other concerted activity to the extent necessary to eliminate any
interference with the operation of the Projector its tenants. To the extent
such labor dispute interferes with the performance of Lessor's duties
hereunder, Lessor shall be excused from the performance of such duties and
Lessee hereby waives any and all claims against Lessor for damages or losses
in regard to such duties. Nothing contained in this Article 56 shall be
construed as placing Lessor in an employer-employee relationship with any of
Lessee's employees or with any other employees who may be involved in such
labor dispute. Lessee shall indemnify, defend and hold harmless Lessor from
and against any and all liability (including, without limitation, attorneys'
fees and expenses) arising from any labor dispute in which Lessee is involved
and which affects any part of the Project.
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<PAGE>
57. REASONABLENESS. Whenever the consent or approval of the Lessor or Lessee
is required under this Lease, such consent or approval shall not be
unreasonably withheld, conditioned or delayed, unless a different standard
for the granting or withholding of such approval of consent is specifically
set forth in this Lease.
58. LESSEE'S FINANCIAL STATEMENTS. Lessee hereby warrants that all financial
statements delivered by Lessee to Lessor prior to the execution of this Lease
by Lessee, or that shall be delivered in accordance with the terms hereof,
are or shall be at the time delivered true, correct, and complete, and
prepared in accordance with generally accepted accounting principles. Lessee
acknowledges and agrees that Lessor is relying on such financial statements
in accepting this Lease, and that a breach of Lessee's warranty as to such
financial statements shall constitute a default by Lessee.
59. LESSOR NOT A TRUSTEE. Lessor shall not be deemed to be a trustee of any
funds paid to Lessor by Lessee (or held by Lessor for Lessee) pursuant to
this Lease. Lessor shall not be required to keep any such funds separate
from Lessor's general funds or segregated from any funds paid to Lessor by
(or held by Lessor for) other tenants of the Building. Any funds held by
Lessor pursuant to this Lease shall not bear interest.
60. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, shall not work a merger, and shall, at the
option of the Lessor, terminate all or any existing subleases or
substancies, or may, at the option of Lessor, operate as an assignment to
it of any or all such subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be
construed as creating a partnership or joint venture between Lessor, Lessee,
or any other party, or cause Lessor to be responsible for the debts or
obligations of Lessee or any other party.
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS. Except as otherwise
expressly provided herein, if Lessee fails at any time to make any payment or
perform any other act on its part to be made or performed under this Lease
and such failure continues for ten (10) days (or such longer period of time
as may be reasonably necessary to perform the cure of such failure, so long
as such cure is promptly commenced and diligently prosecuted to completion)
after written notice from Lessor to Lessee (provided that no such notice
shall be required in the event of an emergency), Lessor may, but shall not be
obligated to, and without waiving or releasing Lessee from any obligation
under this Lease, make such payment or perform such other act to the extent
that Lessor may deem desirable, and in connection therewith, pay expenses and
employ counsel. All sums so paid by Lessor and all penalties, interest and
costs in connection therewith shall be due and payable by Lessee to Lessor as
additional rent upon demand.
63. PLANS. Lessee acknowledges that any plan of the Project which may have
been displayed or furnished to Lessee or which may be a part of Exhibit "A"
or Exhibit "B" is tentative; Lessor may from time to time change the shape,
size, location, number, and extent of the improvements shown on any such plan
and eliminate or add any improvements to the Project, in Lessor's sole
discretion.
64. RIGHT OF FIRST OPPORTUNITY.
a. During the Term of this Lease (including, without limitation, the
Extended Term, if applicable), Lessor shall notify Lessee ("Lessor's Notice")
if either or both Suite 310 (consisting of approximately 15,654 square feet
of Rentable Area) on the third floor of the Building and/or Suite 115 on the
first floor of the Building become available for Lease (subject to any rights
which any then existing tenants of such space may have to lease such space
pursuant to lease transactions hereafter entered into in accordance with this
Article 64, and any rights held by Inktomi Corporation as the existing tenant
of such space, Lessor hereby representing and warranting to Lessee that no
current tenant other than Inktomi has any existing rights to the lease of
such Suite 115 or Suite 310). Such Lessor's Notice shall provide the basic
business terms on which Lessor is willing to rent such space (including,
without limitation, Base Rent, improvement allowances and other economic
concessions) and shall be given to Lessee prior to such space being made
available to any third party (other than any existing tenant having prior
rights to such space). Lessee is hereby granted the right of first
opportunity to lease such space on the terms as outlined in Lessor's Notice
to Lessee. No court arbitrator or third party shall have the right to
challenge the terms and conditions set forth in Lessor's Notice to Lessee.
Lessee shall have ten (10) days following receipt of such Lessor's Notice
within which to indicate in writing its desire to lease the space under the
terms and conditions stated in such Lessor's Notice. If Lessee rejects or
fails to accept Lessor's offer within such ten (10) day period, Lessor shall
have the right at any time within nine (9) months thereafter to enter into a
lease for such available space which was the subject of the offer made to
Lessee in Lessor's notice to any one or more third parties on any terms,
covenants and conditions desired by Lessor, and Lessee shall have no further
right to lease such space, provided that such lease is entered into within
nine (9) months following Lessee's receipt of the applicable Lessor's Notice
and the net effective rent payable under such lease is not less than ninety
percent (90%) of the net effective rent proposed in the applicable Lessor's
Notice. If Lessee rejects or fails to accept Lessor's offer as set forth in
Lessor's Notice within such ten (10) day period, but Lessor thereafter
desires to lease such space which was the subject of such Lessor's Notice to
one or more third parties more than nine (9) months following Lessee's
receipt of the applicable Lessor's Notice or at a net effective rent less
than ninety percent (90%) of the net effective rent proposed in the
applicable Lessor's Notice, then Lessor shall first deliver a new Lessor's
Notice with respect to such space to Lessee and Lessee shall again have its
right of first opportunity with respect thereto in the manner set forth above.
b. Lessor's ability to plan for the orderly transaction of its rental
business, to accommodate the needs of other existing and potential tenants,
and to enjoy the benefits of increasing rentals at such times as Lessor is
able to do so in its sole and absolute discretion, are fundamental elements
of Lessor's willingness to provide Lessee with the right of first opportunity
contained herein. Accordingly, Lessee hereby acknowledges that strict
compliance with the
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notification provisions contained herein, and Lessee's strict compliance with
the time period for such notification contained herein, are material elements
of the bargained for exchange between Lessor and Lessee and are material
elements of Lessee's consideration paid to Lessor in exchange for the grant
of the right of first opportunity. Therefore, Lessee's failure to adhere
strictly and completely to the provisions and time frame contained in this
provision shall render the right of first opportunity automatically null,
void and of no further force or effect as to the applicable Lessor's Notice,
without notice, acknowledgement, or any action of any nature or sort,
required of Lessor. Lessee acknowledges that no other act or notice, other
than the express written notice set forth hereinabove, shall act to put
Lessor on notice of Lessee's acceptance of Lessor's offer as set forth in
Lessor's Notice, and Lessee hereby waives any claims to the contrary,
notwithstanding any other actions of Lessee during the Term of this Lease or
any statements, written or oral, of Lessee to Lessor to the contrary during
the Term of this Lease. In addition, the right of first opportunity granted
pursuant hereto shall not be applicable (and Lessor shall not be required to
deliver any Lessor's Notice), when Lessee is in default under this Lease
(after the expiration of any applicable period for cure provided in Article
22 above). The right of first opportunity granted pursuant hereto is
personal to original Lessee signatory to this Lease and cannot be assigned,
transferred or conveyed to, or exercised for the benefit of, any other person
or entity (voluntarily, involuntarily, by operation of law or otherwise)
including, without limitation, any assignee or subtenant permitted under
Article 13 other than a Permitted Transferee.
65. WAIVER OF JURY. LESSOR AND LESSEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO
TRIAL BY JURY ON ANY CAUSE OF ACTION, CLAIM, COUNTER-CLAIM OR CROSS-COMPLAINT
IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LESSOR AGAINST
LESSEE OR LESSEE AGAINST LESSOR ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS LEASE.
66. JOINT PARTICIPATION. Lessor and Lessee hereby acknowledge that both
parties have been represented by counsel in connection with this Lease and
that both parties have participated in the negotiation and drafting of all of
the terms and provisions hereof. By reason of this joint participation, no
term or provision of this Lease will be construed against either party as the
"drafter" thereof, which terms and provisions shall include, without
limitation, Article 14 hereof.
67. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed to be an original, but any number of which,
taken together, shall be deemed to constitute one and the same instrument.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
LESSOR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTIONS RELATING THERETO.
IN WITNESS WHEREOF, the parties hereto have entered into this Lease as of the
date first written above.
LESSOR: LESSEE:
NORFOLK ATRIUM, a California NETGRAVITY, INC., a Delaware
limited partnership corporation
By: NAPA RIVER DEVCO, INC., By: John Danner
a California corporation, its ---------------------------------
general partner
Print Name: John Danner
By: PROM MANAGEMENT GROUP, INC., ------------------
a California corporation, dba Its: CEO
Maxim Property Management, -------------------------
agent for owner
Date: 8/7, 1998
By: Dennis L. Randall, Jr. By: Stephen E. Recht
------------------------------ ---------------------------------
Print Name: Dennis L. Randall, Jr. Print Name: Stephen E. Recht
---------------------- -------------------------
Its: Assistant Secretary Its: Vice President Finance
----------------------------- & Administration
Date: 8/7, 1998 Chief Financial Officer
--------------------------------
Date: 8/7, 1998
By: Vicki R. Mullins
------------------------------
Print Name: Vicki R. Mullins
----------------------
Its: Executive Vice President and
Chief Financial Officer
-----------------------------
Date: 8/7, 1998
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<PAGE>
EXHIBIT "A"
FLOOR PLAN OF THE PREMISES
[Graphic of
floorplan of the Premises]
<PAGE>
EXHIBIT "B"
DEPICTION OF THE PROJECT
[Graphical depiction
of the Project]
<PAGE>
EXHIBIT "C"
WORK LETTER
1. AS IS LEASE. Except as otherwise specifically provided in the Lease of
which this Exhibit is a part, the lease of the Premises (including, without
limitation, HVAC, fire/life safety and other utility and mechanical systems
within the Premises) by Lessee pursuant hereto shall be on an entirely "as
is" basis.
2. LESSEE IMPROVEMENTS.
(a) LESSEE IMPROVEMENT ALLOWANCE. Lessee shall be entitled to a
one-time tenant improvement allowance (the "Lessee Improvement Allowance") in
an amount up to Eight and 50/100ths Dollars ($8.50) per square foot of
Rentable Area within the Premises, which Lessee Improvement Allowance shall
be used for the costs relating to the initial construction of Lessee's
improvements which are permanently affixed to the Premises (the "Lessee
Improvements"). In no event shall Lessor be obligated to make disbursements
pursuant to this Exhibit in a total amount which exceeds the Lessee
Improvement Allowance.
(b) DISBURSEMENT OF THE LESSEE IMPROVEMENT ALLOWANCE.
(i) LESSEE IMPROVEMENT ALLOWANCE ITEMS. The Lessee Improvement
Allowance shall be disbursed by Lessor only for the following items and costs
(collectively the "Lessee Improvement Allowance Items"): plan check, permit
and license fees relating to construction of the Lessee Improvements, and the
cost of design and construction of the Lessee Improvements.
(ii) DISBURSEMENT OF LESSEE IMPROVEMENT ALLOWANCE. During the
construction of the Lessee Improvements, Lessor shall make monthly
disbursements of the Lessee Improvement Allowance for Lessee Improvement
Allowance Items for the benefit of Lessee and shall authorize the release of
monies for the benefit of Lessee as follows.
(1) MONTHLY DISBURSEMENTS. On or before the occurrence of a
uniform date designated by Lessor (the "Submittal Date") for each calendar
month during the construction of the Lessee Improvements, Lessee shall
deliver to Lessor: (A) a request for payment of the "Contractor" (as
hereinafter defined) approved by Lessee, in substantially the form of AIA
Document G702, showing the schedule, by trade, of percentage of completion of
the Lessee Improvements in the Premises, detailing the portion of the work
completed and the portion not completed, and demonstrating that the
relationship between the cost of the work completed and the cost of the work
to be completed complies with the terms of the "Construction Budget" (as
hereinafter defined), (B) invoices from all of "Lessee's Agents" (as
hereinafter defined) for labor rendered and materials delivered to the
Premises evidencing costs not previously paid from the Lessee Improvement
Allowance for Lessee Improvement Allowance Items at least in the amount
requested; (C) executed conditional mechanic's lien releases from all of
Lessee's Agents requesting payment as a part of such submittal which shall
comply with the appropriate provisions of California Civil Code Section
3262(d)(1), together with executed unconditional mechanic's lien releases
from all of Lessee's Agents with respect to prior requests for payment
theretofore paid by Lessor (to the extent not previously delivered to Lessor
by Lessee) which shall comply with the appropriate provisions of California
Civil Code Section 3262(d)(2); and (D) all other information reasonably
requested by Lessor. Lessee's request for payment shall be deemed (as
between Lessor and Lessee) to constitute Lessee's acceptance and approval of
the work furnished and/or the materials supplied as set forth in Lessee's
payment request. On or before the date occurring thirty (30) days after the
Submittal Date, and assuming Lessor receives all of the information described
in items (A) through (D), above, Lessor shall deliver a check to Lessee made
payable to Lessee, in payment of the lesser of: (1) "Lessor's Share" (as
hereinafter defined) of the amount so requested by Lessee, as set forth in
clause (A) above, less a ten percent (10%) retention (the aggregate amount of
such retentions to be known as the "Final Retention"), and (2) the balance of
any remaining available portion of the Lessee Improvement Allowance (not
including the Final Retention), provided that Lessor does not dispute any
request for payment based on non-compliance of any work with the "Approved
Working Drawings" (as hereinafter defined). Lessor's payment of such amounts
shall not be deemed Lessor's approval or acceptance of the work furnished or
materials supplied as set forth in Lessee's payment request. As used herein,
the term "Lessor's Share" shall mean a fraction, the numerator of which is
the Lessee Improvement Allowance, and the denominator of which is the then
estimated amount of "Final Costs" (as hereinafter defined). Lessor's Share
shall be subject to adjustment from time to time based upon then applicable
Final Costs, and in any event, payment of the Final Retention shall be based
upon actual Final Costs, as adjusted pursuant to this Exhibit "C".
(2) FINAL RETENTION. Subject to the provisions of this Exhibit,
a check for the Final Retention payable to Lessee shall be delivered by
Lessor to Lessee within thirty (30) days following (A) the completion of
construction of the Lessee Improvements, (B) Lessee's delivery to Lessor of
properly executed conditional final mechanics' lien releases in compliance
with California Civil Code Section 3262(d)(3) and invoices from all of
Lessee's Agents for labor rendered and materials delivered to the Premises
evidencing costs not previously paid from the Lessee Improvement Allowance
for Lessee Improvement Allowance Items at least in the amount requested; (C)
Lessee's delivery to Lessor of copies of signed-off permits and stamped set
of Approved Working Drawings evidencing governmental approval of the
completion of the Lessee Improvements; and (D) Architect's delivery to Lessor
of a certificate, in form reasonably acceptable to Lessor, certifying that
the construction of the Lessee Improvements has been substantially completed;
provided that Lessor has determined that no substandard work exists which
adversely affects the mechanical, electrical, plumbing, heating, ventilating
and air conditioning, life-safety or other systems of the Building, the
curtain wall of the Building, the structur of exterior appearance of the
Building, or any other tenant's use of such other tenant's leased premises in
the Building. Concurrently with Lessor's payment of the Final Retention,
Lessee shall deliver to Lessor properly executed
<PAGE>
unconditional final mechanics lien releases in compliance with both
California Civil Code Section 3262(d)(4) from all of Lessee's Agents for
labor rendered and materials delivered to the Premises in connection with the
Lessee Improvements.
(iii) OTHER TERMS. Lessor shall only be obligated to make
disbursements from the Lessee Improvement Allowance to the extent costs are
incurred by Lessee for Lessee Improvement Allowance Items. All Lessee
Improvement Allowance Items for which the Lessee Improvement Allowance has
been made available shall be deemed Lessor's property under the terms of this
Lease. Lessee shall not be entitled to the use of (as a credit against rent
or otherwise) any portion of the Lessee Improvement Allowance which is not
used in payment of Lessee Improvement Allowance Items.
(c) STANDARD LESSEE IMPROVEMENT PACKAGE. Lessor has established
certain specifications (the "Specifications") for the Building standard
components to be used in the construction of the Lessee Improvements in the
Premises, which Specifications are maintained in the office of the Building
and are open to inspection. The quality of Lessee Improvements shall be
equal to or of greater quality than the quality of the Specifications in
effect upon the Lessor's approval of the "Final Working Drawings" (as
hereinafter defined), provided that Lessor may, at Lessor's option, require
the Lessee Improvements to comply with certain Specifications if necessary to
ensure the good working order of integrated Building mechanical or utility
systems or the first-class appearance of the Building exterior.
3. CONSTRUCTION DRAWINGS.
(a) SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Lessee shall
retain an architect/space planner (the "Architect") approved by Lessor, which
approval shall not be unreasonably withheld, to prepare the Construction
Drawings. Lessee shall retain engineering consultants (the "Engineers")
approved by Lessor, which approval shall not be unreasonably withheld, to
prepare all plans and engineering working drawings relating to the
structural, mechanical, electrical, plumbing, HVAC, life-safety, and
sprinkler work in the Premises in connection with the Lessee Improvements.
The plans and drawings to be prepared by Architect and the Engineers
hereunder shall be known collectively as the "Construction Drawings". All
Construction Drawings shall be professionally prepared consistent with
drawings for comparable construction projects at comparable buildings in the
San Mateo/Foster City area, using one-eighth (1/8th) inch scale CAD drawings.
Lessor's review of the Construction Drawings as set forth in this SECTION 3,
shall be for its sole purpose and shall not imply Lessor's review of the
same, or obligate Lessor to review the same, for quality, design, compliance
with Applicable Law or other like matters. Accordingly, notwithstanding that
any Construction Drawings are reviewed by Lessor or its space planner,
architect, engineers and consultants, and notwithstanding any advice or
assistance which may be rendered to Lessee by Lessor or Lessor's space
planner, architect, engineers, and consultants, Lessor shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Lessee's
waiver and indemnity set forth in the Lease shall specifically apply to the
Construction Drawings. Furthermore, Lessee and Architect shall verify, in
the field, the dimensions and conditions as shown on the relevant portions of
any existing plans for the Premises and/or Building, and Lessee and
Architect shall be solely responsible for the same, and Lessor shall have no
responsibility in connection therewith.
(b) FINAL SPACE PLAN. Lessee shall supply Lessor with four (4) copies
signed by Lessee of its final space plan for the Premises before any
architectural working drawings or engineering drawings have been commenced.
The final space plan (the "Final Space Plan") shall include a layout and
designation of all offices, rooms and other partitioning, their intended use,
and equipment to be contained therein. Lessor may request clarification or
more specific drawings for special use items not included in the Final Space
Plan. Lessor shall advise Lessee within five (5) business days after
Lessor's receipt of the Final Space Plan for the Premises if the same is
unsatisfactory or incomplete in any respect, provided that Lessor's approval
of the Final Space Plan shall not be unreasonably withheld or conditioned.
If Lessee is so advised, the parties shall promptly meet and reasonably reach
agreement upon the Final Space Plan, correcting any deficiencies therein.
(c) FINAL WORKING DRAWINGS. After the approval of the Final Space
Plan by Lessor and Lessee, Lessee shall promptly cause the Architect and the
Engineers to complete the architectural and engineering drawings for the
Premises, and Architect shall compile a fully coordinated set of
architectural, structural, mechanical, electrical and plumbing working
drawings in a form which is complete to allow subcontractors to bid on the
work and to obtain all applicable permits (collectively, the "Final Working
Drawings") and shall submit the same to Lessor for Lessor's approval. Lessee
shall supply Lessor with four (4) copies signed by Lessee of such Final
Working Drawings. Lessor shall advise Lessee within five (5) business days
after Lessor's receipt of the Final Working Drawings for the Premises if the
same is unsatisfactory or incomplete in any respect, provided that Lessor's
approval of the Final Working Drawings shall not be unreasonably withheld or
conditioned. If Lessee is so advised, the parties shall promptly meet and
reasonably reach agreement upon the Final Working Drawings, correcting any
deficiencies therein.
(d) APPROVED WORKING DRAWINGS. The Final Working Drawings shall be
approved by Lessor (the "Approved Working Drawings") prior to the
commencement of construction of the Premises by Lessee. After approval by
Lessor of the Final Working Drawings, Lessee may submit the same to the City
in which the Project is located for all applicable building permits. Lessee
hereby agrees that neither Lessor nor Lessor's consultants shall be
responsible for obtaining any building permit or certificate of occupancy for
the Premises and that obtaining the same shall be Lessee's responsibility;
provided, however, that Lessor shall cooperate with Lessee in executing
permit applications and performing other ministerial acts reasonably
necessary to enable Lessee to obtain any such permit or certificate of
occupancy. No changes, modifications or alterations in the Approved Working
Drawings may be made without the prior written consent of Lessor, which
consent shall not be unreasonably withheld and shall be granted or
<PAGE>
withheld (with written explanation of the reasons for withholding of consent)
within three (3) business days following Lessor's receipt of Lessee's written
request therefor.
4. CONSTRUCTION OF THE LESSEE IMPROVEMENTS.
(a) LESSEE'S SELECTION OF CONTRACTORS.
(i) THE CONTRACTOR. Lessee shall retain a licensed general
contractor (the "Contractor"), reasonably approved in advance by Lessor as
contractor for the construction of the Lessee Improvements.
(ii) LESSEE'S AGENTS. For purposes of this Exhibit only,
"Lessee's Agents" shall mean, collectively, all subcontractors, laborers,
materialmen, and suppliers used by Lessee in the construction of the Lessee
Improvements and the Contractor. Lessor shall have the right to approve
(which approval shall not be unreasonably withheld, conditioned or delayed)
the subcontractors retained by Lessee and/or the Contractor for any
mechanical, electrical, plumbing, structural, life-safety, HVAC or other
integrated utility system work in the Premises as a part of the Lessee
Improvements.
(b) CONSTRUCTION OF LESSEE IMPROVEMENTS BV LESSEE'S AGENTS.
(i) CONSTRUCTION CONTRACT: COST BUDGET. Prior to Lessee's
execution of the construction contract and general conditions with Contractor
(the "Contract"), Lessee shall submit the Contract and the bids of the
Contractor and all subcontractors for major trades and materials suppliers
for construction of the Lessee Improvements, to Lessor for its approval,
which approval shall be limited to ensuring compliance with the provisions of
this Lease. Prior to the commencement of the construction of the Lessee
Improvements, and after Lessee has accepted all bids for the Lessee
Improvements, Lessee shall provide Lessor with a detailed breakdown, by
trade, of the final costs to be incurred and/or which have been incurred for
Lessee Improvement Allowance Items (the "Final Costs") and a construction
budget (the "Construction Budget") based upon such Final Costs. Lessee shall
be solely responsible for the amount (the "Over-Allowance Amount") equal to
the difference between the amount of the Construction Budget (as such
Construction Budget may be modified from time to time pursuant hereto) and
the amount of the Lessee Improvement Allowance. In the event that, after the
Construction Budget has been delivered by Lessor to Lessee, the estimated or
actual costs for Lessee Improvement Allowance Items shall increase or
decrease, the Final Costs and Construction Budget shall be modified to
reflect such additional or reduced costs.
