<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PILOT NETWORK SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7379 94-3164036
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION) NUMBER)
1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
(510) 433-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
M. MARKETTA SILVERA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
(510) 433-7800
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
DONALD M. KELLER, JR. BROOKS STOUGH
JOHN V. BAUTISTA JAY K. HACHIGIAN
STEPHEN J. VENUTO MICHAEL K. JUNG
VENTURE LAW GROUP GUNDERSON DETTMER STOUGH VILLENUEVE
A PROFESSIONAL CORPORATION FRANKLIN & HACHIGIAN, LLP
2800 SAND HILL ROAD 155 CONSTITUTION DRIVE
MENLO PARK, CA 94025 MENLO PARK, CA 94025
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.001 par value....... $56,062,500 $16,539
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE , 1998
[Pilot Network Services LOGO]
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SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the shares of Common Stock, $0.001 par value per share ("Common
Stock"), of Pilot Network Services, Inc. ("Pilot" or the "Company") offered
hereby (the "Offering"), shares are being offered by the Company
and shares are being offered by certain stockholders of the Company
(the "Selling Stockholders"). The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Stockholders. See
"Principal and Selling Stockholders" and "Underwriting." Prior to this
Offering, there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The Company has applied to have the Common Stock approved for listing on the
Nasdaq National Market under the symbol "PILT."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,000,000, payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about , 1998.
DEUTSCHE BANK SECURITIES
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST
The date of this Prospectus is , 1998
<PAGE>
[OUTSIDE FRONT COVER, INSIDE GATE FOLD]
PILOT'S SECURE INFRASTRUCTURE FOR ELECTRONIC COMMERCE
[Chart shows Pilot Dynamic Security Infrastructure, that allows Pilot to
provide Secure Access and Gateways, Secure Hosting and Electronic Commerce and
Secure Extranet and Virtual Private Networking services with continuous change
and action, that connects customer networks to the Internet.]
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SECURE ACCESS AND SECURE HOSTING AND SECURE EXTRANET AND
GATEWAY SERVICES: ELECTRONIC COMMERCE VIRTUAL PRIVATE
SERVICES: NETWORKING SERVICES
Secure Internet Services
Authentication Services Secure Hosting Services Secure Road Warrior
Secure Telecommuting Secure Commerce Web Corporate Partner
Services Secure Flex Web Privacy
Auxiliary Services
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. SUCH STABILIZING ACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the
reincorporation of the Company in Delaware prior to the effectiveness of this
Offering, (iii) the automatic conversion of all outstanding shares of
Preferred Stock of the Company into shares of Common Stock of the Company upon
the closing of this Offering, (iv) a two-for-one stock split of the Company's
shares of Common Stock prior to the closing of this Offering, (v) the exercise
of warrants to purchase shares of Series F Preferred Stock, which are
convertible into an aggregate of 600,000 shares of Common Stock, and (vi) the
filing, upon the closing of this Offering, of a Restated Certificate of
Incorporation authorizing 2,000,000 shares of undesignated Preferred Stock.
2
<PAGE>
[INSIDE FRONT COVER, INSIDE GATE FOLD]
PILOT ENABLES SECURE ELECTRONIC COMMERCE OVER THE INTERNET
[Chart shows terminals connected to the Internet through Pilot's Network
Security Centers and terminals not connected through the Network Security
Centers that are subject to computer attacks.]
[The following text will be on the left of the illustration:]
Pilot offers services designed to combine the highest level of commercially
available security with high bandwidth connectivity to enable secure
electronic commerce over the Internet. The foundation of Pilot's solution is
its Dynamic Security Infrastructure, consisting of a multi-layered defensive
architecture and around-the-clock security operations delivered through
geographically dispersed Network Security Centers. This infrastructure allows
Pilot to continuously manage and monitor Internet traffic to and from customer
networks in order to respond in real-time to security threats. The Pilot
solution aggregates the experience gained from protecting each customer
against attacks and leverages such experience for the collective benefit of
all customers. The Dynamic Security Infrastructure offers benefits over other
security approaches by eliminating single points of failure, enhancing attack
detection, delivering real-time defenses and adapting continuously to external
conditions.
Pilot provides a broad range of security services for a fixed monthly fee on
an annual subscription basis, including secure access and gateway services,
secure hosting and electronic commerce services, and secure extranet and
virtual private networking services. The Company offers a scalable solution
that enables customers to quickly deploy and expand electronic commerce
capabilities by subscribing to Pilot's secure Internet services. As a result,
companies avoid costs associated with implementing an in-house solution,
including set-up costs for security and systems design, hardware, software,
ISP services and labor, and ongoing costs for telecommunications, staffing,
maintenance and upgrades. Pilot's services enable customers to concentrate on
their core business because the secure infrastructure for electronic commerce
is provided by Pilot.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements and
notes appearing elsewhere in this Prospectus.
THE COMPANY
Pilot Network Services is the leading provider of comprehensive security
services that incorporate high-bandwidth connectivity and enable secure
electronic commerce over the Internet. The Company provides a broad range of
security services for a fixed monthly fee on an annual subscription basis,
including secure access and gateway services, secure hosting and electronic
commerce services and secure extranet and virtual private networking services.
The foundation of Pilot's solution is its Dynamic Security Infrastructure,
consisting of a multi-layered defensive architecture and around-the-clock
security operations delivered through geographically dispersed Network Security
Centers. This infrastructure allows Pilot to continuously manage and monitor
Internet traffic to and from customer networks in order to respond in real-time
to security threats. The Pilot solution aggregates the experience gained from
protecting each customer against attacks and leverages such experience for the
collective benefit of all customers. The Dynamic Security Infrastructure offers
benefits over other security approaches by eliminating single points of
failure, enhancing attack detection, delivering real-time defenses and adapting
continuously to external conditions. The Company offers a scalable solution
that enables customers to quickly deploy and expand electronic commerce
capabilities by subscribing to Pilot's secure Internet services. The Company's
customers span a diverse range of industries and include 20th Century Fox,
Altera Corp., the American Medical Association, American Stores, E-Stamp, Inc.,
First Data Corporation, The Good Guys, Inc., Kaiser Aluminum and Chemical
Corporation, PeopleSoft Inc., Playboy Enterprises, Inc., PR Newswire, Wilson
Sporting Goods and Ziff-Davis Events.
THE OFFERING
Common Stock offered................ shares (including
shares by the Company and shares
by the Selling Stockholders)
Common Stock to be outstanding shares(1)
after the Offering.................
Use of proceeds..................... General corporate purposes, including
working capital, capital expenditures
and repayment of certain indebtedness.
See "Use of Proceeds."
Proposed Nasdaq National Market PILT
symbol.............................
SUMMARY FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenues........ $ 2,525 $ 6,300 $11,317
Cost of service
revenues............... 1,424 4,181 9,825
Gross margin............ 1,101 2,119 1,492
Total operating
expenses............... 2,720 4,448 6,656
Net loss................ (1,750) (2,652) (5,635)
Accretion on redeemable
convertible preferred
stock.................. (263) (478) (1,069)
Net loss attributable to
common stockholders.... (2,013) (3,130) (6,704)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)(2)
-------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,447 $
Total current assets................................ 2,786
Current liabilities................................. 5,749
Capital lease obligations, net of current portion... 3,444
Total stockholders' equity (deficit)................ (12,414)
</TABLE>
- -------
(1) Based on the number of shares outstanding as of March 31, 1998. Includes
the number of shares to be issued upon the assumed exercise of warrants
outstanding as of March 31, 1998 to purchase Series F Preferred Stock (the
"Series F Warrants"), which are convertible into an aggregate of 600,000
shares of Common Stock. Excludes (i) 1,325,312 shares issuable upon
exercise of options outstanding as of March 31, 1998 with a weighted
average exercise price of $0.88 per share, (ii) shares issuable upon
exercise of outstanding warrants as of March 31, 1998 to purchase Series B
Preferred Stock and Series D Preferred Stock, which are convertible into an
aggregate of 142,910 shares of Common Stock with a weighted average
exercise price of $1.31 per share, and (iii) 1,400,000 shares available for
issuance under the Company's 1998 stock plans. Subsequent to March 31,
1998, and as of June 19, 1998 the Company granted options to purchase
681,000 shares of Common Stock with a weighted average exercise price of
$3.69 and options to purchase 20,000 shares of common stock at the public
offering price, and issued 219,954 shares of Common Stock pursuant to the
exercise of outstanding options. See "Management--Stock Plans" and Note 5
of Notes to Consolidated Financial Statements.
(2) Adjusted to reflect the sale of shares of Common Stock offered by
the Company at an assumed initial public offering price of $ per share
and after deducting the estimated underwriting discount and offering
expenses, and the receipt and application of the net proceeds therefrom,
and the receipt of $3.6 million from the assumed exercise of the Series F
Warrants. See "Use of Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
Pilot Network Services, Inc. ("Pilot" or the "Company") is the leading
provider of comprehensive security services that incorporate high-bandwidth
connectivity and enable secure electronic commerce over the Internet. The
Company provides a broad range of security services for a fixed monthly fee on
an annual subscription basis, including secure access and gateway services,
secure hosting and electronic commerce services and secure extranet and
virtual private networking services. The Company offers a scalable solution
that enables customers to quickly deploy and expand electronic commerce
capabilities by subscribing to Pilot's secure Internet services.
The Internet's promise of more cost-efficient and higher quality
communications has made it an increasingly attractive platform for complex
business applications such as marketing and sales, contract negotiations and
customer support. According to International Data Corporation, use of the
Internet for electronic commerce is expected to grow substantially from $12
billion in 1997 to $426 billion in 2002. Despite the advantages of conducting
business on the Internet, lack of Internet security is a significant inhibitor
to the adoption and growth of electronic commerce. Although losses due to
computer crime and security breaches are difficult to estimate, independent
industry sources estimate such losses to be between $3 billion and $5 billion
in 1997. Traditional approaches to Internet security, such as firewall
products, do not effectively meet the needs of businesses conducting
electronic commerce. Such products typically provide only a static, single
point of defense, are often difficult to configure adequately and maintain and
can be expensive to properly monitor and manage. For example, in a 1995 study
conducted by the FBI and the Computer Security Institute, 30 percent of all
reported successful break-ins involving the Internet took place despite the
presence of a firewall.
Pilot's subscription-based secure Internet services allow customers to avoid
the risks associated with traditional approaches to Internet security.
Customers can avoid extensive costs associated with implementing an in-house
solution, including set-up costs for security and systems design, hardware,
software, ISP services and labor, and ongoing costs for telecommunications,
staffing, maintenance and upgrades. The foundation of Pilot's solution is its
Dynamic Security Infrastructure, consisting of a multi-layered defensive
architecture and around-the-clock security operations delivered through
geographically dispersed Network Security Centers. This infrastructure allows
Pilot to continuously manage and monitor Internet traffic to and from customer
networks in order to respond in real-time to security threats. The Pilot
solution aggregates the experience gained from protecting each customer
against attacks and leverages such experience for the collective benefit of
all customers. The Dynamic Security Infrastructure offers benefits over other
security approaches by eliminating single points of failure, enhancing attack
detection, delivering real-time defenses and adapting continuously to external
conditions. Customers can concentrate on their core business because the
secure infrastructure for electronic commerce is provided by Pilot.
The Company's customers span a diverse range of industries and include 20th
Century Fox, Altera Corp., the American Medical Association, American Stores,
E-Stemp, Inc., First Data Corporation, The Good Guys, Inc., Kaiser Aluminum
and Chemical Corporation, PeopleSoft, Inc., Playboy Enterprises, Inc., PR
Newswire, Wilson Sporting Goods and Ziff-Davis Events.
The Company was incorporated in California in August 1992. Prior to the
completion of this Offering, the Company intends to reincorporate under the
laws of the State of Delaware. Unless the context otherwise requires, the term
"Company" or "Pilot" refers to Pilot Network Services, Inc., a Delaware
corporation, and its California predecessor. The Company has federal trademark
applications pending for the Pilot logo, Pilot and Corporate Partner Privacy,
and Pilot Secure Commerce Web, Pilot Secure Flex Web and Pilot Secure Road
Warrier are trademarks of the Company. All other brand names or trademarks
appearing in this Prospectus are the property of their respective holders.
The Company's executive offices are located at 1080 Marina Village Parkway,
Alameda, California 94501. Its telephone number at that location is (510) 433-
7800 and its Web site address is www.pilot.net. Information contained on the
Company's Web site is not part of this Prospectus.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus. When used in this
Prospectus, the words "expects," "anticipates," "intends," "plans,"
"estimates" and similar expressions are intended to identify forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks
and uncertainties include, but are not limited to, those risks discussed below
and elsewhere in this Prospectus. Actual results could differ materially from
those projected in the forward looking statements as a result of the risk
factors discussed below and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
The Company began operations in 1993, and has experienced operating losses
and negative cash flows from operations in each quarterly and annual period.
As of March 31, 1998, the Company had an accumulated deficit of approximately
$12.7 million. The revenue and income potential of the Company's business and
market is unproven, and the Company's limited operating history makes an
evaluation of the Company and its prospects difficult. The Company has
recently made and expects to continue making significant investments in new
and existing Network Security Centers, sales and marketing activities, and the
development of new services. As a result, the Company experienced a decline in
gross margin and an increase in net loss in fiscal 1997 and expects to
continue experiencing significant net losses on a quarterly and annual basis
for the foreseeable future, including a decline in its gross margin at least
through fiscal 1999. The Company and its prospects must be considered in light
of the risks, expenses and difficulties encountered by companies in the new
and rapidly evolving market for Internet system and network management
solutions. To address these risks, among other things, the Company must market
its brand name effectively, provide scaleable, reliable and cost-effective
services, continue to grow its infrastructure to accommodate new Network
Security Centers and increased bandwidth use of its network, expand its
channels of distribution, retain and motivate qualified personnel and continue
to respond to competitive developments. Failure of the Company's services to
achieve market acceptance would have a material adverse effect on the
Company's business, results of operations and financial condition. Although
the Company has experienced significant growth in revenues in recent periods,
the Company does not believe that this growth rate necessarily is indicative
of future operating results, and there can be no assurance that the Company
will ever achieve profitability on a quarterly or an annual basis or will
sustain profitability if achieved. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company derives revenue from its customers primarily through initial set
up fees and ongoing monthly service charges. For each new customer, the
Company must incur costs in anticipation of the customer's decision to use the
Company's services and in advance of the receipt of sufficient revenues to
repay these costs and provide a return on the Company's investment. As a
result, a relatively large portion of the Company's expenditures are fixed in
the short-term, and the Company's success is substantially dependent on the
continuous growth in its customer base and the retention of its customers for
sufficient periods to provide returns on the Company's investment. The
Company's customers generally enter into one year contracts with the Company,
with renewal periods, and there can be no assurance that the Company's
customers will maintain or renew their commitments to use the Company's
services. The
5
<PAGE>
Company typically experiences a lengthy sales cycle for its services,
particularly given the importance to customers of adequately securing Internet
connectivity for electronic commerce and the need to educate them regarding
the requirements for effective network security. Changes in the rate of growth
in the Company's customer base, customer renewal rates and the sales cycle for
the Company's services, have caused, or are expected in the future to cause,
significant fluctuations in the Company's results of operations on a quarterly
and an annual basis.
The Company expects to continue to experience significant fluctuations in
its future quarterly and annual results of operations due to a variety of
factors, many of which are outside the Company's control, including: demand
for and market acceptance of the Company's services and enhancements; the
timing of customer installations; provisions for customer discounts and
credits; the mix of services sold by the Company; introductions of services or
enhancements by the Company and its competitors; the length of sales cycles;
customer retention; the timing and success of marketing efforts and service
introductions by the Company; the timely expansion of existing Network
Security Centers and completion of new Network Security Centers; the timing
and magnitude of capital expenditures, including construction costs relating
to the expansion of operations; capacity utilization of its Network Security
Centers; the introduction by third parties of new security, Internet and
networking technologies; increased competition in the Company's markets;
changes in the pricing policies of the Company and its competitors; reliable
security, continuity of service and network availability; the ability to
increase bandwidth as necessary; fluctuations in bandwidth used by customers
and fluctuations in the cost of such bandwidth; the retention of key
personnel; economic conditions specific to the Internet and Internet security
industries; and other general economic factors. In addition, although the
Company has not encountered significant difficulties in collecting upon
accounts receivable in the past, there can be no assurance that the Company
will be able to collect receivables on a timely basis.
For these and other reasons, in some future quarters, the Company's results
of operations may fall below the expectations of securities analysts or
investors, which could have a material adverse effect on the market price of
the Company's Common Stock. See "--Risks of Business Expansion and Management
of Growth" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RISKS ASSOCIATED WITH SECURITY BREACHES
The Company's success is substantially dependent on the continued confidence
of its current and future customers that the Company provides superior network
security protection. Despite the Company's focus on Internet security, there
can be no assurance that the Company will be able to stop unauthorized
attempts, whether made unintentionally or by computer "attackers," to gain
access to or disrupt the network operations of the Company's customers. The
Company's Network Security Centers are designed to prevent unauthorized access
to customers' networks from the Internet. Any failure by the Company to stop
unauthorized access from the Internet or disruptions to related Internet
operations of its customers could materially adversely affect such customers
and the Company. Although the Company generally limits warranties and
liabilities relating to security in its customer contracts, the Company's
customers may seek to hold the Company responsible for any losses suffered by
the customer as a result of unauthorized access to customers' network systems
from the Internet. This could result in liability to the Company, which could
have a material adverse effect upon its business, operating results and
financial condition. Moreover, computer attackers from the Internet could
infiltrate the Company's network and seek to sabotage its network or services
by creating bugs
6
<PAGE>
or viruses or through other means. In addition, any adverse publicity
resulting from any such unauthorized access could deter future customers from
using the Company's services and could cause current customers to cease using
the Company's services, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH THE EMERGING MARKET FOR OUTSOURCED NETWORK SECURITY
SERVICES
The market for Internet security monitoring, detection and defense services
in general is new and rapidly evolving. Growth of this market will depend, in
large part, upon the public recognition of the potential threat posed by
computer attackers and other unauthorized users, the increased use of the
Internet and corporate intranets for electronic commerce and business
communications, the ability of network infrastructures to support an
increasing number of users and services, and the continued development of new
and improved services for implementation across the Internet and between the
Internet and corporate intranets. If the necessary network infrastructure or
complementary products and services are not developed in a timely manner and,
consequently, the market for network security solutions fails to grow or grows
more slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially and adversely
affected. Moreover, to date, most businesses have purchased and managed their
own network security solutions and have not sought to outsource network
security to a third party service provider. As a result, customer acceptance
of outsourcing network security services is extremely limited. The Company has
spent, and intends to continue to spend, considerable resources educating
potential customers about the value of outsourcing services provided by the
Company. To date, the Company has experienced lengthy sales cycles for its
services. There can be no assurance that such expenditures will increase
market acceptance of the Company's services, or that such sales cycles will
shorten. If the market for such services fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business--Industry Background," "--Sales, Marketing and
Customer Support" and "--Competition."
RISKS OF BUSINESS EXPANSION AND MANAGEMENT OF GROWTH
The Company intends to expand domestically and internationally by adding
Network Security Centers in new locations and expanding Network Security
Centers in existing locations. The Company is in the process of commencing
operations of four new Network Security Centers and relocating two Network
Security Centers to new facilities. This expansion will depend, among other
things, on the Company's ability to hire qualified personnel, install
facilities and establish local peering interconnections with Internet Service
Providers (ISPs), all in a timely manner, at reasonable costs and on terms and
conditions acceptable to the Company. The Company's ability to manage this
expansion effectively will require it to continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. The Company's inability to manage effectively its expansion, including
any disruption of service to current customers, would have a material adverse
effect upon the Company's business, results of operations and financial
condition. See "--Dependence on Scalability of Company's Network."
In addition, the Company will be required to expend substantial resources
for leases and improvements of facilities, significant improvements of such
facilities, purchases of equipment, implementation of multiple
telecommunications connections and hiring of network, administrative, customer
support, and sales and marketing personnel. Furthermore, any problems
encountered in connection with the expansion of existing Network Security
Centers may cause the interruption of service to current customers.
7
<PAGE>
In addition, from March 31, 1997 to March 31, 1998, the number of Company
employees increased from 45 to 102. Furthermore, more than half of the
Company's sales personnel have joined the Company since January 1998. This
growth has placed and may continue to place a significant strain on the
Company's financial, management, operational and other resources. The rapid
growth of the Company's sales team, in particular, may limit the effectiveness
of the Company's sales efforts in the immediate future. In addition, the
Company may be required to manage multiple relationships with third party
partners and vendors as it seeks to complement its service offerings. There
can be no assurance that the Company's financial, management, operational and
other systems, procedures and controls will be adequate to support the
Company's existing and future operations. The Company's ability to manage its
growth effectively will require it to continue to expand its operating and
financial procedures and controls, to replace or upgrade its financial,
management and operational systems and to attract, train, motivate, manage and
retain key employees. The Company has recently hired many key employees and
officers, including its Senior Vice President, Sales and Marketing, its Vice
President of Operations and Business Development, and its Chief Financial
Officer. As a result, the Company's entire management team has worked together
for only a brief time, which may limit their ability to operate effectively
together. The Company also has plans to hire a Vice President of Operations,
to allow the Company's current Vice President of Operations and Business
Development to focus solely on business development. If the Company's
executives are unable to manage growth effectively, the Company's business,
results of operations and financial condition would be materially adversely
affected. See "--Dependence on Key Personnel" and "Management."