(ii) LESSEE'S AGENTS.
(1) LESSOR'S GENERAL CONDITIONS FOR LESSEE'S AGENTS AND
LESSEE IMPROVEMENT WORK. Lessee's and Lessee's Agent's construction of the
Lessee Improvements shall comply with the following: (A) the Lessee
Improvements shall be constructed in accordance with the Approved Working
Drawings in all material respects; (B) Lessee and Lessee's Agents shall not,
in any way, interfere with, obstruct, or delay, any other work in the
Building; (C) Lessee's Agents shall submit schedules of all work relating to
the Lessee Improvements to Contractor; and (D) Lessee shall abide by all
reasonable rules made by Lessor's Building contractor or Lessor's Building
manager with respect to the use of freight, loading dock and service
elevators, storage of materials, coordination of work with the contractors of
other tenants, and any other matter in connection with the construction of
the Lessee Improvements.
(2) CONSTRUCTION WARRANTIES. Lessee shall use reasonable
efforts to obtain customary construction warranties of not less than one (1)
year from Lessee's Agents with respect to the Lessee Improvements. Lessee
shall cooperate with Lessor to ensure that Lessor will receive the benefit of
any construction warranties obtained by Lessee from Lessee's Agents with
respect to the Lessee Improvements to the extent reasonably practicable.
(3) INSURANCE REQUIREMENTS.
(A) GENERAL COVERAGES. All of Lessee's Agents shall
carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including
property damage, all with limits, in form and with companies as are required
to be carried by Lessee as set forth in the Lease, and the policies therefor
shall insure Lessor and Lessee, as their interests may appear, as well as the
Contractor and subcontractors.
(B) SPECIAL COVERAGES. Lessee shall carry "Builder's
All Risk" insurance in an amount approved by Lessor covering the construction
of the Lessee Improvements, it being understood and agreed that the Lessee
Improvements shall be insured by Lessor pursuant to the Lease immediately
upon completion thereof. All of Lessee's Agents shall carry excess liability
and Products and Completed Operation Coverage insurance, each in amounts not
less than $1,000,000 per incident, $2,000,000 in aggregate, and in form and
which companies as are required to be carried by Lessee as set forth in
Article 16 of the Lease of which this Exhibit is a part.
(C) GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4(b)(ii)(3) shall be delivered to Lessor
before the commencement of construction of the Lessee Improvements and before
the Contractor's equipment is moved onto the site. All such policies of
insurance must contain a provision that the company writing said policy will
give Lessor at least thirty (30) days prior written notice of any cancellation
or lapse of the effective date or any reduction in the amounts of such
insurance. In the event that the Lessee Improvements are damaged by any cause
covered by Lessee's "Builder's All Risk" insurance during the course of the
construction thereof. Lessee shall promptly repair the same at Lessee's sole
cost and expense (provided that whether or not so covered by lessee's
"Builder's All Risk" insurance, Lessor shall in no event be responsible for
the repair of
<PAGE>
the Lessee Improvements damaged by casualty during the course of construction
thereof). Lessee's Agents shall maintain all of the foregoing insurance
coverage in force until the Lessee Improvements are fully completed and
accepted by Lessor, except for any Products and Completed Operation Coverage
insurance required by Lessor of the Contractor, which is to be maintained for
five (5) years following completion of the work and acceptance by Lessor and
Lessee. All first party property damage insurance maintained by Lessee's
Agents shall preclude subrogation claims by the insurer against anyone
insured thereunder. Such insurance shall provide that it is primary
insurance as respects the owner and that any other insurance maintained by
owner is excess and noncontributing with the insurance required hereunder.
The requirements for the foregoing insurance shall not derogate from the
provisions for indemnification of Lessor by Lessee under the Lease of which
this Exhibit is a part.
(iii) GOVERNMENTAL COMPLIANCE. The Lessee Improvements shall
comply in all respects with the following: (1) all applicable Laws and other
state, federal, city or quasi-governmental laws, codes, ordinances and
regulations, as each may apply according to the rulings of the controlling
public official, agent or other person; (2) applicable standards of the
American Insurance Association and the National Electrical Code; and (3)
building material manufacturer's specifications.
(iv) INSPECTION BY LESSOR. Lessor shall have the right to
inspect the Lessee Improvements at all times, provided however, that Lessor's
failure to inspect the Lessee Improvements shall in no event constitute a
waiver of any of Lessor's rights hereunder nor shall Lessor's inspection of
the Lessee Improvements constitute Lessor's approval of the same. Should
Lessor disapprove any portion of the Lessee Improvements as a result of their
materially deviating from the Approved Working Drawings, then Lessor shall
notify Lessee in writing of such disapproval and shall specify the items
disapproved. Any defects or material deviations from the Approved Working
Drawings in the Lessee Improvements shall be rectified by Lessee at no
expense to Lessor, provided however, that in the event such a defect or
deviation exists and such defect or deviation adversely affects the
mechanical, electrical, plumbing, heating, ventilating and air conditioning
or life-safety systems of the Building, the structure or exterior appearance
of the Building or any other tenant's use of such other tenant's leased
premises, and the same is not cured within thirty (30) days following
Lessee's receipt of written notice thereof from Lessor (or such longer period
of time after receipt of such notice as may be reasonably required to
complete such cure so long as such cure is promptly commenced and diligently
prosecuted to completion), provided that no such notice and opportunity for
cure shall be required in an emergency situation, Lessor may, take such
action as Lessor reasonably deems necessary, at Lessee's expense and without
incurring any liability on Lessor's part, to correct any such defect or
deviation, including, without limitation, causing the cessation of
performance of the construction of the Lessee Improvements until such time as
the defect or deviation is corrected to Lessor's reasonable satisfaction.
(v) MEETINGS. Commencing upon the execution of this Lease (or
later as reasonably determined by Lessor), Lessee shall hold bi-weekly
meetings at a reasonable time, with the Architect and the Contractor
regarding the progress of the preparation of Construction Drawings and the
construction of the Lessee Improvements, which meetings shall be held at a
location reasonably acceptable to Lessor, and Lessor and/or its agents shall
receive prior notice of, and shall have the right to attend, all such
meetings, and, upon Lessor's request, certain of Lessee's Agents shall attend
such meetings. One such meeting each month shall include the review of
Contractor's current request for payment.
(c) NOTICE OF COMPLETION; UPDATED APPROVED WORKING DRAWINGS. At
the conclusion of construction, (i) Lessee shall cause the Architect and
Contractor to update the Approved Working Drawings as necessary to reflect
all changes made to the Approved Working Drawings during the course of
construction; (ii) Lessee shall cause a Notice of Completion to be recorded
in the office of the Recorder of the County where the Building is located in
accordance with Section 3093 of the Civil Code of the State of California or
any successor statute, and deliver a copy thereof to Lessor, provided that if
Lessee fails to do so, Lessor may execute and file the same on behalf of
Lessee as Lessee's agent for such purpose, at Lessee's sole cost and expense;
and (iii) Lessee shall deliver to Lessor two (2) sets of sepia and CAD
diskette of such as-built drawings for the Premises with the completed Lessee
Improvements and a copy of all warranties, guaranties, and operating manuals
and information relating to the improvements, equipment, and systems in the
Premises, and shall cause the Architect and Contractor to certify to the best
of their knowledge that the "record-set" of as-built drawings are true and
correct, which certification shall survive the expiration or termination of
this Lease.
(d) COORDINATION BY LESSEE'S AGENTS WITH LESSOR. Concurrently with
Lessee's delivery of the Construction Budget to Lessor under SECTION 4(b)(i)
above, Lessee shall furnish Lessor with a schedule setting forth the projected
date of the completion of the Lessee Improvements and showing the critical
time deadlines for each phase, item or trade relating to the construction of
the Lessee Improvements.
5. COMMENCEMENT DATE.
(a) COMMENCEMENT DATE. The "Commencement Date" shall occur for all
purposes of this Lease upon the earlier to occur of (i) October 12, 1998;
which date shall be extended on a day for day basis to the extent of any
"Lessor Delay" and/or "Force Majeure Delay" (as such terms are hereinafter
defined) which causes the "Substantial Completion of the Lessee Improvements"
(as hereinafter defined) to occur after October 12, 1998, or (ii) the
Substantial Completion of the Lessee Improvements.
(b) LESSOR DELAY. As used herein, the term "Lessor Delay" shall mean
any delay in the Substantial Completion of the Lessee Improvements resulting
from (i) any breach of this Lease by lessor (including, without limitation,
any failure of Lessor to perform in accordance with the time frames specified
for Lessor's performance under this Exhibit); and/or (ii) the negligence or
wilful misconduct of Lessor or its employees or agents; provided that no
Lessor Delay shall be deemed to commence or occur unless and until the matter
giving rise to such Lessor Delay is not cured by Lessor within one (1)
business day following Lessor's receipt of written notice thereof from Lessee.
<PAGE>
(c) FORCE MAJEURE DELAY. As used herein, the term "Force Majeure
Delay" shall mean any delay in the Substantial Completion of the Lessee
Improvements resulting from Acts of God or any other cause beyond the
reasonable control of the Lessee, provided that (i) in no event shall delays
caused by Lessee's Agents be deemed to constitute a Force Majeure Delay for
purposes hereof, and (ii) in no event shall delays in permit processing,
obtaining other governmental approvals or other government related matters be
deemed to constitute a Force Majeure Delay for purposes hereof except that if
it takes more than three (3) weeks for Lessee to obtain necessary building
permits for the construction of the Lessee Improvements after Lessee's
submittal of all necessary fees, plans, specifications and other materials
required by the applicable governmental authority in order to issue such
building permits, with Lessee using its continued reasonable efforts and
diligence to obtain such permits, then the period of time after such three
(3) week period until issuance of such building permits shall be deemed to
constitute a Force Majeure Delay. If Lessee contends that a Force Majeure
Delay has occurred, Lessee shall notify Lessor in writing promptly following
each of (1) Lessee's first learning of the occurrence of the event giving
rise to such Force Majeure Delay, and (ii) the date upon which such Force
Majueure Delay ends. Notwithstanding anything to the contrary contained
herein, if Lessee does not provide Lessor with written notice of the
occurrence of a Force Majeure Delay within five (5) business days after
Lessee's first learning of the occurrence of the event giving rise to such
Force Majeure Delay, then Lessee shall not be entitled to the benefit of the
period of Force Majeure Delay accruing between the expiration of such five
(5) business day period and the date upon which Lessor receives such written
notice from Lessee of the occurrence of the event giving rise to such Force
Majeure Delay.
(d) SUBSTANTIAL COMPLETION OF THE LESSEE IMPROVEMENTS. For purposes
of the Lease of which this Exhibit is a part, the "Substantial Completion of
the Lessee Improvements" shall mean completion of construction of the Lessee
Improvements in the Premises pursuant to the Approved Working Drawings with
the exception of any punch list items, any funiture or equipment (even if the
same requires installation or electrification by Lessee's Agents), and any
tenant improvement finish items and materials which are selected by Lessee
but which are not available within a reasonable time (given the anticipated
date of the Lease Commencement Date), and Lessee's receipt of any
governmentally-required permits and/or approvals to allow occupancy of the
Premises (provided that Lessee shall use reasonable efforts and diligence in
good faith to obtain such permits and/or approvals as soon as reasonably
possible).
6. MISCELLANEOUS.
(a) LESSEE'S REPRESENTATIVE. Lessee has designated Chris Krook as
its sole representative with respect to the matters set forth in this
Exhibit, who, until further notice to Lessor, shall have full authority and
responsibility to act on behalf of the Lessee as required in this Exhibit.
(b) LESSOR'S REPRESENTATIVE. Lessor has designated Dennis Randall as
its sole representative with respect to the matters set forth in this
Exhibit, who, until further notice to Lessee, shall have full authority and
responsibility to act on behalf of the Lessor as required in this Exhibit.
(c) LESSEE'S LEASE DEFAULT. Notwithstanding any provision to the
contrary contained in this Lease, in the event of a default by Lessee under
this Lease (which default is not cured within the applicable period for cure
following Lessee's receipt of written notice from Lessor pursuant to Lease
Article 22) at any time on or before the Substantial Completion of the Lessee
Improvements, then in addition to all other rights and remedies granted to
Lessor pursuant to the Lease, Lessor shall have the right to withhold payment
of all or any portion of the Lessee Improvement Allowance and/or Lessor may
cause Contractor to cease the construction of the Premises (in which case,
Lessee shall be responsible for any delay in the Substantial Completion of
the Lessee Improvements caused by such work stoppage and such delay shall not
be deemed a Lessor Delay).
(d) MISCELLANEOUS. During the period of construction of the Lessee
Improvements prior to the Commencement Date, (i) Lessee or Lessee's Agents
shall not be charged for, directly or indirectly, HVAC usage during Building
Hours (provided that such HVAC provided to the Premises need only be at such
levels as are commercially reasonable for a tenant improvement construction
site), electricity, water, or freight elevator or loading dock usage in
connection with the construction of the Lessee Improvements or for Lessor's
construction management or general overhead costs in connection with the
design and construction of the Lessee Improvements, and (ii) the Contractor
and all of its subcontractors shall not be charged for parking in the Project
parking facility in connection with construction of the Lessee Improvements
prior to the Commencement Date. None of Lessee's Agents shall be entitled to
(1) display identification or other signage at the Project, (2) use passenger
elevators at the Project, (3) access the main Building lobby (unless
otherwise approved in advance by Lessor) and shall only access the Premises
through means reasonably designated by Lessor (provided that notwithstanding
any access by fire stairwells adjacent to the Premises, such fire stairwells
shall at all times be kept unobstructed and in compliance with applicable
laws), or (4) park anywhere except in such areas of the Project parking
facilities as are designated by Lessor. Notwithstanding anything to the
contrary contained herein, Lessor shall be liable for increased costs of
performance of the Lessee Improvements which may result form the presence of
any currently existing Hazardous Materials within the Building.
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the Building without prior written consent of Lessor. Lessor
shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Lessee.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Lessee by a person approved of by Lessor.
Lessee shall not place anything or allow anything to be places near the glass
of any exterior window, door, partition or wall which may appear unsightly
from outside the Premises. Lessee shall not, without prior written consent
of Lessor cover or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Lessee or used by Lessee for any purpose
other than for ingress or egress from its Premises.
3. Lessor will furnish Lessee, free of charge, with two keys to each door
lock in the Premises. Lessor may make a reasonable charge for any additional
keys. Lessee shall return all keys issued for the Premises. Lessee shall
pay to Lessor the costs of re-keying the Premises if all keys are not
returned. Without Lessor's prior approval and otherwise complying with the
provisions of this Lease governing the making of Alterations, Lessee shall
not alter any lock or install any new or additional locks or any bolts on any
doors or windows of the Premises.
4. The Common Area toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein 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 agents,
officers, employees, contractors, servants, invitees or guests shall have
caused it.
5. Lessee shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof. Lessor shall have the right to
prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the time and manner of moving
the same in and out of the Building. Safes and other heavy objects shall, if
considered necessary by Lessor, stand on supports of such thickness as is
necessary to properly distribute the weight. Lessor will not be responsible
for loss of or damage to any such safe or property from any cause and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at the expense of Lessee.
6. No furniture, freight or equipment of any kind shall be brought into
the Building without prior notice to Lessor and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Lessor shall designate. Unless otherwise agreed to in writing by Lessor, any
such movement of furniture, freight, or equipment shall be made during
non-business hours for the Building.
7. Lessee shall have the right to use the loading facilities provided at
the Building, if any, in common with the other tenants. All Lessee
deliveries of bulk items shall be through the Building loading facilities, if
any. Freight elevator(s) will be available for use by all tenants in the
Building, subject to such reasonable scheduling as Lessor, in its discretion,
deems appropriate. Lessor shall have the right at its sole discretion to
prohibit Lessee's delivery through the main lobbies.
8. Lessee shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit or suffer the 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 tenants or those having business therein, nor
shall any animals or birds be in or kept in or about the Premises or
Building (other than "seeing-eye" dogs or other animals providing assistance
to disabled persons).
9. The Premises will not be used for lodging, storage of merchandise,
washing clothes, or manufacturing of any kind, nor shall the Premises be used
for any improper, immoral or objectionable purpose. No cooking will be done
or permitted on the Premises without Lessor's consent, except the use by
Lessee of Underwriters Laboratory approved equipment for brewing coffee, tea,
hot chocolate and similar beverages shall be permitted, and the use of a
microwave oven for employees use will be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
10. Lessee shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or any
method of heating or air conditioning other than supplied by Lessor.
11. Lessor shall approve in writing the method of attachment of any
objects affixed to walls, ceilings or doors. Lessor will direct electricians
as to where and how telephone and telegraph wires are to be introduced. No
boring or cutting for the wires will be allowed without the consent of
Lessor. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the approval of Lessor. Lessee
shall not install any wiring above the ceiling tiles that does not comply
with the fire codes. Any such wiring shall be removed immediately at the
expense of Lessee. Lessee will not affix any floor covering to the floor of
the Premises in any manner except as approved by Lessor.
12. All cleaning and janitorial services for the Building and the
premises will be provided exclusively through Lessor, and except with the
written consent of Lessor, no person or persons other than those approved by
Lessor will be employed by Lessee or permitted to enter the Building for the
purpose of cleaning the same.
<PAGE>
13. Lessee will store all its trash and garbage within its Premises or
in other facilities provided by Lessor. Lessee will not place in any trash
box or receptacle any material which cannot be disposed of in the ordinary
and customary manner of trash and garbage disposal. All garbage and refuse
disposal is to be made in accordance with directions issued from time to time
by Lessor.
14. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 7:00 a.m. the following day, access to the
Building, or to the halls, corridors, elevators or stairways in the
Building, or to the Premises may be refused unless the person seeking access
is known to the person or employee of the Building in charge and has a pass
or is properly identified. Lessor shall in no case be liable for damages for
any error with regard to the admission to or exclusion from the Building of
any person. In case of invasion, mob, not, public excitement or other
commotion, Lessor reserves the right to prevent access to the Building during
the continuance of the same by closing the doors or otherwise, for the safety
of the tenants and protection of the Building and of property in the Building.
15. Lessee will not waste electricity, water or air conditioning and
agrees to cooperate fully with Lessor to assure the most effective operation
of the Building's heating and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Lessee has
actual notice, and will refrain from attempting to adjust controls. Lessee
will keep corridor doors closed, and shall keep all window coverings pulled
down.
16. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Building.
17. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written
consent of Lessor.
18. Lessor shall have the right, exercisable without notice and without
liability to Lessee to change the name and street address of the Building or
the Project.
19. Lessee shall not disturb, solicit or canvass any occupant of the
Building or Project and shall cooperate to prevent the same.
20. Lessor shall have the right to control and operate the public
portions of the Building and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
tenants, in such manner as it deems best for the benefit of the tenants
generally.
21. All entrance doors in the Premises shall be left locked when the
Premises are not in use and all doors opening to public corridors shall be
kept closed except for normal ingress or egress from the Premises.
22. Without the written consent of Lessor, Lessee shall not use the name
of the Building or Project in connection with or in promoting or advertising
the business of Lessee except at Lessee's address.
23. Lessee shall place pads under all desk chairs, or have carpet
coasters to protect carpeting.
24. The current "Building Hours" are between 7:00 a.m. to 6:00 p.m. on
weekdays, Monday through Friday, except generally recognized Building
holidays.
25. Lessee will not install any radio or television antenna,
loudspeaker, satellite dishes or other devices on the roof(s) or exterior
walls of the Building or the Project. Lessee will not interfere with radio
or television broadcasting or reception from or in the Project or elsewhere.
If Lessee desires telegraphic, telephonic, burglar alarm, satellite dishes,
antennae or similar services, it will first obtain Lessor's approval, and
comply with, Lessor's reasonable rules and requirements applicable to such
services, which may include (without limitation) separate licensing by, and
fees paid to, Lessor.
26. Lessee agrees to comply with all safety, fire protection and
evacuation procedures and regulations established by Lessor or any
governmental agency.
27. Lessee assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
28. Lessor may prohibit smoking in the Building and/or any other portion
of the Project and may require Lessee and any of its employees, agents,
clients, customers, invitees and guests who desire to smoke, to smoke within
designated smoking areas within the project, if any such smoking areas are
provided.
29. Lessee's requirements will be attended to by Lessor only upon
appropriate application to Lessor's management office for the Project by an
authorized individual of Lessee. Employees of Lessor will not perform any
work or do anything outside of their regular duties unless under special
instructions from Lessor, and no employee of Lessor will admit any person
(Lessee or otherwise) to any office without specific instructions from Lessor.
30. In the event of any conflict between these Rules and Regulations and
the Lease of which they are a part, the other provisions of the Lease shall
prevail. Lessor may waive any one or more of these Rules and Regulations for
the benefit of Lessee or any other tenant, but no such waiver by Lessor will
be construed as a waiver of such Rules and Regulations in favor of Lessee or
any other tenant, nor prevent Lessor from thereafter enforcing any such Rules
and Regulations against any or all of the tenants of the Project.
<PAGE>
OFFICE BUILDING LEASE
WESTERN STATES VENTURES, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY,
AS "LANDLORD"
AND
ABACUS DIRECT CORPORATION,
A DELAWARE CORPORATION,
AS "TENANT"
MAY 22, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PARTIES........................................................1
2. PREMISES.......................................................1
3. TERM...........................................................2
4. POSSESSION.....................................................3
5. RENT...........................................................5
6. SECURITY DEPOSIT...............................................5
7. OPERATING EXPENSE ADJUSTMENTS..................................5
8. USE............................................................9
9. COMPLIANCE WITH LAW...........................................10
10. ALTERATIONS AND ADDITIONS.....................................10
11. REPAIRS.......................................................12
12. LIENS.........................................................14
13. ASSIGNMENT AND SUBLETTING.....................................14
14. HOLD HARMLESS.................................................18
15. SUBROGATION...................................................19
16. LIABILITY INSURANCE...........................................19
17. SERVICES AND UTILITIES........................................20
18. PROPERTY TAXES................................................22
19. RULES AND REGULATIONS.........................................22
20. HOLDING OVER..................................................22
21. ENTRY BY LANDLORD.............................................23
22. RECONSTRUCTION................................................23
23. DEFAULT.......................................................24
24. REMEDIES IN DEFAULT...........................................25
25. EMINENT DOMAIN................................................27
26. ESTOPPEL CERTIFICATE..........................................28
27. PARKING.......................................................28
28. AUTHORITY OF PARTIES..........................................29
29. DEFAULT BY LANDLORD...........................................29
30. OPTION TO EXPAND..............................................31
31. FIRST RIGHT OF REFUSAL........................................32
32. FIRST RIGHT OF OFFER..........................................34
33. OPTION TO EXTEND..............................................34
34. HAZARDOUS MATERIALS...........................................36
35. GENERAL PROVISIONS............................................38
36. BROKERS.......................................................42
37. NOTICE........................................................42
</TABLE>
i
<PAGE>
OFFICE BUILDING LEASE
(FOR USE IN THE STATE OF COLORADO)
1. PARTIES
This Office Building Lease ("LEASE"), dated for reference purposes only
May 22, 1998 ("LEASE DATE"), is entered into between WESTERN STATES
VENTURES, LLC, a California limited liability company (herein called
"LANDLORD"), and ABACUS DIRECT CORPORATION, a Delaware corporation
(herein called "TENANT").
2. PREMISES
(a) Landlord does hereby lease to Tenant and Tenant hereby
leases from Landlord that certain space (herein called "PREMISES"),
consisting of approximately seventy-five thousand (75,000) rentable
square feet, known as "SUITE 400," at the building ("BUILDING"),
located at [To Be Determined/bounded by Highway 128 and 120th Street],
Broomfield, Colorado, commonly known as "EL DORADO RIDGE," shown on
Exhibit A attached hereto and hereby made a part hereof, including the
Tenant Improvements ("TENANT IMPROVEMENTS") to be constructed in
accordance with the "WORK LETTER AGREEMENT" attached as Exhibit B
hereto. The Premises shall consist of the entire fourth, third, second
floor, and a portion of the first floor. Said Lease is subject to the
terms, covenants and conditions herein set forth and the Tenant
covenants as a material part of the consideration for this Lease to
keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed and that this Lease is made upon the
condition of said performance. El Dorado Ridge is anticipated, upon
completion of construction, to have two (2) separate buildings, the
first, known as "BUILDING ONE," consisting of approximately one hundred
five thousand (105,000) rentable square feet, generally described in
Exhibit B-1 and the second, the Building referenced in this Lease. The
Building, Building One and the related common improvements are
collectively referred to as the "PROJECT."
(b) The demise of the Premises contained herein shall include
a non-exclusive right for Tenant to use all portions of the Building
and the common areas thereof designated by Landlord for the common use
of all tenants including, without limitation, hallways, restrooms,
stairs, entrances, lobby areas, elevators, parking spaces, driveways
and loading areas. Landlord shall not alter or reduce the common areas
or the Premises in a manner which unreasonably interferes with Tenant's
use or enjoyment of the Premises.
(c) Tenant acknowledges that, as of the Lease Date, Landlord
has not commenced construction of the Project, which construction is
anticipated to begin following the Lease Date when determined by
Landlord. In this regard, Landlord intends to complete construction of
the Building and Tenant Improvements in accordance with the provisions
of the Work Letter Agreement on or before the Expected Occupancy Date
(as hereinafter defined). Prior to the Commencement Date, Landlord
shall cause the Building to be measured to determine the rentable and
usable square footage of the Building and the Premises. Such
measurement shall be in compliance with the Building
<PAGE>
Owners and Managers Association Standard Method for Measuring Floor
Area within Office Buildings (ANSI Z65.1-1996). With regard to such
determination, Landlord agrees that a R/U ratio of 1.059% shall not be
exceeded for full floor occupancy, and a R/U ratio of 1.1284% shall not
be exceeded for partial floor occupancy. Landlord shall provide Tenant
with a written summary, certified by its architect, setting forth the
determination of the usable and rentable square footage of the Premises
prior to the Commencement Date consistent with the above-described
measurement standard, which measurement shall be binding and conclusive
upon the parties. Such measurements shall be confirmed in the First
Amendment to Lease and Acknowledgment (as hereinafter defined).
(d) As of the Commencement Date, Landlord represents and
warrants that the Building (excluding any areas within the Premises
constructed by and/or designed by Tenant), to the extent constructed by
Landlord, its agents, employees, contractors and/or subcontractors,
shall (i) comply with all applicable laws, and (ii) have been
constructed in accordance with the specifications for the Building
("BASE BUILDING SPECIFICATIONS") set forth in Exhibit B-2 attached
hereto.
3. TERM
This Lease is effective between Landlord and Tenant as of the Lease
Date. The term of this Lease shall commence upon the earlier of the
following dates ("COMMENCEMENT DATE"): (i) the date on which the
Premises are Substantially Completed (as defined below), which is
expected to be on April 1, 1999 ("EXPECTED OCCUPANCY DATE"); (ii) the
date on which the Premises would have been Substantially Completed had
there been no delays caused by or attributable to Tenant; or (iii) the
date upon which Tenant takes possession of the Premises with Landlord's
written consent. Notwithstanding the foregoing, excepting Tenant taking
possession of the Premises pursuant to subsection (iii) above prior to
April 1, 1999, in no event shall Tenant be required to take possession
of the Premises prior to (a) April 1, 1999, or (b) the date that the
lobby for the Building is substantially completed consistent with the
Lobby Specifications (as defined in the Work Letter Agreement). Within
thirty (30) days after the Commencement Date, Landlord and Tenant shall
execute and deliver an amendment to this Lease ("FIRST AMENDMENT TO
LEASE AND ACKNOWLEDGMENT") setting forth the Commencement Date and the
expiration date of the term of the Lease, the rentable area of the
Premises and adjustments to the Base Rent as a result of an increase or
decrease in the rentable area of the Premises which shall be in the
form attached hereto as Exhibit C. The Premises shall be deemed to be
"SUBSTANTIALLY COMPLETE" when (i) Tenant has direct access to the
Premises with building services ready to be furnished to Premises and
all construction to be performed by Landlord, as set forth in the Work
Letter Agreement has been completed, with the exception of the Punch
List Items (as hereinafter defined) that do not materially adversely
affect Tenant's use of the Premises as reasonably determined by
Landlord and Tenant, (ii) all major systems and services to be
furnished by Landlord pursuant to the provisions of the Lease are
operational, and (iii) a permanent certificate of occupancy has been
issued for the Premises. The term of this Lease shall be for a period
of seven (7) years following the
2
<PAGE>
Commencement Date. Landlord shall provide Tenant with its good faith
estimation of the date of the Commencement Date at least thirty
(30) days prior to such date.
4. POSSESSION
(a) If the Landlord, for any reason whatsoever, cannot cause
the Commencement Date to occur by the Expected Occupancy Date, this
Lease shall not be void or voidable, nor shall the expiration date of
the above term be in any way extended, but in that event, excepting
delays caused by Tenant, all rent shall be abated during the period
between the commencement of said term and the time When Landlord
delivers possession.
(b) In the event that Landlord shall permit Tenant to occupy
the Premises prior to the Commencement Date of the term, such occupancy
shall be subject to all the provisions of this Lease. In this regard,
Tenant shall be entitled to enter the Premises at least twenty (20)
days prior to the Commencement Date for the purpose of installation of
furniture, trade fixtures and equipment, which early occupancy shall be
subject to the terms and conditions of this Lease, excepting the
payment of Base Rent. The parties shall use their respective good faith
efforts to schedule work during such periods so as not to unreasonably
interfere with their respective efforts (the parties acknowledge that
such early entrance may be "Phased" concerning certain portions of the
Premises to allow for the laying of carpet therein). Said early
possession shall not advance the termination date hereinabove provided.
Additionally, subject to the provisions of this Section, Tenant shall
be provided access to the Premises by December 20, 1998, for the
purpose of constructing certain improvements in accordance with the
provisions of the Work Letter Agreement. In no event shall Tenant's use
of the Premises pursuant to this Section 4(b) be deemed to be Tenant's
acceptance of possession of the Premises or constitute the Commencement
Date.
(c) Tenant's taking possession of the Premises shall
constitute Tenant's acknowledgment that the Premises are in good
condition, and that Tenant agrees to accept the same in its condition
existing as of the date of such entry and subject to all applicable
municipal, county, state and federal statutes, laws, ordinances,
including zoning ordinances, and regulations governing and relating to
the use, occupancy or possession of the Premises, subject to the Punch
List Item (as hereinafter defined). Notwithstanding the foregoing,
within ten (10) days prior to and within sixty (60) days after the
Tenant takes possession of the Premises, Tenant shall deliver to
Landlord a list of items ("PUNCH LIST ITEMS") that Tenant reasonably
deems that Landlord complete or correct in order for the Premises to be
reasonably acceptable. The Punch List Items shall not include any
damages and/or repairs caused by Tenant, its agents, employees,
contractors or subcontractors. Landlord shall complete and/or correct
such items set forth on the Punch List Items using its good faith
efforts and due diligence within thirty (30) days following receipt of
the Punch List Items; provided, however, that with respect to those
items that Landlord reasonably contends do not require completion
and/or correction, Landlord and Tenant shall negotiate in good faith
for a resolution of such item. If Tenant does not deliver the Punch
List Items to Landlord within such time periods, Tenant shall be deemed
to have accepted the condition of the Premises.
3
<PAGE>
(d) For a period of one (1) year following the Commencement
Date ("WARRANTY PERIOD"), Landlord shall warranty the condition of the
Building and the Premises, to the extent that such improvements will be
constructed by Landlord, its agents, employees, contractors and
subcontractors. Following Landlord's receipt of written notice from
Tenant during the Warranty Period, Landlord shall use its commercially
reasonable efforts to complete such warranty repair in a timely basis
as soon as possible. Landlord's repair obligations pursuant to this
Section 4(d) shall be subject to Tenant's rights pursuant to Sections
11(d) and (3) of this Lease. The expiration of the Warranty Period
shall not otherwise affect Landlord's obligations to make certain
repairs as set forth in Section 11(b) of this Lease or effect the
enforcement of any applicable warranty provided by any third party
contractor or materialmen relating to the Building.
(e) Notwithstanding any other provision of Section 4 to the
contrary, in the event that the Commencement Date has not occurred on
or before May 7, 1999 ("OUTSIDE DELIVERY DATE"), for a period of five
(5) business days thereafter, as Tenant's sole and exclusive remedy
(except as set forth in this Section 4(e), Tenant shall have the right
to extend the date upon which Tenant is required to accept possession
of the Premises until October 1, 1999 ("DELAYED DELIVERY DATE"), by
delivery of written notice of such election within such time period;
provided, however, Tenant may accept possession of the Premises at any
time prior to the Delay Delivery Date, which acceptance would
accelerate the Commencement Date to the date of such acceptance. The
failure of Tenant to make such election within such time period shall
be deemed Tenant's waiver of such extension right. In the event that
Tenant makes such election to extend the Commencement Date of this
Lease until the Delayed Delivery Date, this Lease shall remain in full
force and effect, the Commencement Date shall be deemed the Delayed
Delivery Date, the expiration date of the Lease shall be
correspondingly extended, and, except as otherwise provided in this
Section 4(e), all terms and conditions of this Lease shall remain in
full force and effect. The parties acknowledge and agree that the
extension of the Commencement Date under the Delayed Delivery Date
shall cause a material financial impact upon Landlord, accordingly,
each party agrees to use its best commercially reasonable efforts to
cause the Commencement Date to occur on or before the Outside Delivery
Date. Subject to the preceding sentence, the parties acknowledge that
the reason for the delay of the Commencement Date past the Outside
Delivery Date is of material importance to the parties. The parties
hereby agree that in the event the Commencement Date is delayed past
the Outside Delivery Date due solely to delays caused by Landlord, its
agents, employees, contractors or subcontractors, provided that Tenant
has made the election to extend the Commencement Date until the Delayed
Delivery Date, as provided in this Section 4(e), in addition to any
Base Rent-free possession granted to Tenant pursuant to Section 5(b) of
this Lease, Tenant shall be entitled to thirty-seven (37) days of Base
Rent-free possession of the Premises beginning upon the sixty-first
(61st) day following the Commencement Date of this Lease, provided,
however, if Tenant accepts possession of the Premises within
thirty-seven (37) days following the Outside Delivery Date, such Base
Rent-free period shall be accordingly decreased. In the event that the
Commencement Date is delayed past the Outside Delivery Date for any
reason other than as set forth in the preceding sentence, which
includes, but is not limited to, any form of delay caused by reasons
beyond the
4
<PAGE>
control of Landlord or delays caused by Tenant, its agents, employees,
contractors or subcontractors, the granting of the Base Rent-free
period pursuant to the preceding sentence shall not be applicable.
(f) Notwithstanding any other provision of this Section 4 to
the contrary, in the event that the Commencement Date has not occurred
by November 15, 1999, for a period of fifteen (15) days thereafter,
Tenant shall have the right to terminate this Lease by delivery of
written notice to Landlord, in which case the parties shall have no
further obligations under this Lease. The failure of Tenant to deliver
such notice within such time period shall be deemed a waiver of such
right to terminate.
5. RENT
(a) Tenant agrees to pay to Landlord as "BASE RENT," (annual
rent divided by twelve (12)), without offset, prior notice or demand,
for the Premises, on or before the first day of the first full calendar
month of the term hereof following the Commencement Date and a like sum
on or before the first day of each and every successive calendar month
thereafter during the term hereof. Base Rent for any period during the
term hereof which is for less than one (1) month shall be a prorated
portion of the monthly installment herein, based upon the actual number
of days in such month. Said rental shall be paid to Landlord, without
deduction or offset in lawful money of the United States of America,
which shall be legal tender at the time of payment at the Office of the
Building, or to such other person or at such other place as Landlord
may from time to time designate in writing.
(b) The Base Rent during the term of this Lease shall be as
follows:
<TABLE>
<CAPTION>
Annual Base Rent
Term of this Lease (per rentable
(from Commencement Date) square foot)
------------------------------------------------------------------ ----------------
<S> <C>
Months 1 and 2 (first sixty (60)) days following Commencement Date $0.00
Months 3 through 42 $15.47
Months 43 through 84 $16.55
</TABLE>
(c) Any and all amounts due and payable by Tenant and Landlord
pursuant to this Lease, including, but not limited to Base Rent, shall
be referred to as "RENT."
6. SECURITY DEPOSIT
(None)
7. OPERATING EXPENSE ADJUSTMENTS
(a) For the purpose of this Lease, "DIRECT EXPENSES" shall
mean all direct costs of every kind or nature which Landlord shall pay
or become obligated to pay because of or in connection with management,
ownership, maintenance, repair,
5
<PAGE>
replacement, preservation and operation of the Building and the common
areas thereof (various Project expenses, which are common to both the
Building and Building One shall be included within Direct Expenses on a
pro rata basis (e.g. maintenance and cleaning of parking areas)), as
determined by standard accounting practices, calculated, with regard to
Direct Expenses which vary with occupancy only, assuming the Building
is ninety-five percent (95%) occupied, and shall include the following
costs by way of illustration, but not to be limited to: real property
taxes, assessments, bonds (or any substitute therefor) rent taxes,
gross receipt taxes (whether assessed against the Landlord or assessed
against the Tenant and collected by the Landlord, or both
(collectively, "REAL ESTATE TAXES")); the establishment of normal and
customary reasonable annual reserves for capital improvements and
structural repairs; water and sewer charges; insurance premiums for any
form of insurance deemed reasonably prudent by Landlord ("INSURANCE"),
provided that (i) such Insurance is in a form and amounts that other
landlords of comparable first-class buildings in the vicinity of the
Building are requiring, and (ii) such Insurance is actually purchased;
utilities of all types servicing the Building and the common areas
("UTILITIES") (electricity servicing the Premises is being paid by
Tenant directly to the utility provider, accordingly, such cost shall
not be included in Direct Expenses); janitorial services in accordance
with the specification set forth in Exhibit D attached hereto
("JANITORIAL SERVICES"); labor; costs incurred in the management of the
Building, if any; air conditioning and heating; elevator maintenance;
supplies; materials; equipment and tools; including maintenance, costs,
and upkeep of all parking and common areas (Direct Expenses shall not
include depreciation on the Building of which the Premises are a part
or equipment therein, loan payments, executive salaries or real estate
brokers' commissions, or cost of tenant improvements installed by
Landlord; or attorneys' fees incurred by Landlord resulting from
disputes or lease transactions with existing tenants of the Building;
provided that attorneys' fees incurred by Landlord which are for the
general benefit of all tenants of the Building shall be included in
Direct Expenses; and any expenses concerning the repair of defects in
the Building which are covered by and corrected pursuant to
manufacturer warranties). For the purposes of determining Tenant's
Share (as hereinafter defined) of Direct Expense, from calendar year to
calendar year during the term of this Lease, Landlord and Tenant agree
that increases in Direct Expenses, excepting the cost of Real Estate
Taxes, Insurance and Utilities, shall not exceed the Direct Expense Cap
(as defined below). The Direct Expense CAP shall not apply to Tenant's
Share of the cost of Real Estate Taxes, Insurance, and Utilities, which
costs shall be billed at actual cost and Tenant shall be responsible
for Tenant's Share of such costs. For the purpose of this Section 7(a),
"DIRECT EXPENSE CAP" shall mean (i) for the first (1st) year of the
term of this Lease, the amount of Five and 25/100ths Dollars ($5.25)
per rentable square foot of the Premises; (ii) for second (2nd) year of
the term of this Lease, the lesser of (a) the actual amount of Direct
Expenses, less Real Estate Taxes, Insurance, and Utilities, paid by
Landlord for the immediately preceding calendar year multiplied by one
hundred five percent (105%), or (b) the amount of Five and 51/100ths
Dollars ($5.51) per rentable square foot of the Premises; (iii) for
third (3rd) year of the term of this Lease, the lesser of (a) the
actual amount of Direct Expenses, less Real Estate Taxes, Insurance,
and Utilities, paid by Landlord for the immediately preceding calendar
year multiplied by one hundred five percent (105%), or (b) the amount
of Five and 79/100ths Dollars ($5.79) per
6
<PAGE>
rentable square foot of the Premises; (iv) for fourth (4th) year of the
term of this Lease, the lesser of (a) the actual amount of Direct
Expenses, less Real Estate Taxes, Insurance, and Utilities, paid by
Landlord for the immediately preceding calendar year multiplied by one
hundred five percent (105%), or (b) the amount of Six and 08/100ths
Dollars ($6.08) per rentable square foot of the Premises; (v) for fifth
(5th) year of the term of this Lease, the lesser of (a) the actual
amount of Direct Expenses, less Real Estate Taxes, Insurance, and
Utilities, paid by Landlord for the immediately preceding calendar year
multiplied by one hundred five percent (105%), or (b) the amount of Six
and 38/100ths Dollars ($6.38) per rentable square foot of the Premises;
(vi) for sixth (6th) year of the term of this Lease, the lesser of (a)
the actual amount of Direct Expenses, less Real Estate Taxes,
Insurance, and Utilities, paid by Landlord for the immediately
preceding calendar year multiplied by one hundred five percent (105%),
or (b) the amount of Six and 70/100ths Dollars ($6.70) per rentable
square foot of the Premises; and (vii) for seventh (7th) year of the
term of this Lease, the lesser of (a) the actual amount of Direct
Expenses, less Real Estate Taxes, Insurance, and Utilities, paid by
Landlord for the immediately preceding calendar year multiplied by one
hundred five percent (105%), or (b) the amount of Seven and 04/100ths
Dollars ($7.04) per rentable square foot of the Premises.
Notwithstanding the definition of Direct Expenses, such expenses shall
not include the costs set forth in Exhibit E.
(b) For the first year following the Commencement Date,
Landlord estimates such amount of Direct Expenses for the Building to
be Five and 25/100ths Dollars ($5.25) per rentable square foot, however
actual expenses may vary (the parties acknowledge that such estimate
has been decreased by $1.00 per rentable square foot in recognition of
Tenant's obligation to pay electrical services for the Premises
directly to the utility provider). Tenant shall pay its proportionate
share of Direct Expenses ("TENANT'S SHARE"), as determined by comparing
the rentable square footage of the Premises to the rentable square
footage of the Building, which percentage shall be confirmed in the
First Amendment to Lease and Acknowledgment. Landlord shall give to
Tenant on or before the first day of March of each year a statement
("EXPENSE STATEMENT") of the actual amount of Direct Expenses for the
previous year, but failure by Landlord to give such statement by said
date shall not constitute a waiver by Landlord of its right to collect
any amount payable hereunder. Landlord shall, in each Expense
Statement, estimate Direct Expenses for the then current year and such
estimate shall be used as an estimate for said current year and this
amount shall be divided into twelve (12) equal monthly installments and
Tenant shall pay to Landlord, concurrently with the regular monthly
rent payment next due following the receipt of such statement, an
amount equal to one (1) monthly installment multiplied by the number of
months from January in the calendar year in which said statement is
submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular
monthly rent payment for the balance of that calendar year and shall
continue until the next Expense Statement is rendered. If the next or
any succeeding year results in an increase in Direct Expenses, then
upon receipt of an Expense Statement from Landlord, Tenant shall pay a
lump sum equal to Tenant's Share of such total increase in Direct
Expenses, less the total of the monthly installments of Direct Expenses
paid in the previous calendar year. If, in any comparison year the
Tenant's Share of Direct Expenses be less than the preceding year, then
upon receipt of the Expense Statement, any overpayment made by Tenant
on the monthly installments basis provided above shall be
7
<PAGE>
credited towards the next monthly rent falling due and the estimated
monthly installment of Direct Expenses to be paid shall be adjusted to
reflect such lower Direct Expenses.
(c) Even though the term has expired and Tenant has vacated
the Premises, when the final determination is made of Tenant's Share of
Direct Expenses for the year in which this Lease terminates, Tenant
shall, within thirty (30) days following such determination, pay any
increase due over the estimated expenses paid and conversely any
overpayment made in the event said expenses decrease shall be
immediately rebated by Landlord to Tenant. Notwithstanding anything
contained in this Article, the rent payable by Tenant shall in no event
be less than the rent specified in Article 5 hereinabove.
(d) For a period of one (1) year after receipt of the Expenses
Statement, Tenant shall be entitled, upon thirty (30) days prior
written notice and during normal business hours, at the office of the
Building's property manager or such other place as Landlord shall
designate, to inspect and examine those books and records of Landlord
relating to the determination of Direct Expenses for the immediately
preceding comparison year. Failure of Tenant to request such inspection
within such time period shall render such Expenses Statement conclusive
and binding on Tenant. If, after inspection and examination of such
books and records, Tenant disputes the amounts of the Direct Expenses
charged by Landlord, Tenant may, by written notice to Landlord, request
an independent audit of such books and records. The independent audit
of the books and records shall be conducted by either a qualified
expense auditor (with not less than ten (10) years experience in
auditing of commercial office projects, or a certified public
accountant ("AUDITOR")) acceptable to both Landlord and Tenant (the
Auditor shall be paid on an hourly basis and no contingent fee payments
shall be permitted). The audit shall be limited to the determination of
the amount of Direct Expenses for the subject comparison year. If the
audit discloses that the amount of Direct Expenses billed to Tenant was
incorrect, the appropriate party shall pay to the other party the
deficiency or overpayment, as applicable. All costs and expenses of the
audit shall be paid by Tenant unless the audit shows that Landlord
overstated Direct Expenses for the subject comparison year by more than
five percent (5.00%), in which case Landlord shall pay all costs and
expenses of the audit. Tenant and the Auditor shall keep any
information gained from such audit confidential and shall not disclose
it to any other party. The exercise by Tenant of the audit rights
hereunder shall not relieve Tenant of its obligation to timely pay all
sums due hereunder, including, without limitation, the disputed portion
of Direct Expenses.
(e) Upon not less than sixty (60) days advance written notice,
Tenant shall have the right to assume from Landlord responsibility to
provide Janitorial Services for the Leased Premises; provided that (i)
Tenant is not in default of the provisions of this Lease, and (ii) the
level of such service shall comply with the specifications set forth on
Exhibit D attached hereto. In the event that Tenant elects to assume
the obligation to provide Janitorial Services as provided herein,
Landlord shall have no obligation or liability as a result of actions
taken by such janitorial staff, Tenant shall cause such janitorial
staff to comply with the rules and regulations of the Building, such
services shall be consistent with the operation of other first-class
office building in the vicinity of
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the Building, and such expense previously included in Direct Expenses
shall be excluded for the purpose of determining Tenant's Share
thereof.