COMPETITION
The market served by the Company is new, rapidly evolving, highly
competitive and largely undefined. There are few substantial barriers to
entry, and the Company expects that it will face additional competition from
existing competitors and new market entrants in the future. The Company
believes that this market is characterized by a limited period of time during
which participants must grow rapidly and achieve a significant presence in the
market in order to compete effectively. The principal competitive factors in
this market include Internet system and security engineering expertise,
customer service, network and security capabilities, reliability, quality and
scalability of service, broad geographic presence, brand name, technical
expertise and functionality, the variety of services offered, the ability to
maintain and expand distribution channels, customer support, price, the timing
of introductions of new services, financial resources and conformity with
industry standards. There can be no assurance that the Company will have the
resources or expertise to compete successfully in the future.
The Company competes with a broad range of products and services. The
Company's competitors include companies providing security, electronic
commerce, and secure Internet networking products that are offered as stand-
alone point solutions. Companies offering stand-alone products include
providers of firewall software, such as Check Point Software Technologies and
AXENT Technologies (formerly Raptor Systems), security monitoring software,
such as ISS Group, and electronic commerce products. The security and
electronic commerce products provided by these companies are typically
implemented and managed by internal MIS departments of enterprises. In
addition, internal corporate MIS departments increasingly rely on third party
consultants or system integrators to manage the integration and implementation
of multiple stand-alone products from different vendors.
The Company also competes with third party service providers that offer
Internet hosting and access services, including (i) providers of server
hosting services, such as Exodus Communications and PSI Net; (ii) national and
regional ISPs such as Concentric Network Corp., UUNET Technologies ("UUNET"),
certain subsidiaries of GTE Corporation and Global Center,
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which was recently acquired by Frontier Corporation; and (iii) global,
regional and local telecommunications companies such as MCI Communications
Corporation ("MCI"), Sprint Corporation ("Sprint"), WorldCom, and regional
bell operating companies. The Company also competes with information
technology service firms providing either outsourcing or systems integration
services such as International Business Machines Corporation and Electronic
Data Systems. Although these third party service providers often add security
features to their service offerings, either through internal development
efforts or through the incorporation of products purchased from vendors of
stand-alone point solutions, the Company believes that generally these
competitors do not offer the same level of security in their services as the
Company. However, the Company expects competition to intensify as third party
service providers incorporate a broader range of security, electronic commerce
and secure Internet networking services and products into their service
offerings. Furthermore, the Company may face competition from its vendors and
other partners. The Company's agreements with its vendors and other partners
generally do not limit or restrict those parties from selling similar products
and services directly to the Company's customers or its competitors, thereby
enabling such parties to compete against the Company. There can be no
assurance that such vendors or other partners will not compete with the
Company in the future.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than the Company.
In addition, these competitors have entered, and will likely continue to
enter, into joint ventures or consortiums to provide additional services
competitive with those provided by the Company. Certain of the Company's
competitors may be able to provide customers with additional benefits in
connection with their Internet system and network management solutions,
including reduced communications costs, which could reduce the overall costs
of their services relative to the Company's. There can be no assurance that
the Company will be able to offset the effects of any resulting price
reductions. In addition, the Company believes that the businesses in which the
Company competes are likely to encounter consolidation in the near future,
which could result in increased price and other competition that could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISK OF SYSTEM FAILURE
The Company's success depends on the uninterrupted operation of its network
infrastructure. To maintain this uninterrupted operation, the Company must
protect its network infrastructure against damage and disruption from human
error, fire, earthquakes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Despite existing
and planned precautions by the Company, the occurrence of a natural disaster
or other unanticipated problems at one or more of the Company's Network
Security Centers could result in interruptions in the services provided by the
Company. In addition, the failure of any of the Company's telecommunications
providers to provide the data communications capacity required by the Company,
for any reason, could result in interruptions in the Company's services. Any
damage to or failure of the Company's systems or those of its service
providers could result in reductions in, or terminations of, services supplied
to the Company's customers. Such reductions or terminations in service could
materially and adversely impact the Company's customers, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company's
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reputation could be materially adversely affected. Although the Company
generally contractually limits its liability for incidental, punitive,
indirect and consequential damages and personal injury resulting from
disruption of service, there can be no assurance that the Company would not be
found liable for any such damages and personal injury, or that the amount of
any such liability would not exceed the Company's liability insurance, if any.
See "Business--Customers" and "--Pilot Dynamic Security Infrastructure."
FUTURE CAPITAL NEEDS
The Company expects to incur significant expenditures as part of its planned
expansion, including expenditures for new and expanded Network Security
Centers, increases in sales and marketing activities and the development of
new services. The Company believes that the net proceeds from this offering,
together with existing cash balances, anticipated cash flows from operations
and anticipated borrowings to finance a portion of its capital expenditures,
should be sufficient to meet its capital requirements for at least the next
twelve months. However, there can be no assurance that the Company will be
successful in generating anticipated levels of cash from operations or
borrowings. If the Company is not successful, it may be required to sell
assets, scale down its operations and expansion plans, seek to refinance all
or a portion of its existing indebtedness or seek to obtain other financing
earlier than planned, any of which could have a material adverse effect on the
Company's business, results of operations and financial condition. There can
be no assurance that any such refinancing would be available on commercially
reasonable terms, or at all, or that any other financing could be obtained or
would not result in significant dilution to the Company's stockholders. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
Notes 3 and 6 of Notes to Financial Statements.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's long-term strategy is to expand into
international markets. If revenue generated by any international Network
Security Center is not adequate to offset the expense of establishing and
maintaining any such international operation, the Company's business, results
of operations and financial condition could be materially adversely affected.
In addition, the Company faces certain risks inherent in conducting business
internationally, such as unexpected changes in regulatory requirements, export
restrictions, tariffs and other trade barriers, challenges in staffing and
managing foreign operations, differing technology standards, employment laws
and practices in foreign countries, longer payment cycles, problems in
collecting accounts receivable, political instability, fluctuations in
currency exchange rates, imposition of currency exchange controls, seasonal
reductions in business activity and potentially adverse tax consequences, any
of which could adversely affect the Company's international operations.
Furthermore, certain foreign governments, such as Germany, have enforced laws
and regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's current or future international operations and,
consequently, on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that the Company will be
able to compete effectively in international markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE UPON SCALABILITY OF THE COMPANY'S NETWORK
The Company must continue to expand and adapt its network infrastructure as
the number of users and the amount of information they wish to transmit
increases, and as customer
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requirements change. The expansion and adaptation of the Company's
telecommunications infrastructure will require substantial financial,
operational and management resources. If the Company is required to expand its
network significantly and rapidly due to increased usage, additional stress
will be placed upon the Company's existing network infrastructure. Due to the
limited deployment of the Company's services to date, the ability of the
Company's network to connect and manage a substantially larger number of
customers at high transmission speeds is as yet unknown, and the Company faces
risks related to the network's ability to operate with higher customer levels
while maintaining superior performance. As customers' usage of bandwidth
increases, the Company will need to make additional investments in its
infrastructure to maintain adequate data transmission speeds, the availability
of which may be limited or the cost of which may be significant. As a result,
there can be no assurance that the Company's network will be able to achieve
or maintain a sufficiently high capacity of data transmission, especially if
customer usage increases. The Company's failure to achieve or maintain high
capacity data transmission could significantly reduce customer demand for its
services and have a material adverse effect on its business, results of
operations and financial condition. In addition, as the Company upgrades its
telecommunications infrastructure to increase bandwidth available to its
customers, it is likely to encounter a certain level of equipment or software
incompatibility which may cause delays in implementation. There can be no
assurance that the Company will be able to expand or adapt its
telecommunications infrastructure to meet additional demand or its customers'
changing requirements. See "Business--Pilot Dynamic Security Infrastructure."
DEPENDENCE UPON THIRD PARTY NETWORK INFRASTRUCTURE PROVIDERS
The Company's success will depend upon third party network infrastructure
providers. In particular, the Company is dependent on telecommunications
network suppliers such as MCI, Sprint and WorldCom for its backbone capacity.
In addition, the Company relies on a number of public and private peering
interconnections (i.e., arrangements among access providers to carry traffic
of each other) to deliver its services. If the carriers that operate the
Internet exchange points ("IXPs") were to discontinue their support of the
peering points and no alternative providers were to emerge, or such
alternative providers were to increase the cost of utilizing the IXPs, the
transmission of network traffic by the Company would be significantly
constrained. Furthermore, as traffic through the IXPs increases, if
commensurate increases in bandwidth are not added, the Company's ability to
distribute content rapidly and reliably through these networks will be
adversely affected. Many of the operators of the private peering
interconnections are competitors of the Company. If these organizations were
to refuse to continue to peer directly with the Company, the Company might be
required to purchase Internet transit access services from these
organizations. In those cases where the Company currently purchases Internet
transit access from other organizations, if these organizations were to
increase the pricing associated with their Internet transit access, the
Company might be required to identify alternative methods through which it can
transmit its customers' traffic. If the Company were unable to access on a
cost-effective basis alternative networks to distribute its customers' content
or pass through any additional costs of utilizing these networks to its
customers, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Business--Pilot Dynamic
Security Infrastructure."
The recent growth in the use of the Internet has caused frequent periods of
performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of
the Internet by ISPs and other organizations with links to the Internet. Any
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of the Company's services. Potentially increased
performance provided by the services of the Company and others is ultimately
limited by and reliant upon the speed
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and reliability of the networks operated by third parties. Consequently, the
emergence and growth of the market for the Company's services is dependent on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.
DEPENDENCE ON OTHER THIRD-PARTY RELATIONSHIPS
The Company is dependent on other companies to supply certain key components
of its telecommunications infrastructure and system and network management
solutions that, in the quantities and quality demanded by the Company, are
available only from sole or limited sources. The Company uses routers and
switches supplied primarily by Cisco Systems, hardware servers supplied
primarily by Sun Microsystems and virtual private networking software and
hardware supplied by VPNet Technologies. The Company purchases these
components pursuant to purchase orders placed from time to time, does not
carry significant inventories of these components and has no guaranteed supply
arrangements with these vendors. In addition, the Company includes within its
services certain security software products that are available only from
certain vendors. Any failure to obtain required components or software on a
timely basis and at an acceptable cost would have a material adverse effect on
the Company's business, results of operations and financial condition. The
loss of any such components or software could require the Company to obtain
substitute components or software of lower quality or performance standards or
at greater cost, which could materially adversely affect the Company's
business, results of operations and financial condition. In addition, any
failure of the Company's sole or limited source suppliers to provide
components or software that comply with evolving Internet and
telecommunications standards or that interoperate with other components or
software used by the Company in its communications infrastructure could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company also intends to develop alternative distribution and lead
generation channel partners for the Company's services, such as systems
integration firms and bandwidth providers. Any failure by the Company to
develop these channel partners could materially and adversely impact the
ability of the Company to generate increased revenues, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Sales, Marketing and Customer Support" and
"--Strategic Relationships."
DEPENDENCE ON THE INTERNET AS A MEANS OF CONDUCTING BUSINESS
The increased use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has only
recently begun to develop, and the Company's success will depend in large part
on continued growth in the use of the Internet. Critical issues concerning the
commercial use of the Internet, including security, reliability, cost, ease of
access, quality of service and necessary increases in bandwidth availability,
remain unresolved and are likely to affect the development of the market for
the Company's services. The adoption of the Internet for information retrieval
and exchange, commerce and communications, particularly by those enterprises
that have historically relied upon alternative means of commerce and
communications, generally will require the acceptance of a new medium of
conducting business and exchanging information. Demand and market acceptance
of the Internet are subject to a high level of uncertainty and are dependent
on a number of factors, including the growth in consumer access to and
acceptance of new interactive technologies, the development of technologies
that facilitate interactive communication between organizations and targeted
audiences and increases in user bandwidth. If the Internet as a commercial or
business medium fails to develop or develops more slowly than expected,
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the Company's business, results of operations and financial condition could be
materially adversely affected. See "Business--Industry Background" and "--
Pilot Dynamic Security Infrastructure."
RAPID TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS
The Company's future success will depend, in part, on its ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of its current and prospective customers and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The market for the Company's
services is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition
and frequent new service introductions. There can be no assurance that future
advances in technology will be beneficial to, or compatible with, the
Company's business or that the Company will be able to incorporate such
advances on a cost-effective and timely basis into its business. Moreover,
certain operating platforms, such as Windows NT, may be less compatible with
security technologies than other platforms, such as UNIX-based systems, and
may be more susceptible to security breaches. To the extent the Company's
current and prospective customers adopt Windows NT, the Company may not be
able to provide the same levels of security as it provides to customers
employing UNIX-based systems. As a result, if a breach of security were to
occur involving a customer in a Windows NT environment, the general perception
of the Company in the market as a provider of secure bandwidth and electronic
commerce services may be adversely effected, which would have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, technological advances may have the effect of
encouraging certain of the Company's current or future customers to rely on
in-house personnel and equipment to furnish the services currently provided by
the Company. In addition, keeping pace with technological advances in the
Company's industry may require substantial expenditures and lead time.
The Company believes that its ability to compete successfully is also
dependent upon the continued compatibility and interoperability of its
services with products, services and architectures offered by various vendors
as part of the Company's services. There can be no assurance that such
products will be compatible with the Company's infrastructure or that such
products will adequately address changing customer needs. Although the Company
currently intends to support emerging standards, there can be no assurance
that industry standards will be established or that, if they become
established, the Company will be able to conform to these new standards in a
timely fashion and maintain a competitive position in the market. The failure
of the Company to conform to the prevailing standard, or the failure of a
common standard to emerge, could have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, there can be no assurance that products, services or technologies
developed by others will not render the Company's services uncompetitive or
obsolete. See "Business--Services" and "--Pilot Dynamic Security
Infrastructure."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in significant part upon the continued
services of its key technical, sales and senior management personnel,
including the Company's President and Chief Executive Officer, Marketta
Silvera, and the Company's Vice President, Engineering and Development, Thomas
Wadlow. None of the Company's officers is a party to an employment agreement
with the Company. Any officer or employee of the Company can terminate his or
her relationship with the Company at any time. The Company's future success
will also depend on its ability to attract, train, retain and motivate highly
qualified technical, marketing, sales and management personnel. In the past,
the Company has experienced high rates of employee
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turnover, which in certain periods has limited the Company's ability to
effectively manage its growth. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to attract and retain
sufficient numbers of qualified personnel to handle its planned expansion,
particularly because the Company maintains stringent hiring standards and
conducts a thorough background check for each prospective employee. The loss
of the services of one or more of the Company's key employees or the Company's
failure to attract additional qualified personnel could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Employees" and "Management."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is currently only a small body of laws and regulations directly
applicable to access to or commerce on the Internet, other than regulations
applicable to businesses generally and regulations applicable to certain
encryption technologies incorporated into products provided by certain of the
Company's vendors. However, because the Internet has recently emerged, there
is significant uncertainty as to the application of existing laws and
regulations with respect to the Internet, covering issues such as user
privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. Moreover, a number of laws and
regulations have been proposed and are currently being considered by federal,
state and foreign legislatures with respect to such issues. The nature of any
new laws and regulations and the manner in which existing and new laws and
regulations may be interpreted and enforced cannot be fully determined.
Therefore, such laws and regulations could decrease the growth of the
Internet, decrease demand for the Company's services, restrict the Company's
activities, impose taxes or other costly technical requirements, subject the
Company and/or its customers to potential liability or otherwise adversely
affect the Company or its customers, each of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. For example, because the Company's services are available over the
Internet in multiple states and foreign countries, and as the Company
facilitates sales by its customers to end users located in such states and
foreign countries, such jurisdictions may claim that the Company is required
to qualify to do business as a foreign corporation in each such state or
foreign country, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
A number of governments have imposed controls, export license requirements
and restrictions on the export of encryption technologies provided by certain
of the Company's vendors. To the extent the Company or its vendors are
required to export products incorporating certain encryption technology
developed in the United States in support of services provided to the
Company's customers located outside of the United States, the Company and its
vendors will need to comply with United States export controls. In particular,
all cryptographic products require either qualification under appropriate
licensing exemptions or export licenses from either the U.S. State Department,
acting under the authority of the International Traffic in Arms Regulation, or
the U.S. Commerce Department, acting under the authority of the Export
Administration Regulations. Furthermore, if the Company is unable to comply
with such export controls, it may not be able to obtain on commercially
reasonable terms encryption technologies developed outside the United States
for its international services that provide for encryption as strong as those
developed in the United States. There can be no assurance that U.S. export
restrictions will be changed to allow stronger encryption for international
delivery, that the Company or its vendors will be able to comply with such
restrictions, or that such factors will not have a material adverse effect on
the Company's business, operating results and financial condition.
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RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S NETWORK
The law relating to the liability of online services companies and Internet
access providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
access providers are currently pending. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon the Company and
other Internet network providers of potential liability for information
carried on or disseminated through their systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources, or to discontinue certain service or
product offerings. The increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could adversely impact the
growth of Internet use. While the Company carries general liability and errors
and omissions insurance, it may not be adequate to compensate or may not cover
the Company in the event the Company becomes liable for information carried on
or disseminated through its networks. Any costs not covered by insurance
incurred as a result of such liability or asserted liability could have a
material adverse effect on the Company's business, results of operations and
financial condition. Certain businesses, organizations and individuals send
unsolicited commercial e-mails to massive numbers of people, typically to
advertise products or services. This practice, known as "spamming," can lead
to complaints against service providers that enable such activities,
particularly where recipients view the materials received as offensive. The
Company is not aware of instances in which spamming has occurred from servers
hosted at its facilities. However, certain ISPs and other online services
companies could deny network access to the Company if undesired content or
spamming were to be transmitted from servers hosted at its facilities.
Although the Company's customer-use policy prohibits its customers from
spamming, there can be no assurance that its customers will not engage in this
practice, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in technology underlying its services. The Company
has recently applied for three separate patents in the U.S. and intends to
continue to seek patents on its inventions when appropriate, although the
Company currently has no patented technology that would preclude or inhibit
competitors from entering the Company's market. There can be no assurance that
patents will issue from currently pending or any future applications, or that
any patents that may be issued will be sufficient in scope or strength to
provide meaningful protection or any commercial advantage to the Company. The
Company has three separate trademark applications pending in the United States
and counterparts in certain foreign jurisdictions for distinct marks,
including its distinctive Pilot logo; however, there can be no assurance that
such trademarks will be granted. The laws of certain foreign countries may not
protect the Company's products, services or intellectual property rights to
the same extent as do the laws of the United States.
The Company has entered into confidentiality and invention assignment
agreements with its employees and contractors, and nondisclosure agreements
with its suppliers, distributors and appropriate customers in order to limit
access to and disclosure of its proprietary information. There can be no
assurance that these contractual arrangements or other steps
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taken by the Company to protect its intellectual property will prove
sufficient to prevent infringement of or misappropriation of the Company's
technology or to deter independent third-party development of similar
technologies. Any such infringement or misappropriation, should it occur,
could have a material adverse effect on the Company's business, results of
operation and financial condition. Furthermore, litigation may be necessary to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets, to determine the validity and scope of the proprietary rights
of others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, results of
operations and financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement or indemnification by
the Company with respect to current or future products. The Company expects
that participants in its markets will be increasingly subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows. Any such claim, whether meritorious or not, could be time-
consuming, result in costly litigation, cause product installation delays,
prevent the Company from using important technologies or methods, subject the
Company to substantial damages, or require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements might not be
available on terms acceptable to the Company or at all. As a result, any such
claim could have a material adverse effect upon the Company's business,
results of operations and financial condition.
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements. The Company has established procedures for evaluating and
managing the risks and costs associated with this problem and believes that
its computer systems are currently Year 2000 compliant. However, many of the
Company's customers maintain their Internet operations on commercially
available operating systems, which may be impacted by Year 2000 complications.
In addition, the Company relies on third party vendors for certain equipment
and software included within the Company's services which may not be Year 2000
compliant. The Company is in the early stages of conducting an audit of its
third-party suppliers as to the Year 2000 compliance of their systems. The
Company does not believe it will incur significant incremental costs in order
to comply with Year 2000 requirements. However, failure of the Company's
internal computer systems or of such third-party equipment or software, or of
systems maintained by the Company's suppliers, to operate properly with regard
to the Year 2000 and thereafter could require the Company to incur significant
unanticipated expenses to remedy any problems and could have a material
adverse effect on the Company's customers, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's results of operations,
announcements of technological innovations or new Network
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Security Centers, new products or services introduced by the Company or its
competitors, changes in financial estimates by securities analysts, conditions
and trends in the Internet, general market conditions and other factors.
Further, the stock markets, and in particular the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies
and that often have been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and reflect price to
earnings ratios substantially above historical levels. There can be no
assurance that these trading prices and price to earnings ratios will be
sustained. These broad market factors may adversely affect the market price of
the Common Stock. These market fluctuations, as well as general economic,
political and market conditions such as recessions, interest rates or
international currency fluctuations, may adversely affect the market price of
the Common Stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such companies. Such litigation, if instituted, could
result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's
business, results of operations and financial condition.
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers,
directors and existing 5% and greater stockholders (and their affiliates)
will, in the aggregate, own approximately % of the Company's outstanding
Common Stock ( % if the Underwriters' over-allotment option is exercised in
full). As a result, such persons, acting together, will have the ability to
control all matters submitted to stockholders of the Company for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control
the management and affairs of the Company. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company, impede a merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Common Stock. See "Management" and "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this offering could adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity or
equity-related securities in the future at a time and price that the Company
deems appropriate. In addition to the shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option), as
of the date of this Prospectus, there will be shares of Common
Stock outstanding (including 600,000 shares expected to be issued upon
exercise of the Series F Warrants prior to the closing of the Offering), all
of which are restricted shares ("Restricted Shares") under the Securities Act
of 1933, as amended (the "Securities Act"). As of such date, no Restricted
Shares will be eligible for sale in the public market. Following the
expiration of 180-day lock-up agreements (the "Lock-up Period") with the
representatives of the Underwriters or the Company, (i) 1,477,816 of the
Restricted Shares will be eligible for immediate sale without restriction
under Rule 144(k) under the Securities Act, (ii) 7,995,750 of the Restricted
Shares will be eligible for sale subject to compliance with the volume and
other restrictions of Rule 144, and (ii) 800,000 of the Restricted Shares
(including 600,000 shares expected to be issued upon exercise of the Series F
Warrants
17
<PAGE>
prior to the closing of the Offering) will become eligible for sale at various
times after the Lock-up Period upon expiration of applicable holding periods
under Rule 144, subject in some cases to the volume and other restrictions of
Rule 144. In addition, as of March 31, 1998, there were outstanding 1,325,312
options and 142,910 warrants to purchase Common Stock (excluding 600,000
shares which are expected to be issued upon exercise of the Series F Warrants
prior to the closing of the Offering with the representatives of the
Underwriters or the Company) and all of such options and warrants will be
subject to 180-day lock-up agreements. Following the expiration of the Lock-up
Period, all of the warrants will be exercisable and 578,844 of such options
will be vested and exercisable. Deutsche Bank Securities Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. In addition, the holders of
approximately 8,839,918 Restricted Shares and warrants to purchase 742,910
shares of Common Stock of the Company are entitled to certain rights with
respect to registration of such shares for sale in the public market. If such
holders sell in the public market, such sales could have a material adverse
effect on the market price of the Company's Common Stock.
Immediately after this Offering, the Company intends to register
approximately 3,426,312 shares of Common Stock subject to outstanding options
and reserved for issuance under its stock option and purchase plans. See
"Shares Eligible for Future Sale."
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS; USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting the estimated underwriting discount and
estimated offering expenses, are estimated to be approximately $ million.
The principal purposes of this Offering are to obtain additional capital,
create a public market for the Common Stock, facilitate future access by the
Company to public equity markets and to provide increased visibility and
credibility in a marketplace where many of the Company's current and potential
competitors are or will be publicly held companies. The Company expects to use
such proceeds for general corporate purposes, including working capital,
operating losses and capital expenditures for geographic expansion, and the
repayment of the funding of certain existing and expected indebtedness. The
Company's management will retain broad discretion in the allocation of a
substantial portion of the net proceeds. The failure of management to apply
such funds effectively could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Use of
Proceeds."
The Company believes that the net proceeds from this offering, together with
existing cash balances, anticipated cash flows from operations and anticipated
borrowings to finance a portion of its capital expenditures, should be
sufficient to meet its capital requirements for at least the next 12 months.
However, there can be no assurance that the Company will be successful in
generating anticipated levels of cash from operations or borrowings. If the
Company is unable to generate sufficient cash flow from operations or
additional borrowings, it may be required to sell assets, scale down its
operations and expansion plans, refinance all or a portion of its existing
indebtedness or obtain other sources of financing earlier than planned, any of
which could have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that any such
refinancing would be available on commercially reasonable terms, or at all, or
that any other financing could be obtained.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights,
18
<PAGE>
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no current
plans to issue shares of Preferred Stock. The Company is also subject to
certain provisions of Delaware law which could have the effect of delaying,
deterring or preventing a change in control of the Company, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder unless certain conditions are met. In addition, the
Company's certificate of incorporation and bylaws contain certain provisions
that, together with the ownership position of the Company's executive officers
and directors and their affiliates, could discourage potential takeover
attempts and make more difficult attempts by stockholders to change management
which could adversely affect the market price of the Company's Common Stock.
See "--Control by Principal Stockholders, Executive Officers and Directors"
and "Description of Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or be sustained after this Offering or that investors will be able to sell the
Common Stock should they desire to do so. The initial public offering price
will be determined by negotiations between the Company and the representatives
of the Underwriters and may bear no relationship to the price at which the
Common Stock will trade upon completion of this offering. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $ per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options or warrants to purchase the Company's Common Stock are
exercised, there may be further dilution. See "Dilution."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered by the Company hereby at an assumed initial public offering
price of $ per share are estimated to be approximately $ million
(approximately $ million if the Underwriters' over-allotment option is
exercised in full), after deducting the estimated underwriting discount and
offering expenses. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders.
The principal purposes of this Offering are to obtain additional capital,
repay certain existing and expected indebtedness, create a public market for
the Common Stock, facilitate future access by the Company to public equity
markets and to provide increased visibility and credibility in a marketplace
where many of the Company's current and potential competitors are or will be
publicly held companies. The Company expects to use such proceeds for general
corporate purposes, including working capital, the funding of operating losses
and capital expenditures for geographic expansion, and the repayment of
certain existing and expected indebtedness. The Company's management will
retain broad discretion in the allocation of a substantial portion of the net
proceeds. Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term, interest bearing, investment grade
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Risk
Factors--Broad Management Discretion in Allocation of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all available funds and any
future earnings of its business for use in the operation of its business and
does not anticipate paying any cash or other dividends in the foreseeable
future. In addition, the terms of the Company's current credit facility
prohibit the paying of dividends without the lender's consent.
20
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the
Company giving effect to the conversion of the outstanding Preferred Stock
into Common Stock and the filing of a Restated Certificate of Incorporation
upon the closing of this Offering; and (iii) the pro forma capitalization of
the Company as adjusted to reflect the receipt of the estimated net proceeds
from the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discount and offering expenses payable by the Company,
and the assumed exercise of Warrants to purchase 600,000 shares of Series F
Preferred Stock at $6.00 per share. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-
term debt(1)............ $ 1,550 $ 1,550 $
Long-term obligations,
net of current
maturities.............. 3,444 3,444
Redeemable convertible
preferred stock; $0.001
par value, 7,432,810
shares authorized
actual; 6,363,030 shares
issued and outstanding,
actual; no shares
authorized, issued or
outstanding pro forma
and pro forma as
adjusted................ 12,143 -- --
Stockholders' equity:
Convertible Series A
preferred stock, $0.001
par value; 1,400,000
shares authorized,
issued and outstanding,
actual; no shares
authorized, issued or
outstanding pro forma
and pro forma as
adjusted................ 1 -- --
Preferred Stock, $0.001
par value, no shares
authorized, issued or
outstanding actual;
2,000,000 shares
authorized pro forma and
pro forma as adjusted;
no shares issued or
outstanding pro forma
and pro forma as
adjusted................ -- -- --
Common Stock, $0.001 par
value, 40,000,000 shares
authorized actual, pro
forma and pro forma as
adjusted; 2,050,536
shares issued and
outstanding actual;
9,813,566 shares issued
and outstanding pro
forma; shares
issued and outstanding
pro forma as adjusted(2).. 2 10
Additional Paid in
Capital................. 1,169 13,305
Deferred Compensation
related to grant of
common stock options,
net of amortization..... (891) (891)
Accumulated deficit...... (12,695) (12,695)
-------- -------- ----
Total stockholders'
equity (deficit)........ (12,414) (271)
-------- -------- ----
Total capitalization..... $ 4,723 $ 4,723 $
======== ======== ====
</TABLE>
- --------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Based on the number of shares outstanding as of March 31, 1998. Includes
the number of shares to be issued upon the assumed exercise of warrants
outstanding as of March 31, 1998 to purchase Series F Preferred Stock,
which are convertible into an aggregate of 600,000 shares of Common Stock.
Excludes (i) 1,325,312 shares issuable upon exercise of options
outstanding as of March 31, 1998 with a weighted average exercise price of
$0.88 per share, (ii) shares issuable upon exercise of outstanding
warrants as of March 31, 1998 to purchase Series B Preferred Stock and
Series D Preferred Stock, which are convertible into an aggregate of
142,910 shares of Common Stock with a weighted average exercise price of
$1.31 per share, and (iii) 1,400,000 shares available for issuance under
the Company's 1998 stock plans. Subsequent to March 31, 1998, and as of
June 19, 1998 the Company granted options to purchase 681,000 shares of
Common Stock with a weighted average exercise price of $3.69 and options
to purchase 20,000 shares of Common Stock at the public offering price,
and issued 219,954 shares of Common Stock pursuant to the exercise of
outstanding options. See "Management--Stock Plans" and Note 5 of Notes to
Consolidated Financial Statements.
21
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998,
was approximately $3,329,000, or $0.32 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the total pro forma number of shares
of Common Stock outstanding, after giving effect to the automatic conversion
of all outstanding shares of Preferred Stock and the assumed exercise of
600,000 Warrants to purchase Series F Preferred Stock at $6.00 per share.
After giving effect to the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company, the pro forma net tangible book
value of the Company, as adjusted, at March 31, 1998, would have been
approximately $ or $ per share of Common Stock. This amount represents
an immediate increase in such net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value at March 31, 1998................. $0.32
Increase attributable to new investors..............................
-----
Adjusted pro forma net tangible book value after this Offering........
---
Dilution per share to new investors................................... $
===
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between the existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company, and the average price per share
paid (based on an assumed initial public offering price of $ per share
before deducting the estimated underwriting discount and offering expenses
payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1) (2)... 10,413,566 % $13,119,905 % $1.26
New Investors..................
---------- ----- ----------- -----
Total(1)..................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1998. Includes
the number of shares to be issued upon the assumed exercise of warrants
outstanding as of March 31, 1998 to purchase Series F Preferred Stock,
which are convertible into an aggregate of 600,000 shares of Common Stock.
Excludes (i) 1,325,312 shares issuable upon exercise of options
outstanding, as of March 31, 1998 with a weighted average exercise price
of $0.88 per share, (ii) shares issuable upon exercise of outstanding
warrants as of March 31, 1998 to purchase Series B Preferred Stock and
Series D Preferred Stock, which are convertible into an aggregate of
142,910 shares of Common Stock with a weighted average exercise price of
$1.31 per share, and (iii) 1,400,000 shares available for issuance under
the Company's 1998 stock plans. Subsequent to March 31, 1998, and as of
June 19, 1998 the Company granted options to purchase 681,000 shares of
Common Stock with a weighted average exercise price of $3.69 and options
to purchase 20,000 shares of Common Stock at the public offering price,
and issued 219,954 shares of Common Stock pursuant to the exercise of
outstanding options. See "Management--Stock Plans" and Note 5 of Notes to
Consolidated Financial Statements.
(2) Sales by the Selling Stockholders will reduce the number of shares of
Common Stock held by existing stockholders to or % of the
total number of shares (or % if the Underwriters' over-allotment option
is exercised in full) and will increase the number of shares of Common
Stock held by new investors to or % (or % if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operation," the Financial Statements and the Notes thereto and the other
information contained in this Prospectus. The selected statements of
operations data for the years ended March 31, 1996, 1997 and 1998 and the
selected balance sheet data as of March 31, 1997 and 1998, are derived from,
and are qualified by reference to, the audited financial statements of the
Company appearing elsewhere in this Prospectus. The selected statements of
operations data for the year ended March 31, 1995, and the selected balance
sheet data as of March 31, 1995 and 1996, are derived from audited financial
statements of the Company not included herein. The selected statement of
operations data for the year ended March 31, 1994, and the selected balance
sheet data as of March 31, 1994, are derived from unaudited financial
statements of the Company not included in this Prospectus which have been
prepared by the Company on a basis consistent with the audited financial
statements appearing elsewhere in the Prospectus. The historical results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenues........ $ 151 $ 800 $ 2,525 $ 6,300 $ 11,317
Cost of service
revenues............... 83 322 1,424 4,181 9,825
-------- -------- -------- -------- --------
Gross margin............ 68 478 1,101 2,119 1,492
Operating expenses:
Sales and marketing... 127 579 1,792 3,109 4,306
Engineering and
development.......... 78 93 162 275 799
General and
administrative....... 110 253 766 1,064 1,551
-------- -------- -------- -------- --------
Total operating
expenses........... 315 925 2,720 4,448 6,656
-------- -------- -------- -------- --------
Operating loss.......... (247) (447) (1,619) (2,329) (5,164)
Interest expense, net... (1) (1) (131) (323) (471)
-------- -------- -------- -------- --------
Net loss................ $ (248) $ (448) $ (1,750) $ (2,652) $ (5,635)
Accretion on redeemable
convertible preferred
stock.................. (12) (80) (263) (478) (1,069)
-------- -------- -------- -------- --------
Net loss attributable to
common stockholders.... $ (260) $ (528) $ (2,013) $ (3,130) $ (6,704)
======== ======== ======== ======== ========
Basic and diluted net
loss per share(1)...... $ (1.39) $ (.39) $ (1.07) $ (1.58) $ (3.31)
======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
loss per share(1)...... 187 1,350 1,889 1,982 2,025
======== ======== ======== ======== ========
Pro forma basic and
diluted net loss per
share(1)............... $ (0.60)
========
Shares used in computing
pro forma basic and
diluted net loss per
share(1)............... 9,355
========
<CAPTION>
MARCH 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 339 $ 1,149 $ 420 $ 3,081 $ 1,447
Total current assets.... 378 1,329 1,056 3,927 2,786
Total current
liabilities............ 90 333 1,695 3,291 5,749
Capital lease
obligations, net of
current portion........ 43 205 908 1,946 3,444
Total stockholders'
equity (deficit)....... (271) (766) (2,762) (5,882) (12,414)
</TABLE>
- -------
(1) See Notes 1 and 5 of Notes to Financial Statements for an explanation of
the determination of the number of shares used in computing per share
amounts.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto and the other information included elsewhere
in this Prospectus. Certain statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended. The forward looking statements contained herein are based on current
expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward
looking statements. For a more detailed discussion of these and other business
risks, see "Risk Factors."
OVERVIEW
Pilot is the leading provider of comprehensive security services that
incorporate high bandwidth connectivity and enable secure electronic commerce
over the Internet. Pilot's services include secure access and gateway
services, secure hosting and electronic commerce services, and secure extranet
and virtual private networking services. The Company delivers its services
from geographically dispersed Network Security Centers that are connected
through its secure high performance Internet backbone.
The Company was incorporated in August 1992 and commenced operations in
1993. The Company opened its first Network Security Center in the San
Francisco metropolitan area in 1993, followed by three additional centers in
the Los Angeles, New York and Chicago metropolitan areas in 1995. The Company
is commencing operations at Network Security Centers in the Boston,
Minneapolis, Washington, D.C. and London metropolitan areas during 1998.
Customers subscribe to the Company's services for an initial setup fee plus
a fixed monthly fee. The Company's contracts with its customers are generally
based on a one-year term with renewal periods. The minimum first-year
commitment is $62,000 consisting of an installation fee of $6,000 per month
for the first two months of service and a recurring fee of $5,000 per month
for ten months. Service fees vary according to the services selected by the
customer. In fiscal 1998, the average new customer commitment for the first
year of service was $81,000. Installation fees are typically recognized as
revenue over the installation period, which is generally 60 days. The ongoing
monthly fees are billed one month in advance for the following month and
recognized as revenue when earned in the following month.
The Company has recently expanded and expects to continue to expand its
capacity significantly, sales and marketing activities and the development of
new services by making significant investments in new and existing Network
Security Centers. This subjects the Company to relatively large increments of
fixed expenses in advance of potential future revenues. As a result, the
Company has incurred and expects to incur substantially higher costs of
revenues during these periods. The Company has and anticipates that it will
continue to add customers over time to utilize this planned capacity
expansion. However, because its services are offered on a subscription basis
rather than for an up front fee, revenues from any additional customers
increase gradually. As a result, although the planned capacity expansion may
potentially increase the Company's revenue and profitability over the long
term, the Company experienced a decline in gross margin and an increase in net
loss in fiscal 1997 and expects to continue to experience significant net
losses on a quarterly and annual basis for the forseeable future, including a
decline in gross margin at least through fiscal 1999.
24
<PAGE>
Since the Company's inception, it has experienced operating losses and
negative cash flows from operations in each quarterly and annual period. As of
March 31, 1998, the Company had an accumulated deficit of approximately $12.7
million. The revenue and income potential of the Company's business and market
is unproven, and the Company's limited operating history makes an evaluation
of the Company and its prospects difficult. The Company and its prospects must
be considered in light of the risks, expenses and difficulties encountered by
companies in the new and rapidly evolving market for Internet system and
network management solutions. To address these risks, among other things, the
Company must market its brand name effectively, provide scaleable, reliable
and cost-effective services, continue to grow its infrastructure to
accommodate new Network Security Centers and increased bandwidth use of its
network, expand its channels of distribution, retain and motivate qualified
personnel and continue to respond to competitive developments. Failure of the
Company to achieve market acceptance of its services would have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will ever achieve
profitability on a quarterly or an annual basis or will sustain profitability
if achieved. See "Risk Factors--Limited Operating History; History of Losses."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
service revenues.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service revenues..................................... 100.0% 100.0% 100.0%
Cost of service revenues............................. 56.4 66.4 86.8
------ ------ ------
Gross margin......................................... 43.6 33.6 13.2
Operating expenses:
Sales and marketing................................ 71.0 49.3 38.1
Engineering and development........................ 6.4 4.4 7.1
General and administrative......................... 30.3 16.9 13.6
------ ------ ------
Total operating expenses......................... 107.7 70.6 58.8
------ ------ ------
Operating loss....................................... (64.1) (37.0) (45.6)
Interest expense, net................................ (5.2) (5.1) (4.2)
------ ------ ------
Net loss............................................. (69.3)% (42.1)% (49.8)%
====== ====== ======
</TABLE>
FISCAL YEARS ENDED MARCH 31, 1996, 1997 AND 1998
Service revenues. Service revenues consist of monthly fees for installation,
recurring services and, to a lesser extent, one-time fees for management and
consulting services such as security audits. The Company's service revenues
increased 150% from $2.5 million in fiscal 1996 to $6.3 million in fiscal 1997
and increased an additional 80% to $11.3 million in fiscal 1998. The growth in
the Company's service revenues over this period resulted primarily from an
increase in the number of customers and to a lesser extent from increases in
the number of service offerings and in service revenues per customer. To date,
a substantial majority of the Company's revenues have been derived from its
secure access, gateway and hosting services.
Cost of service revenues. The Company's cost of service revenues is
comprised primarily of the Company's costs for network bandwidth, equipment
costs and salaries and benefits for the Company's customer service and
operations personnel, including its network engineers, backbone engineers,
network management and systems and installation personnel. Network bandwidth
consists of costs for access to and use of third-party communications
networks.
25
<PAGE>
Cost of service revenues increased from $1.4 million in fiscal 1996 to $4.2
million in fiscal 1997 and to $9.8 million in fiscal 1998. The Company's cost
of service revenues as a percentage of service revenues increased from 56.4%
in fiscal 1996 to 66.4% in fiscal 1997, and to 86.8% in fiscal 1998. The
increases in cost of service revenues in absolute dollars and as a percentage
of service revenues were due to increased costs associated with the build-out
and operation of the Company's Network Security Centers, including increased
costs for its network bandwidth, equipment costs and salaries and benefits for
its customer service and operations personnel. As discussed above, the Company
expects cost of service revenues to increase on an absolute basis and as a
percentage of revenues at least through fiscal 1999 as a result of the planned
expansion of the Company's Network Security Centers.
Sales and marketing. The Company's marketing and sales expenses are
comprised primarily of salaries, commissions and benefits for the Company's
marketing and sales personnel and marketing expenses for items such as trade
shows and product literature. The Company's sales and marketing expenses
increased from $1.8 million in fiscal 1996 to $3.1 million in fiscal 1997 and
to $4.3 million in fiscal 1998. These increases were primarily the result of
hiring additional marketing and sales personnel and expanding marketing
programs in connection with the Company's expansion of its operations. The
Company expects that marketing and sales expenses will continue to increase in
absolute dollars but may begin to decline as a percentage of total revenues to
the extent recurring revenues from current customers, which tend to have lower
marketing and sales expenses, increase as a percentage of total revenues.