(f) At any time during the term of this Lease, Tenant may
request Landlord, by delivery of written notice, to challenge the
amount of Real Estate Taxes currently assessed against the Building;
provided, however, Landlord shall not be obligated to commence such
challenge if, in Landlord's good faith estimation, such challenge would
not prevail. If Landlord indicates in writing that it will not commence
such challenge, Tenant, at Tenant's sole cost and expense, shall have
the right to challenge the amount of the Real Estate Taxes with the
appropriate governmental entities; provided that Tenant shall
indemnify, defend and hold Landlord and the Property harmless from any
and all claims, damages and expenses resulting from such action. To the
extent that Tenant is successful in such challenge, Landlord shall
reimburse Tenant for its costs incurred in prosecuting such challenge
to the extent of Landlord's savings in Real Estate Taxes.
8. USE
(a) Tenant shall use the Premises for general office purposes
and related uses, and shall not use or permit the Premises to be used
for any other purpose. Subject to the provisions of this Lease, Tenant
shall be entitled to twenty-four (24) hours a day, seven (7) days a
week, three hundred sixty-five (365) days a year access to the
Premises.
(b) Except for permissible use of the Premises as set forth in
this Lease, Tenant shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any
way increase the existing rate of or affect any fire or other insurance
upon the building or any of its contents, or cause cancellation of any
insurance policy covering said Building or any part thereof or any of
its contents. Excepting the use of the Premises as permitted in Section
8(a), Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building or injure or annoy them or
use or allow the Premises to be used for any immoral or unlawful
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on
or about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises.
(c) Neither Tenant, nor any assignee, sublessee or occupier of
any portion of the Premises, shall permit the introduction, placement,
use, generation, manufacture, storage, disposal or transportation in or
around the Premises of any hazardous, poisonous or toxic substance,
material or waste of any kind that may be hazardous to health and/or
the environment, including, without limitation, substances from time to
time identified as such by federal and/or state laws and regulations,
without the prior written consent of Landlord; provided, however,
Tenant shall be entitled to possess and maintain within the Premises
reasonable amounts of such hazardous materials which are customarily
used in connection with general office uses.
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9. COMPLIANCE WITH LAW
Tenant shall, at its sole cost and expense, promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, which
includes, but is not limited to access laws for individuals with
disabilities (commonly referred to as "ADA"), and with the requirements
of any board of fire insurance underwriters or other similar bodies now
or hereafter constituted, relating to, or affecting the condition, use
or occupancy of the Premises, excluding structural changes not related
to or affected by Tenant's improvements or acts. In the event
additions, alterations or other accommodations to the Premises, the
Building, or any other property owned by Landlord are required as a
result of Tenant's occupancy or actions, Tenant shall be solely
responsible for and shall indemnify, defend and hold harmless Landlord,
its successors and assigns, for, from and against any loss, damage,
cost, claim, expense, or liability directly or indirectly arising out
or attributable to such occupancy or action. Subject to the foregoing,
Landlord, following the Commencement Date, shall be responsible for
compliance with all laws, statutes, ordinances and governmental rules,
regulations or requirements affecting the Building, including ADA, to
the extent that such compliance is required for general office use and
not related to Tenant's specific use of the Premises. The judgment of
any court of competent jurisdiction or the admission of Tenant in any
action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, statue, ordinance or governmental rule,
regulation or requirement, shall be conclusive of the fact as between
the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS
(a) Tenant shall not make or suffer to be made any
alterations, additions, or improvements (collectively, "ALTERATIONS")
to or of the Premises, or any part thereof, without first obtaining the
written consent of Landlord, which shall not be unreasonably withheld;
provided, however, if the Alterations would adversely affect the
structure or safety of the Building or its electrical, plumbing, HVAC,
mechanical or safety systems, or if such Alterations would create an
obligation on Landlord's part to make modifications to the Building,
Landlord may withhold its consent in its sole and absolute discretion.
Notwithstanding the foregoing, without the prior consent of Landlord,
but with the prior notice to Landlord, Tenant shall be entitled to make
Alterations within the Premises, provided that (i) the cost of
construction such Alterations does not exceed Twenty-Five Thousand and
No/100ths Dollars ($25,000,00) per project In the aggregate, and (ii)
does not effect the structure or mechanical systems of the Building,
(iii) such Alterations are not visible from outside of the Premises,
and (iv) Tenant otherwise complies with the provisions of this Section
(collectively, "PERMITTED ALTERATIONS"). All Alterations shall comply
with all applicable laws, statutes and ordinances, which include, but
are not limited to ADA (Tenant acknowledges that certain Alterations
may require ADA compliance within the Premises, the Building, and the
common areas thereof, which costs may be disproportionate to the cost
of such Alteration). Any Alterations to or of said Premises, including,
but not limited to, wall covering, paneling, and built-in Landlord
shall provide written notice to Tenant prior to the construction of
such Alteration whether Tenant will be required to remove such
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Alteration and restore the Premises to its original condition upon the
expiration of the Term, normal wear and tear excepted (Tenant shall
have no obligation to remove any improvements constructed and/or
installed within the Premises pursuant to the provisions of the Work
Letter Agreement). If Landlord so states, Tenant, at its own cost shall
restore the Premises to its original condition upon the expiration of
the term; provided, however, Landlord may subsequently require any
Permitted Alterations be removed at the expiration or the earlier
termination of the term of this Lease. Upon Landlord's approval of the
requested Alterations, Tenant shall secure all necessary permits after
approved by Landlord, if applicable. Before Landlord's consent to such
Alterations, Tenant shall submit detailed specifications, floor plans
and necessary permits (if applicable) to Landlord for review. In no
event shall any Alterations affect the structure of the Building or its
facade. As a condition to its consent, Landlord may request adequate
assurance that all contractors who will perform such work have in force
workman's compensation and such other employee and public liability
insurance as Landlord deems necessary, and where the Alterations are
material, Landlord may require Tenant or its contractors to post
adequate completion and performance bonds. In the event Landlord
consents to the making of any Alterations to the Premises by Tenant,
the same shall be made by Tenant at Tenant's sole cost and expense,
completed to the satisfaction of Landlord, and the contractor or person
selected by Tenant to make the same must first be approved in writing
by Landlord. If Tenant makes any Alterations to the Premises as
provided in this Section, the Alterations shall not be commenced until
ten (10) business days after Landlord has received notice from Tenant
stating the date the installation of the Alterations is to commence so
that Landlord can post and record an appropriate notice of
nonresponsibility. Tenant shall reimburse Landlord for any reasonable
expenses incurred by Landlord in connection with the Alterations made
by Tenant, including any reasonable fees charged by Landlord's
contractors or consultants to review plans and specifications prepared
by Tenant, and the customary and reasonable cost of updating the
existing as-built plans of the Building to reflect the alterations.
Tenant shall indemnify, defend and hold the Landlord, the Building and
the Premises free and harmless from any liability, loss, damage, cost,
attorneys' fees and other expenses incurred on account of such
construction, or claims by any person performing work or furnishing
materials or supplies for Tenant or any persons claiming under Tenant.
(b) Landlord acknowledges that Tenant desires to cause the
elevator service to the floors of the Premises which Tenant entirely
occupies (second, third and fourth floor) to be assessable by Tenant
key cards only. Landlord, in accordance with any request by Tenant for
such modification to the elevator service, shall review and approve or
disapprove, which approval shall not be unreasonably withheld, such
request in accordance with the provisions of Section 10(a) above.
(c) Landlord acknowledges that Tenant may desire to have
certain underground easements for cabling purposes and pipe chase space
and conduits for telecommunication cabling and fiber optics within
certain areas of the Building, as well as use certain portions of the
roof as an observation deck and the location for up to four (4)
telecommunication devices at designated areas of the roof. Subject to
Tenant's obligation to pay for all such cost of installation,
maintenance, repair and damages caused by such use and operation,
Landlord agrees to review and approve or disapprove, which
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approval will not be unreasonably withheld, any such request in
accordance with the procedure set forth in Section 10(a) above.
Landlord further acknowledges that Tenant's business operations
contemplate the use of sophisticated telecommunications requirements,
which may require the installation of the items identified in this
Section 10(c) and, based upon such understanding, Landlord shall
reasonably review any related request for Alterations. Tenant shall not
be charged additional cost and/or rent for such usages.
11. REPAIRS
(a) Tenant shall, when and if needed or whenever requested by
Landlord to do so, at Tenant's sole cost and expense, maintain and make
all repairs to the Premises and every part thereof, including all
interior windows and doors, to keep, maintain and preserve the Premises
in good condition and repair. Tenant shall upon the expiration or
sooner termination of the term hereof surrender the Premises to
Landlord in the same condition as when received, less reasonable wear
and tear and subject to any damages which are not the obligation of
Tenant to repair pursuant to the provisions of this Lease. Tenant
acknowledges that Landlord shall have no obligation to maintain, repair
or replace any telecommunications or computer cabling or wiring which
is located in the Premises or which exclusively serves the Premises
(collectively, "CABLING"). Landlord shall have no obligation to alter,
remodel, improve, repair, decorate or paint the Premises or any part
thereof and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or
the Building, except as specifically herein set forth. Tenant shall not
commit or allow any waste or damage to be committed in any portion of
the Premises or Building.
(b) Notwithstanding Subparagraph 11(a) above, Landlord shall
repair and maintain in good condition the structural portions of the
Building, including the roof, basic plumbing, heating, ventilating, air
conditioning, exterior windows, exterior walls of the Building,
exterior doors to the Building, all plumbing in bathrooms used in
common with other tenants of the Building, landscaping of the common
areas of the Building, the parking facilities of the Building,
electrical systems installed or furnished by Landlord (collectively,
"LANDLORD REPAIRS"), unless such maintenance and repairs are caused in
part or in whole by the act, neglect, fault of or omission of any duty
by Tenant, its agents, servants, employees or invitees, in which case
Tenant shall pay to Landlord, as additional rent, the reasonable cost
of such maintenance and repairs. Landlord shall not be liable for any
such failure to make any such repairs or to perform any maintenance,
unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to
Landlord by Tenant. Following Landlord's receipt of written notice from
Tenant that a repair contemplated by this Section is required, Landlord
shall use its commercially reasonable efforts to complete such repair
in a timely basis as soon as possible. Except as provided in paragraph
22 hereof, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in
or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or
ordinance now or hereinafter in effect.
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(c) Notwithstanding anything to the contrary contained in
subparagraphs (a) and (b) of this paragraph 11, Tenant shall maintain
and repair, at its sole cost and expense, all non-base Building
facilities, if any, including kitchen facilities and heating and air
conditioning systems, and all plumbing connected to said facilities or
systems, installed by Tenant or on behalf of Tenant. The provisions of
this paragraph shall not apply to the basic heating and air
conditioning system provided by Landlord to all tenants of the
Building.
(d) Notwithstanding any other provisions of this Lease to the
contrary, upon receipt of written notice (the "FIRST REPAIR NOTICE")
from Tenant that Landlord Repairs are required, Landlord shall cause
such repair to be made within a reasonable period of time given the
circumstances but in no event later than thirty (30) days after it
receives the First Repair Notice; provided, however, that if the repair
is of such a nature that it cannot be completed within thirty (30) days
(which fact shall be indicated in writing delivered to Tenant by
Landlord), then such longer time as reasonably necessary. If Landlord
fails to make the repair within the said time period, Tenant may give
an additional notice (the "SECOND REPAIR NOTICE") to Landlord. If
Landlord fails to commence thereafter such repair with five (5) days
after receipt of the Second Repair Notice and thereafter diligently
pursues said repair to completion, Tenant may perform such repair. All
repairs performed by Tenant pursuant to this Section shall be made by a
qualified licensed contractor(s) with sufficient expertise in such
matters and in accordance with all applicable laws, statutes and
ordinances. Landlord shall reimburse Tenant for Tenant's actual costs
incurred within ten (10) days after Landlord's receipt of a written
demand from Tenant, which demand shall include supporting invoices. If
Landlord disputes the need for such repair, Landlord shall deliver
written notice of such disagreement to Tenant within ten (10) days
after its receipt of the First Repair Notice. Notwithstanding such
dispute, Tenant may cause such repair to be completed pending
resolution of such dispute. The dispute shall be resolved by a mutually
acceptable third party engineer, which determination shall be binding
upon Landlord and Tenant; provided, however, that if the parties cannot
agree on an engineer, then the dispute shall be resolved by arbitration
pursuant to the commercial arbitration rules then in effect for the
American Arbitration Association ("ARBITRATION"). The losing party
shall pay the costs of the engineer or arbitrator, whichever is
applicable. If Landlord is obligated to reimburse Tenant for the actual
cost of repair and fails to do so as provided in this Section, such
amount shall accrue interest at the rate of fifteen percent (15.00%)
per annum until paid in full. If such amounts owing from Landlord to
Tenant are not paid within thirty (30) days following the due date of
such payment, Tenant shall have abatement rights as set forth in
Section 29(f) of this Lease.
(e) Landlord acknowledges that certain of the Landlord Repairs
may have to be made on an expedited basis due to a material disruption
of Tenant's business operations caused by such condition, which
condition shall be referred to as an "EMERGENCY CONDITION." In this
regard, in the event an Emergency Condition relating to a Landlord
Repair exists, Tenant shall deliver to Landlord, by facsimile, a
written notice ("EMERGENCY NOTICE") describing such Emergency
Condition. The Emergency Notice shall, in ten (10) point bold typed
across the top, stating "AN EMERGENCY SITUATION EXISTS AT THE PREMISES
REQUIRING YOUR
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IMMEDIATE ATTENTION." In the event that Landlord fails to commence
repair of the Emergency Condition within twenty-four (24) hours (if
such situation occurs during non-business hours, Tenant shall utilize
Landlord's paging system, the procedure for which shall be provided to
Tenant prior to the Commencement Date), Tenant using licensed
contractors which are qualified to perform such tasks in compliance
with applicable laws, shall have the right to make the Landlord
Repairs; provided, however, such repairs shall be limited to the
temporary remediation of such Emergency Condition and Landlord shall
thereafter be responsible for the full repair of such condition.
Landlord shall reimburse Tenant's actual expenses incurred in making
such temporary remediation repairs within ten (10) days following
Landlord's receipt of written demand and supporting invoices. If such
repayment is not made within such ten (10) day period, such amount
shall accrue interest at the rate of fifteen percent (15.00%) per annum
until paid in full. If such amounts owing from Landlord to Tenant are
not paid within thirty (30) days following the due date of such
payment, Tenant shall have abatement rights as set forth in Section
29(f) of this Lease.
12. LIENS
Tenant will not cause or permit any lien to be imposed upon the
Premises of the Building and will pay all taxes and license fees
imposed by reason of any improvements made by Tenant to the Premises or
imposed upon any personal property located in the Premises. Tenant
shall have the right to contest any such lien; provided that Tenant
posts the requisite bonds, which are upon terms and conditions
reasonably acceptable to Landlord, to remove such lien as an
encumbrance against the Building. Tenant shall provide Landlord with
prior written notice of any such intention to contest. Tenant agrees to
give Landlord not less than five (5) days notice prior to commencement
of any alteration or repair permitted under the terms of the Lease so
that Landlord may post a notice of non-responsibility. In the event
that the amount of the estimated cost of any improvements, additions or
alterations in the Premises is in excess of One Hundred Thousand and
No/100ths Dollars ($100,000.00), Landlord may require, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one
and one-half (1-1/2) times all estimated cost of any improvements,
additions or alterations in the Premises, to insure Landlord against
any liability for mechanics' and materialmen's liens and to insure
completion of the work; provided that the provisions of this sentence
shall not apply to any improvements constructed by Tenant within the
Premises prior to the Commencement Date.
13. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not, without the prior written consent of
Landlord, which shall not be unreasonably withheld, delayed or
conditioned, as provided in this Section 13: (a) assign, mortgage,
pledge, encumber or otherwise transfer this Lease, the term or estate
hereby granted, or any interest hereunder; (b) permit the Premises or
any part thereof to be utilized by anyone other than Tenant (whether as
concessionaire, franchisee, licensee, permittee or otherwise); or (c)
except as hereinafter provided, sublet or offer or advertise for
subletting the Premises or any part thereof. Any assignment, mortgage,
pledge, encumbrance, transfer or sublease without Landlord's consent
shall be voidable.
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Notwithstanding the foregoing and Subsection (b) below, Tenant may
assign this Lease or sublet the Premises or a portion thereof, without
Landlord's consent, but with prior written notice, to any corporation,
partnership, individual or other entity which controls, is controlled
by or is under common control with Tenant; or to any corporation,
partnership, individual or other entity, resulting from the merger or
consolidation with Tenant; or to any person or entity which acquires
all of the assets of Tenant's business going concern, provided that (i)
the assignee or subtenant assumes, in full, the obligations of Tenant
under this Lease, (ii) Tenant remains fully liable under this Lease,
(iii) the use of the Premises remains unchanged, and (iv) if Tenant is
no longer a viable and operating business entity, the assignee or
sublessee has a net worth which is consistent with the
leasing/financial requirements of Landlord taking into consideration
the size of the Premises, the rental structure, rights and privileges
granted to the Tenant pursuant to this Lease, and other concessions
granted to Tenant pursuant to the provisions of this Lease. Provided
that Tenant is a corporation, and (i) the stock of Tenant is traded on
a national exchange, the transfer of stock in Tenant shall not be
considered an assignment, sublease or transfer under the Lease, or (ii)
the stock of Tenant is not traded on a national exchange, the
collective transfer of forty nine percent (49.00%) or less of such
stock shall not be considered an assignment, sublease or transfer under
this Lease.
(b) If at any time or from time to time during the Term of
this Lease, Tenant desires to assign this Lease with respect to, or to
sublet, all or any part of the Premises, then at least thirty (30) days
prior to the date when Tenant desires the assignment or subletting to
be effective (the "TRANSFER DATE"), Tenant shall give Landlord a notice
(the "TRANSFER NOTICE") which shall set forth the name, address and
business of the proposed assignee or subtenant, information (including
financial statements and references) concerning the character of the
proposed assignee or subtenant, in the case of a proposed sublease, a
detailed description of the space proposed to be sublet, which must be
a single, self-contained unit (the "SPACE"), any rights of the proposed
assignee or subtenant to use Tenant's improvements and the like, the
Transfer Date, and the fixed rent and/or other consideration and all
other material terms and conditions of the proposed assignment or
subletting, all in such detail as Landlord may reasonably require.
(c) Landlord shall be permitted to consider any reasonable
factor in determining whether or not to withhold its consent to a
proposed assignment or sublease and Landlord shall make such
determination within thirty (30) days following Landlord's receipt of
the Transfer Notice. The failure of Landlord to deliver written notice
of such determination within such time period shall be deemed
Landlord's approval thereof. Without limiting the other instances in
which it may be reasonable for Landlord to withhold its consent to an
assignment or sublease, it shall be reasonable for Landlord to withhold
its consent if any of the following conditions are not satisfied:
(1) The proposed transferee shall have a net worth
which is consistent with the leasing/financial requirements of
Landlord taking into consideration the size of the Premises,
the rental structure, rights and privileges granted to the
Tenant pursuant to this Lease, and other concessions granted
to Tenant pursuant to the provisions of this Lease;
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(2) The proposed use by the transferee shall (i)
comply with Tenant's permitted use, (ii) be consistent with
the general character of businesses carried on by tenants of a
first-class office building, (iii) not increase the likelihood
of damage or destruction, (iv) not materially increase the
density of, occupancy of the Premises or increase the amount
of pedestrian and other traffic through the Building, (v) not
be likely to cause an increase in insurance premiums for
insurance policies applicable to the Building, (vi) not
require new tenant improvements incompatible with
then-existing Building systems and components, unless paid for
by Tenant, and (vii) unless paid by Tenant, not require
Landlord to make modifications to the Building outside of the
Premises (in order, for example, to comply with laws such as
the ADA);
(3) The proposed transferee shall not be a labor
union, foreign or domestic governmental entity or public
utility company which includes, as part of its business
operation, customer traffic to and from the Premises;
(4) If Landlord has vacant space at the Building
suitable for such proposed transferee, the proposed transferee
shall not be an existing tenant or occupant of the Building or
a person or entity with whom Landlord is then dealing, or with
whom Landlord has had any dealings within the previous six (6)
months, with respect to the leasing of space in the Building;
and
(5) Any ground lessor or mortgagee whose consent to
such transfer is required fails to consent thereto. Tenant
shall have the burden of demonstrating that each of the
foregoing conditions has been satisfied.
(d) Provided Landlord has consented to such assignment or
subletting, Tenant shall be entitled to enter into such Assignment or
Sublease with the third party identified in the Transfer Notice subject
to the following conditions:
(1) At the time of the transfer, no event of material
default under this Lease shall have occurred and be
continuing;
(2) The assignment or sublease shall be on the same
terms set forth in the Transfer Notice given to Landlord;
(3) No assignment or sublease shall be valid and no
assignee or sublessee shall take possession until an executed
counterpart of the assignment or sublease has been delivered
to Landlord;
(4) No assignee or sublessee shall have a right
further to assign or sublet without Landlord's consent thereto
in each instance, which consent in the case of a future
assignment or sublease should not be unreasonably withheld;
(5) Any assignee shall have assumed in writing the
obligations of Tenant under this Lease;
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(6) Any subtenant shall have agreed in writing to
comply with all applicable terms and conditions of this Lease
with respect to the Space;
(7) In the event Tenant sublets the entire Premises
or any part thereof, Tenant shall deliver to Landlord fifty
percent (50.00%) of any excess rent within thirty (30) days of
Tenant's receipt thereof pursuant to such subletting. As used
herein, "EXCESS RENT" shall mean any sums or economic
consideration per square foot of the Premises received by
Tenant pursuant to such subletting in excess of the amount of
the rent per square foot of the Premises payable by Tenant
under this Lease applicable to the part or parts of the
Premises so sublet; provided, however, that no excess payment
shall be payable until Tenant shall have recovered therefrom
all of the costs incurred by Tenant for brokerage commissions,
tenant improvement work approved by Landlord, reasonable
attorneys fees, and reasonable marketing fees, in conjunction
with such sublease; and
(8) In the event Tenant assigns this Lease, Tenant
shall deliver to Landlord fifty percent (50.00%) of any excess
payment within thirty (30) days of Tenant's receipt thereof
pursuant to such assignment. As used herein, "EXCESS PAYMENT"
shall mean the amount of payment received for such assignment
of this Lease (to the extent applicable only to this Lease) in
excess of the rent payable by Tenant under this Lease;
provided, however, that no excess payment shall be payable
until Tenant shall have recovered therefrom all of the costs
incurred by Tenant for brokerage commissions, tenant
improvement work approved by Landlord, reasonable attorneys
fees, and reasonable marketing fees, in conjunction with such
assignment.
(e) No subletting or assignment shall release Tenant of
Tenant's obligations under this Lease or alter the liability of Tenant
to pay the rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Provided that
Landlord has provided Tenant with prior written notice, Landlord may
consent to subsequent assignments of the Lease or sublettings or
amendments or modifications to the Lease with assignees of Tenant.
(f) If Tenant assigns the Lease or sublets the Premises or
requests the consent of Landlord to any assignment or subletting or if
Tenant requests the consent of Landlord for any act that Tenant
proposes to do, then Tenant shall, upon demand, pay Landlord an
administrative fee of Five Hundred and No/100ths Dollars ($500.00).
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14. HOLD HARMLESS
Subject to the provisions of Section 15 below and to the extent not
funded and paid to Landlord by any insurance maintained by Tenant,
Tenant shall indemnify, defend and hold harmless Landlord against and
from any and all claims, damages, liabilities, and expenses (including
reasonable attorneys' fees) to the extent arising from Tenant's use of
the Premises for the conduct of its business or from any activity, work
or other thing done, permitted or suffered by the Tenant in or about
the Building, and shall further indemnify, defend and hold harmless
Landlord against and from any and all claims to the extent arising from
any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease, or from any act or
negligence of the Tenant, or any officer, agent, employee, guest or
invitee of Tenant, and from all and against all reasonable cost,
attorney's fees, expenses and liabilities incurred in or about any such
claim or any action or proceeding brought thereon, and, if any case,
action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at
Tenant's expense by counsel selected by Tenant and approved in writing
by Landlord such approval not to be unreasonably withheld or delayed.
Notwithstanding the preceding sentence, such indemnification by Tenant
and such assumption and waiver of claims shall not include damage or
injury to the extent caused by the negligence or willful misconduct of
Landlord, its agents, employees or contractors. Subject to Section 15
below and to the extent not funded and paid to Landlord by any
insurance maintained by Tenant, Landlord shall indemnify, defend and
hold harmless Tenant against and from any and all claims, damages,
liabilities, and expenses (including reasonable attorneys' fees) to the
extent arising from any breach or default in the performance of any
obligation on Landlord's part to be performed under the terms of this
Lease, or from any act or negligence of Landlord, or any officer,
agent, employee, guest or invitee of Landlord, and from and against all
reasonable costs, attorneys' fees, expenses and liabilities incurred in
or about any such claim or any action or proceeding brought thereon,
and, if any case, action or proceeding be brought against Tenant by
reason of any such claim, Landlord upon notice from Tenant, shall
defend same at Landlord's expense by counsel selected by Landlord and
approved in writing by Tenant, such approval not to be unreasonably
withheld or delayed. Notwithstanding any other provision of this Lease
to the contrary, Landlord shall not be responsible for any damages
relating to Tenant's loss of business resulting from an event requiring
indemnification pursuant to this Section.
Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord or its affiliates for any injury or damage to
any person or property occurring or incurred in connection with or in
any way relating to the Premises, the Building or the Property from any
cause, excepting the gross negligence or willful misconduct of
Landlord. Without limiting the foregoing, neither Landlord nor any of
its Affiliates shall be liable for and there shall be no abatement of
rent for (i) any damage to Tenant's property stored with or entrusted
to Affiliates of Landlord, (ii) loss of or damage to any property by
theft or any other wrongful or illegal act, or (iii) any injury or
damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or the Project or from the pipes, appliances,
appurtenances or plumbing works therein or from the roof, street or
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sub-surface or from any other place or resulting from dampness or any
other cause whatsoever or from the acts or omissions of other tenants,
occupants or other visitors to the Building or the Project or from any
other cause whatsoever, or (iv) any diminution or shutting off of
light, air or view by any structure which may be erected on lands
adjacent to the Building, whether within or outside of the Property.
Tenant agrees that in no case shall Landlord ever be responsible or
liable on any theory for any injury to Tenant's business, loss of
profits, loss of income or any other form of consequential and/or
punitive damage. Tenant shall give prompt notice to Landlord in the
event of (a) the occurrence of a fire or accident in the Premises or in
the Building, or (b) the discovery of any defect therein or in the
fixtures or equipment thereof. Notwithstanding any other provision of
this Lease to the contrary, Tenant waives any claims based on damage or
injury resulting from Landlord's failure to police or provide security
for the Property.
15. SUBROGATION
Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss or damage that is or would be
insured by fire, extended coverage and other property insurance
policies existing for the benefits of the respective parties or
required to be obtained by the releasing party pursuant to the
provisions of the Lease. Each party shall obtain any special
endorsements, if required by their insurer to evidence compliance with
the aforementioned waiver.
16. LIABILITY INSURANCE
(a) All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies which are rated by
Best Insurance Reports as A:VII or better and acceptable to Landlord
and Landlord's lender and licensed or authorized to do business in the
State of Colorado. Each policy shall name Landlord, and at Landlord's
request any mortgagee of Landlord, as an additional insured, as their
respective interests may appear. Each policy shall contain (i) a
separation of insureds condition, (ii) a provision that such policy and
the coverage evidenced thereby shall be primary and non-contributing
with respect to any policies carried by Landlord and that any coverage
carried by Landlord shall be excess insurance for Landlord's interest
only, and (iii) a waiver by the insurer of any right of subrogation
against Landlord, its agents, employees and representatives, which
arises or might arise by reason of any payment under such policy or by
reason of any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be delivered
to Landlord before the date Tenant is given possession of the Premises,
and thereafter, within thirty (30) days after any demand by Landlord
therefor, Landlord may, at any time and from time to time, inspect
and/or copy any insurance policies required to be maintained by Tenant
hereunder. No such policy shall be cancelable, materially changed or
reduced in coverage except after thirty (30) days' written notice to
Landlord and Landlord's lender. Tenant shall furnish Landlord with
renewals or "binders" of any such policy at least ten (10) days prior
to the expiration thereof. Tenant agrees that if Tenant does not take
out and maintain such insurance, Landlord may (but shall not be
required to) procure said insurance on Tenant's behalf and
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charge the Tenant the premiums, which shall be payable upon demand.
Tenant shall have the right to provide such insurance coverage pursuant
to blanket policies obtained by the Tenant, provided such blanket
policies expressly afford coverage to the Premises, Landlord,
Landlord's mortgagee and Tenant as required by this Lease.
(b) Beginning on the date Tenant is given access to the
Premises for any purpose and continuing until expiration of the term of
the Lease, Tenant shall procure, pay for and maintain in effect
policies of property insurance covering trade fixtures, merchandise and
other personal property from time to time, in, on or about the
Premises. The proceeds of such insurance shall be used for the repair
or replacement of the property so insured. Upon termination of this
Lease following a casualty as set forth herein, the proceeds under (i)
shall be paid to Landlord, and the proceeds under (ii) above shall be
paid to Tenant.
(c) Beginning on the date Tenant is given access to the
Premises for any purpose and continuing until expiration of the Term of
the Lease, Tenant shall procure, pay for and maintain in effect
workers' compensation and employer's liability insurance and commercial
general liability insurance which includes coverage for personal
injury, contractual liability and Tenant's independent contractors. The
commercial general liability should be procured and maintained with not
less than Two Million and No/100ths Dollars ($2,000,000.00) per
occurrence combined single limit, and a Five Million and No/100ths
Dollars ($5,000,000.00) aggregate limit, for bodily injury, personal
injury or property damage liability. If such insurance covers more than
one location, and general aggregate limit shall apply on a per location
basis.
(d) Whenever, in Landlord's reasonable judgment, but not more
than twice during the Term, good business practice or change in
conditions indicate a need for additional or different types of
insurance, Tenant shall upon request of Landlord obtain such insurance
at its own expense.
(e) Landlord shall obtain and keep in force during the term of
this Lease, (i) a policy of commercial general liability insurance in
amounts not less than required by Tenant in Section 16(c) above, and
(ii) fire, extended coverage and other property insurance policies of
the type typically maintained by property owners of Class A office
buildings located in the vicinity of the Building in Boulder County,
insuring the Building and related improvements constituting common
areas for the Building at full replacement cost. The premiums for such
insurance shall constitute Direct Expenses chargeable to tenants of the
Building in accordance with Section 7 above.
17. SERVICES AND UTILITIES
(a) Tenant shall be solely responsible for obtaining service
and thereafter paying the cost of all electrical service required for
Tenant's use of the Premises, which includes, but is not limited to,
electrical services required for the heating and air conditioning
system ("HVAC") for the Premises, and the use of the Premises by
Tenant. In this regard, the Premises shall be separately metered for
electrical consumption and Tenant shall pay all such amounts due prior
to delinquency. As provided in the Work
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Letter Agreement (which includes the agreed upon electrical
specifications for the Premises), Landlord shall cause all electrical
distribution to be installed within the Premises. The failure of
such electrical service to be provided to the Premises, or any
cessation thereof, shall not render Landlord liable in any respect
for damages to either person or property, nor be construed an eviction
of Tenant, nor cause an abatement of rent, or relieve Tenant from the
fulfillment of any covenant or agreement thereof. Whenever heat
generating machines or equipment are used in the Premises or Tenant's
use of the Premises beyond customary business hours (7:00 a.m. to 7:00
p.m., Monday through Friday, and 7:00 a.m. to 12:00 p.m. on Saturdays
(federal and state holidays excepted) ("BUSINESS HOURS")) adversely
affect the temperature otherwise maintained by the air conditioning
system, Landlord reserves the right to install supplementary air
conditioning units for the Premises and the cost thereof, including the
cost of installation, and the cost of operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by Landlord.
Tenant shall be entitled to access to the Premises twenty-four (24)
hours a day, seven (7) days a week. Landlord shall maintain and keep
lighted the common stairs, common entries and toilet rooms in the
Building. Subject to Tenant's obligation to pay for the required
electricity, Landlord shall cause the HVAC to maintain the Premises at
an approximate range of between 72 degrees and 74 degrees Fahrenheit
(plus or minus 2 degrees Fahrenheit) during the Business Hours, which
service shall be provided to the Premises by HVAC system described in
the Work Letter Agreement. As set forth in the Work Letter Agreement,
the Premises shall comply with the requirements of ASHRAE Standard
62-1989 (20 CFM per occupant for office type occupancy or as otherwise
required by applicable law). Landlord shall not be liable for, and
Tenant shall not be entitled to, any reduction of rental by reason of
Landlord's failure to furnish any of the foregoing when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, or by any other cause
similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall not be liable under any circumstances for a loss of or
injury to property; person or Tenant's business occurring through or in
connection with or incidental to failure to furnish such utilities.
(b) If Tenant shall require water in excess of that usually
furnished or supplied for the use of the Premises as general office
space, Tenant shall pay Landlord for such excessive use (in excess of
water consumption provided for general office use for tenants in the
vicinity of the Building) upon written demand by Landlord. If Tenant's
utility requirements are excessive, Landlord may cause a water meter to
be installed in the Premises so as to measure the amount of water
consumed for any such use. The cost of any such meters and of
installations, maintenance and repair thereof shall be paid for by the
Tenant and Tenant agrees to pay to Landlord promptly upon demand
therefore by Landlord for all such water currently consumed as shown by
said meters, at the rates charged for such services by the local
utility furnishing the same, plus any additional expense incurred in
keeping account of the water will be established by an estimate made by
a utility company, in which case such expense shall not be included
within Direct Expenses.
(c) Tenant acknowledges that the use of the HVAC system during
non-Business Hours shall result in excessive wear and tear on such
system, accordingly, if
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Tenant intends to utilize non-Business Hours HVAC service on a regular
reoccurring basis (more than two (2) hours a day, for in excess of an
average of seven (7) days a calendar month, for three (3) consecutive
calendar months), Landlord shall have the right to obtain a service
agreement for such system, which provides for maintenance, repair and
replacement, the cost of which shall be paid directly by Tenant (such
costs shall not be within the definition of Direct Expenses).
18. PROPERTY TAXES
Tenant shall pay all taxes and assessments against any personal
property, trade fixtures, or other improvements on the Premises
belonging to Tenant. Tenant shall also pay any sales, use or rental tax
related to Tenant's property or business which may be assessed by any
governmental body during the term of this Lease. Tenant shall pay such
taxes and assessments billed separately to Tenant prior to delinquency.
Tenant shall have the right to contest any tax or assessment levied as
described in this Section; provided that Tenant posts the requisite
bonds, which are upon terms and conditions reasonably acceptable to
Landlord, to remove and/or avoid any form of lien as an encumbrance
against the Building. Tenant shall provide Landlord with prior written
notice of any such intention to contest. In the event such taxes and
assessments are billed to Landlord, Tenant shall pay to Landlord its
share of same within thirty (30) days after delivery to Tenant by
Landlord of a statement in writing, setting forth the amount of such
taxes or assessments applicable to Tenant's property. Tenant shall have
the right to dispute such taxes with the taxing authorities provided
that adequate assurances, as reasonably determined by Landlord, to pay
such amount are made by Tenant. Amounts payable by Tenant pursuant to
this Section 18 shall not be included within Direct Expenses and, in no
event, shall any amount payable hereunder be included within the
definition of Real Estate Taxes.
19. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and
regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable
modifications to said rules, which are normal and customary in the
market and nondiscriminatory. The additions and modifications to those
rules shall be binding upon Tenant upon delivery of a copy of them to
Tenant; provided that no such modification shall increase expenses
otherwise payable by Tenant, or increase duties or obligations owing by
Tenant pursuant to this Lease. Landlord shall not be responsible to
Tenant for the nonperformance of any said rules by any other tenants or
occupants.
20. HOLDING OVER
If Tenant remains in possession of the Premises or any part thereof
after expiration of the term hereof, without the expressed written
consent of Landlord, such occupancy shall be a tenancy from
month-to-month at a rental in the amount of one hundred fifty percent
(150%) multiplied by the last monthly rental, plus all other charges
payable hereunder, and upon all the terms hereof applicable to a
month-to-month tenancy. If either party desires to terminate such
month-to-month tenancy, it shall give the other party not less than
thirty (30) days advance written notice of the date of such
termination.
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21. ENTRY BY LANDLORD
Subject to Tenant's security procedures ("TENANT SECURITY PROCEDURES"),
a written summary of which Tenant shall provide to Landlord within
sixty (60) days following the Commencement Date, Landlord reserves and
shall at any and all reasonable times have the right to enter the
Premises, inspect the same, supply janitorial service and any other
service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to improve or repair the Premises and any
portion of the Building of which the Premises are a part that Landlord
may deem necessary or desirable, without abatement of rent and may for
that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed,
always providing that the entrance to the Premises shall not be blocked
thereby, and further providing that the business of the Tenant shall
not be interfered with unreasonably. Tenant hereby waives any claim for
damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby, provided that
Landlord's activities have been reasonable. Any such entrance shall be
done in a manner that minimizes interference with Tenant's business
operations at the Premises. For each of the aforesaid purposes, subject
to Tenant Security Procedures, Landlord shall at all times have and
retain a key with which to unlock all of the doors in, upon and about
the Premises, excluding Tenant's vaults, safes and files, and Landlord
shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to
the Premises without liability to Tenant, except for any failure to
exercise due care for Tenant's property. Any entry to the Premises
obtained by Landlord by any of said means, or otherwise shall not under
any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of the premises, or an eviction of Tenant
from the Premises or any portion thereof.
22. RECONSTRUCTION
(a) In the event the Premises or the Building of which the
Premises are a part are damaged by fire or other perils covered by
extended coverage insurance carried by Landlord, Landlord agrees to
forthwith repair the same; and this Lease shall remain in full force
and effect, except that Tenant shall be entitled to a proportionate
reduction of the rent, which shall be negotiated in good faith, while
such repairs are being made, such proportionate reduction to be based
upon the extent to which the making of such repairs shall materially
interfere with the business carried on by the Tenant in the Premises
which is not mitigated by any business interruption insurance carried
by Tenant. If the damage is due to the fault or neglect of Tenant or
its employees, there shall be no abatement of rent.
(b) In the event the Premises or the Building or a part are
damaged by fire or other perils not covered by extended coverage
insurance, then Landlord shall forthwith repair the same, provided the
extent of the destruction be less than twenty percent (20%) of the then
full replacement cost of the Premises or the Building of which the
Premises are a part. In the event the destruction of the Premises or
the Building is to an extent
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greater than twenty percent (20%) of the full replacement cost, the
Landlord shall have the option: (1) to repair or restore such damage,
this Lease continuing in full force and effect, but the rent to be
proportionately reduced as hereinabove in this Article provided; or (2)
give notice to Tenant at any time within ninety (90) days after such
damage terminating this Lease as of the date specified in such notice,
which date shall be no less than sixty (60) days and no more than
ninety (90) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the
Tenant in the Premises shall terminate on the date so specified in such
notice and the rent, reduced by a proportionate amount based upon the
extent, if any, to which such damage materially interfered with the
business carried on by the Tenant in the Premises, shall be paid up to
date of said such termination.
(c) Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage, in excess of
fifteen percent (15%) of the replacement cost of the Building,
resulting from any casualty covered under this Article occurs during
the last twelve (12) months of the term of this Lease or any extension
thereof. If Landlord elects not to repair, reconstruct or restore the
Premises during such twelve (12) month period, this Lease shall be
deemed terminated on the date of such damage.
(d) Landlord shall not be required to repair any damage caused
by fire or other cause, or to make any repairs or replacements of any
panels, decoration, office fixtures, railings, floor covering,
partitions, or any other property installed in the Premises by Tenant.
(e) The Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the whole or any part of
the Premises, Tenant's personal property or any inconvenience or
annoyance occasioned by such damage, repair, reconstruction or
restoration.
(f) Tenant may elect to terminate this Lease at any time
during the term hereof, if the Premises are destroyed or rendered
untenantable to an extent that they cannot be repaired within two
hundred twenty-five (225) days following the casualty, as reasonably
determined by Landlord in writing delivered to Tenant within forty-five
(45) days following the date of such damage, by delivery of written
notice of such election within fifteen (15) days following Tenant's
receipt of such notice. Thereafter, in the event that such repairs are
not substantially complete within such two hundred twenty-five (225)
day period, as may be extended by delays caused by Tenant for a period
of fifteen (15) days thereafter, Tenant shall have the right to
terminate this Lease by delivery of written notice of such election.
The termination of this Lease pursuant to this Section 22(f) shall be
effective upon Landlord's receipt of such notice.
23. DEFAULT
The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
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(a) The abandonment, without payment or rent, or vacating of
the Premises by Tenant (must be in excess of ten (10) business days).
(b) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder within ten (10)
days following Tenant's receipt of written notice from Landlord that
such amount is due.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by the Tenant, other than described in Article 23(a) above,
where such failure shall continue for a period of thirty (30) days
after written notice thereof by Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than thirty
(30) days are reasonably required for its cure, then Tenant shall not
be deemed to be in default if Tenant commences such cure within said
thirty (30)-day period and thereafter diligently prosecutes such cure
to completion.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against
Tenant of a petition to have Tenant adjudged bankrupt, or a petition or
reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); or the appointment of a trustee or a
receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease where such seizure is not discharged in thirty (30) days.
24. REMEDIES IN DEFAULT
In the event of Tenant's default, Landlord may:
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In
such event, Landlord shall be entitled to recover from Tenant:
(1) the worth at the time of the award of any unpaid
rent which had been earned at the time of such termination;
plus
(2) the worth at the time of the award of the amount
by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss which Tenant proves could have been reasonably
avoided; plus
(3) the worth at the time of the award of the amount
by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss which
Tenant proves could be reasonably avoided; plus
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(4) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom
(including, without limitation, the cost of recovering
possession of the Premises, reasonable and necessary expenses
of reletting including necessary renovation and alteration of
the Premises to make the Premises and/or portions thereof
tenantable for general office purposes consistent with the
finish of the Premises as improved pursuant to the Work Letter
Agreement, reasonable attorneys' fees, and real estate
commissions actually paid and that portion of the leasing
commission paid by Landlord and applicable to the unexpired
portion of this Lease); plus
(5) such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time by
applicable Colorado law.
As used in Subsections (1) and (2) above, the "WORTH
AT THE TIME OF THE AWARD" shall be computed by allowing
interest at the lesser of ten percent (10%) per annum, or the
maximum rate permitted by law per annum. As used in Subsection
(3) above, the "WORTH AT THE TIME OF AWARD" shall be computed
by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(b) Continue this Lease in full force and effect, and the
Lease will continue in effect, as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to
collect rent when due. During the period Tenant is in default, Landlord
may enter the Premises and relet them, or any part of them, to third
parties for Tenant's account. Tenant shall be liable immediately to
Landlord for all costs Landlord reasonably incurs in reletting the
Premises, including, without limitation, brokers' commissions, expenses
of remodeling the Premises required by the reletting, and like costs.
Reletting can be for a period shorter or longer than the remaining term
of this Lease (provided, however, in no event shall Tenant be
responsible for any cost relating to such reletting after the
expiration of the term of this Lease). Tenant shall pay to landlord the
rent due under this Lease on the dates the rent is due, less the rent
Landlord receives from any reletting. In no event shall Tenant be
entitled to any excess rent received by Landlord. No act by Landlord
allowed by this paragraph shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this
Lease. After Tenant's default and for as long as Landlord does not
terminate Tenant's right to possession of the Premises, if Tenant
obtains Landlord's consent, Tenant shall have the right to assign or
sublet its interest in this Lease, but Tenant shall not be released
from liability.
(c) Cause a receiver to be appointed to collect rent. Neither
the filing of a petition for the appointment of a receiver nor the
appointment itself shall constitute an election by Landlord to
terminate the Lease.
(d) Cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, reasonably pays any sum or does
any act that requires the payment of
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any sum, the sum paid by Landlord shall be due immediately from Tenant
to Landlord at the time the sum is paid, and if paid at a later date
shall bear interest at the lesser of ten percent (10%) per annum, or
the maximum rate permitted by law. The sum, together with interest on
it, shall be additional rent.
(e) The foregoing remedies are not exclusive; they are
cumulative, in addition to any remedies now or later allowed by law, to
any equitable remedies Landlord may have, and to any remedies Landlord
may have under bankruptcy laws or laws affecting creditors' rights
generally. The waiver by Landlord of any breach of any term, covenant
or condition of this Lease shall not be deemed a waiver of such term,
covenant or condition or of any subsequent breach of the same or any
other term, covenant or condition. Acceptance of rent by Landlord
subsequent to any breach hereof shall not be deemed a waiver of any
proceeding breach other than a failure to pay the particular rent so
accepted, regardless of Landlord's knowledge of any breach at the time
of such acceptance of rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written
notice of such waiver.
(f) Notwithstanding anything to the contrary contained
elsewhere in this Lease, Landlord shall use reasonable efforts to relet
the Premises to mitigate its damages under this Section 24; provided,
however, that so long as Landlord uses such reasonable efforts,
Landlord shall in no way be responsible or liable for any failure to
relet the Premises, or any part thereof, or any failure to collect any
rent due upon such reletting; and Landlord shall not be required to
spend its own funds, to give the Premises priority over or equal
priority with any other facilities owned by Landlord or its affiliates
or other space available for rent in the Building or to compromise in
any way the terms, uses or creditworthiness of a Tenant upon or to
which it would customarily lease space such as the Premises; and
Landlord shall be entitled, in its sole discretion, to seek a single
tenant for the entire Premises, even though it may take a substantially
longer period to obtain such a tenant and its efforts may be
unsuccessful; and this requirement shall not affect in any way Tenant's
obligations to obtain Landlord's consent to a sublease or assignment.
25. EMINENT DOMAIN
If more than twenty-five percent (25%) of the Premises shall be taken
or appropriated by any public or quasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its
option to terminate this Lease, and Landlord shall be entitled to any
and all income, rent award, or any interest therein whatsoever which
may be paid or made in connection with such public or quasi-public use
or purpose, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease. If either less than or more
than twenty-five percent (25%) of the Premises is taken, and neither
party elects to terminate as herein provided, the rental thereafter to
be paid shall be equitably reduced. If twenty-five percent (25%) or
more of the Building other than the Premises may be so taken or
appropriated, Landlord shall have the right at its option to terminate
this Lease and shall be entitled to the entire award as above provided.