Engineering and development. The Company's engineering and development
expenses are comprised primarily of salaries and benefits for its engineering
and development personnel and fees paid to consultants. These individuals work
on day-to-day security operations, development of new processes and
methodologies, and integration of best-of-breed components into the Company's
secure operating environment. The Company's engineering and development
expenses increased from $162,000 in fiscal 1996 to $275,000 in fiscal 1997 and
to $798,000 in fiscal 1998. The Company's security and services development
expenses grew between the comparison periods primarily due to the addition of
engineering personnel required to support the Company's expanded service
offerings. The Company expects that engineering and development expenses will
continue to increase in absolute dollars as the Company makes additional
investments in developing its secure electronic commerce services.
General and administrative. The Company's general and administrative
expenses are comprised primarily of salaries and benefits for the Company's
general management and administrative personnel as well as fees paid for
professional services. The Company's general and administrative expenses
increased from $766,000 in fiscal 1996 to $1.1 million in fiscal 1997 and to
$1.6 million in fiscal 1998. These increases were primarily the result of
increased hiring of general and administrative personnel, and costs for
consultants and professional services providers. These increased expenses
reflected the Company's need for additional general and administrative
personnel to handle the expansion of the Company's operations. General and
administrative costs are expected to increase significantly in absolute
dollars to the extent the Company expands its operations and as a result of
costs associated with being a public company.
Interest expense, net. The Company's net interest expense increased from
$131,000 in fiscal 1996 to $323,000 in fiscal 1997 and to $471,000 in fiscal
1998. The increases in net interest expense between the comparison periods
were primarily the result of increased borrowings as the Company entered into
equipment loans and lease agreements to finance the construction of its
Network Security Centers.
26
<PAGE>
Income Tax Benefit. There has been no provision for income taxes in fiscal
1996, 1997 and 1998 due to the Company's net losses. As of March 31, 1998, the
Company has approximately $9.5 million of operating loss carryforwards for
federal tax purposes. These expire at various periods through the year 2012.
Because of the uncertainties surrounding the Company's ability to utilize
those tax losses in future periods, the Company does not carry a corresponding
net tax asset in its financial statements.
Net Loss Attributable to Common Stockholders. Net loss per share reflects a
charge for accretion on redeemable convertible preferred stock of $263,000 in
fiscal 1996, $478,000 in fiscal 1997 and $1,069,000 in fiscal 1998. The
Company will no longer record a charge for accretion on redeemable convertible
preferred stock upon conversion of all outstanding Preferred Stock of the
Company at the closing of this Offering.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data of the Company for each of the four quarters in the year ended March 31,
1998, as well as such data expressed as a percentage of the Company's net
revenues for the quarters presented. This information has been derived from
the Company's unaudited financial statements, which, in management's opinion,
have been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information
for the quarters presented. This information should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this
Prospectus. The operating results in any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998
-------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service revenues........ $2,461 $ 2,774 $ 2,977 $ 3,105
Cost of service
revenues............... 1,745 2,290 2,623 3,167
------ ------- ------- -------
Gross margin............ 716 484 354 (62)
Operating expenses:
Sales and marketing.... 867 850 1,082 1,507
Engineering and
development........... 143 184 243 229
General and
administrative........ 341 390 435 385
------ ------- ------- -------
Operating expenses..... 1,351 1,424 1,760 2,121
------ ------- ------- -------
Operating loss.......... (635) (940) (1,406) (2,183)
Interest expense, net... (83) (94) (145) (149)
------ ------- ------- -------
Net loss................ $ (718) $(1,034) $(1,551) $(2,332)
====== ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF SERVICE REVENUES
----------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Service revenues........ 100.0% 100.0% 100.0% 100.0%
Cost of service
revenues............... 70.9 82.6 88.1 102.0
------ ------- ------- -------
Gross margin............ 29.1 17.4 11.9 (2.0)
Operating expenses:
Sales and marketing.... 35.3 30.6 36.3 48.5
Engineering and
development........... 5.7 6.6 8.2 7.4
General and
administrative........ 13.9 14.1 14.6 12.4
------ ------- ------- -------
Operating expenses..... 54.9 51.3 59.1 68.3
------ ------- ------- -------
Operating loss.......... (25.8) (33.9) (47.2) (70.3)
Interest expense net.... (3.4) (3.4) (4.9) (4.8)
------ ------- ------- -------
Net loss................ (29.2)% (37.3)% (52.1)% (75.1)%
====== ======= ======= =======
</TABLE>
Service revenues. The Company's revenues increased sequentially each
quarter. This growth in revenues resulted primarily from increases in the
number of customers and to a lesser extent increases in the number of service
offerings and in revenues per customer.
Cost of service revenues. The Company's cost of service revenues increased
in absolute dollars and as a percentage of revenues sequentially each quarter.
These increases in cost of service revenues in absolute dollars and as a
percentage of service revenues were primarily the result of costs associated
with expanding the Company's network to provide both broader geographic
coverage as well as increased types of services. Additionally, the Company
incurred higher than usual expenses in the quarter ended March 31, 1998 due to
the conversion of its
28
<PAGE>
backbone network from a "frame relay" network to an ATM network. This new
protocol will allow the Company to more efficiently and cost effectively
expand its communications bandwidth. The Company expects that its cost of
service revenues as a percentage of service revenues may remain above 100%
through at least fiscal 1999.
Sales and marketing. Sales and marketing expenses as a percentage of total
revenues fluctuated from quarter to quarter primarily due to increases in
personnel, the timing of sales compensation and the timing of promotional
activities. The increase in sales and marketing expenses in the two quarters
ended March 31, 1998 is largely the result of increasing sales and marketing
personnel from 17 to 30 p eople during that period.
Engineering and development. Engineering and development expenses have
increased in absolute dollars and as a percentage of revenue as a result of
continuing efforts to develop new security methodologies, integrate and
enhance best-of-breed third-party technologies to support the Company's
security and add new service offerings.
General and administrative. General and administrative expenses have
increased primarily as a result of additional personnel, recruiting fees and
consulting costs. The Company expects that general and administrative expenses
will continue to increase in absolute dollars.
DEFERRED COMPENSATION EXPENSE
In fiscal 1998, the Company recorded aggregate deferred stock compensation
of $1.1 million in connection with stock options granted during that period.
This deferred compensation is generally being amortized over 48 months in an
accelerated manner consistent with Financial Accounting Standards Board (FASB)
Interpretation No. 28. The Company recognized approximately $164,000 in
deferred stock compensation expense in fiscal 1998.
In addition, the Company will record an additional $2.2 million of deferred
stock compensation in connection with stock options granted after March 31,
1998. The Company expects total amortization of approximately $1.5 million
during fiscal 1999, $899,000 during fiscal 2000, $478,000 during fiscal 2001
and $204,000 during fiscal 2002 as a result of deferred compensation expense
recorded in fiscal 1998 and the first quarter of fiscal 1999. These
amortization amounts will be allocated to cost of service revenues, sales and
marketing, engineering and development and general and administrative costs
based on the applicable job function of each optionee. See Note 5 of Notes to
Financial Statements.
FACTORS AFFECTING RESULTS OF OPERATIONS
The Company derives revenue from its customers primarily through initial set
up fees and ongoing monthly service charges. For each new customer, the
Company must incur costs in anticipation of the customer's decision to use the
Company's services and in advance of the receipt of sufficient revenues to
repay these costs and provide a return on the Company's investment. As a
result, a relatively large portion of the Company's expenditures are fixed in
the short term, and the Company's success is substantially dependent on the
continuous growth in its customer base and the retention of its customers for
sufficient periods to provide returns on the Company's expenditures. The
Company's customers generally enter into one year contracts with the Company,
with renewal periods, and there can be no assurance that the Company's
customers will maintain or renew their commitments to use the Company's
services. The Company typically experiences a lengthy sales cycle for its
services, particularly given the importance to customers of adequately
securing Internet connectivity for electronic commerce and the need to educate
them regarding the requirements for effective network security. Any change in
the sales cycle for the Company's services, particularly as the Company
expands its
29
<PAGE>
customer base, could have a significant impact on the Company's periodic
results of operations. Changes in the rate of growth in the Company's customer
base and the customer renewal rates have caused, and are expected to continue
to cause, significant fluctuations in the Company's results of operations on a
quarterly and an annual basis.
The Company expects to continue to experience significant fluctuations in
its future quarterly and annual results of operations due to a variety of
factors, many of which are outside the Company's control, including: demand
for and market acceptance of the Company's services and enhancements; the
timing of customer installations; provisions for customer discounts and
credits; the mix of services sold by the Company; introductions of services or
enhancements by the Company and its competitors; the length of sales cycles;
customer retention; the timing and success of marketing efforts and service
introductions by the Company; the timely expansion of existing Network
Security Centers and completion of new Network Security Centers; the timing
and magnitude of capital expenditures, including construction costs relating
to the expansion of operations; capacity utilization of its Network Security
Centers; the introduction by third parties of new security, Internet and
networking technologies; increased competition in the Company's markets;
changes in the pricing policies of the Company and its competitors; reliable
security, continuity of service and network availability; the ability to
increase bandwidth as necessary; fluctuations in bandwidth used by customers
and fluctuations in the cost of such bandwidth; the retention of key
personnel; economic conditions specific to the Internet and Internet security
industries; and other general economic factors. In addition, although the
Company has not encountered significant difficulties in collecting upon
accounts receivable in the past, there can be no assurance that the Company
will be able to collect receivables on a timely basis.
For these and other reasons, in some future quarters, the Company's results
of operations may fall below the expectations of securities analysts or
investors, which could have a material adverse effect on the market price of
the Company's Common Stock. See "--Risks of Business Expansion and Management
of Growth" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The market for security monitoring, detection and defense services in
general is new and rapidly evolving. Growth of this market will depend, in
large part, upon the public recognition of the potential threat posed by
computer attackers and other unauthorized users, the increased use of the
Internet and corporate intranets for electronic commerce and business
communications, the ability of network infrastructures to support an
increasing number of users and services, and the continued development of new
and improved services for implementation across the Internet and between the
Internet and corporate intranets. If the necessary network infrastructure or
complementary products and services are not developed in a timely manner and,
consequently, the market for network security solutions fails to grow or grows
more slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially and adversely
affected. Moreover, to date, most businesses have purchased and managed their
own network security solutions and have not sought to outsource network
security to a third party service provider. As a result, customer acceptance
of outsourcing network security services is extremely limited. The Company has
spent, and intends to continue to spend, considerable resources educating
potential customers about the value of outsourcing services provided by the
Company. To date, the Company has experienced lengthy sales cycles for its
services. There can be no assurance that such expenditures will increase
market acceptance of the Company's services, or that such sales cycles will
shorten. If the market for such services fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially and adversely affected.
See "Risk Factors--Competition."
30
<PAGE>
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements. The Company has established procedures for evaluating and
managing the risks and costs associated with this problem and believes that
its computer systems are currently Year 2000 compliant. However, many of the
Company's customers maintain their Internet operations on commercially
available operating systems, which may be impacted by Year 2000 complications.
In addition, the Company relies on third party vendors for certain equipment
and software included within the Company's services which may not be Year 2000
compliant. The Company is in the early stages of conducting an audit of its
third-party suppliers as to the Year 2000 compliance of their systems. The
Company does not believe it will incur significant incremental costs in order
to comply with Year 2000 requirements. However, failure of the Company's
internal computer systems or of such third-party equipment or software, or of
systems maintained by the Company's suppliers, to operate properly with regard
to the Year 2000 and thereafter could require the Company to incur significant
unanticipated expenses to remedy any problems and could have a material
adverse effect on the Company's customers, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of capital stock totaling $10.4 million and through various
types of equipment loans and lease lines and working capital lines of credit.
At March 31, 1998, the principal source of liquidity for the Company was $1.4
million of cash and cash equivalents.
As of March 31, 1998, the Company also had a $3.0 million equipment line of
credit and lease facility with Transamerica Business Credit Corporation with
interest rates of approximately 14.5% and an available balance of $0.5
million. In April 1998, the Company increased the facility by $5.0 million, of
which $2.0 million became immediately available to the Company. In May 1998,
the Company obtained a $1.5 million working capital line of credit with
Transamerica Business Credit Corporation with a minimum interest rate of 11%.
As of May 30, 1998, the Company had borrowed an aggregate of $6.0 million
under these lines of credit and lease facilities. See Note 6 of Notes to
Financial Statements.
Since the Company began to offer its services in 1993, the Company has
experienced significant negative cash flows from operating activities. Net
cash used for operating activities was $806,000, $511,000 and $1.9 million in
fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Net cash used for
operating activities in each of these periods was primarily the result of net
losses, and to a lesser extent increases in trade receivables, offset in part
by increases in depreciation and amortization, accounts payable and accrued
expenses. Net cash used for investing activities was $597,000, $651,000 and
$1.5 million in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Net
cash used for investing activities in these periods was almost entirely the
result of capital expenditures for the construction of Network Security
Centers, leasehold improvements, furniture and fixtures, and computers and
other equipment.
Net cash provided by financing activities in fiscal 1996, fiscal 1997 and
fiscal 1998 was $675,000, $3.8 million and $1.8 million, respectively. Of
these amounts, $903,000, $4.5 million and $3.0 million in fiscal 1996, fiscal
1997 and fiscal 1998, respectively, resulted from the issuance of preferred
stock, net of issuance costs and related warrants.
31
<PAGE>
The Company's capital expenditures for fiscal 1998 were approximately $4.8
million. The Company plans to incur substantial additional capital
expenditures, primarily for additions to and expansions of its Network
Security Centers. Assuming the conversion of the Company's Redeemable
Preferred Stock, as of March 31, 1998 the Company's aggregate payment
commitments under bank borrowings, debt and capital lease obligations, and
noncancelable operating leases were $3.3 million, $3.0 million, $2.0 million
and $1.1 million in fiscal 1999, fiscal 2000, fiscal 2001 and fiscal 2002,
respectively.
The Company believes that the net proceeds from this offering, together with
existing cash balances, anticipated cash flows from operations and anticipated
borrowings to finance a portion of its capital expenditures, should be
sufficient to meet its capital requirements for at least the next 12 months.
However, there can be no assurance that the Company will be successful in
generating anticipated levels of cash from operations or borrowings. If the
Company is unable to generate sufficient cash flow from operations or
additional borrowings, it may be required to sell assets, scale down its
operations and expansion plans, refinance all or a portion of its existing
indebtedness or obtain other sources of financing earlier than planned, any of
which could have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that any such
refinancing would be available on commercially reasonable terms, or at all, or
that any other financing could be obtained. See "Use of Proceeds" and Notes 3
and 6 of Notes to Financial Statements.
32
<PAGE>
BUSINESS
Pilot is the leading provider of comprehensive security services that
incorporate high-bandwidth connectivity and enable secure electronic commerce
over the Internet. The Company provides a broad range of security services for
a fixed monthly fee on an annual subscription-basis, including secure access
and gateway services, secure hosting and electronic commerce services and
secure extranet and virtual private networking services. The Company offers a
scalable solution that enables customers to quickly deploy and expand
electronic commerce capabilities by subscribing to Pilot's secure Internet
services.
Pilot's subscription-based secure Internet services allow customers to avoid
the risks associated with traditional approaches to Internet security.
Customers can also avoid extensive costs associated with implementing an in-
house solution, including set-up costs for security and systems design,
hardware, software, ISP services and labor, and ongoing costs for
telecommunications, staffing, maintenance and upgrades.
The foundation of Pilot's solution is its Dynamic Security Infrastructure,
consisting of a multi-layered defensive architecture and around-the-clock
security operations delivered through geographically dispersed Network
Security Centers. This infrastructure allows Pilot to continuously manage and
monitor Internet traffic to and from customer networks in order to respond in
real-time to security threats. The Pilot solution aggregates the experience
gained from protecting each customer against attacks and leverages such
experience for the collective benefit of all customers. The Dynamic Security
Infrastructure offers benefits over other security approaches by eliminating
single points of failure, enhancing attack detection, delivering real-time
defenses, and adapting continuously to external conditions. Customers can
concentrate on their core business because the secure infrastructure for
electronic commerce is provided by Pilot.
INDUSTRY BACKGROUND
Over the past several years, the Internet has become an increasingly
important means of communications. International Data Corporation (IDC)
estimates that the number of World Wide Web ("Web") users was approximately 69
million at the end of 1997 and will grow to 320 million users by the end of
2002. The explosive growth of the Internet is being driven not only by its
global reach, easy accessibility and use of open standards, but also by its
promise to greatly improve the cost efficiency and quality of communications.
To date, Internet growth has been fueled primarily by the use of general
applications such as electronic mail, chat and Web browsing. The Internet's
potential for more cost-efficient and higher quality communications has made
it an increasingly attractive platform for complex business applications such
as marketing and sales, contract negotiations and customer support. As a
result, an increasing number of businesses seek to use the Internet as a means
for extending their traditional business activities. In fact, a recent IDC
study indicated that 60% of businesses surveyed intend to deliver products or
services over the Internet at some point in the future. Business activities
over the Internet involve not only commercial transactions, but also general
business communications. These communications include running mission-critical
applications across geographically dispersed facilities, exchanging highly
sensitive information and linking customers, remote employees and business
partners in extended business networks.
These business activities have become known as electronic commerce. Use of
the Internet for electronic commerce is expected to grow substantially. For
example, IDC estimates that the value of electronic commerce will grow from
$12 billion in 1997 to $426 billion in 2002.
33
<PAGE>
Despite the advantages of conducting business on the Internet, lack of
Internet security is a significant inhibitor to the adoption and growth of
electronic commerce. The Internet is inherently vulnerable to security
breaches due to its easy accessibility, use of open standards and lack of
centralized management. As the Internet has developed into an increasingly
complex computing environment with multiple hardware, operating systems,
networking protocols and applications supplied by different vendors, it has
become even more vulnerable to security breaches. According to a nationwide
survey by the FBI and the Computer Security Institute, attacks on businesses
by computer "attackers" are estimated to take place every 20 seconds. Although
losses due to computer crime and security breaches are difficult to estimate,
independent industry sources estimate such losses were between $3 billion and
$5 billion in 1997. These intrusions draw unwelcome attention from the press
and financial community. As a result of security concerns, businesses are
investing substantial amounts of money in security technology. According to
market research firm INPUT, the total worldwide market for firewall software
and services alone is predicted to grow from $1.1 billion in 1995 to $16.2
billion in 2000.
Limitations of Existing Security Approaches
To date, much of the investment in security technology has been directed to
"point" products specifically designed to address only a single aspect of
Internet security. Perhaps the most widely used point product is the firewall,
which provides a barrier between a company and the Internet. Although there
are dozens of commercially available firewall software packages, they are
often difficult to install and must be configured and constantly maintained by
skilled personnel. Other popular point product technologies include encryption
(which protects information during transmission) and access security
mechanisms (such as user authentication and passwords). There are more than 15
different point products that companies can purchase and integrate to enhance
security.
However, even if all of these technologies are properly implemented, it is
often still possible for computer attackers to successfully breach security.
For example, in a 1995 study conducted by the FBI and the Computer Security
Institute, 30 percent of all reported successful break-ins involving the
Internet took place despite the presence of a firewall. This is possible
largely because point products typically provide only a static, single point
of defense which can fail if computer attackers find new loopholes to exploit.
Point products also suffer from being difficult to integrate and manage as a
single solution because they are generally developed by different vendors.
Finally, even if companies are successful in installing an integrated set of
point products, maintaining them requires companies to continuously invest in
updating current versions and training its security administrators.
To mitigate this complexity, some vendors have combined multiple point
products in an effort to provide more integrated product offerings. However,
customers using these products are often forced to make a trade-off between
selecting the best-of-breed products regardless of vendor, or installing a set
of point products that are integrated but not best-of-breed. Moreover, neither
stand-alone nor integrated product offerings address the inherent limitations
of static approaches, which do not evolve rapidly in response to the
increasing sophistication of attackers, the evolution of networks and the
increasing complexity and value of Internet applications. Fundamentally, such
offerings fail to effectively address security as a process, which is
characterized by the need to evolve with and respond rapidly to a continuously
changing network environment.
To address these concerns, some companies have outsourced the management of
their Internet security infrastructure to Internet Service Providers (ISPs)
and Web hosting
34
<PAGE>
services. However, ISPs and Web hosting services have traditionally focused on
providing high-bandwidth access and Web design services and have generally
addressed security concerns secondarily, if at all, through outsourced
administration of point product offerings.
THE PILOT SOLUTION
Pilot offers services designed to combine the highest level of commercially
available security with high bandwidth connectivity to enable secure
electronic commerce over the Internet. The foundation of Pilot's solution is
its Dynamic Security Infrastructure, consisting of a multi-layered defensive
architecture and security operations 24 hours a day, 7 days a week (24x7)
delivered through geographically dispersed Network Security Centers. This
infrastructure allows Pilot to continuously manage and monitor Internet
traffic to and from customer networks in order to respond in real-time to
security threats. The Pilot solution aggregates the experience gained from
protecting each customer against attacks and leverages such experience for the
collective benefit of all customers. As illustrated below, the Dynamic
Security Infrastructure offers benefits over other security approaches by
eliminating single points of failure, enhancing attack detection, delivering
real-time defenses, and adapting continuously to external conditions.