Notwithstanding the foregoing, subject to applicable law, Tenant may
seek payment from the condemning authority for reimbursement for
unamortized tenant improvements installed by Tenant, at its cost,
goodwill, and relocation expenses, provided such recovery
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does not adversely affect Landlord's ability to recover amounts from
such condemning authority. In the event that, Tenant is not permitted
to seek such award separately pursuant to applicable law, Tenant shall
be permitted to jointly pursue such award with Landlord, provided such
recovery does not adversely affect Landlord's ability to recover
amounts from such condemning authority.
26. ESTOPPEL CERTIFICATE
Within ten (10) days following any written request which Landlord may
make from time to time, Tenant shall execute and deliver to Landlord a
statement certifying: (i) the date of commencement of this Lease; (ii)
the fact that this Lease is unmodified and in full force and effect (or
if there have been modifications hereto, that this Lease is in full
force and effect, as modified, and stating the date and nature of such
modifications); (iii) the date to which the rental and other sums
payable under this Lease have been paid; (iv) the fact that there are
no current defaults under this Lease by either Landlord or Tenant,
except as specified in Tenant's statement; and (v) such other matters
requested by Landlord. Landlord and Tenant intend that any statement
delivered pursuant to this paragraph 26 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the
Building or any interest therein. Tenant shall also have the right to
request an estoppel certificate from Landlord pursuant to the
provisions of this Section 26.
27. PARKING
Tenant shall have the right to park in the Building's parking
facilities in common with other tenants of the Building upon terms and
conditions as may from time to time be established by Landlord. Such
parking right shall be upon a ratio of four and 50/100ths (4.50) spaces
for each one thousand (1,000) rentable square feet within the Premises.
Tenant agrees not to overburden the parking facilities and agrees to
cooperate with Landlord and other Tenants in the use of the parking
facilities. Landlord reserves the right in its reasonable discretion to
determine whether the parking facilities are becoming crowded and to
allocate and assign parking spaces among Tenant and the other tenants,
and to alter, relocate, or otherwise change the parking facilities and
to take measures with respect to the parking area from time to time in
order to comply with the policies of any transportation management
association or any governmental ordinance, law or regulation, subject
to maintaining the above-specified parking ratio. Landlord shall have
the right, in addition to pursuing any other legal remedy available, to
tow any vehicle belonging to Tenant or Tenant's employees which is not
in compliance with the regulations for the parking facility then in
effect if a violation continues after the first notice of such
violation, at the expense of the towed party; nothing in this Lease,
however, shall require Landlord to tow parked cars or take other
actions to free occupied spaces for Tenant's use. Landlord shall not be
liable for any claims, losses, damages, expenses or demands with
respect to injury or damage to the vehicles of Tenant or Tenant's
customers or employees that park in the parking areas of the Project,
except for such loss or damage as may be caused by Landlord's gross
negligence or willful misconduct.
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28. AUTHORITY OF PARTIES
If a party to this Lease is a corporation or partnership, each
individual executing this Lease on behalf of said corporation or
partnership represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation or
partnership, in accordance with a duly adopted resolution or other
document, and that this Lease is binding upon said corporation or
partnership, as appropriate in accordance with its terms. The
individuals signing on behalf of a corporate entity are executing this
Lease in their respective corporate capacities and there shall be no
individual liability imposed upon such signatories in such case.
29. DEFAULT BY LANDLORD
(a) Landlord shall not be deemed to be in default in the
performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligations within
twenty (20) days after written notice by Tenant to Landlord specifying
wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more
than twenty (20) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such
performance within such twenty (20)-day period and thereafter
diligently prosecute the same to completion. In no event shall Landlord
be liable to Tenant for loss of profits, business interruption, or
consequential damages if Landlord performs its obligations within the
time periods specified in this paragraph.
(b) Tenant agrees to give any mortgagee and/or trust deed
holders, by registered mail, a copy of any Notice of Default served
upon the Landlord, provided that prior to such notice Tenant has been
notified in writing of the address of such mortgagee and/or trust deed
holder. Tenant further agrees that if Landlord shall have failed to
cure such default within the time provided for in this Lease, then the
mortgagees and/or trust deed holders shall have an additional thirty
(30) days within which to cure such default, or if such default cannot
be cured within that time, then such additional time as may be
necessary if within thirty (30) days mortgagee and/or trust deed holder
has commenced and is diligently pursuing the remedies necessary to cure
such default (including, but not limited to, commencement of
foreclosure proceedings, if necessary to effect such cure), in which
event this Lease shall not be terminated while remedies are being so
diligently pursued.
(c) Notwithstanding any other provisions of this Lease to the
contrary, but subject to the provisions of Section 29(a) and 29(b)
above, upon receipt of written notice (the "FIRST DEFAULT NOTICE") from
Tenant that Landlord has failed to perform any of its obligations as
expressly set forth in this Lease (collectively, "LANDLORD
OBLIGATIONS"), Landlord shall perform such obligation within a
reasonable period of time given the circumstances but in no event later
than thirty (30) days after it receives the First Default Notice;
provided, however, that if the completion of such obligation is of such
a nature that it cannot be completed within thirty (30) days, then such
longer time as reasonably necessary. If Landlord fails to complete such
obligation within the said time period, Tenant may give an additional
notice (the "SECOND DEFAULT NOTICE")
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to Landlord. If Landlord fails to commence to complete such obligation
within five (5) days after receipt of the Second Default Notice and
thereafter diligently pursues the completion of such obligation, Tenant
may complete such obligation. All obligations of Landlord performed by
Tenant pursuant to this Section shall be made by a qualified licensed
contractor(s) and/or qualified persons with sufficient expertise in
such matters and in accordance with all applicable laws, statutes and
ordinances. Landlord shall reimburse Tenant for Tenant's actual costs
incurred within ten (10) days after Landlord's receipt of a written
demand from Tenant, which demand shall include supporting invoices. If
Landlord disputes the need for the completion of such obligation,
Landlord shall deliver written notice of such disagreement to Tenant
within ten (10) days after its receipt of the First Default Notice. The
dispute shall be resolved by a mutually acceptable third party, which
determination shall be binding upon Landlord and Tenant; provided,
however, that if the parties cannot agree on such third party, then the
dispute shall be resolved by arbitration pursuant to the commercial
arbitration rules then in effect for the American Arbitration
Association ("ARBITRATION"). The losing party shall pay the costs of
the third party or arbitrator, whichever is applicable. If Landlord is
obligated to reimburse Tenant for the actual cost and fails to do so as
provided in this subsection, such amount shall accrue interest at the
rate of fifteen percent (15.00%) per annum until paid in full. If such
amounts owing from Landlord to Tenant are not paid within thirty (30)
days following the due date of such payment, Tenant shall have
abatement rights as set forth in Section 29(f) of this Lease.
(d) Landlord acknowledges that certain of the Landlord
Obligations may have to be made on an expedited basis due to a material
disruption of Tenant's business operations caused by such condition,
which condition shall be referred to as an "EMERGENCY CONDITION." In
this regard, in the event an Emergency Condition relating to a Landlord
Obligation exists, Tenant shall deliver to Landlord, by facsimile, a
written notice ("EMERGENCY NOTICE") describing such Emergency
Condition. In the event that Landlord fails to commence repair of the
Emergency Condition within forty-eight (48) hours (if such situation
occurs during non-business hours, Tenant shall utilize Landlord's
paging system, the procedure for which shall be provided to Tenant
prior to the Commencement Date), Tenant, using license contractors
and/or persons which are qualified to perform such tasks in compliance
with applicable laws, shall have the right to perform the Landlord
Obligation; provided, however, such repairs shall be limited to the
temporary remediation of such Emergency Condition and Landlord shall
thereafter be responsible for the full repair of such condition.
Landlord shall reimburse Tenant's actual expenses incurred in making
such temporary remediation repairs within fifteen (15) days following
Landlord's receipt of written demand and supporting invoices. If such
repayment is not made within such fifteen (15) day period, such amount
shall accrue interest at the rate of fifteen percent (15.00%) per annum
until paid in full. If such amounts owing from Landlord to Tenant are
not paid within thirty (30) days following the due date of such
payment, Tenant shall have abatement rights as set forth in Section
29(f) of this Lease.
(e) If Tenant has provided Landlord with the notice described
in Section 11(d) and/or (e) of this Lease, Tenant may not thereafter
utilize the provisions of Sections 29(c) and 29(d) for the same event.
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(f) In the event that Landlord has not reimbursed amounts
owing to Tenant pursuant to Sections 11(d), 11(e), 29(c) and/or 29(d)
of this Lease within thirty (30) days following the due date for such
payment, Tenant shall be entitled to offset such amount due and owing
from the next payment of Base Rent due and payable under this Lease.
Such offset right shall continue until all amounts owing are paid in
full.
30. OPTION TO EXPAND
Tenant desires to have certain expansion rights with regard to the
remaining vacant space within the Building, hereinafter referred to as
the "EXPANSION SPACE." Landlord is willing to grant such expansion
rights in accordance with the terms and conditions of this Section.
(a) At any time between the Lease Date and August 1, 1998
("OPTION WINDOW"), Tenant shall have the right to expand ("OPTION TO
EXPAND") the Premises to include the Expansion Area by providing
Landlord with written notice ("EXPANSION NOTICE") of such election;
provided, however, that if Tenant is in material default beyond any
applicable cure period under the Lease on the date of giving such
notice, such notice shall be null and void at the election of Landlord.
(b) If Tenant elects to exercise its Option to Expand, the
Expansion Space shall be deemed to be leased under all the terms and
conditions of this Lease and shall constitute a portion of the
"Premises" for all purposes, and the term of Tenant's lease of the
Expansion Space shall be coterminous with the term of this Lease with
respect to the original Premises. The date that is the sooner to occur
of the date that Landlord Substantially Completes the leasehold
improvements pursuant to the Expansion Space Work Letter Agreement (as
hereinafter defined), the date that the Expansion Space would have been
Substantially Complete absent Tenant delays, or the date that Tenant
commences occupancy of the Expansion Space, is hereinafter referred to
as the "OCCUPANCY DATE." To the extent reasonably requested by
Landlord, Tenant shall execute an amendment to this Lease evidencing
the lease of the Expansion Space.
(c) The Base Rent for the Expansion Space shall be the Base
Rent for the original Premises, on a per square foot of rentable area
basis, and shall be subject to increase at the same times and in the
same manner as Base Rent is adjusted pursuant to Section 5 of the
Lease. Tenant's obligation to pay Base Rent and other rent respecting
the Expansion Space shall commence on the Occupancy Date.
(d) As a condition to Tenant's right to expand into the
Expansion Space, Tenant shall continue, both before and after the
exercise of the option to expand, to occupy the Premises originally
demised under this Lease, and furthermore, as of the time of the
exercise of the option, and at the time Tenant takes possession of such
Expansion Space, Tenant shall not be in default under this Lease,
unless waived by Landlord.
(e) Within ten (10) days following Landlord's receipt of the
Expansion Notice, and as a condition precedent to the lease of the
Expansion Space to Tenant, Tenant and Landlord shall enter into a work
letter agreement ("EXPANSION SPACE
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WORK LETTER AGREEMENT") which shall be in a form similar to the Work
Letter Agreement. Among other provisions, the Expansion Space Work
Letter Agreement shall provide that the Occupancy Date shall occur on
the latter of (i) the date that improvements described by the Expansion
Space Work Letter Agreement are Substantially Complete (as defined in
Section 3 of this Lease), or (ii) the Commencement Date for the
Premises. Tenant delays affecting the construction of the improvements
pursuant to the Expansion Space Work Letter Agreement shall not extend
Tenant's obligation to pay Base Rent for the Expansion Space on the
Occupancy Date. The Expansion Space Work Letter Agreement shall also
provide that Landlord grants Tenant an amount equal to the Allowance
(as defined in the Work Letter Agreement), expressed on a per rentable
square foot basis, multiplied by the rentable square footage of the
Expansion Space, to be utilized for the cost of such construction.
(f) As of the Occupancy Date, the Tenant's Share used for
purposes of calculating Direct Expenses shall be increased in order to
reflect the addition of the Expansion Space to the Premises.
31. FIRST RIGHT OF REFUSAL
(a) Tenant desires to have certain first right of refusal
("FIRST RIGHT OF REFUSAL") rights with regard to the remaining vacant
portion of the Building, or any portion thereof, which space is
hereinafter referred to as the "FRR SPACE." Landlord is willing to
grant such in accordance with the terms and conditions of this Section.
(b) Landlord shall notify Tenant in writing ("INTERESTED PARTY
NOTICE") of any third party ("INTERESTED PARTY") who expresses a bona
fide interest in leasing the FRR Space, or any portion thereof, as
evidenced by a proposed letter of intent, or similar document,
submitted to Landlord by the Interested Party, which Landlord is
willing to accept. The Interested Party Notice shall include a copy of
said letter of intent or similar such document. Landlord, using its
good faith efforts, shall provide Tenant with at least fourteen (14)
days prior notice ("PRE-ACCEPTANCE NOTICE") of its intent to accept an
offer from an Interested Party. For a period of seven (7) days
following Tenant's receipt of the Interested Party Notice (if Landlord
has not delivered a Pre-Acceptance Notice with regard to such
Interested Party, such period shall be extended to fourteen (14) days
following the Tenant's receipt of the Interested Party Notice), Tenant
may exercise its First Right of Refusal to lease the FRR Space by
providing Landlord with written notice of such election ("ELECTION
NOTICE"); provided, however, that if Tenant is in material default
beyond any applicable cure period under this Lease on the date of
giving such notice, such notice shall be null and void at the election
of Landlord. The failure of Tenant to deliver the Election Notice to
Landlord within such time period shall be deemed Tenant's waiver of the
Right of Refusal and Landlord shall be free to lease the space
identified in the Interested Party Notice to the Interested Party.
(c) Subject to subsection (i) below, if Tenant elects to
exercise its Right of Refusal, the FRR Space shall be deemed to be
leased under all the terms and conditions of this Lease and shall
constitute a portion of the "Premises" for all purposes, and the
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term of Tenant's lease of the FRR Space shall be coterminous with the
term of this Lease with respect to the original Premises. The date that
is the sooner to occur of the day that Landlord Substantially Completes
the leasehold improvements pursuant to the FRR Space Work Letter, the
date that the FRR Space would have been completed absent Tenant delays,
or the day that Tenant commences occupancy of the FRR Space, is
hereinafter referred to as the "OCCUPANCY DATE". To the extent
reasonably required by Landlord, Tenant shall execute an amendment to
this Lease evidencing the lease of the FRR Space.
(d) The Base Rent for the FRR Space shall be the Base Rent for
the original Premises, on a per square foot of rentable area basis, and
shall be subject to increase at the same times and in the same manner
as Base Rent is adjusted pursuant to Section 5 above. Tenant's
obligation to pay Base Rent and other rent respecting the FRR Space
shall commence on the Occupancy Date.
(e) As a condition to Tenant's right to expand into the FRR
Space, Tenant shall continue, both before and after this exercise of
the First Right of Refusal, to occupy the Premises originally demised
under this Lease, and furthermore, as of the time of the exercise of
the option, and at the time Tenant takes possession of such FRR Space,
Tenant shall not be in default under this Lease unless waived by
Landlord.
(f) Within ten (10) days following Landlord's receipt of the
Election Notice, and as a condition precedent to the lease of the FRR
Space to Tenant, Tenant and Landlord shall enter into a work letter
agreement ("FRR SPACE WORK LETTER AGREEMENT") which shall be in a form
similar to the Work Letter Agreement. Among other provisions, the FRR
Space Work Letter Agreement shall provide that the Occupancy Date which
shall occur on the date that the improvements described by the FRR
Space Work Letter Agreement are Substantially Complete (as defined in
Section 3 of this Lease). Tenant delays affecting the construction of
the improvements pursuant to the FRR Space Work letter shall not extend
Tenant's obligation to pay Base Rent for the FRR Space on the Occupancy
Date. The FRR Space Work Letter shall also provide that Landlord grants
Tenant an amount equal to the unamortized (using the original term as
an amortization period, on a straight line basis) portion of the
Allowance (as defined in the Work Letter), expressed on a per rentable
square foot basis, multiplied by the rentable square footage of the FRR
Space, to be utilized for the cost of such construction.
(g) As of the Occupancy Date, the Tenant's Share used for
purposes of calculating Direct Expenses shall be increased in order to
reflect the addition of the FRR Space to the Premises.
(h) In the event that Tenant elects or is deemed to have
elected to not exercise its Right of Refusal and Landlord and the
Interested Party have not entered into a lease agreement within one
hundred twenty (120) days following the date of such election by
Tenant, the FRR Space shall remain subject to Tenant's First Right of
Refusal. Tenant's rights as provided in this Section 31 shall not
terminate if Tenant fails to exercise its right of refusal, but shall
continue throughout the Terms, including any renewal terms, if and when
the FRR Space thereafter becomes reasonable.
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(i) Notwithstanding the provisions of subsections (c), (d) and
(f) above, in the event that the Interested Party Notice is delivered
at any time after the first three hundred sixty-five (365) days
following the Commencement Date, and Tenant delivers an Election Notice
to Landlord, Tenant and Landlord shall enter into a new lease
agreement, prepared by Landlord, upon the exact terms and conditions
set forth in the Interested Party Notice within twenty-one (21) days
following Landlord's receipt of the Interested Party Notice. In the
event that Landlord and Tenant are unable to reach agreement upon such
terms within such time period, the Election Notice shall be deemed null
and void, and Landlord shall be free to negotiate with the Interested
Party subject to the provisions of subsection (h) above. In the event
that this subsection (i) is applicable, subsections (c), (d) and (f)
above shall not be applicable to Tenant's exercise of its First Right
of Refusal.
32. FIRST RIGHT OF OFFER
Following the initial leasing of the entire Building, at any time
thereafter during (the term of the Lease, upon Landlord's determination
to lease any Vacant Space within the Building, Landlord shall first
deliver to Tenant a written notice of such availability ("VACANT SPACE
NOTICE"). For a period of fifteen (15) days following Tenant's receipt
of the Vacant Space Notice, Tenant shall have the right to negotiate
with Landlord regarding the lease of the Vacant Space; provided,
however, Landlord makes no representation or warranty regarding the
then market rate which Landlord would be willing to accept or the
likelihood of reaching agreement upon any lease documentation. In the
event that Landlord and Tenant do not reach agreement upon such terms
and conditions regarding such vacant space within such fifteen (15) day
period for any reason, Landlord shall be free to negotiate with any
third party the lease of such space, and Tenant shall have no further
obligation with regard thereto, except as provided in Section 31 of
this Lease. For the purpose of this Section, "VACANT SPACE" shall mean
(1) no bona fide written lease agreement exists relative to such space,
or (2) such space is due to become vacant because a tenant's lease has
or will expire with no renewal provision.
33. OPTION TO EXTEND
At the expiration of the original term hereof, Tenant may extend this
Lease for two (2) successive five (5) year terms ("EXTENDED TERMS") by
giving Landlord written notice ("EXTENSION NOTICE") of its intention to
do so at least twelve (12) months prior to the expiration of the
original term or first Extended Term, as applicable; provided, however,
that Tenant is not in material default beyond any applicable cure
period under the Lease on the date of giving such notice or on the date
of commencement of the extended term. Such Extended Terms shall be upon
all of the terms and conditions of this Lease, except that the
following rights of Tenant during the original term of this Lease shall
not apply during such extension period: (a) any right to rent-free
possession, (b) any right to further extension of the term of the Lease
beyond the Extended Terms set forth hereinabove, (c) any right to
continue to pay the same Base Rent and (d) any limitation on increases
in expenses payable by Tenant. Landlord and Tenant hereby acknowledge
and agree that the Base Rent during each Extended Term shall be the
"PREVAILING RATE" for the Premises, as determined in accordance with
this Section.
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Within fifteen (15) days following Landlord's receipt of the Extension
Notice, Landlord shall deliver a written notice ("EXTENSION NOTICE") to
Tenant setting forth Landlord's estimation of the Prevailing Rate for
the Premises. The parties shall have until the date that is ten (10)
months prior to the date that the original term, or first Extended
Term, as applicable, will expire in order to agree on Base Rent during
such Extended Term. If the parties agree on the Base Rent for the
Extended Term during that period, they shall immediately execute an
amendment to this Lease stating the Base Rent. If the parties are
unable to agree on Base Rent for such Extended Term during that period,
for a period of ten (10) days thereafter, by providing Landlord with
written notice, Tenant may elect to (i) withdraw its Extension Notice,
in which case Tenant shall no longer have any extension rights pursuant
to this Section 33, or (ii) cause the Prevailing Rate to be established
by appraisal. The failure of Tenant to make such election within five
(5) days following Tenant's receipt of written notice from Landlord
indicating that Tenant has not made such election shall be deemed
Tenant's election to proceed under subsection (i) above. In the event
the appraisal procedure is utilized, Landlord and Tenant shall each
appoint one appraiser at least eight (8) months prior to the expiration
of the original term; provided, however, that if either party fails to
designate an appraiser within the time period specified, then the
appraiser who is designated shall conclusively determine the Prevailing
Rate. If two (2) appraisers are designated, then they shall submit
within thirty (30) days after the second thereof has been designated
their appraisals of the Prevailing Rate. Landlord and Tenant intend
that the "Prevailing Rate" shall be deemed to be the rent per square
foot of rentable area of office space that is then being charged for as
renewal rates office space located in Class "A" office buildings in the
vicinity of the Building (located within the Broomfield submarket) that
are comparable in quality and offer similar amenities to the Building
and involving leases with similar terms and conditions, and involving
the use of the premises for general office purposes. The office spaces
used for comparison shall be comparable in size, quality and design to
the Premises, and such office spaces used for comparison shall be
comparable to the Premises with respect to their location within such
buildings. Should the two appraisers be unable to agree within said
thirty (30) days, the two appraisers shall each submit an independent
written appraisal and together they shall designate one (1) additional
person as appraiser within five (5) days following the expiration of
said thirty (30)-day period; provided, however, that if the difference
between the two appraisals is five percent (5%) or less of the lowest
appraisal, then an additional appraiser shall not be designated and the
Prevailing Rate shall equal the average of the two (2) appraisals that
are submitted. The third appraiser shall submit an independent written
appraisal within thirty (30) days following his or her appointment. If
the two appraisers cannot agree upon a third appraiser, then either
party hereunder may request that any District Court Judge of the County
in which the Premises is located appoint such third appraiser. The
Prevailing Rate shall be equal to the average of the two (2) written
appraisals which are closest, and the third (3rd) appraisal shall be
disregarded. Each party shall bear the cost of the appraiser appointed
by it. If three (3) appraisers are appointed, each party shall bear the
cost of the appraiser appointed by it and the parties shall share
equally in the cost of the third appraiser. No person shall be
appointed or designated an appraiser unless he or she is (i) an
independent appraiser who is a currently certified member of the
American Institute of Real Estate Appraisers (with MAI designation) and
unless he or she has at least five (5)
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years' experience as an appraiser in the County which the Premise is
located, or (ii) a real estate broker with a minimum of at least ten
(10) years' experience in leasing of commercial office space in the
vicinity of the Project. The third appraiser shall not have ever been
employed (full-time or part-time or on a consulting basis) by Landlord
or Tenant. In the event that the Prevailing Rate is not established
before the commencement of such Extended Term, Tenant shall continue to
pay the Base Rent then in effect; when the Prevailing Rate has been
established, the new Base Rent shall be retroactively effective as of
the beginning of such Extended Term, and Tenant shall pay Landlord any
deficiency within thirty (30) days after the establishment of the new
Base Rent. If Tenant has overpaid Base Rent during such period such
overpayment shall be offset against Rent thereafter coming due.