Pilot provides a broad range of security services for a fixed monthly fee on
an annual subscription basis, including secure access and gateway services,
secure hosting and electronic commerce services, and secure extranet and
virtual private networking services. The Company offers a scalable solution
that enables customers to quickly deploy and expand electronic commerce
capabilities by subscribing to Pilot's secure Internet services. As a result,
companies avoid costs associated with implementing an in-house solution,
including set-up costs for security and systems design, hardware, software,
ISP services and labor, and ongoing costs for telecommunications, staffing,
maintenance and upgrades. Pilot's services enable customers to concentrate on
their core business because the secure infrastructure for electronic commerce
is provided by Pilot.
[LOGO APPEARS HERE]
35
<PAGE>
STRATEGY
The Company's strategy is to become the leading supplier of secure
electronic commerce services for businesses worldwide. Key elements of the
Company's strategy include:
Maintain Leadership in Security and Electronic Commerce Services. Pilot
intends to maintain and enhance its technological leadership in security and
electronic commerce services. Pilot's Dynamic Security Infrastructure is the
first dynamic, multi-layered service with built-in security for corporate
Internet protection against computer attackers. It consists of proprietary
security processes incorporating third-party best-of-breed components. To
improve and upgrade its Dynamic Security Infrastructure the Company
continuously develops new software, methodologies and approaches, and
evaluates new security technologies. The Company intends to hire additional
network and Internet security experts to expand its database of security
knowledge and experience, and continue to invest in new electronic commerce
services.
Strengthen Marketing and Distribution Channels Through Strategic
Relationships. Pilot intends to expand the marketing and distribution of its
service offerings by pursuing strategic relationships with systems integrators
and consultants. The Company has established a strategic marketing
relationship with Arthur Andersen LLP ("Arthur Andersen") and is expanding its
relationship with GE Capital Information Technology Solutions, Inc. ("GE
Capital ITS"). In addition, the Company has engaged in joint-marketing
activities with many of its vendors, such as Sun Microsystems and Cisco
Systems. The Company also intends to build relationships with other market
leaders, such as telecommunications carriers, that can benefit from and
leverage its secure communications infrastructure.
Expand Global Presence. Pilot's mission is to make its service offerings
available on a global scale. The Company's services are currently offered
nationwide through Network Security Centers located in the San Francisco, Los
Angeles, New York and Chicago metropolitan areas. Pilot plans to expand its
Network Security Centers both nationally and internationally. Pilot is
commencing operations at Network Security Centers in the Boston, Minneapolis,
Washington, D.C. and London metropolitan areas during 1998. An important
element of Pilot's international expansion strategy is forming strategic
partnerships with companies which have established marketing and distribution
infrastructures in foreign markets, including systems integrators and
telecommunications carriers.
Offer Emerging Secure Electronic Commerce Services. Pilot's proprietary
Dynamic Security Infrastructure establishes a secure platform for electronic
commerce and business communications. Pilot plans to expand its offering of
electronic commerce services to include broad market applications that
leverage its secure network, such as electronic data interchange (EDI), secure
messaging, payment processing, bill presentment, electronic wallets,
micropayments and public key infrastructure (PKI) management, and specialized
vertical market applications in the transportation, financial services,
consumer, entertainment, and high-tech industries. Pilot plans to offer these
applications through continued enhancement of its core network and security
service offerings as well as through partnering with best-of-breed vendors.
SERVICES
The Company offers three categories of services: secure access and gateway
services; secure hosting and electronic commerce services; and secure extranet
and virtual private networking services. Customers subscribe to the Company's
services for an initial installation fee and a fixed monthly fee. The
Company's contracts with its customers are generally based on a one-year term
with renewal periods. Service fees vary according to the services selected
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<PAGE>
by the customer. The minimum first-year commitment is $62,000 consisting of
installation fees of $6,000 in each of the first two months of service
followed by a recurring fee of $5,000 per month for ten months. In fiscal
1998, the average new customer first-year commitment was $81,000.
Secure Access and Gateway Services. The Company provides secure access and
gateway services that enable secure connectivity between a corporate network
and the Internet. Services range from secure access to electronic mail
gateways and Web servers to custom electronic commerce offerings.
- --------------------------------------------------------------------------------
Secure Internet Provides continuously monitored, secure
Services connectivity between an enterprise network and the
Internet at speeds of T-1 (1.5Mbps) to T-3
(45Mbps). These services include telecommunications
connectivity, selected gateway services and custom
security policy configuration to protect a
customer's internal network from unauthorized
access from the Internet.
- -------------------------------------------------------------------------------
Authentication Provides user and network device authentication,
Services including options for hardware-based token
authentication, Web traffic filtering or reporting
and virus scanning.
- -------------------------------------------------------------------------------
Secure Telecommuting Enables secure, high-performance telecommuting
Services between a remote user in a fixed-location and an
enterprise network.
- -------------------------------------------------------------------------------
Auxiliary Services Includes options for back-up communications and for
defining security zones within an enterprise
network.
- --------------------------------------------------------------------------------
Secure Hosting and Electronic Commerce Services. The Company provides secure
hosting and electronic commerce services that combine high-throughput data
transmission (10Mbps and higher) and comprehensive host security.
- --------------------------------------------------------------------------------
Secure Hosting Includes hosting of FTP, World Wide Web and News
Services servers at Pilot's Network Security Centers.
Industry-standard hardware and software for these
services are dedicated to individual customers.
- -------------------------------------------------------------------------------
Secure Commerce Web Provides a secure operating system and network
infrastructure for Web-based and electronic
commerce applications. Dedicated Internet
bandwidth, extra database protection, and
monitoring software enable mission-critical systems
deployment.
- -------------------------------------------------------------------------------
Secure Flex Web Provides a secure network infrastructure for Web-
based and electronic commerce applications,
allowing customers to physically maintain some or
all of their application/Web servers at a Pilot
Network Security Center while retaining the ability
to directly maintain and manage the servers from
their location over a secure link. The Company
supports Windows NT and UNIX-based Internet
applications.
- --------------------------------------------------------------------------------
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<PAGE>
Secure Extranet and Virtual Private Network Services. The Company provides
secure extranet and virtual private network services that combine integrated
security and bandwidth to enable remote users or networks to communicate with
a local network. These services include encryption, authentication and access
control technologies to protect both the information in transit as well as the
security of the network.
- --------------------------------------------------------------------------------
Secure Road Warrior Provides authenticated, encrypted access to
internal networks over the Internet, for mobile
employees or business partners. This service cost-
effectively supports connectivity over any Internet
connection worldwide and protects against
eavesdropping and unauthorized access.
- -------------------------------------------------------------------------------
Corporate Partner Allows secure network-to-network worldwide
Privacy connectivity between a customer's enterprise
network and networks of business partners,
subsidiaries or branch offices.
- --------------------------------------------------------------------------------
See "Risk Factors--Risks Associated with the Emerging Market for Outsourced
Network Security Services."
PILOT DYNAMIC SECURITY INFRASTRUCTURE
The Pilot Dynamic Security Infrastructure consists of a multi-layered
defensive architecture, and 24x7 security operations provided through
geographically dispersed Network Security Centers.
Proprietary Architecture
Proprietary Security Processes. The Company has developed a set of
technology-based processes, including secure networking, a layered defense,
real-time data collection and analysis, and a feedback loop that continuously
updates a database of security threats and responses. ISPs typically permit
all traffic that is not explicitly restricted, while Pilot's secure network
blocks all traffic that is not explicitly permitted, greatly reducing the risk
of an attack. Legitimate inbound traffic from the Internet passes through a
number of increasingly protective defensive layers on its way to a customer.
Each layer provides a different type of protection, and combined, these layers
implement customer-specific security policies. This layered defense gives the
Company time to detect, analyze, plan and defend, thereby reducing the
probability of and minimizing the potential damage from an attack. Data
collection and analysis processes include security logging, monitoring and
analysis and authentication. The data from these processes is then analyzed by
proprietary software that applies policy rules and statistical analysis to
identify patterns which could signal an attack in progress. This data along
with ongoing research into current attack methods is continuously used to
update the Company's defense databases and processes, resulting in a system
that learns from its experiences and adapts defenses to respond to emerging
attack techniques. This process allows the Company to aggregate the experience
gained from protecting each individual customer and leverage such experience
for the collective benefit of all customers.
Multi-Layered, Distributed Architecture. Pilot's multi-layered defense
distributes specific functions across separate devices. This adds ISOLATION,
in which the breach of one device does not compromise another; DETECTABILITY,
in which the time required to attack (and the time available to detect an
attack) is increased; and PERFORMANCE, in which the performance and
measurability of each device can be tailored for its particular purpose. In
contrast, a traditional firewall software package requires many services, such
as electronic mail, telnet, DNS, and FTP,
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<PAGE>
to pass through a single device. This complexity makes it difficult to rule
out inadvertant interactions between one type of service and another within
the same device. Pilot's distributed defense eliminates these interactions and
simplifies attack detection by distributing each function across separate
devices. In addition, the Company continuously evaluates new technologies to
ensure that it incorporates best-of-breed hardware and software into its
infrastructure.
Security Operations
Trained Security Personnel. Pilot's security team includes expert engineers
with significant security experience. The Security Team consists of four
groups: (i) Security Operations, which handles the day-to-day management of
the Pilot Dynamic Security Infrastructure, manages incident investigation and
response, and applies standard procedures regarding changes to Pilot's systems
and services, (ii) Security Engineering, which is responsible for incident
analysis and escalation, attack pattern research, defense design, and service
extension, as well as the creation of new automated methodologies, (iii)
Security Infrastructure, which is responsible for the acquisition and
maintenance of security tools and the development of internal tools, and (iv)
the New Services Group, which incorporates Pilot's security processes into new
services introduced to customers.
Dynamic 24x7 Monitoring and Management. The Pilot Dynamic Security
Infrastructure provides a flexible, dynamic and rapid response capability, 24
hours per day, seven days per week, through its Security Team and the
monitoring and management methods illustrated below. All systems within the
Pilot Dynamic Security Infrastructure log their status and activities in
detail. Using sophisticated display and analysis packages developed by Pilot,
the Security Team detects and stores patterns indicative of an attack and
blocks attackers from further attempts. Patterns of actual and potential
attacks are collected in a centralized security database. Pilot's monitoring
and management methods allow it to protect customers by blocking new attacks
on a real-time basis and rapidly adapting and automating its security
defenses.
[CHART APPEARS HERE]
[Chart shows an arrow representing data moving out of a gray symbol of the
Internet through a clear cloud representing the Pilot Security Network. It
passes from the cloud through symbols of Log Servers, Analysis Servers, a
Security Database and finally travels through symbols of Security Engineers
performing Monitoring and Management functions before traveling back through the
Pilot Security Network to a symbol of the Company's customers.]
Third-Party Audits. Pilot regularly engages independent third-party security
experts to audit its Dynamic Security Infrastructure. Such auditors prepare a
detailed technical report for Pilot's internal use, and an executive summary
available to Pilot's current and potential customers. The most recent audit
was conducted by Trident Data Systems in April 1998.
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<PAGE>
Network Infrastructure
Network Security Centers. The Company provides its services to customers by
connecting their networks to the Internet through its regional Network
Security Centers via dedicated, high-speed data lines. The Company currently
has Network Security Centers located in the San Francisco, Los Angeles, New
York and Chicago metropolitan areas. Pilot is commencing operations at Network
Security Centers in the Boston, Minneapolis, Washington D.C. and London
metropolitan areas during 1998. Each Network Security Center establishes
interconnections with other global and local Internet service providers. The
Company currently connects directly to the Internet at four major network
access points: Pacific Bell and Palo Alto Exchange in Northern California;
Sprint in New York; and Ameritech in Chicago. The Company also maintains
private connections from each Network Security Center to MCI and Sprint and
from two centers to UUNET. Each Network Security Center is also connected to
Pilot's Secure Asynchronous Transfer Mode (ATM) Backbone. As a result,
customer connectivity to various Internet sites can be improved by routing
traffic through Pilot's Secure ATM Backbone in addition to direct Internet
interconnections.
The distributed design of the Company's architecture allows Pilot to scale
security and electronic commerce services relatively easily. Additional
servers, telecommunications capacity and Pilot services can easily be added to
meet customer demand. In the event of equipment failure, operations are
disrupted only for the components involved, and not across all services.
Because of Pilot's standardized operations, internal monitoring and backup
equipment, a failure can be detected and a replacement operation scheduled
rapidly, minimizing downtime. Each Network Security Center is staffed by
technical, sales and customer support personnel, and operates as a physically
secured facility for Pilot and customer equipment. Each Network Security
Center is constructed with high-availability power supplies, fire suppression,
computer cooling systems and braced racks.
Pilot Secure ATM Backbone. In addition to bandwidth management, the Pilot
Secure ATM Backbone is used for Pilot-specific traffic, such as security
management and monitoring, and customer-specific traffic, such as secured
traffic between multiple Pilot customers. Unlike backbone networks of most
other providers, this network blocks all traffic except for traffic that is
specifically allowed. The Pilot Secure ATM Backbone also supports a wide
variety of encryption options, so that traffic between customers can be
secured at multiple levels.
The operation and expansion of the Company's network infrastructure is
subject to a number of risks, including those set forth in "Risk Factors--
Risks Associated with Security Breaches," "--Risks of Business Expansion and
Management Growth," "--Risks of System Failure," "--Dependence Upon
Scalability of the Company's Network" and "--Dependence on Third-Party Network
Infrastructure Providers."
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<PAGE>
CUSTOMERS
The Company's customers span a diverse range of industries. The Company's
services are suitable for any organization building or maintaining Internet-
based connectivity for their networks or applications at or above the Company's
minimum bandwidth requirements. The following is a representative list of
customers who as of May 31, 1998 have entered into annual commitments to
purchase more than $50,000 of services from the Company. No single customer
accounted for more than 5% of the Company's total revenues for the year ended
March 31, 1998.
FINANCIAL AND HIGH-TECHNOLOGY CONSUMER, ENTERTAINMENT
PROFESSIONAL SERVICES EDUCATION AND MEDIA
Altera Corporation
American Medical Cogit Corporation American Stores Company
Association Computer Adaptive The Good Guys, Inc.
American Stock Technologies, Inc. Loyola Marymount
Exchange, Inc. E-Stamp, Inc. University
C.E. Unterberg, Towbin PeopleSoft, Inc. Playboy Enterprises,
Co. Xilinx, Inc. Inc.
First Data Corporation AVCOM Technologies, PR Newswire, Inc.
Gibson, Dunn & Crutcher Inc. Saban Entertainment,
LLP Inc.
Graham & James, LLP INDUSTRIAL AND 20th Century Fox, Inc.
Memorial Health MANUFACTURING Wilson Sporting Goods
Services Co.
Morrison & Foerster, Continental Grain Ziff-Davis Events
LLP Company
Shanley & Fisher, P.C. Global Marine, Inc.
Troop Meisinger Steuber JM Huber Corporation
& Pasich, LLP Kaiser Aluminum &
Chemical Corporation
Pacific Enterprises
(Southern California
Gas)
QST Industries, Inc.
PeopleSoft, Inc. PeopleSoft, Inc., a leading provider of enterprise
application software products, selected Pilot to provide secure, high-bandwidth
access between its worldwide network and the Internet. Network availability
requirements will become increasingly significant for PeopleSoft as its
products incorporate the Internet and use it for product demonstrations and
deployment. Pilot engineered the integration of high-speed fiber connections,
the associated routing and the security infrastructure components to create
secure Internet connections for PeopleSoft. Secure connectivity and Pilot's
ongoing security services enable PeopleSoft to protect its critical internal
engineering and business networks from electronic intruders.
E-Stamp, Inc. E-Stamp, Inc. is the first company to be granted permission by
the United States Postal Service (USPS) to field test an Internet postage
solution. E-Stamp's products and services give users with a PC, printer and
Internet access the ability to easily and securely purchase and print postage.
In 1997, E-Stamp selected Pilot to provide Internet security and connectivity
services for its ESTAMP.COM(TM) commerce servers. The Pilot solution for E-
Stamp incorporates several distinct security elements, including encryption and
authentication components, secure data replication services, telecommunications
connections, physical security, high-availability features and protection
against a number of denial-of-service attack techniques. Pilot helped E-Stamp
design its network infrastructure and worked with the USPS and other auditor
groups to ensure adherence to security requirements.
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<PAGE>
20th Century Fox, Inc. 20th Century Fox, Inc. ("Fox"), a division of News
Corporation, is a leading media and entertainment enterprise. Pilot provides a
variety of electronic commerce and secure access services to Fox. Since 1995,
Fox has used Pilot's secure Internet services to connect its internal networks
to the Internet. More recently, Pilot has provided hosting services for Web
sites associated with Fox's "The X-Files" television show (www.thex-files.com)
and "Titanic" motion picture (www.titanicmovie.com). These sites are
particularly vulnerable to electronic attack due to their content and high
traffic levels. For example, the site for "Titanic" initially received an
average load of several million hits per day, with an immediate 50% increase
in the week following the Academy Awards. Fox selected Pilot to provide Web
hosting services because of Pilot's expertise both in securing high-profile
Web sites and in providing high-performance connectivity and availability.
PR Newswire, Inc. PR Newswire, Inc., a leading distributor of full-text news
to the media and financial communities, requires immediate, highly-reliable
information flow between its regional offices and to newsmakers, news media
and Internet news consumers. PR Newswire selected Pilot in early 1997 to
provide secure connectivity between its worldwide WAN and the Internet. More
recently, PR Newswire has had discussions with Pilot regarding the addition of
independent connections from multiple cities to Pilot's backbone, in order to
establish a high bandwidth, high performance, secure virtual private network.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company's sales, marketing, and customer support efforts are designed to
achieve broad market penetration by targeting enterprises that depend upon the
Internet for electronic commerce and business communications. The Company also
intends to build a recurring revenue base from such enterprises by continuing
to provide value-added services and through active account management.
As of March 31, 1998, the Company had 49 employees in sales, marketing, and
customer support. The Company's sales force is organized into separate groups
consisting of field sales (account generation), strategic accounts (account
retention and expansion), partnerships and alliances (channel and OEM sales),
and telesales. Each of these groups is further divided into geographical
regions within the United States. The Company's sales, marketing and customer
support employees are located at the Company's headquarters in Alameda,
California, and in most of the Company's other Network Security Centers.
To date, most of the Company's sales have been derived directly through the
efforts of its sales force. The Company is actively seeking to increase its
sales and marketing capabilities and coverage in the United States and to
expand internationally as new Network Security Centers are established outside
of the United States. See "Risk Factors--Risks of Business Expansion and
Management of Growth."
A key element of the Company's sales and marketing strategy is to strengthen
relationships with partners in order to generate an increasing percentage of
total sales through partners. The Company is building joint-marketing
relationships with strategic partners, such as Arthur Andersen and GE Capital
ITS, electronic commerce vendors, such as BroadVision, Open Market and
VeriSign, technology vendors such as Cisco Systems, Inc., Sun Microsystems,
Oracle Corporation, VPNet Technologies, IPass, and TrendMicro and selected
telecommunications partners. See "Risk Factors--Dependence on Other Third-
Party Relationships."
The Company's marketing organization is responsible for new service
introductions, public relations and marketing communications. New service
introductions include strategy, definition, pricing, competitive analysis,
launches, and partner program management. The Company
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<PAGE>
stimulates demand for its services through a broad range of marketing
communications and public relations activities, including co-marketing efforts
with the Company's marketing partners. Primary marketing communications
vehicles include Web banner and direct mail promotions, telemarketing, trade
shows and seminars, event sponsorship and management of the Company's Web
site. Public relations focuses on cultivating industry analyst and media
relationships with the goal of obtaining media coverage and public recognition
of the Company's leadership position in the market for secure electronic
commerce and business communications services.
The Company's account management and customer support organization provides
cross-functional teams for customers consisting of account management,
customer service and operations personnel. The Company regularly conducts
account reviews internally with customers to measure satisfaction. Pilot's
customer base provides revenue growth opportunities in the form of referrals,
recurring revenue, and new services. Customers generally enter into one year
contracts with the Company, with renewal periods. However, there can be no
assurance that the Company's customers will continue or renew their
commitments to use the Company's services.
STRATEGIC RELATIONSHIPS
The Company continues to establish strategic relationships with leading
firms which act as marketing partners, electronic commerce vendors, technology
vendors and telecommunications carriers.
Marketing Partners. The Company's marketing partners assist the Company in
introducing, marketing and selling the Company's services alongside their own
complementary services. The Company works with Arthur Andersen to identify and
develop mutual information security and electronic commerce opportunities. The
Company and Arthur Andersen executed several joint marketing programs between
June 1997 and June 1998, including fax and direct mail campaigns, seminars and
joint customer calls. In addition, the Company is expanding its relationship
with GE Capital ITS whereby GE Capital ITS will assist the Company in
marketing the Company's services to its corporate clients nationwide. GE
Capital ITS was formed in 1997 as a result of the acquisition of Ameridata,
Inc. by General Electric Capital Corporation, and resells information
technology products and services. Arthur Andersen and General Electric Capital
Corporation, the parent of GE Capital ITS, are also stockholders of the
Company, and certain General Electric business units are subscribers to the
Company's services. See "Certain Transactions."