34. HAZARDOUS MATERIALS
(a) For the purpose of this Section 34(a) and this Lease, the
following terms are defined as follows:
(1) "HAZARDOUS MATERIALS" shall mean any substance:
(A) that now or in the future is regulated or governed by,
requires investigation or remediation under, or is defined as
a hazardous waste, hazardous substance, pollutant or
contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto,
including for example only and without limitation, the
Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., and the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq., or (B) that is toxic, explosive, corrosive,
flammable, radioactive, carcinogenic, dangerous or otherwise
hazardous, including for example only and without limitation,
gasoline, diesel, petroleum hydrocarbons, polychlorinated
biphenyls (PCBs), asbestos, radon and urea formaldehyde foam
insulation.
(2) "ENVIRONMENTAL REQUIREMENTS" shall mean all
present and future governmental statutes, codes, ordinances,
regulations, rules, orders, permits, licenses, approvals,
authorizations and other requirements of any kind applicable
to Hazardous Materials.
(3) "HANDLE," "HANDLED," or "HANDLING" shall mean any
installation, handling, generation, storing, treatment, use,
disposal, discharge, release, manufacture, refinement,
presence, migration, emission, abatement, removal,
transportation, or any other activity of any type in
connection with or involving Hazardous Materials by Tenant or
its officers, employees, contractors, assignees, sublessees,
agents or invitees. The word "contractors" which is contained
in the preceding sentence shall not include any contractor
which installs the Tenant Improvements or improvements
constructed for the Expansion Space (as defined below).
(4) "ENVIRONMENTAL LOSSES" shall mean all costs and
expenses of any kind, damages, foreseeable and unforeseeable
consequential
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damages, fines and penalties incurred in connection with any
violation of and compliance with Environmental Requirements
and all losses of any kind attributable to the diminution of
value, loss of use or adverse effects on marketability or use
of any portion of the Premises or Building.
(b) Tenant covenants and warrants that it shall, at its own
expense, promptly take all actions required by any governmental agency
or entity in connection with the Handling of Hazardous Materials by
Tenant at or about the Premises, Building or Project, including without
limitation, inspection and testing, performing all cleanup, removal and
remediation work required with respect to those Hazardous Materials
introduced, released, or deposited by Tenant, complying with all
closure requirements and post-closure monitoring, and filing all
required reports or plans. All of the foregoing work and all Handling
of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake
such work and in a manner that will not interfere with Landlord's use,
operation, leasing and sale of the Project and other tenants' quiet
enjoyment of their premises in the Property. Tenant shall deliver to
Landlord prior to delivery to any governmental agency, or promptly
after receipt from any such agency, copies of all permits, manifests,
closure or remedial action plans, notices, and all other documents
relating to the Handling of Hazardous Materials at or about the
Premises, Building or Project by Tenant. Tenant shall remove at its own
expense, by bond or otherwise, all liens or charges of any kind filed
or recorded against the Premises, Building or Project in connection
with the Handling by Tenant, its agents, employees, contractors and/or
subcontractors, of Hazardous Materials, within ten (10) days after the
filing or recording of such lien or charge, and if Tenant fails to do
so, Landlord shall have the right, but not the obligation, to remove
the lien or charge at Tenant's expense in any manner Landlord deems
expedient.
(c) Landlord shall have the right, but not the obligation, to
enter the Premises at any reasonable time, upon prior notice (except in
the case of emergency), (i) to confirm Tenant's compliance with the
provisions of this Section, and (ii) to perform Tenant's obligations
under this Section if Tenant has failed to do so. Landlord shall also
have the right to engage qualified Hazardous Materials consultants to
inspect the Premises and review the Handling of Hazardous Materials,
including review of all permits, reports, plans, and other documents
regarding same. If Landlord engages a consultant upon the reasonable,
good faith belief that Tenant is in violation of its obligations under
this Section 30, Tenant shall pay the costs of Landlord's consultants'
fees and all costs incurred by Landlord in performing Tenant's
obligations under this Section. Landlord shall use reasonable efforts
to minimize any interference with Tenant's business caused by
Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby.
(d) Landlord represents and warrants to Tenant that, to the
best of Landlord's actual current knowledge, as of the Commencement
Date, the Building, and the real property on which such improvements
are constructed, do not contain any Hazardous Materials in violation of
Environmental Requirements.
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35. GENERAL PROVISIONS
(a) Plats and Exhibits. Clauses, plats and exhibits, if any,
signed by the Landlord and the Tenant endorsed on or affixed to this
Lease are a part hereof.
(b) Waiver. The waiver by Landlord or Tenant of any term,
covenant or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition on any subsequent breach of
the same or any other term, covenant or condition herein contained. The
subsequent acceptance of rent hereunder by Landlord shall not be deemed
to be a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, other than the failure of the Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge
of such preceding breach at the time of the acceptance of such rent.
(c) Joint Obligation. If there be more than one (1) Tenant,
the obligations hereunder imposed upon Tenants shall be joint and
several.
(d) Marginal Headings. The marginal headings and Article
titles to the Articles of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any
part hereof.
(e) Time. Time is of the essence of this Lease and each and
all of its provisions in which performance is a factor.
(f) Successors and Assigns. The covenants and conditions
herein contained, subject to the provisions as to assignment, apply to
and bind the heirs, successors, executors, administrators and assigns
of the parties hereto.
(g) Recordation. Neither Landlord nor Tenant shall record this
Lease or a short form memorandum hereof without the prior written
consent of the other party.
(h) Quiet Possession. Upon Tenant paying the rent reserved
hereunder and observing and performing all of the covenants, conditions
and provisions on Tenant's part to be observed and performed hereunder,
Tenant shall have quiet possession of the Premises for the entire term
hereof, subject to all the provisions of this Lease.
(i) Limitation on Liability. In consideration of the benefits
accruing hereunder, Tenant and all successors and assigns covenant and
agree that, in the event of any actual or alleged failure, breach or
default hereunder by Landlord: (1) Tenant's sole and exclusive recourse
shall be against Landlord's interest in the Building and Tenant shall
not have any right to satisfy any judgment which it may have against
Landlord from any other assets of Landlord, (2) No partner,
stockholder, director, officer, employee, beneficiary or trustee
(collectively, "PARTNER") of Landlord shall be sued or named as a party
in any suit or action (except as may be necessary to secure
jurisdiction over Landlord); (3) No service of process shall be made
against any Partner of Landlord (except as may be necessary to secure
jurisdiction over Landlord); (4) No Partner of Landlord shall be
required to answer or otherwise plead to any service of process; and
(5) No judgment will be taken against any Partner of Landlord.
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(j) Late Charges. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent or other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and
late charges which may be imposed upon Landlord by terms of any
mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or of a sum due from Tenant shall not be received
by Landlord or Landlord's designee within ten (10) days after Tenant's
receipt of written notice that such amount is past due, then Tenant
shall pay to Landlord a late charge equal to five percent (5%) of such
overdue amount. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the cost that Landlord will
incur by reason of the late payment by Tenant. Acceptance of such late
charges by the Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted
hereunder.
(k) Prior Agreements. This Lease contains all of the
agreements of the parties hereto with respect to any matter covered or
mentioned in this Lease, and no prior agreements or understanding
pertaining to any such matters shall be effective for any purpose. No
provision of this Lease may be amended or added to, except by an
agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on
any party until fully executed by both parties hereto.
(l) Attorneys' Fees. If any action for breach of or to enforce
the provisions of this Lease is commenced, the court in such action
shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. The losing party in such
action shall pay such attorneys' fees and costs. Each party shall also
indemnify the other party against and hold the other party harmless
from all costs, expenses, demands and liability the other party may
incur if the other party becomes or is made a party to any claim or
action (a) instituted by the indemnifying party against any third
party, or by any third party against the indemnifying party, or by or
against any person holding any interest under or using the Project by
license of or agreement with the indemnifying party; (b) for
foreclosure of any lien for labor or material furnished to or for the
indemnifying party or such other person; (c) otherwise arising out of
or resulting from any act or transaction of the indemnifying party or
such other person; or (d) necessary to protect the other party's
interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. The
indemnifying party shall defend the other party against any such claim
or action at the indemnifying party's expense with counsel reasonably
acceptable to the other party, or at the other party's election, the
indemnifying party shall reimburse the other party for any reasonable
legal fees or costs the other party incurs in any such claim or action.
(m) Inability to Perform. This Lease and the obligations of
Tenant hereunder shall not be affected or impaired because the Landlord
is unable to fulfill any of its obligations or furnish services and
utilities hereunder or is delayed in doing so, if such inability or
delay is caused by reason of acts of God, strikes, lockouts, labor
troubles, inability to procure materials, governmental laws or
regulations, governmental requests
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for the general public welfare, or other causes beyond the reasonable
control of Landlord, provided that Landlord shall use its commercially
reasonable efforts to minimize any such delay.
(n) Modification For Lender. If, in connection with obtaining
construction, interim or permanent financing for the Building, the
lender shall request reasonable modifications to this Lease as a
condition to such financing, following consultation with legal counsel,
Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's rights hereunder.
(o) Sale of Premises by Landlord. In the event of any sale of
the Building, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and
obligations contained in or derived from this Lease arising out of any
act, occurrence or omission occurring after the consummation of such
sale; and the purchaser, at such sale or any subsequent sale of the
Premises shall be deemed, without any further agreement between the
parties or their successors in interest or between the parties and any
such purchaser, to have assumed and agreed to carry out any and all of
the covenants and obligations of the Landlord under this Lease.
(p) Subordination, Attornment.
(1) This Lease is and shall be subordinate to any
encumbrance now of record or recorded after the date of this
Lease affecting the Building, other improvements, and land of
which the Premises are a part. Such subordination is effective
without any further act of Tenant. If any mortgagee, trustee,
or ground lessor shall elect to have this Lease and any
options granted hereby prior to the lien of its mortgage, deed
of trust, or ground lease, and shall give written notice
thereof to Tenant, this Lease and such options shall be deemed
prior to such mortgage, deed of trust, or ground lease,
whether this Lease or such options are deeded prior or
subsequent to the date of said mortgage, deed of trust, or
ground lease, or the date of recording thereof.
(2) In the event any proceedings are brought for
foreclosure, or in the event of a sale or exchange of the real
property on which the Building is located, or in the event of
the exercise of the power of sale under any mortgage or deed
of trust made by Landlord covering the Premises. Tenant shall
attorn to the purchaser upon any such foreclosure and sale and
recognize such purchaser as the Landlord under this Lease.
(3) Tenant agrees to execute any documents required
to effectuate an attornment or to make this Lease or any
options granted herein prior to the lien of any mortgage, deed
of trust, or ground lease, as the case may be.
(4) Landlord agrees that Tenant's obligations to
subordinate under this Section to any existing and future
ground lease, mortgage, or deed of trust shall be
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conditioned upon Tenant's receipt of a non-disturbance
agreement from the party requiring such subordination (which
party is referred to for the purposes of this Section as the
"SUPERIOR LIENOR"). Such non-disturbance agreement shall
provide, at a minimum, that Tenant's possession of the
Premises shall not be interfered with following a foreclosure,
provided Tenant is not in default beyond any applicable cure
periods. Landlord's obligation with respect to such a
non-disturbance agreement shall be limited to obtaining the
non-disturbance agreement in such form as the Superior Lienor
generally provides in connection with its standard commercial
loans, however, Tenant shall have the right to negotiate, and
Landlord shall use its good faith efforts and due diligence in
assisting Tenant in the negotiation of, revisions to that
non-disturbance directly with the Superior Lienor. Tenant
agrees to use its good faith efforts to reach agreement with
the Superior Lienor upon acceptable terms and conditions of a
non-disturbance agreement.
(q) Name. Tenant shall not use the name of the Building or of
the development in which the Building is situated for any purpose other
than as an address of the business to be conducted by the Tenant in the
Premises, except that Tenant may use the Building's name in any of
Tenant's promotional material.
(r) Separability. Any provision of this Lease, which shall
prove to be invalid, void or illegal, shall in no way affect, impair or
invalidate any other provision hereof and such other provision shall
remain in full force and effect.
(s) Cumulative Remedies. No remedy or election hereunder shall
be deemed exclusive, but shall, wherever possible, be cumulative with
all other remedies at law or in equity. (xx) Choice of Law. This Lease
shall be governed by the laws of the state, in which the Premises are
located.
(t) Signage. To the extent consistent with (i) any covenants,
conditions and restrictions encumbering the Building, and (ii)
applicable laws, statutes and ordinances, Tenant shall be entitled to
primary Building signage ("BUILDING SIGNAGE") and non-exclusive
monument signage at the Building ("MONUMENT SIGNAGE"), provided that
Landlord has approved, in writing, the configuration, size, character,
materials and location of such signage. The cost of installing the
Building Signage shall be paid for by Landlord out of Tenant's
Allowance pursuant to the Work Letter Agreement. The cost of the base
structure that the Monument Signage is affixed shall be the
responsibility of Landlord. The maintenance and repair of all such
signage shall be a Direct Expense allocable to Tenant. Tenant shall be
responsible for the cost of removal of the Building Signage upon the
expiration or earlier termination of this Lease.
(u) State Law Conflict. To the maximum extent permitted under
the laws of the State of Colorado, the parties agree that the
provisions of this Lease shall control any inconsistency and/or
conflict with any law of the State of Colorado.
(v) Surrender of Premises. On the expiration of this Lease, or
within five (5) days after the earlier termination of the term, Tenant
shall surrender to Landlord the
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Premises in good condition (except for ordinary wear and tear and
repair and maintenance which is the obligation of Tenant and damage
and/or destruction which is not the obligation of Tenant to repair
pursuant to the provisions of this Lease).
36. BROKERS
Each party warrants that it has had no dealings with any real estate
broker or agent in connection with the negotiation of this Lease,
excepting only Cushman & Wakefield and Staubach Company ("BROKERS"),
and it knows of no other real estate broker or agent who is entitled to
a commission in connection with this Lease. Landlord shall pay a
leasing commission to the Brokers in accordance with separate
documentation.
37. NOTICE
All notices and demands required to be sent to the Landlord or Tenant
under the terms of this Lease shall be personally delivered or sent by
certified mail, postage prepaid or by overnight courier (i.e., Federal
Express), to the addresses indicated in the Basic Lease Information, or
to such other addresses as the parties may from time to time designate
by notice pursuant to this paragraph. In addition, prior to the
Commencement Date, notices to Tenant shall be sent to Ms. Barb Madden,
Associate Director, Facilities, Abacus Direct Corporation, 8774 Yates
Drive, Westminster, Colorado 80030. Notices shall be deemed received
upon the earlier of (i) if personally delivered, the date of delivery
to the address of the person to receive such notice (ii) if mailed, two
(2) days following the date of posting by the U.S. Postal Service, and
(iii) if by overnight courier, on the business day following the
deposit of such notice with such courier.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures. If this Lease has
been filled in, it has been prepared for submission to your attorney for his
approval. No representation or recommendation is made by the real estate broker
or its agents or employees as to the legal sufficiency, legal effect, ortax
consequences of this Lease or the transactions relating thereto.
<TABLE>
<S> <C>
LANDLORD: TENANT:
WESTERN STATES VENTURES, LLC, a ABACUS DIRECT CORPORATION, a
California limited liability company Delaware corporation
By: /s/ DAVID L. BONUCCELLI By: /s/ CARLOS SALA
--------------------------------- -------------------------------
David L. Bonuccelli Carlos Sala
Its: Managing Member Its: Chief Financial Officer
Date: 6-2-98 Date: 5-27-98
Address: 818 University Avenue Address: 8774 Yates Drive
Sacramento, California 95825 Westminster, Colorado 80030
</TABLE>
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RULES AND REGULATIONS
1. Except as provided in the Lease, no sign, placard, picture,
advertisement, name or notice shall be inscribed, displayed or printed
or affixed on or to any part of the outside or inside of the Building
without the written consent of Landlord first had and obtained and
Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the
expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Premises, however, that Landlord may furnish and
install a building standard window covering at all exterior windows.
Tenant shall not without prior written consent of Landlord cause or
otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them
for any purpose other than for ingress and egress from their respective
Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises. In the event of
the loss of any keys furnished by the Landlord, Tenant shall pay to the
Landlord the cost thereof.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein
and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who or whose
employees or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
6. Tenant may move furniture, freight or equipment into the Building
without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done in a way to not unreasonably
interfere with the other tenants of the Building. Landlord shall have
the right to prescribe the weight, size and position of all safes and
other heavy equipment brought into the Building and also the times and
manner of moving the same in and out of the Building. Safes or other
heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the
weight. Landlord will not be responsible for loss of or damage to any
such safe or property from any cause and all damage done to the
Building by moving or maintaining any such safe or other property shall
be repaired at the expense of Tenant.
7. Tenant shall not use, keep, or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit to suffer the
Premises to be occupied or used in a
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<PAGE>
manner offensive or objectionable to the Landlord or other occupants of
the Building by reason of noise, odors and/or vibrations, or interfere
in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the
Premises or the Building.
8. Excepting microwave cooking and incidental cooking for employees and/or
subtenants of Tenant or a cafeteria installed by Tenant for its
employees in accordance with Section 10 of the Lease, no cooking shall
be done or permitted by any Tenant on the Premises, nor shall the
Premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
Tenant shall, in no event, allow cooking which omits a strong odor
throughout the Building.
9. Tenant shall not use or keep in the Promises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or
use any method of heating or air conditioning other than that supplied
by Landlord.
10. Landlord will direct electricians as to where and how telephone and
communication wires are to be introduced. No boring or cutting for
wires will be allowed without the consent of the Landlord. The location
of telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord, not to be
unreasonably withheld or delayed.
11. On Saturdays, Sundays and legal holidays, and during non-Building hours
set forth in the Lease, access to the Building or to the halls,
corridors, elevators or stairways in the Building, or the Premises may
be refused unless the person seeking access is known to the person or
employee of the Building in charge and has a pass or is properly
identified. The Landlord shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of
any person. In case of invasion, mob, riot, public excitement, or other
commotion, the Landlord reserves the right to prevent access to the
building during the continuance of the same by closing of the doors or
otherwise, for the safety of the tenants and protection of property in
the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of the Landlord, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act
in violation of any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
the Landlord.
14. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same; provided, however, Tenant
shall be entitled to market the business operations of Tenant at the
Premises, in a professional manner, to other tenants within the
Building.
15. Landlord shall have the right to control and operate the public
portions of the Building, and the public facilities, and heating and
air conditioning, as well as facilities furnished
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for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally.
16. All entrance doors in the premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors
shall be kept closed except for normal ingress and egress from the
Premises.
17. No employee of Tenant shall be permitted to smoke within fifty (50)
feet of the main and secondary entrance to the Building.
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of November ___, 1999 (the
"Agreement") by and among DOUBLECLICK INC., a Delaware corporation with
principal offices located at 450 West 33rd Street, New York, New York
("DoubleClick"), and ABACUS DIRECT CORPORATION, a Delaware corporation (the
"Corporation"), and CHRISTOPHER M. DICE, having an address at
________________________________ ("Executive").
W I T N E S S E T H:
WHEREAS, Executive has been employed by the Corporation as its
President and Chief Operating Officer pursuant to an employment agreement dated
November 2, 1998, as amended (the "1998 Agreement");
WHEREAS, the Corporation has entered into an Agreement and
Plan of Merger and Reorganization dated June 13, 1999 with DoubleClick and
Atlanta Merger Corp. (the "Merger Agreement") whereby the Corporation shall
become a wholly owned subsidiary of DoubleClick (the "Initial Merger");
WHEREAS, the Corporation and DoubleClick intend that,
immediately following the Initial Merger, the Corporation shall be merged with
and into DoubleClick (together with the Initial Merger, the "Merger");
WHEREAS, the Executive's continuing services are necessary to
maintain the value of the Corporation after the Merger; and
WHEREAS, this Agreement shall supersede and replace the 1998
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby,
DoubleClick, the Corporation and Executive hereby agree as follows:
1. Employment.
(a) Subject to the terms and conditions set forth in this
Agreement, the Corporation offers and the Executive hereby accepts employment,
effective as of the Effective Time of the Initial Merger (the "Commencement
Date"), and DoubleClick offers and the Executive hereby accepts employment,
effective as of the effective time of the Merger. For purposes of this
Agreement, the "Surviving Corporation" shall (i) from the Commencement Date
until the effective time of the Merger, be deemed to be the Corporation and (ii)
following the effective time of the Merger, shall be deemed to be DoubleClick.
(b) The Surviving Corporation hereby employs Executive as
President and Chief Operating Officer reporting directly to Kevin Ryan,
President of DoubleClick, or his successor. Executive shall be responsible for
overseeing the integration of the Corporation into DoubleClick's business
pursuant to the Merger, and shall have various management responsibilities and
duties consistent with his executive position and of such nature as are usually
<PAGE>
associated with his office as may be designated from time to time by the Board
of Directors of the Surviving Corporation (the "Board").
(c) Executive shall faithfully and diligently discharge his
duties hereunder and use his best efforts to implement the policies established
by the Board. Executive agrees to devote substantially all of his time and
attention to the rendering of services hereunder.
2. Compensation.
(a) During the Term of Executive's employment hereunder, the
Surviving Corporation shall cause Executive to receive a base annual salary in
the amount of two hundred fifty thousand dollars ($250,000). Such base salary,
as from time to time increased, is hereafter referred to as the "Base Salary".
The Base Salary shall be payable in accordance with the present payroll
practices of the Surviving Corporation. In addition, Executive may receive such
additional compensation (in the form of bonuses, etc.) that the Board shall, in
the exercise of its good faith and reasonable discretion, determine.
(b) In addition to the salary described in Section 2(a) above,
for each fiscal or partial fiscal year of the Surviving Corporation during the
Term hereof, Executive shall be entitled to receive incentive compensation (as
described below) to be paid on or before the 90th day following the end of the
Surviving Corporation's fiscal year (a "Fiscal Year"). Executive's entitlement
to incentive compensation for any fiscal year of the Surviving Corporation shall
be predicated upon successful accomplishment of annual business related
performance goals for the Surviving Corporation established by the Compensation
Committee of the Board. The incentive compensation under this subparagraph (b)
for any year shall not exceed one hundred percent (100%) of Executive's Base
Salary. The incentive compensation payable hereunder in respect of any period
constituting less than an entire Fiscal Year (a "Partial Year") shall be (i)
based upon the Company's level of performance as of the first day of the month
in which the Date of Termination (as hereinafter defined) occurred, measured
against and in excess of the Company's budget as of the first day of such month
and, to the extent earned, (ii) shall be in an amount equal to the incentive
compensation which would be so payable if such period constituted the entire
Fiscal Year in which it occurs multiplied by a fraction, the numerator of which
shall be the number of days in such period and the denominator of which shall be
365.
(c) The parties intend that, on or about the Effective Time,
DoubleClick shall grant Executive stock options pursuant to its 1997 Stock
Incentive Plan, as amended, under terms and at a level reasonable in light of
Executive's duties and responsibilities and comparable with existing
arrangements with his peer executives at the Corporation and DoubleClick.