Electronic Commerce Vendors. The Company is currently building relationships
with electronic commerce vendors, including BroadVision, Open Market and
VeriSign, that provide complementary technologies for assisting customers in
developing and deploying complete, high-performance electronic commerce
solutions. BroadVision and Open Market provide software applications for which
security, high availability, manageability and high performance are critical.
By focusing on a limited number of leading vendors, the Company builds
stronger technical and operational expertise with respect to these particular
technologies in order to provide better security and management services to
customers working with those vendors. The Company has mutual customers with
both BroadVision and Open Market and plans to engage in joint marketing and
cross-selling programs to these partners' customer and prospect bases. The
Company embeds digital certificates in its electronic commerce services to
provide increased data integrity and authentication. The generation and
distribution of these certificates is provided by VeriSign and included
transparently in the Company's services where appropriate.
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<PAGE>
Technology Vendors. The Company's technology vendors provide industry-
standard hardware, software or service components to the Company at favorable
prices with back-up support, which assists the Company in delivering its
services. In many cases the Company has executed or plans to execute co-
marketing or lead generation programs with these vendors. The Company's
principal technology vendors are Cisco Systems, Sun Microsystems, VPNet
Technologies, iPass, Oracle Corporation, Netscape Communications Corporation,
RSA Data Security and Trend Micro. The Company is a member of the "Cisco
Powered Network" branding program and carries the exclusive "innovator"
designation. Cisco Systems provides a market development fund consisting of a
portion of the Company's equipment spending with Cisco Systems to fund
marketing programs. In the fall of 1997, Cisco Systems, Pilot, and Arthur
Andersen conducted a six-city seminar program focused on electronic commerce
applications. Sun Microsystems provides hardware and system software for
internal operations and electronic commerce hosting services, and engages in
joint-marketing programs with the Company. The Company has engaged in close
technical development and joint-selling efforts with VPNet Technologies, a
leading developer of industry-standard, high-performance encryption hardware
and software, and iPass, a leading provider of Internet dial-up roaming
settlement services. The Company has entered into a relationship with Oracle
whereby Pilot can sublicense certain Oracle products to Pilot's electronic
commerce and hosting customers at discounted prices. The Company also uses
Oracle technology for security and ongoing operations tracking. Finally, the
Company employs certain products and support services from Netscape, RSA Data
Security and Trend Micro.
Telecommunications Carriers. Pilot intends to establish relationships with
telecommunications carriers to expand its service offerings, while providing
such carriers with value-added services. Because Pilot's secure Internet
access and gateway services and electronic commerce services are provided
through its Network Security Centers, which operate independently of the
source of bandwidth, Pilot can treat different sources of bandwidth as
distinct distribution channels for its secure services. Pilot believes this
strategy can be implemented either through providing a discrete, outsourcing
solution at existing Pilot Network Security Centers for pass-through traffic
from a telecommunications carrier partner, or establishing a security center
within the operations of the telecommunications carrier partner which would be
supported by Pilot.
COMPETITION
The market served by the Company is new, rapidly evolving, highly
competitive and largely undefined. There are few substantial barriers to
entry, and the Company expects that it will face additional competition from
existing competitors and new market entrants in the future. The Company
believes that this market is characterized by a limited period of time during
which participants must grow rapidly and achieve a significant presence in the
market in order to compete effectively. The principal competitive factors in
this market include Internet system and security engineering expertise,
customer service, network and security capabilities, reliability, quality and
scalability of service, broad geographic presence, brand name, technical
expertise and functionality, the variety of services offered, the ability to
maintain and expand distribution channels, customer support, price, the timing
of introductions of new services, financial resources and conformity with
industry standards. There can be no assurance that the Company will have the
resources or expertise to compete successfully in the future.
The Company competes with a broad range of products and services. The
Company's competitors include companies providing security, electronic
commerce, and secure Internet networking products that are offered as stand-
alone point solutions. Companies offering stand-alone products include
providers of firewall software, such as Check Point Software Technologies and
AXENT Technologies (formerly Raptor Systems), security monitoring
44
<PAGE>
software, such as ISS Group, and electronic commerce products. The security
and electronic commerce products provided by these companies are typically
implemented and managed by internal MIS departments of enterprises. In
addition, internal corporate MIS departments increasingly rely on third party
consultants or system integrators to manage the integration and implementation
of multiple stand-alone products from different vendors.
The Company also competes with third party service providers that offer
Internet hosting and access services, including (i) providers of server
hosting services, such as Exodus Communications and PSI Net; (ii) national and
regional ISPs such as Concentric Network Corp., UUNET, certain subsidiaries of
GTE Corporation and Global Center, which was recently acquired by Frontier
Corporation; and (iii) global, regional and local telecommunications companies
such as MCI, Sprint and WorldCom, and regional bell operating companies. The
Company also competes with information technology service firms providing
either outsourcing or systems integration services such as International
Business Machines Corporation and Electronic Data Systems. Although these
third party service providers often add security features to their service
offerings, either through internal development efforts or through the
incorporation of products purchased from vendors of stand-alone point
solutions, the Company believes that generally these competitors do not offer
the same level of security in their services as the Company. However, the
Company expects competition to intensify as third party service providers
incorporate a broader range of security, electronic commerce and secure
Internet networking services and products into their service offerings.
Furthermore, the Company may face competition from its vendors and other
partners. The Company's agreements with its vendors and other partners
generally do not limit or restrict those parties from selling similar products
and services directly to the Company's customers or its competitors, thereby
enabling such parties to compete against the Company. There can be no
assurance that such vendors or other partners will not compete with the
Company in the future.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than the Company. As a result, certain of these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their products and adopt more aggressive pricing policies than the Company.
In addition, these competitors have entered, and will likely continue to
enter, into joint ventures or consortiums to provide additional services
competitive with those provided by the Company. Certain of the Company's
competitors may be able to provide customers with additional benefits in
connection with their Internet system and network management solutions,
including reduced communications costs, which could reduce the overall costs
of their services relative to the Company's. There can be no assurance that
the Company will be able to offset the effects of any resulting price
reductions. In addition, the Company believes that the businesses in which the
Company competes are likely to encounter consolidation in the near future,
which could result in increased price and other competition that could have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in technology underlying its services. The Company
has recently applied for three separate patents in the U.S. and intends to
continue to seek patents on its inventions when appropriate, although the
Company currently has no patented technology that would preclude or inhibit
competitors
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<PAGE>
from entering the Company's market. There can be no assurance that patents
will issue from currently pending or any future applications, or that any
patents that may be issued will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to the Company. The Company
has three separate trademark applications pending in the United States and
counterparts in certain foreign jurisdictions for distinct marks, including
its distinctive Pilot logo; however, there can be no assurance that such
trademarks will be granted. The laws of certain foreign countries may not
protect the Company's products, services or intellectual property rights to
the same extent as do the laws of the United States.
The Company has entered into confidentiality and invention assignment
agreements with its employees and contractors, and nondisclosure agreements
with its suppliers, distributors and appropriate customers in order to limit
access to and disclosure of its proprietary information. There can be no
assurance that these contractual arrangements or the other steps taken by the
Company to protect its intellectual property will prove sufficient to prevent
infringement of or misappropriation of the Company's technology or to deter
independent third-party development of similar technologies. Any such
infringement or misappropriation, should it occur, could have a material
adverse effect on the Company's business, results of operation and financial
condition. Furthermore, litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, results of operations and
financial condition.
To date, the Company has not been notified that the Company's products
infringe the proprietary rights of third parties, but there can be no
assurance that third parties will not claim infringement or indemnification by
the Company with respect to current or future products. The Company expects
that participants in its markets will be increasingly subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows. Any such claim, whether meritorious or not, could be time-
consuming, result in costly litigation, cause product installation delays,
prevent the Company from using important technologies or methods, subject the
Company to substantial damages, or require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements might not be
available on terms acceptable to the Company or at all. As a result, any such
claim could have a material adverse effect upon the Company's business,
results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is currently only a small body of laws and regulations directly
applicable to access to or commerce on the Internet, other than regulations
applicable to businesses generally and regulations applicable to certain
encryption technologies incorporated into products provided by certain of the
Company's vendors. However, because the Internet has recently emerged, there
is significant uncertainty as to the application of existing laws and
regulations with respect to the Internet, covering issues such as user
privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. Moreover, a number of laws and
regulations have been proposed and are currently being considered by federal,
state and foreign legislatures with respect to such issues. The nature of any
new laws and regulations and the manner in which existing and new laws and
regulations may be interpreted and enforced cannot be fully determined.
Therefore, such laws and regulations could decrease the growth of the
Internet, decrease demand for the Company's services, restrict the Company's
activities, impose taxes or other costly technical requirements, subject the
Company and/or its customers to potential
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<PAGE>
liability or otherwise adversely affect the Company or its customers, each of
which could have a material adverse effect on the Company's business, results
of operations and financial condition. For example, because the Company's
services are available over the Internet in multiple states and foreign
countries, and as the Company facilitates sales by its customers to end users
located in such states and foreign countries, such jurisdictions may claim
that the Company is required to qualify to do business as a foreign
corporation in each such state or foreign country, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
A number of governments have imposed controls, export license requirements
and restrictions on the export of encryption technologies provided by certain
of the Company's vendors. To the extent the Company or its vendors are
required to export products incorporating certain encryption technology
developed in the United States in support of services provided to the
Company's customers located outside of the United States, the Company and its
vendors will need to comply with United States export controls. In particular,
all cryptographic products require either qualification under appropriate
licensing exemptions or export licenses from either the U.S. State Department,
acting under the authority of the International Traffic in Arms Regulation, or
the U.S. Commerce Department, acting under the authority of the Export
Administration Regulations. Furthermore, if the Company is unable to comply
with such export controls, it may not be able to obtain on commercially
reasonable terms encryption technologies developed outside the United States
for its international services that provide for encryption as strong as those
developed in the United States. There can be no assurance that U.S. export
restrictions will be changed to allow stronger encryption for international
delivery, that the Company or its vendors will be able to comply with such
restrictions, or that such factors will not have a material adverse effect on
the Company's business, operating results and financial condition.
FACILITIES
The Company's executive, sales and administrative offices are located in
Alameda, California. The Company's Network Security Centers are located in the
San Francisco, Los Angeles, New York and Chicago metropolitan areas. The
Company's leases for its executive, sales and administrative offices and its
Network Security Centers expire from June 2000 to September 2004 (including
options to renew), and cover an aggregate of approximately 38,250 gross square
feet.
Most of the Company's leases provide for a renewal option upon the
expiration of the initial term. The Company believes that these existing
facilities are adequate to meet its current foreseeable requirements or that
suitable additional or substitute space will be available on commercially
reasonable terms. Pilot plans to expand its Network Security Centers both
nationally and internationally. The Company is commencing operations at
Network Security Centers in the Boston, Minneapolis, Washington, D.C. and
London metropolitan areas during 1998.
EMPLOYEES
As of March 31, 1998, the Company had 102 full-time employees, including 7
people in security engineering, 49 people in sales, marketing and customer
support, 34 people in security implementation and operations, and 12 people in
finance and administration. The Company's success depends to a significant
degree upon the continued contribution of its executive management and
security operations and engineering teams. See "Risk Factors--Dependence on
Key Personnel" and "--Risks of Business Expansion and Management of Growth."
LITIGATION
The Company is currently not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of May 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ---- --- ------------------------
<S> <C> <C>
M. Marketta Silvera..... 55 Chairman of the Board of Directors,
President and Chief Executive Officer
William C. Leetham...... 45 Senior Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
Peter Liebowitz......... 51 Senior Vice President, Sales and Marketing
Thomas A. Wadlow........ 41 Vice President, Engineering and Development
Michael Millikin........ 44 Vice President, Operations and Business Development
Robert G. Carrade....... 36 Vice President, Finance and Administration
Shanda Bahles(1)(2)..... 42 Director
William B. Elmore(1).... 45 Director
K. Flynn McDonald....... 45 Director
Thomas O'Rourke(1)(2)... 74 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
M. MARKETTA SILVERA is the founder of the Company and has served as its
President and Chief Executive Officer since June 1993, and as a director of
the Company since July 1993. From June 1991 to January 1993, Ms. Silvera
served as President of VoiceCom Systems, Inc., a voice processing services
company. From May 1989 to June 1991, she served as President of Votan
Corporation, a voice recognition technology company. Ms. Silvera served as
Vice President of Sales and Marketing at Granite Systems, a voice technology
systems developer, and Votan from 1986 to 1989. Ms. Silvera is also a director
of AVIOS, a voice and data technology organization, and has previously served
as its President.
WILLIAM C. LEETHAM has served as Senior Vice President, Finance and
Administration, Chief Financial Officer, Treasurer, and Secretary of the
Company since May 1998. From December 1996 to May 1998, Mr. Leetham served as
Chief Financial Officer of Success Factor Systems, Inc., a human resources
software applications company. From March 1995 to September 1996, Mr. Leetham
served as Chief Financial Officer of Scopus Technology, Inc., an information
management software company. From November 1992 to March 1995, he served as
Chief Financial Officer of Berkeley Systems, Inc., a consumer software vendor.
From August 1984 to November 1992, he held various positions at Candle
Corporation, a system performance software company, most recently serving as
Vice President, Financial Operations.
PETER LIEBOWITZ has served as the Senior Vice President, Sales and Marketing
of the Company since January 1998. From July 1996 to December 1997, he served
as Vice President and General Manager of the Telecommunications Business Unit
at Sybase Inc., a database software company. From January 1995 to July 1996,
Mr. Liebowitz served as Vice President of Sales and Support at Onstream
Networks, Inc., a networking systems corporation. From June 1993 to December
1994, he served as Vice President of Sales and Service at Pulsecom Inc., a
telecommunications company. Mr. Liebowitz was President of Liebowitz
Associates, a telecom consulting firm, from September 1992 to May 1993.
THOMAS A. WADLOW has served as Vice President, Engineering and Development
of the Company since January 1996, and Director of Engineering from September
1993 to January 1996. From 1989 to September 1993, he served as Research
Network Architect at Sun Microsystems Laboratories, Inc., a workstation
manufacturer. From 1988 to 1989, Mr. Wadlow served as Systems and Network
Manager of ParcPlace Systems, an object oriented software developer. From 1987
to 1988, Mr. Wadlow served as an engineer of the Smalltalk Group of
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Xerox Palo Alto Research Center, a computer science research laboratory. Prior
to 1988 Mr. Wadlow served in various senior technical staff positions at
Schlumberger Limited, a petroleum exploration and research company, and
Lawrence Livermore National Laboratories, a national defense contractor.
MICHAEL MILLIKIN has served as Vice President, Operations and Business
Development of the Company since February 1998, and as Vice President,
Business Development since January 1998. From June 1992 to December 1997, Mr.
Millikin served in various senior management positions with Softbank Forums, a
conference and voice event management company, including Senior Vice
President, Worldwide Content from December 1996 to December 1997, and Senior
Vice President and General Manager, Networld+Interop, an exposition company,
from November 1994 to December 1996. Mr. Millikin is also the founder of
Gunstock Hill Associates, an information technology consulting firm which he
founded in June 1991 and with which he remained until June 1992.
ROBERT G. CARRADE has served as the Vice President, Finance and
Administration of the Company since April 1997, and Director of Finance and
Administration from February 1994 to April 1997. From May 1993 to February
1994 he was an independent financial consultant. From November 1991 to May
1993 he served as a corporate finance associate with Berkeley International
Capital Corporation. Mr. Carrade is a certified public accountant in
California.
SHANDA BAHLES has served as director of the Company since January 1994. Ms.
Bahles has served as a General Partner of El Dorado Ventures (El Dorado), a
venture capital firm focused on early stage investments in information
technology companies, since May 1991, and joined El Dorado as an associate in
July 1987. From 1979 to 1985 Ms. Bahles held various engineering, marketing
and management positions with Millennium Systems, a systems integration
company, and Fortune Systems Corporation, a workstation manufacturer. Ms.
Bahles also serves as a director of several privately held information
technology companies.
WILLIAM B. ELMORE has served as a director of the Company since July 1993.
Mr. Elmore has served as a General Partner of Foundation Capital Management,
LLC ("Foundation Capital"), a venture capital firm focused on early stage
information technology companies, since December 1995, and is a founder of
Foundation Capital. From 1987 to 1995, Mr. Elmore served as a General Partner
of Inman and Bowman, a venture capital firm. Mr. Elmore also serves as a
director of Wind River Systems, Inc., a software operating systems company,
and several privately held information technology companies. Mr. Elmore plans
to resign from the Company's Board of Directors within several months of this
Offering.
K. FLYNN MCDONALD has served as a director of the Company since March 1995.
Ms. McDonald has been a Managing Director of Vector Fund Management, L.P. and
a General Partner of Vector Later-Stage Equity Fund, L.P. since November 1995.
From December 1993 to October 1995, Ms. McDonald served as Vice President of
Investments at Technology Funding, Inc., a venture capital firm focused on
technology and health care companies. From 1986 to 1993, she held various
positions at Raychem Corporation, a material sciences company, including Vice
President of Raychem Ventures, Inc. Ms. McDonald is a Director of LifeCell
Corporation, a biotechnology company.
THOMAS O'ROURKE has served as a Director of the Company since November 1995.
Mr. O'Rourke has served as the President and Chairman of the Board of O'Rourke
Investment Corporation, an investment company, since 1989. From January 1985
to April 1988, Mr. O'Rourke was a General Partner of Hambrecht and Quist
Venture Partners, a venture capital firm. From 1966 to 1985, he was the
founder, President and Chairman of the Board of Tymshare, Inc., a computer
services company.
EXECUTIVE OFFICERS
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company.
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BOARD COMPOSITION
The Company currently has authorized five directors. Each director is
elected for a period of one year and serves until his or her successor is duly
elected and qualified. Each of the Company's directors, excluding non-employee
directors, devotes substantially full time to the affairs of the Company. The
Company's non-employee directors devote such time to the affairs of the
Company as is necessary to discharge their duties. There are no family
relationships among any of the directors, officers or key employees of the
Company. See "Certain Transactions." The Company is seeking to appoint one or
two new directors with relevant industry experience.
BOARD COMMITTEES
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee. The Board's Audit Committee currently consists of Mr.
Elmore, Ms. Bahles and Mr. O'Rourke. The Audit Committee reviews the Company's
annual audit and meets with the Company's independent auditors to review the
Company's internal accounting procedures and financial management practices.
The Compensation Committee currently consists of Ms. Bahles and Mr. O'Rourke.
The Compensation Committee recommends compensation and benefits for certain of
the Company's executive officers to the Board, reviews general policy relating
to compensation and benefits of employees of the Company, and administers the
Company's Stock Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board is currently
or has been, at any time since the formation of the Company, an officer or
employee of the Company. No executive officer of the Company serves as a
member of the Board of Directors or compensation committee of any entity that
has one or more executive officers serving on the Company's Board or
Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors or members of committees of the Board of Directors, but are
reimbursed for their reasonable expenses incurred in attending meetings of the
Board of Directors. Employee Directors are eligible to participate in the
Company's 1994 Stock Plan and 1998 Stock Option Plan. Non-employee Directors
are eligible to participate in the Company's 1998 Stock Option Plan and 1998
Directors' Stock Option Plan. In April 1997, Ms. Silvera was granted an option
to purchase 60,000 shares of Common Stock at an exercise price of $0.75 per
share subject to a forty-eight month vesting schedule. In April 1998, Ms.
Silvera was granted an option to purchase 60,000 shares of Common Stock at an
exercise price of $3.30 per share subject to a forty-eight month vesting
schedule. Ms. McDonald has been granted an option to purchase 20,000 shares of
Common Stock effective upon the effectiveness of this Offering at an exercise
price equal to the initial public offering price. The option granted to Ms.
McDonald will be fully vested upon grant and will have a term of 3 years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the full extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of directors for monetary damages for
breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law (the "DGCL"), or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Bylaws provide that the Company shall indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by law. The Company believes that
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indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties.
The Company intends to enter into agreements which indemnify its directors
and executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth certain estimated compensation awarded or
paid by the Company during the fiscal year ended March 31, 1998 ("Last Fiscal
Year") to (i) the Company's President and Chief Executive Officer, (ii) the
Company's Vice President, Finance and Administration, (iii) the Company's Vice
President, Engineering and Development, and (iv) two individuals who would
have been included as the Company's four most highly compensated executive
officers (other than the Chief Executive Officer), each of whose aggregate
compensation during the Last Fiscal Year exceeded $100,000, but were not
serving as executive officers of the Company at the end of the Last Fiscal
Year (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION(1) SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($) (2)
- ------------------ ---------- --------- ---------------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
M. Marketta Silvera......... 205,000 43,650 -- 60,000 237
President and Chief
Executive Officer
Robert G. Carrade........... 115,000 18,188 -- 30,000 230
Vice President, Finance and
Administration
Thomas A. Wadlow............ 110,000 18,188 -- 30,000 178
Vice President, Engineering
and Development
Wister Walcott.............. 90,000 14,550 -- 20,000 213
Vice President, Marketing
Jeffrey Gall (3)............ 94,541 26,911 (4) -- 30,000 179
Vice President, Sales
</TABLE>
- --------
(1) In January 1998, the Company hired Peter Liebowitz as its Senior Vice
President, Sales and Marketing at an annual salary for the 1999 fiscal
year of $150,000. In January 1998, the Company hired Michael Millikin as
its Vice President, Operations and Business Development at an annualized
salary for the 1999 fiscal year of $150,000. In May 1998, the Company
hired William C. Leetham as its Senior Vice President, Finance and
Administration, Chief Financial Officer, Treasurer and Secretary at an
annualized salary for the 1999 fiscal year of $150,000.
(2) Amounts listed represent term life insurance premiums paid by the Company
on behalf of the listed Named Executive Officer.
(3) Mr. Gall terminated his employment with the Company on January 15, 1998.
(4) Consists of $26,911 earned by Mr. Gall as sales commissions.
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<PAGE>
OPTION GRANTS
The following table provides certain information regarding stock options
granted to the Named Executive Officers during the Last Fiscal Year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENTAGE OF TOTAL STOCK PRICE
SECURITIES OPTIONS GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM(4)
OPTIONS IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED(1) 1998 FISCAL YEAR(2) PER SHARE ($/SH)(3) DATE 5%($) 10%($)
- ---- ---------- ------------------- ------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
M. Marketta Silvera..... 60,000 5.9% $0.75 4/15/07
Robert G. Carrade....... 30,000 2.9 0.75 4/15/07
Thomas A. Wadlow........ 30,000 2.9 0.75 4/15/07
Wister Walcott.......... 20,000 2.0 0.75 4/15/07
Jeffrey Gall............ 30,000 2.9 0.75 4/15/07
</TABLE>
- -------
(1) 25% of the shares issuable upon exercise of such options vest on the first
anniversary of the vesting commencement date, with the remaining shares
vesting in equal monthly installments over the following three years.
(2) Based on an aggregate of 1,020,000 options granted to employees,
consultants and directors during the fiscal year ended March 31, 1998.
(3) The exercise price per share of each option was equal to the fair value of
the Common Stock on the date of grant as determined by the Board of
Directors based upon such factors as the purchase prices paid by investors
for shares of the Company's Preferred Stock, the absence of a trading
market for the Company's securities and the Company's financial outlook
and results of operations. See Note 5 of Notes to Consolidated Financial
Statements.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the five-year option term will be at
the assumed 5% and 10% levels or at any other defined level. Unless the
market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the Named Executive
Officers. The potential realizable value is calculated by assuming that an
assumed initial public offering price of $ per share appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day at the
appreciated price.
(5) In December 1997, Mr. Liebowitz received an option to acquire 150,000
shares of Common Stock at an exercise price of $0.75 per share. In
December 1997, Mr. Millikin received an option to acquire 100,000 shares
of Common Stock at an exercise price of $0.75 per share. In May 1998, Mr.
Leetham received an option to acquire 150,000 shares of Common Stock at an
exercise price of $6.00 per share.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each
of the Named Executive Officers in the Last Fiscal Year as of March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES MARCH 31, 1998 (#) MARCH 31, 1998($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. Marketta Silvera..... -- -- -- 60,000
Robert G. Carrade....... 8,958 $5,683 938 35,104
Thomas A. Wadlow........ -- -- 9,896 35,104
Wister Walcott.......... -- -- 4,792 25,208
Jeffrey Gall(3)......... 9,272 $5,879 -- --
</TABLE>
- --------
(1) The amount set forth represents the difference between the fair market
value of the shares on the date of exercise as determined by the Board of
Directors and the exercise price of the option.
(2) Value of unexercised in-the-money options is based on a value of $ per
share of the Company's Common Stock, the assumed initial public offering
price. Amounts reflected are based on the assumed value minus the exercise
price multiplied by the number of shares acquired on exercise.
(3) All of Mr. Gall's unexercised options have expired.
STOCK PLANS
1998 Stock Option Plan. The Company's 1998 Stock Option Plan (the "Option
Plan") was adopted by the Board of Directors and approved by the stockholders
in June 1998. A total of 1,000,000 shares of Common Stock has been reserved
for issuance under the Option Plan, plus an automatic annual increase on the
first day of each of the Company's fiscal years commencing in 1999, 2000,
2001, 2002 and 2003 equal to the lesser of 500,000 shares, 3% of the Company's
outstanding Common Stock on the last day of the immediately preceding fiscal
year or such lesser number of shares as the Board of Directors determines. As
of June 19, 1998, options to purchase 20,000 shares of Common Stock had been
issued under the Option Plan.
The purposes of the Option Plan are to attract and retain the best available
personnel to the Company, to provide additional incentives to the Company's
employees and consultants and to promote the success of the Company's
business. The Option Plan provides for the granting to employees, including
officers and directors, of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
for the granting to employees and consultants including nonemployee directors
of nonstatutory stock options. To the extent an optionee would have the right
in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value (under all
plans of the Company and determined for each share as of the date the option
to purchase the shares was granted) in excess of $100,000, any such excess
options shall be treated as nonstatutory stock options. If not terminated
earlier, the Option Plan will terminate in June 2008.
The Option Plan may be administered by the Board of Directors or a committee
of the Board (the "Administrator"). The Option Plan is currently administered
by the Compensation Committee. The Administrator determines the terms of
options granted under the Option Plan, including the number of shares subject
to the option, exercise price, term and exercisability. In no event, however,
may an individual employee receive option grants for more than 1,000,000
shares under the Option Plan in any fiscal year. The exercise price of all
incentive stock options granted under the Option Plan must be at least equal
to the fair market value of the Common
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<PAGE>
Stock of the Company on the date of grant. The exercise price of any incentive
stock option granted to an optionee who owns stock representing more than 10%
of the total combined voting power of all classes of outstanding capital stock
of the Company or any parent or subsidiary corporation of the Company (a "10%
Stockholder") must equal at least 110% of the fair market value of the Common
Stock on the date of grant. The exercise price of all nonstatutory stock
options must equal at least 85% of the fair market value of the Common Stock
on the date of grant; provided, however, that the exercise price of any
nonstatutory stock option granted to the Company's Chief Executive Officer or
its four other most highly compensated officers must equal at least 100% of
the fair market value of the Common Stock on the date of grant. Payment of the
exercise price may be made in cash or other consideration as determined by the
Administrator.
The Administrator determines the term of options, which may not exceed 10
years (5 years in the case of an incentive stock option granted to a 10%
Stockholder). No option may be transferred by the optionee other than by will
or the laws of descent or distribution, except in the case of nonstatutory
stock options with respect to which the Administrator may allow limited
transferability in certain circumstances. Each option may be exercised during
the lifetime of the optionee only by such optionee. The Administrator
determines when options become exercisable. Options granted under the Option
Plan generally become exercisable at the rate of 1/4th of the total number of
shares subject to the options twelve months after the date of grant, and
1/48th of the total number of shares subject to the options each month
thereafter.
In the event of the sale of all or substantially all of the assets of the
Company, or the merger, consolidation or other capital reorganization of the
Company (other than one in which holders of more than 50% of the Company's
capital stock outstanding before such transaction continue to hold more than
50% of the total voting power after such transaction), then each option may be
assumed or an equivalent option substituted by the successor corporation. In
lieu thereof, the Administrator may in its discretion elect to accelerate the
exercisability of each option effective upon the consummation of such
transaction. The Administrator has the authority to amend or terminate the
Option Plan as long as such action does not adversely affect any outstanding
option and provided that stockholder approval shall be required for an
amendment to increase the number of shares subject to the Option Plan, to
change the designation of the class of persons eligible to be granted options,
or to change the limitation on grants to individual employees.
1994 Stock Plan. The Company's 1994 Stock Plan (the "1994 Stock Plan") was
adopted by the Board of Directors in July 1994 and approved by the
stockholders in September 1994. The 1994 Stock Plan provides for the granting
of incentive stock options to employees, officers and employee directors and
the granting of nonstatutory stock options and stock purchase rights to
employees, officers, directors (including nonemployee directors) and
consultants. A total of 3,400,000 shares of Common Stock has been reserved for
issuance under the 1994 Stock Plan plus an automatic annual increase on the
first day of the Company's fiscal years commencing in 1999, 2000, 2001 and
2002 equal to the lesser of 300,000 shares or 3% of the Company's outstanding
stock on the last day of the preceding fiscal year. As of March 31, 1998,
options to purchase 109,622 shares of Common Stock had been exercised, options
to purchase a total of 1,125,312 shares at a weighted average exercise price
of $0.68 per share were outstanding, and 840,914 shares of Common Stock have
been issued upon exercise of stock purchase rights at a weighted average
purchase price of $0.06 per share. Subsequent to March 31, 1998, the Company
issued options to purchase 681,000 shares of Common Stock at a weighted
average exercise price of $3.69 per share. The Company does not intend to
issue any additional options or purchase rights pursuant to the 1994 Stock
Plan, and as a result future automatic annual increases under the plan will
not be effected.
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<PAGE>
The terms of options issued under the 1994 Stock Plan are generally the same
as those which may be issued under the Option Plan, except that the 1994 Stock
Plan does not impose a maximum number of shares which may be subject to
options issued to an individual in any fiscal year. The restricted stock
purchase agreements reflecting stock purchase rights issued pursuant to the
1994 Stock Plan generally provide that the Company shall have a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability), unless the relevant administrator determines otherwise. The
Company's repurchase right generally lapses at a rate of 1/4th of the total
number of shares twelve months after the date of grant, and 1/48th of the
total number of shares each month thereafter.
In addition, the 1994 Stock Plan provides that, in the event of a merger of
the Company with or into another corporation where the successor corporation
issues its securities to the Company's stockholders, or a sale of all or
substantially all of the Company's assets, unexercised options and purchase
rights outstanding under the 1994 Stock Plan will be assumed or substituted by
the successor corporation or, in the event the successor corporation refuses
to assume or substitute the options, outstanding options and purchase rights
shall terminate upon consummation of such transaction.
1998 Directors' Stock Option Plan. The 1998 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors and approved by
the stockholders in June 1998. A total of 200,000 shares of Common Stock has
been reserved for issuance under the Directors' Plan. As of June 30, 1998, no
options to purchase shares of Common Stock have been issued under the
Directors' Plan. The Directors' Plan provides for the grant of nonstatutory
stock options to nonemployee directors of the Company and is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the Board of Directors. To the extent they
arise, it is expected that conflicts of interest will be addressed by
abstention of any interested director from both deliberations and voting
regarding matters in which such director has a personal interest.
The Directors' Plan provides that each person who becomes a nonemployee
director of the Company after the date of the closing of this Offering will be
granted a nonstatutory stock option to purchase 25,000 shares of Common Stock
(the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. The First Option shall become exercisable
in installments as to 25% of the total number of shares subject to the First
Option on each of the first, second, third and fourth anniversaries of the
date of grant of the First Option. The First Option will not be granted to
individuals serving as nonemployee directors as of the date of this Offering.
Instead, each person who is a nonemployee director of the Company on the date
of this Offering will be granted a nonstatutory option to purchase 5,000
shares which shall become exercisable as to 100% of such shares on the first
anniversary of the date of grant. Thereafter, on the date of each of the
Company's Annual Stockholders Meetings following which a nonemployee director
is serving on the Board of Directors, each such nonemployee director
(including nonemployee directors who were not granted a First Option prior to
the date of such Annual Meeting) will be granted an additional option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such
date, he or she has served on the Company's Board of Directors for at least
six months. Each Subsequent Option shall become exercisable as to 100% of such
shares on the first anniversary of the date of grant.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
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<PAGE>
exercisable, during the lifetime of the optionee, only by such optionee. If a
nonemployee Director ceases to serve as a Director for any reason other than
death or disability, he or she may, but only within 90 days after the date he
or she ceases to be a Director of the Company, exercise options granted under
the Directors' Plan to the extent that he or she was entitled to exercise it
at the date of such termination. To the extent that he or she was not entitled
to exercise any such option at the date of such termination, or if he or she
does not exercise such option (which he or she was entitled to exercise)
within such 90 day period, such option shall terminate. The exercise price of
all stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of the Company's Common Stock on the date of grant of
the option, except for the options granted to non-employee directors on the
date of this offering, which shall have an exercise price equal to the initial
public offering price. Options granted under the Directors' Plan have a term
of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, or the merger,
consolidation or other capital reorganization of the Company (other than one
in which holders of more than 50% of the Company's capital stock outstanding
before such transaction continue to hold more than 50% of the total voting
power after such transaction), (1) each nonemployee director shall have the
right to exercise the option, including any part of the option that would not
otherwise be exercisable, prior to the effectiveness of such dissolution,
liquidation, sale, merger or reorganization, and (2) the option shall be
assumed or substituted by the successor corporation or, if such successor
corporation refuses to agree to such assumption or substitution, the option
shall terminate upon consummation of such transaction. The Board of Directors
may amend or terminate the Directors' Plan; provided, however, that no such
action may adversely affect any outstanding option, and the provisions
regarding the grant of options under the plan may be amended only once in any
six-month period, other than to comport with changes in the Code. If not
terminated earlier, the Directors' Plan will have a term of ten years.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
approved by the stockholders in June 1998. A total of 200,000 shares of Common
Stock has been reserved for issuance under the Purchase Plan, plus an
automatic annual increase on the first day of each of the Company's fiscal
years in 1999, 2000, 2001, 2002 and 2003 equal to the lesser of 100,000
shares, 1/2% of the Company's outstanding Common Stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the
Board of Directors shall determine.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods (other than the first offering
period) commencing on May 1 and November 1 of each year. Each offering period
will consist of four consecutive purchase periods of six months' duration. The
initial offering period is expected to commence on the date of this Offering
and end on October 31, 2000; the initial purchase period is expected to end on
April 30, 1999. The Purchase Plan will be administered by the Board of
Directors or by a committee appointed by the Board of Directors. Employees
(including officers and employee directors) of the Company, or of any
majority-owned subsidiary designated by the Board of Directors, are eligible
to participate in the Purchase Plan if they are employed by the Company or any
such subsidiary for at least 20 hours per week and more than five months per
year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's Common Stock at the beginning of each offering period or at the
end of each purchase period. The Board of Directors shall have the discretion
to increase, prior to the beginning of an offering period, the percentage of
participants' compensation that
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<PAGE>
may be withheld through the Purchase Plan, provided that such percentage may
not exceed 20%. No employee shall be granted an option under the Purchase Plan
if immediately after the grant such employee would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total voting power or value of all classes of stock of the Company or its
subsidiaries, or if such option would permit an employee to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries to
accrue at a rate which exceeds $25,000 of fair market value of such stock for
each calendar year in which such option is outstanding at any time. If the
fair market value of the Common Stock on a purchase date is less than the fair
market value at the beginning of the offering period, a new twenty-four month
offering period will automatically begin on the first business day following
the purchase date with a new fair market value. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. The Purchase Plan may be terminated by action of the Board of
Directors. If not terminated earlier, the Purchase Plan will have a term of 20
years.
The Purchase Plan provides that in the event of a sale of all or
substantially all of the Company's assets, or a merger, consolidation or other
capital reorganization of the Company (other than one in which holders of more
than 50% of the Company's capital stock outstanding before such transaction
continue to hold more than 50% of the total voting power after such
transaction), each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens the offering period so that employees' rights
to purchase stock under the Purchase Plan are exercised prior to the merger or
sale of assets. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder.
401(K) RETIREMENT PLAN
Effective July 1, 1995 the Company established a 401(k) defined contribution
retirement plan (the "Retirement Plan") covering all full-time employees with
greater than one months' service. The Retirement Plan provides for voluntary
employee contributions from 1% to 15% of annual compensation, subject to a
maximum limit allowed by Internal Revenue Service guidelines ($10,000 for
1998). The Company may contribute such amounts to the accounts of participants
in the Retirement Plan as determined by the Board of Directors. However, to
date, the Company has not made any contribution to the Retirement Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since April 1, 1995, the Company has issued in private placement
transactions shares of Preferred Stock as follows: an aggregate of 783,118
shares of Series E Preferred Stock at $2.00 per share in July 1996 and an
aggregate of 1,220,000 shares of Series F Preferred Stock at $5.00 per share
in March 1997, December 1997 and February 1998. In addition, in December 1995
and January 1996, the Company issued an aggregate of 1,210,068 shares of
Series C Preferred Stock upon the exercise of outstanding Series C Preferred
Stock warrants at an exercise price of $0.73 per share. Each share of Series
C, Series E and Series F Preferred Stock is convertible into one share of
Common Stock. The purchasers of the Series C Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock included, among others, the
following executive officers, directors and 5% stockholders of the Company,
and persons and entities associated with them:
<TABLE>
<CAPTION>
SERIES C SERIES E SERIES F
DIRECTORS AND PREFERRED PREFERRED PREFERRED
ENTITIES AFFILIATED WITH DIRECTORS STOCK STOCK STOCK
- ---------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with El Dorado Venture
Partners
(Shanda Bahles)(1) ........................... 1,027,396 500,000 --
William B. Elmore.............................. 124,450 -- --
K. Flynn McDonald.............................. 27,400 -- --
O'Rourke Investments (Thomas O'Rourke)......... -- 80,180 --
OTHER 5% STOCKHOLDERS
- ---------------------
Technology Funding Venture Partners V, and
Aggressive Growth Fund, L.P. ................. -- 147,940 --
The Trustees of the General Electric Pension
Trust......................................... -- -- 900,000(2)
General Electric Capital Corporation........... -- -- 600,000(3)
Jeffrey Webber................................. 30,822 -- --
</TABLE>
- --------
(1) Includes shares held by El Dorado Ventures III, L.P., a California limited
partnership, El Dorado Technology IV, L.P. and El Dorado C&L Fund, L.P.
(2) Includes warrants to purchase 300,000 shares of Series F Preferred Stock.
(3) Includes warrants to purchase 200,000 shares of Series F Preferred Stock.
On June 15, 1996, M. Marketta Silvera, the Company's President and Chief
Executive Officer, purchased 60,000 shares of Common Stock at a purchase price
of $0.20 per share, and pursuant to the terms of a Restricted Stock Purchase
Agreement, the Company has the right to repurchase the shares with such right
expiring as to 25% of the shares on the first anniversary of the vesting
commencement date and the remaining shares in equal monthly installments over
the following three years. On April 15, 1997, the Company granted to Ms.
Silvera an option to purchase 60,000 shares of Common Stock at an exercise
price of $0.75 per share, and pursuant to the terms of these options, 25% of
the shares issuable upon exercise of such options vest on the first
anniversary of the vesting commencement date, with the remaining shares
vesting in equal monthly installments over the following three years. On
April 24, 1998, the Company granted to Ms. Silvera an option to purchase
60,000 shares of Common Stock at an exercise price of $3.30 per share, and
pursuant to the terms of these options, 25% of the shares issuable upon
exercise of such options vest on the first anniversary of the vesting
commencement date, with the remaining shares vesting in equal monthly
installments over the following three years.
On April 19, 1996, the Company granted to Robert G. Carrade, its Vice
President, Finance and Administration, an option to purchase 5,000 shares of
Common Stock at an exercise price of $0.20 per share, and pursuant to the
terms of these options, 25% of the shares issuable upon exercise of such
options vest on the first anniversary of the vesting commencement date, with
the remaining shares vesting in equal monthly installments over the following
three years. On April 15, 1997, the Company granted to Mr. Carrade an option
to purchase 30,000 shares of
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Common Stock at an exercise price of $0.75 per share, and pursuant to the
terms of these options, 25% of the shares issuable upon exercise of such
options vest on the first anniversary of the vesting commencement date, with
the remaining shares vesting in equal monthly installments over the following
three years. On April 24, 1998, the Company granted to Mr. Carrade an option
to purchase 35,000 shares of Common Stock at an exercise price of $3.00 per
share, and pursuant to the terms of these options, 25% of the shares issuable
upon exercise of such options vest on the first anniversary of the vesting
commencement date, with the remaining shares vesting in equal monthly
installments over the following three years.
On April 19, 1996, the Company granted to Thomas A. Wadlow, its Vice
President, Engineering and Development, an option to purchase 5,000 shares of
Common Stock at an exercise price of $0.20 per share, and pursuant to the
terms of these options, 25% of the shares issuable upon exercise of such
options vest on the first anniversary of the vesting commencement date, with
the remaining shares vesting in equal monthly installments over the following
three years. On April 15, 1997, the Company granted to Mr. Wadlow an option to
purchase 30,000 shares of Common Stock at an exercise price of $0.75 per
share, and pursuant to the terms of these options, 25% of the shares issuable
upon exercise of such options vest on the first anniversary of the vesting
commencement date, with the remaining shares vesting in equal monthly
installments over the following three years.
On December 23, 1997, the Company granted to Peter Liebowitz, its Senior
Vice President, Sales and Marketing, an option to purchase 150,000 shares of
Common Stock at an exercise price of $0.75 per share. Pursuant to the terms of
this option, 25% of the shares issuable upon exercise of such option vest on
the first anniversary of the vesting commencement date, with the remaining
shares vesting in equal monthly installments over the following three years.
On April 21, 1998, the Board of Directors approved 75,000 shares to become
immediately exercisable, subject to the Company's right to repurchase such
shares with such right expiring as to 25% of the shares on the first
anniversary of the vesting commencement date and the remaining shares in equal
monthly installments over the following three years. Mr. Liebowitz purchased
75,000 shares on April 27, 1998, subject to such repurchase right.