3. Benefits, Etc. Executive shall be entitled to receive such
fringe benefits normally provided by the Surviving Corporation to executives in
his position (including disability coverage, vacation, sick leave, medical and
dental insurance, life insurance, participation in the Surviving Corporation's
401(k) Plan, incentive compensation plans and other benefits generally available
to senior executives of the Surviving Corporation at any time during the term of
this Agreement).
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4. Term. Subject to earlier termination as hereinafter
provided, the original term of this Agreement shall commence on the Commencement
Date and shall continue in effect for a one (1) year period ending on the first
anniversary of the Commencement Date. The parties intend to negotiate in good
faith towards an agreement regarding terms and conditions of Executive's
employment with the Surviving Corporation continuing after the Term, it being
anticipated that Executive shall be offered employment terms consistent with the
Surviving Corporation's policies and practices applicable to its executives.
5. Termination by The Surviving Corporation. The Surviving
Corporation shall have the right to terminate this Agreement for "Disability",
"Cause" or without "Cause".
(a) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
with the Surviving Corporation on a full-time basis for six (6) consecutive
months, and within thirty (30) days after written notice of termination is
given, Executive shall not have returned to the full time performance of
Executive's duties, the Surviving Corporation may terminate Executive's
employment by reason of his "Disability."
(b) Cause. Termination by the Surviving Corporation of
Executive's employment for "Cause" shall mean termination as a result of: (i)
breach by Executive of any material provision of this Agreement; (ii) gross
negligence or willful misconduct of Executive in connection with the performance
of his duties under this Agreement, or Executive's willful refusal to perform
any of his material duties or responsibilities required pursuant to this
Agreement; (iii) Executive's misappropriation for personal use of assets or
business opportunities of the Surviving Corporation; (iv) Executive's
embezzlement of the Company's funds or property, or fraud on the part of
Executive; or (v) Executive's conviction of any Felony.
6. Termination by Executive. (a) Executive shall be entitled
to terminate his employment (i) in the event that the Surviving Corporation
materially breaches any of its obligations hereunder and such breach continues
for thirty (30) days after the Surviving Corporation receives written notice
from Executive of such breach or (b) if there is a "change in control" of the
Surviving Corporation.
For purposes of this Agreement, a "change in control" of the
Surviving Corporation shall be deemed to have occurred if (a) any "Person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Surviving Corporation representing forty percent (40%) or more
of the combined voting power of the Surviving Corporation's then outstanding
securities; or (b) the Board shall approve a sale of all or substantially all
the assets of the Surviving Corporation unless the Executive is a member of the
Board of Directors who affirmatively votes in favor of such sale transaction
giving rise to the "change in control".
In the event that Executive becomes entitled to terminate his
employment hereunder by reason of the occurrence of a "change in control" of the
Surviving Corporation or for any reason other than a "change in control",
Executive shall be entitled to terminate his employment immediately after the
occurrence of the event giving rise to such right, which right
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<PAGE>
shall continue for a period of four (4) months from the date of such occurrence.
The Merger shall be considered a "change in control" for purposes of this
paragraph and paragraph 9 only if DoubleClick breaches its obligations under
Section 2(c) above.
7. Notice of Termination. Any purported termination by the
Surviving Corporation or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 13 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
8. Date of Termination, Etc. "Date of Termination" shall mean
(a) if Executive's employment is terminated by the Surviving Corporation for
Cause, the date specified in the Notice of Termination, which date shall be no
earlier than the date of such Notice; (b) if Executive's employment is
terminated by the Surviving Corporation for Disability, thirty (30) days after
Notice of Termination is given (provided that Executive shall not have returned
to the performance of his duties an a full-time basis during such thirty (30)
day period); (c) if Executive's employment is terminated by the Surviving
Corporation without Cause, the date specified in the Notice of Termination,
which date shall be no earlier than the date that such notice is deemed given;
(d) if Executive's employment is terminated by Executive for any of the reasons
specified in Section 6, such date as Executive shall specify in Executive's
Notice of Termination, which date shall be no less than thirty (30) days after
such Notice of Termination is given.
9. Compensation Upon Termination, During Disability, Death or
in the Event of a Change in Control.
(a) In addition to any benefits to which Executive is entitled
under any insurance program or pension or benefit plan then in effect, or any
stock plan or restricted stock agreement, in lieu of all other payments of
salary or other compensation to which Executive would otherwise be entitled
hereunder, Executive shall be entitled to the following (and, if terminated for
any reason whatsoever, shall in no event be entitled to receive salary for the
balance of the remaining Term):
(i) If Executive's employment shall be terminated for
Cause, the Surviving Corporation shall pay his full
Base Salary through the Date of Termination at the
rate in effect at the time Notice of Termination is
given and the Surviving Corporation shall have no
further obligations to Executive under this Agreement
unless it shall be finally determined by a court of
competent jurisdiction that such purported termination
for Cause was not justified or was inappropriate in
the circumstances.
(ii) If Executive's employment with the Surviving
Corporation shall be terminated other than in
anticipation of or in connection with a "change in
control" (A) by the Surviving Corporation without
Cause, (B) by Executive for any of the reasons
specified in clause (a) of the first paragraph of
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Section 6 hereof, or (C) at the expiration of this
Agreement by virtue of it not being renewed, in lieu
of any further salary payments to Executive for
periods subsequent to the Date of Termination
(including any payments relating to any bonus or
incentive compensation), Executive shall be entitled
to receive a severance payment in an amount equal to
twelve (12) months of the Base Salary then in effect
and incentive compensation, if earned, on a pro-rata
basis, which severance shall be paid either in
accordance with the Surviving Corporation's customary
payroll practices or in a lump sum, upon expiration of
such term, as Executive may elect, subject, in either
case, to normal payroll deductions.
(iii) If Executive's employment with the Surviving
Corporation shall be terminated by Executive or by the
Surviving Corporation upon or within four (4) months
following a "change in control" pursuant to clause (b)
of the first paragraph of Section 6 hereof, then
Executive shall be entitled to the benefits provided
below:
(A) the Surviving Corporation shall
pay Executive his full Base Salary
through the Date of Termination at
the rate in effect at the time
Notice of Termination is given;
(B) In lieu of any further salary
payments to Executive for periods
subsequent to the Date of
Termination (including any payments
relating to any bonus or incentive
compensation), the Surviving
Corporation shall pay, as severance
pay to Executive, not later than the
fifth (5th) day following the Date
of Termination, a lump-sum severance
payment in an amount equal to the
sum of (x) twenty-four (24) months
of the Base Salary then in effect
and (y) an amount equal to two (2)
times any incentive compensation
earned in the most recently
completed fiscal year of the
Surviving Corporation.
(b) For a twelve (12) month period after such termination,
other than for Cause, the Surviving Corporation shall arrange to provide
Executive and, to the extent practicable, his family with life, disability and
health insurance benefits substantially similar to those which Executive is
receiving immediately prior to the Notice of Termination.
(c) Anything in this Agreement to the contrary
notwithstanding, in the event that any payment and the value of any benefit,
including the vesting of options or restricted stock, received or to be received
by Executive upon a change in control (collectively, a "Payment") would result
in all or a portion of such Payment being subject to excise tax under Section
4999 of the Internal Revenue Code ("Section 4999") , then Executive's Payment
shall be either (A) the full Payment or (B) the maximum amount which would
result in no portion of the Payment being subject to excise tax under Section
4999, whichever of the foregoing amounts specified in subparagraphs (A) or (B)
above, taking into account the applicable Federal, state, and local employment
taxes, income taxes, and the excise tax imposed by Section 4999 (and also
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<PAGE>
taking into account Executive's particular tax circumstances and filing status),
results in the receipt by Executive of the greatest amount notwithstanding that
all or some portion of such amount may be taxable under Section 4999; provided,
however, that Executive will be entitled to receive the full Payment only if the
after tax amounts of the full payment described in subparagraph (A) above exceed
the after tax amount resulting from the amount described in subparagraph (B)
above by at least ten thousand dollars ($10,000). In the event that the Payment,
or any portion of the Payment, is reduced pursuant to this Section to the amount
described in subparagraph (B) above, the present value of the amount to be
received by Executive (for purposes of Section 280G of the Internal Revenue
Code) must be reduced in such a way that the total amount to be received by
Executive (without regard to present value principles) is maximized. All
computations required to be made under this Section shall be made by a
nationally recognized accounting firm which is the Surviving Corporation's
outside auditor at the time of such determination (the "Accounting Firm"). The
Surviving Corporation shall cause the Accounting Firm to provide detailed
supporting calculations of the amounts described herein to the Surviving
Corporation and Executive as soon as is practicable after an event entitling
Executive to a Payment hereunder. The Executive may accept, but shall not be
bound to accept, the computations made by the Accounting Firm and shall have the
right to challenge any such computations in litigation or otherwise.
10. Intellectual Property Rights. All rights in inventions,
designs and intellectual property (including, without limitation, in patents,
copyrights, trade marks, registered designs, design rights and know-how) to
which Executive may become entitled by reason of activities in the course of
Executive's employment shall vest automatically in the Surviving Corporation and
Executive shall, at the request and expense of the Surviving Corporation,
provide the Surviving Corporation with all information, drawings and documents
requested by the Surviving Corporation and execute such documents and do such
things as may be required by the Surviving Corporation to evidence such vesting.
The provisions of this Section 10 shall survive the termination of this
Agreement.
11. Non-Competition and Non-Disclosure. The parties hereto
each acknowledge and agree that, concurrently with this Agreement, they will
enter into a Non-competition and Non-disclosure Agreement ("Non-Disclosure
Agreement") and that such Non-Disclosure Agreement shall remain in full force
and effect throughout the Term hereof and shall survive the termination of this
Agreement. A copy of the Non-Disclosure Agreement is attached hereto as Exhibit
A. Executive acknowledges that the provisions of the Non-Disclosure Agreement
are fair and reasonable and necessary to protect the good will and interest of
the Surviving Corporation and its subsidiaries and shall constitute separate and
severable undertakings given for the benefit of each of the Surviving
Corporation and each subsidiary and may be enforced by the Surviving Corporation
on behalf of any of them.
12. Successors; Binding Agreement.
(a) The Surviving Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Surviving
Corporation to expressly assume and agree to perform this Agreement in the
manner and to the same extent that the Surviving Corporation would be required
to perform it if no such succession had taken place. Failure of the Surviving
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<PAGE>
Corporation to obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement, and for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"the Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets, as aforesaid, which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Surviving Corporation, its successors and assigns, and by
Executive, his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
all Base Salary and incentive compensation earned by Executive prior to his
death, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisee, legatee or other designee or, if there
is no such designee, to Executive's estate.
13. Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered by hand, telecopied (receipt
acknowledged) or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first page of this Agreement, provided that all notices to the Surviving
Corporation shall be directed to the attention of the Board with a copy to the
Secretary of the Surviving Corporation and to DoubleClick, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
14. Miscellaneous. All terms in this Agreement not
specifically defined herein shall be defined as in the Merger Agreement. No
provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to, in writing, and signed by
Executive and such officer of the Surviving Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. Each party
acknowledges that the services to be rendered under this Agreement are unique
and of extraordinary character, and in the event of a breach by either party of
any of the terms of this Agreement, the other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to obtain damages for any breach of
the terms and provisions hereunder, to enforce specific performance by the
breaching party of its obligations hereunder and to enjoin the breaching party
from acting in violation of this Agreement. Such remedies are in addition to
those otherwise available at law or in equity to the Surviving Corporation. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the internal laws of the State of New York (other than the choice
of law principles thereof).
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15. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Prior Agreement. Upon the effectiveness of this Agreement,
all prior agreements, including, but not limited to, the 1998 Agreement, between
Executive and the Corporation will be terminated and of no further force and
effect.
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IN WITNESS WHEREOF, the undersigned have executed and delivered this
Employment Agreement on the date first above written.
DOUBLECLICK INC.
By: _____________________________
Name:
Title:
ABACUS DIRECT CORPORATION
By: _____________________________
Name:
Title:
EXECUTIVE
By: _____________________________
Name: Christopher M. Dice
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<PAGE>
EXHIBIT A
ABACAUS CORPORATION
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
This agreement is made this _____ day of November, 1999, by and between
Abacus Direct Corporation and its parents, subsidiaries and affiliates,
including, but not limited to, DoubleClick Inc. ("DoubleClick") (hereafter
referred to collectively as the "Corporation", and individually as "entities" of
the Corporation); and Christopher M. Dice (hereafter "Executive").
WITNESSETH:
WHEREAS, the parties hereto acknowledge that, as between them, the
Proprietary Information (as defined below) is important, material and will
affect the successful conduct of the business and operations of the Corporation.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, the parties hereto agree as follows:
DEFINITIONS
1. The term "Proprietary Information" shall mean (i) trade secrets,
including, but not limited to, all Corporation-owned designs, formulae,
drawings, diagrams and client data employed by the Corporation in developing
databases by consolidating unaffiliated direct mail response lists, contributed
by the list owners, into one or more master files to be used in developing
software or software algorithms for the purpose of predicting the relative
performance of various segments of said types of master files in the direct mail
applications of its clients and the fulfilling of said segments for its clients;
(ii) the names of any customers, the Corporation's marketing strategies, the
names of its vendors and suppliers, the costs of materials and labor, the prices
obtained for services sold (including the methods used in price
<PAGE>
determination, manufacturing and sales costs), lists or other written records
used in the Corporation's business, compensation paid to employees and
consultants and other terms of employment, production operation techniques or
any other confidential information of, about or pertaining to the business of
the Corporation, or any of the Corporation's entities, individually or in any
combination, including, but not limited to, information regarding DoubleClick
network affiliates or advertisers, DART technology or services, and closed loop
marketing solutions, and (iii) all Proprietary Information listed in (i) and
(ii) above as well as any tangible material that embodies such Proprietary
Information such as notebooks, drawings, documents, memoranda, reports, files,
samples, books, computer programs, correspondence, lists or other written and
graphic records that affect or relate to the business of the Corporation, and
(iv) all Proprietary Information listed in (i), (ii) and (iii) of the
Corporation's clients or customers obtained by Executive during his association
with the Corporation. Said Proprietary Information shall cease to be considered
proprietary should it become public knowledge or contain only information
available in the public domain other than through a breach of this Agreement.
COVENANT NOT TO COMPETE
2. Executive agrees that he will not, during the course of his
employment by or service to the Corporation, (including any current or future
employment of him by the Corporation) and for a period of one (1) year
commencing upon the expiration of his service or employment, individually or on
behalf of persons not now parties to this Agreement, or as a partner,
stockholder, director, officer, principal, agent, employee, or in any other
capacity or relationship: (i) engage in any business or employment for, or aid,
consult or endeavor to assist any business or legal entity that competes with
(a) any of the products or services offered by the Corporation or any of the
Corporation's entities; or (b) any product or service in development by the
Corporation or any of the Corporation's entities as of the date of this
Agreement; or (c) any
2
<PAGE>
product or service launched by the Corporation or any of the Corporation's
entities within one (1) year after the date of this Agreement; including, but
not limited to, any business or legal entity engaged in developing databases by
consolidating unaffiliated direct mail response lists, contributed by the list
owners, into one or more master files to be used in developing software or
software algorithms for the purpose of predicting the relative performance of
various segments of said types of master files in the direct mail applications
of its clients and the fulfilling of said segments for its clients, or any
business or legal entity engaged in providing Internet advertising products,
services or solutions, and excluding from said businesses or legal entities list
maintenance, list marketing, list brokerage and general direct marketing
analysis and consulting. Together the business and operations set forth above
are hereafter known as the Business of the Corporation. The Corporation and
Executive acknowledge the reasonableness of the worldwide geographic area and
duration of time which are part of said covenant.
NON-SOLICITATION OF CUSTOMERS
3. Unless waived in writing by the Corporation, Executive further
agrees that he will not, during the course of his service to or employment by
the Corporation and for one (1) year thereafter, solicit the trade or patronage
of any of the customers or known prospective customers of the Corporation, or
any of its entities, or of anyone who has heretofore traded and dealt with the
Corporation, or any of its entities, regardless of the location of such
customers or prospective customers, if such trade or patronage relates to the
Proprietary Information or Business of the Corporation as defined above and
excluding list maintenance list marketing, list brokerage and general direct
marketing analysis and consulting. For the purposes of this paragraph,
"customers" includes, without limitation, DoubleClick network affiliates and
advertisers.
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NON-SOLICITATION OF OTHER EMPLOYEES AND/OR CONSULTANTS
4. Executive agrees that he will not, during the course of his service
to the Corporation (including any current or future employment of him by the
Corporation) and for a period of one (1) year commencing upon the expiration of
his service or employment, individually or on behalf of persons not now parties
to this Agreement, aid or endeavor to solicit or induce any other employee,
employees, consultant and/or consultants of the Corporation, or any of its
entities, to leave their employment with the Corporation in order to accept a
position of any kind with any other person, firm, partnership or corporation.
NON-DISCLOSURE/NON-USE
5. Executive agrees that he will not, without the written consent of
the Chief Executive Officer of DoubleClick, during the course of his service to
the Corporation (including any current or future employment of him by the
Corporation) or thereafter, (i) divulge, disclose or communicate to any person,
firm, corporation or other entity, the Proprietary Information or (ii) use any
of the Proprietary Information.
ASSIGNMENT
6. Executive acknowledges that certain Business of the Corporation and
Proprietary Information are unique to the Corporation and are of such nature to
give the Corporation a distinct competitive advantage. Exeutive therefore agrees
that all results of his work specifically for the Corporation shall be the
exclusive property of the Corporation.
BREACH OF COVENANTS
7. In the event suit is instituted to enforce any provision of this
Agreement, the prevailing party shall be entitled to costs thereof including
court costs and reasonable attorney's fees. The provisions of paragraphs 1
through 7, inclusive, shall survive the termination of this Agreement except in
those cases excepted in the provisions of this Agreement.
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NECESSARY AND REASONABLE COVENANTS
8. (a) Executive acknowledges and agrees that as a founder and major
stockholder of Abacus Direct Corporation he has gained and will gain access to
the Proprietary Information, including DoubleClick's Proprietary Information,
and has discovered and will discover opportunities which comprise a set of
skills and information specifically suited to the operation of an entity engaged
in the same business as the Corporation, and its entities, including, without
limitation, DoubleClick, and that use of such skills and experience for any
other directly competing entity could destroy or damage the Business of the
Corporation.
(b) Executive further acknowledges that his knowledge of the
Proprietary Information would cause him, if he were employed by, an agent for,
or a consultant to any other entity engaged in the same business as the
Corporation for the purpose of functioning in the same business as the
Corporation, to inherently make decisions, form judgments and take actions that
would use the Proprietary Information.
(c) Executive further acknowledges that the market for the
Corporation's goods and services has no geographic limitations since such goods
and services may be used throughout the world and that, under such
circumstances, it is reasonable, fair and appropriate that the covenant not to
compete have no territorial limitations.
(d) Executive acknowledges that the time period restrictions
contained herein are fair, equitable and reasonable periods of time under the
circumstances.
WAIVER OF BREACH
9. The waiver by either party of any breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
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BINDING EFFECT
10. This Agreement is binding upon, and inures to the benefit of, the
parties hereto and their successors, heirs, legal representatives and assigns,
but neither this Agreement nor any rights hereunder may be assigned by either
party without the prior written consent of the other party.
AMENDMENTS
11. No amendment or supplement to this Agreement shall be made except
in a writing executed by both parties.
NO RULE OF STRICT CONSTRUCTION
12. The language contained herein shall be deemed to be that approved
by all parties hereto and no rule of strict construction shall be applied
against any party hereto.
INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION
13. The provisions of this Agreement are severable, and should any of
its provisions, clauses, or portions thereof be deemed invalid and of no force
and effect, then only that provision, clause, or portion thereof shall fail and
the remainder of this Agreement shall be in full force and effect.
GOVERNING LAW
14. This Agreement shall be governed by the laws of New York (except as
to choice of law) both as to interpretation and performance.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
DOUBLECLICK INC.
By: _________________________________
Name:
Title:
ABACUS DIRECT CORPORATION
By: _________________________________
Name:
Title:
CHRISTOPHER M. DICE
By: _________________________________
Christopher M. Dice
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Subsidiaries Controlled by Registrant
-------------------------------------
As of December 31, 1999
<TABLE>
<S> <C>
Subsidiaries of DoubleClick Inc.
- --------------------------------
DoubleClick International Internet Advertising Limited (Ireland)
DoubleClick Finance Corp. (Delaware)
NetGravity Europe Limited (UK)
NetGravity Asia Pacific K.K. (Japan)
NetGravity (Hong Kong) Limited
Net Gravity France S.A.R.L.
Abacus Direct International, Inc. (Delaware)
Half-owned Subsidiary of Abacus Direct International, Inc. (Delaware)
- ---------------------------------------------------------------------
Abacus Direct Europe B.V. (Netherlands)
Wholly-owned or Majority-owned Subsidiaries of DoubleClick International Internet Advertising Limited
- -----------------------------------------------------------------------------------------------------
DoubleClick International Internet Purchasing Limited (Ireland)
DoubleClick International Internet Sales Limited (Ireland)
DoubleClick DART International Limited (Ireland)
DoubleClick Internet Ireland Limited (Ireland)
DoubleClick Australia Pty. Ltd. (Australia)
DoubleClick Benelux Limited (Ireland)
DoubleClick Canada Network Inc. (Canada)
DoubleClick GmbH Deutschland (Germany)
DoubleClick Internet Advertising SARL (France) (name to be changed to DCLK France SARL)
DoubleClick Iberoamerica, SL (Spain)
DoubleClick Europe Limited (United Kingdom)
DoubleClick DART International Limited (United Kingdom)
DoubleClick do Brasil Ltda. (Brazil)
DoubleClick Scandinavia AB (Sweden)
Wholly-owned Subsidiary of DoubleClick Benelux Limited
- ------------------------------------------------------
DoubleClick Benelux B.V. (Netherlands)
Majority-owned Subsidiaries of DoubleClick Scandinavia AB (Sweden)
- ----------------------------------------------------------------------------
DoubleClick Norway AS, 979980116
DoubleClick D.A.R.T. Online Advertising AB, 713.688
DoubleClick Denmark A/S, A/S5249486
DoubleClick Sweden AB, 556575-3943
Minority-owned Subsidiaries of DoubleClick International Internet Advertising Limited
- -------------------------------------------------------------------------------------
DoubleClick Japan, Inc. (Japan)
DoubleClick Italy S.r.l. (Italy) (majority interest in the process of being acquired by DoubleClick
International Internet Advertising Limited)
DoubleClick Asia Limited (British Virgin Islands) (in the process of forming wholly-owned subsidiaries in
Taiwan, Hong Kong, Korea and Singapore)
</TABLE>
Note: Jurisdiction of incorporation noted in parentheses.
<PAGE>
EXHIBIT 23.1
Consent of the Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-78959) and Form S-8 (No. 333-48277, No.
333-90653, No. 333-91661, and No. 333-95105) of DoubleClick Inc. of our report
dated January 18, 2000, except as for Note 11(b) which is as of February 11,
2000, relating to the consolidated financial statements and financial statement
schedule, which appear in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
February 17, 2000
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
NetGravity, Inc. and Subsidiaries:
We consent to the inclusion in the annual report on Form 10-K of DoubleClick
Inc. for the year ended December 31, 1999 of our report dated January 27, 1999,
with respect to the consolidated balance sheet of NetGravity Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the years in
the two-year period ended December 31, 1998.
/s/ KPMG LLP.
San Francisco, California
February 17, 2000