On December 23, 1997, the Company granted to Michael Millikin, its Vice
President, Operations and Business Development, an option to purchase 100,000
shares of Common Stock at an exercise price of $0.75 per share. Pursuant to
the terms of these options, 25% of the shares issuable upon exercise of such
options vest on the first anniversary of the vesting commencement date, with
the remaining shares vesting in equal monthly installments over the following
three years. On April 21, 1998, the Board of Directors approved 50,000 shares
to become immediately exercisable subject to the Company's right to repurchase
such shares with such right expiring as to 25% of the shares on the first
anniversary of the vesting commencement date and the remaining shares in equal
monthly installments over the following three years. Mr. Millikin purchased
50,000 shares on April 28, 1998, subject to such repurchase right.
On May 20, 1998, the Company granted William C. Leetham, its Senior Vice
President, Finance and Administration, Chief Financial Officer, Treasurer and
Secretary an option to purchase 150,000 shares of Common Stock at an exercise
price of $6.00 per share. Pursuant to the terms of these options, (i) 17,000
shares are immediately exercisable, subject to the Company's right to
repurchase such shares in the event of termination of Mr. Leetham's employment
with the Company, with such right expiring on the first anniversary of the
vesting commencement date; (ii) 20,500 shares vest on the first anniversary of
the vesting commencement date and (iii) the remaining shares vest in equal
monthly installments over the following three years. In the event the Company
is acquired and Mr. Leetham's employment is
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<PAGE>
terminated without cause within 12 months after such acquisition, then 50% of
the unvested portion of his option shall immediately become fully vested at
the time of such termination.
See "Management--Executive Compensation" for additional information with
respect to stock option grants to directors and executive officers of the
Company.
On June 18, 1996, the Company entered into an agreement with AmeriData
Technologies Inc. ("AmeriData") whereby the Company granted AmeriData options
to purchase 200,000 shares of the Company's Common Stock at $2.00 per share
and AmeriData agreed to sell the Company's Internet security service to
AmeriData customers in exchange for a commission on the first two years of
revenue from those customers. The Company and AmeriData also agreed to
cooperate in areas such as training and marketing. In June 1996, Ameridata was
acquired by GE Capital Corp., a subsidiary of General Electric Company, and is
now GE Capital Information Technologies Solutions, Inc.
The Company intends to enter into indemnification agreements with its
executive officers and directors containing provisions which may require the
Company, among other things, to indemnify its executive officers and directors
against certain liabilities that may arise by reason of their status or
service as executive officers and directors (other than liabilities arising
from willful misconduct of a culpable nature) and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. The Company also intends to execute such agreements with its
future directors and executive officers. See "Management--Limitation of
Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted
to reflect the sale of the Common Stock offered by this Prospectus by (i) each
stockholder who is known by the Company to own beneficially more than 5% of
the Common Stock, (ii) each executive officer of the Company, (iii) each
director of the Company, and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING (1)
OFFICERS, DIRECTORS AND -------------------- SHARES --------------------
PRINCIPAL STOCKHOLDERS NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- ----------------------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
El Dorado Ventures(3)....... 3,011,546 28.9% %
2400 Sand Hill Road
Menlo Park, CA 94025
M. Marketta Silvera(4)....... 1,326,250 12.7
William B. Elmore............ 1,026,916 9.9
Technology Funding Venture 891,054 8.6
Partners V..................
an Aggressive Growth
Fund, L.P.
2000 Alameda de las Pulgas
San Mateo, CA 94403
The Trustees of the General
Electric Pension Trust(5)... 900,000 8.6
P.O. Box 7900
3003 Summer Street
Stamford, CT 06904-6092
Jeffrey Webber............... 771,918 7.4
R.B. Webber & Company
1717 Embarcadero Road, Suite
2000
Palo Alto, CA 94303
GE Electric Capital 700,000 6.7
Corporation(6)..............
120 Long Ridge Road
Stamford, CT 06927
Shanda Bahles(7)............. 3,011,546 28.9
Thomas O'Rourke(8)........... 394,580 3.8
Thomas A. Wadlow(9).......... 224,268 2.2
Robert G. Carrade(10)........ 128,310 1.2
Peter Liebowitz(11).......... 75,000 *
Michael Millikin(12)......... 50,000 *
K. Flynn McDonald............ 27,400 *
All directors and executive
officers as a group 6,264,270 59.2
(9 persons)(13).............
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's common
Stock.
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<PAGE>
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes of this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
10,413,566 shares of Common Stock outstanding as of March 31, 1998,
together with applicable options and warrants for such stockholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially
owned by a person includes shares of Common Stock subject to options held
by that person that are currently exercisable within 60 days of March 31,
1998. Such shares issuable pursuant to such options are deemed
outstanding for computing the percentage ownership of the person holding
such options but are not deemed outstanding for the purposes of computing
the percentage ownership of each other person. Unless otherwise
indicated, the address of each of the individuals named above is: c/o
Pilot Services, Inc., 1080 Marina Village Parkway, Alameda, CA 94501.
(3) Consists of 52,932 shares held by El Dorado C&L Fund, L.P., 100,230
shares held by El Dorado Technology IV, L.P., and 2,858,384 shares held
by El Dorado Ventures III, L.P. (collectively, the "El Dorado Entities").
(4) Includes 16,250 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 31, 1998.
(5) Assumes exercise of Series F warrants to purchase 300,000 shares.
(6) Assumes exercise of Series F warrants to purchase 200,000 shares and
includes 100,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 31, 1998 held by AmeriData, which was
acquired in June 1996 by GE Capital Corp., a subsidiary of General
Electric Company, and is now GE Capital Information Technologies
Solutions, Inc.
(7) Represents 3,011,546 shares held by the El Dorado Entities. Ms. Bahles, a
Director of the Company and a General Partner to each of the El Dorado
Entities, disclaims beneficial ownership of the shares held by the El
Dorado Entities, except for her proportional pecuniary interest therein,
if any.
(8) Consists of 394,580 shares held by O'Rourke Investment Corporation
("OIC"). Mr. O'Rourke, a Director of the Company and Chairman and CEO of
OIC, owns a majority of the outstanding voting shares of O'Rourke
Investments and is a director of OIC.
(9) Includes 18,644 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 31, 1998.
(10) Includes 9,686 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 31, 1998.
(11) Consists of 75,000 shares issuable upon exercise of stock options that
are exercisable within 60 days of March 31, 1998, all of which were
issued upon exercise of such options on April 27, 1998.
(12) Consists of 50,000 shares issuable upon exercise of stock options that
are exercisable within 60 days of March 31, 1998, all of which were
issued upon exercise of such options on April 28, 1998.
(13) Includes 169,580 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 31, 1998.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of forty million shares of Common Stock, $0.001 par value
per share, and two million shares of undesignated Preferred Stock, $0.001 par
value per share.
COMMON STOCK
As of March 31, 1998, there were 10,413,566 shares of Common Stock
outstanding (including shares issuable upon conversion of all outstanding
Preferred Stock and the exercise of warrants to purchase Series F Preferred
Stock, which are convertible into an aggregate of 600,000 shares of Common
Stock), held of record by 41 stockholders, and options to purchase an
aggregate of 1,325,312 shares of Common Stock were also outstanding. There
will be shares of Common Stock outstanding after March 31, 1998
(assuming no exercise of the Underwriter's overallotment option, no exercise
of outstanding warrants to purchase Series B Preferred Stock and Series D
Preferred Stock, and no exercise of outstanding options under the Stock Plans
after March 31, 1998) after giving effect to the sale of the shares of Common
Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and satisfaction of
preferential rights of any outstanding Preferred Stock. The Common Stock has
no preemptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued upon completion of this Offering will be, fully paid and non-
assessable.
PREFERRED STOCK
Effective upon the closing of this Offering, each outstanding share of
Preferred Stock will be converted into one share of Common Stock and
automatically retired. Thereafter, the Board of Directors is authorized to
issue up to two million shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including voting rights, of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of this Offering, no shares of
Preferred Stock will be outstanding and the Company currently has no plans to
issue any shares of Preferred Stock.
WARRANTS
As of May 31, 1998, the Company had outstanding exercisable warrants to
purchase 27,124 shares of Series B Preferred Stock at $0.365 per share; 48,286
shares of Series D Preferred Stock at $0.875 per share and 67,500 shares of
Series D Preferred Stock at $2.00 per share; and
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<PAGE>
600,000 shares of Series F Preferred Stock at $6.00 per share. All unexercised
warrants to purchase Series F Preferred Stock will terminate upon the closing
of the Offering. All warrants to purchase Series B and Series D Preferred
Stock contain net exercise provisions. Warrants that remain outstanding after
the Offering will expire between March 31, 2004 and March 10, 2007. Following
the automatic conversion of all classes of Preferred Stock into Common Stock
that will take place in connection with the Offering, pursuant to the terms of
each respective warrant all remaining warrants will become exercisable for
Common Stock.
REGISTRATION RIGHTS
Following this Offering, the holders of 9,582,828 shares of Common Stock
(the "Registrable Securities") or their transferees will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement
between the Company and the holders of the Registrable Securities. Subject to
certain limitations in the agreement, the holders of at least 25% of the
Registrable Securities may require, on two occasions beginning after the
earlier of March 15, 1999 or six months after the effective date of this
Offering, that the Company use its best efforts to register the Registrable
Securities for public resale. If the Company registers any of its Common Stock
either for its own account or for the account of other security holders, the
holders of Registrable Securities are entitled to include their shares of
Common Stock in such registration, subject to the ability of the underwriters
to limit the number of shares included in such offering. The holders of at
least 20% of the Registrable Securities, excluding such shares held by M.
Marketta Silvera, may also require the Company (not more than one time in any
twelve-month period) to register all or a portion of their Registrable
Securities on Form S-3 when use of such forms becomes available to the
Company, provided, among other limitations, that the proposed aggregate
selling price (net of any underwriters' discounts or commissions) is at least
$500,000. All registration expenses must be borne by the Company. However, all
registration expenses incurred in effecting any Forms S-1 or S-2 Registration
Statements after the second such Registration Statements or more than one (1)
Form S-3 Registration Statement in any twelve (12) month period shall be borne
pro rata by the holders of the Registrable Securities included in such
registration, in accordance with the number of shares being sold in such
registration. These rights shall terminate either (i) seven years following
the consummation of the Offering or (ii) for each individual holder, at such
time as the holder holds less than 1% of the voting securities of the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and the Company's Restated Certificate of
Incorporation could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of the Company to first
negotiate with the Company. The Company believes that the benefits of
increased protection of the Company's potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
the Company outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an
improvement of their terms.
The Company will be subject to the provisions of Section 203 of the Delaware
law. In general, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset
64
<PAGE>
or stock sale, or other transaction resulting in a financial benefit to the
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own)
15% or more of the corporation's voting stock. This provision may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the Company's stockholders.
Commencing at the first annual meeting of stockholders following the annual
meeting of stockholders when the Company shall have had at least 800
stockholders, the Restated Certificate of Incorporation of the Company will
provide for the Board of Directors to be divided into two classes, with
staggered two-year terms. As a result, only one class of directors will be
elected at each annual meeting of stockholders of the Company, with the other
class continuing for the remainder of its respective two-year term.
Thereafter, stockholders shall no longer have cumulative voting rights and the
Company's stockholders representing a majority of the shares of Common Stock
outstanding will be able to elect all of the directors. The classification of
the Board of Directors and elimination of cumulative voting make it more
difficult for the Company's existing stockholders to replace the Board of
Directors as well as for another party to obtain control of the Company by
replacing the Board of Directors. Since the Board of Directors has the power
to retain and discharge officers of the Company, these provisions could also
make it more difficult for existing stockholders or another party to effect a
change in management. See "Management--Executive Officers and Directors--Board
of Directors."
The Company's Restated Certificate of Incorporation will provide that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Bylaws will provide
that special meetings of stockholders can be called only by the Board of
Directors, the Chairman of the Board, if any, the President of the Company and
holders of 10% of the votes entitled to be cast at a meeting. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting by the Board of Directors,
the Chairman of the Board, if any, the President of the Company or any such
10% holder. The Bylaws will set forth an advance notice procedure with regard
to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to business
to be brought before a meeting of stockholders of the Company.
The Company's Restated Certificate of Incorporation will contain a provision
requiring the affirmative vote of the holders of at least two-thirds of the
voting stock of the Company to amend the foregoing provisions of the Restated
Certificate of Incorporation and Bylaws.
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. See "Risk Factors--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation. Its telephone number is (800) 835-8778.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, based on the number of shares outstanding
as of March 31, 1998, the Company will have outstanding an aggregate of
shares of Common Stock assuming no exercise of warrants or options
to purchase Common Stock outstanding as of March 31, 1998, but including the
600,000 shares expected to be issued upon exercise of the Series F Warrants
prior to the closing of the Offering. Of these shares, the shares
sold in this Offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by an
existing "affiliate" of the Company as that term is defined in Rule 144 under
the Securities Act (an "Affiliate"). The remaining shares of Common Stock held
by existing stockholders are "restricted securities" as that term is defined
in Rule 144 under the Securities Act ("Restricted Shares"). As of such date,
no Restricted Shares will be eligible for sale in the public market. Following
the expiration of the 180-day Lock-up Period with the representatives of the
Underwriters or the Company, (i) 1,477,816 of the Restricted Shares will be
eligible for immediate sale without restriction under Rule 144(k) under the
Securities Act, (ii) 7,995,750 of the Restricted Shares will be eligible for
sale subject to compliance with the volume and other restrictions of Rule 144,
and (ii) 800,000 of the Restricted Shares (including 600,000 shares expected
to be issued upon exercise of the Series F Warrants prior to the closing of
the Offering) will become eligible for sale at various times after the Lock-up
Period upon expiration of applicable holding periods under Rule 144, subject
in some cases to the volume and other restrictions of Rule 144. In addition,
as of March 31, 1998, there were outstanding 1,325,312 options and 142,910
warrants to purchase Common Stock (excluding 600,000 shares which are expected
to be issued upon exercise of the Series F Warrants prior to the closing of
the Offering) and all of such options and warrants will be subject to 180-day
lock-up agreements with the representatives of the Underwriters or the
Company. Following the expiration of the Lock-up Period, all of the warrants
will be exercisable and 578,844 of such options will be vested and
exercisable.
All of the officers and directors and certain stockholders of the Company
have entered into lock-up agreements generally providing that they will not
offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, or
any securities convertible into, or exercisable or exchangeable for, shares of
Common Stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Deutsche Bank Securities Inc., subject to
certain limited exceptions. Deutsche Bank Securities Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. Deutsche Bank Securities Inc.
currently has no plans to release any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, Deutsche Bank Securities Inc. will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time.
66
<PAGE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after
this Offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Accordingly,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this Offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the SEC has indicated that Rule 701 will apply
to typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired
upon exercise of such options (including exercises after the date of this
Offering). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90
days after the date of this Prospectus, may be sold (i) by persons other than
Affiliates, subject only to the manner of sale provisions of Rule 144 and (ii)
by Affiliates, under Rule 144 without compliance with its one-year minimum
holding period requirements.
Following this Offering, the Company intends to file a registration
statement under the Securities Act covering approximately 3,426,312 shares of
Common Stock, subject to outstanding options or reserved for issuance under
the Company's stock plans. See "Management-Stock Plans." Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to Affiliates, be available for sale in the open
market, except to the extent that such shares are subject to vesting
restrictions with the Company.
Upon completion of this Offering, the holders of approximately 9,582,828
shares of Registrable Securities or the transferees will be entitled to
certain rights with respect to registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradable without restriction under the
Securities Act (except for shares purchased by Affiliates of the Company)
immediately upon the effectiveness of such registration. See "Description of
capital stock--Registration Rights."
67
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Deutsche Bank Securities Inc.,
BancAmerica Robertson Stephens and Hambrecht & Quist LLC are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions in the Underwriting Agreement (the form of which will be
filed as an exhibit to the Company's Registration Statement of which this
Prospectus is a part), to purchase from the Company and the Selling
Stockholders the respective number of shares of Common Stock indicated below
opposite their respective names. The Underwriters are committed to purchase
all of the shares, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc.......................................
BancAmerica Robertson Stephens.....................................
Hambrecht & Quist LLC..............................................
---
Total............................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers (who may include the Underwriters) a concession not in excess of $
a share under the initial public offering price. The selected dealers may
reallow a concession not in excess of $ a share to other dealers and other
selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Underwriters do not intend to sell any of the shares of Common Stock
offered hereby to accounts for which they exercise discretionary authority.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option to purchase up to additional shares of Common
Stock to cover over-allotments, if any, at the initial public offering price,
less the underwriting discount set forth on the cover page of this Prospectus.
Such option is exercisable for 30 days from the date of this Prospectus. To
the extent such option is exercised, each Underwriter will be committed,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered hereby.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which officers, directors, optionholders and stockholders of
the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of the
final Prospectus without the prior consent of Deutsche Bank Securities Inc. or
the Company. The Company has agreed in the Underwriting Agreement that it will
not, directly or indirectly, without the prior written consent of Deutsche
Bank Securities Inc., contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable for Common Stock, for
a period of 180
68
<PAGE>
days after the date of the final Prospectus without the consent of Deutsche
Bank Securities Inc., except under certain circumstances.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives; the history and the prospects for the industry in which the
Company competes; the ability of the Company's management; the prospects for
future earnings of the Company; the present state of the Company's development
and its current financial condition; the general condition of the securities
markets at the time of this Offering; and the recent market prices of, and the
demand for, publicly traded common stock of generally comparable companies.
Each of the Representatives has informed the Company that it currently intends
to make a market in the shares subsequent to the effectiveness of this
Offering, but there can be no assurance that the Representatives will take any
action to make a market in any securities of the Company.
Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this Offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Certain legal matters relating to this Offering will be passed
upon for the Underwriters by Gunderson Dettmer Stough Villenueve Franklin &
Hachigian, LLP, Menlo Park, California.
69
<PAGE>
EXPERTS
The financial statements of the Company as of March 31, 1997 and 1998, and
for each of the years in the three-year period ended March 31, 1998, have been
included in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent auditors, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any
amendments thereto) on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits
to the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed
as a part thereof. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect
to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved. The Registration Statement, including
exhibits thereto and the financial statements and notes filed as a part
thereof, as well as such reports and other information filed with the
Commission, may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission. Such reports and other information
may also be inspected without charge at a Web site maintained by the
Commission. The address of such site is http://www.sec.gov.
70
<PAGE>
PILOT NETWORK SERVICES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statement of Stockholders' Deficit.......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the reincorporation of the Company in Delaware and stock split
described in Note 6 of the Notes to Financial Statements has been consummated,
we will be in position to render the following report.
KPMG Peat Marwick LLP
The Board of Directors
Pilot Network Services, Inc.:
We have audited the accompanying balance sheets of Pilot Network Services,
Inc. (the "Company") as of March 31, 1997 and 1998, and the related statements
of operations, stockholders' deficit and cash flows for each of the years in
the three-year period ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pilot Network Services,
Inc. as of March 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended March 31,
1998, in conformity with generally accepted accounting principles.
Oakland, California
May 29, 1998, except for Note 6 which is
as of June 12, 1998
F-2
<PAGE>
PILOT NETWORK SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,081,270 $ 1,446,711
Trade receivables, less allowance for doubtful
accounts of $12,198 and $110,905 in 1997 and
1998, respectively............................... 725,211 1,066,560
Prepaid and other current assets.................. 120,064 272,902
----------- ------------
Total current assets............................ 3,926,545 2,786,173
Property and equipment, net......................... 3,478,705 5,993,848
Other assets, net................................... 33,950 142,286
----------- ------------
$ 7,439,200 $ 8,922,307
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................. $ 581,737 $ 2,056,689
Accrued expenses.................................. 479,329 601,040
Current portion of capital lease obligations...... 972,579 1,549,585
Deferred revenue.................................. 1,257,559 1,541,635
----------- ------------
Total current liabilities....................... 3,291,204 5,748,949
Capital lease obligations, net of current portion... 1,945,663 3,444,217
----------- ------------
Total liabilities............................... 5,236,867 9,193,166
Commitments
Redeemable convertible preferred stock, $0.001 par
value; 7,432,810 shares authorized; 5,763,030 and
6,363,030 shares issued and outstanding as of March
31, 1997 and 1998, respectively; aggregate
liquidation preference of $10,458,261
in 1998............................................ 8,084,068 12,143,303
Stockholders' deficit:
Convertible Series A preferred stock; $0.001 par
value; 1,400,000 shares authorized, issued and
outstanding; aggregate liquidation preference of
$49,000 as of
March 31, 1998................................... 1,400 1,400
Common stock, $0.001 par value; 40,000,000 shares
authorized; 2,001,722 and 2,050,536 shares issued
and outstanding as of March 31, 1997 and 1998,
respectively..................................... 2,002 2,051
Additional paid-in capital........................ 105,897 1,168,148
Deferred stock compensation....................... -- (890,943)
Accumulated deficit............................... (5,991,034) (12,694,818)
----------- ------------
Total stockholders' deficit..................... (5,881,735) (12,414,162)
----------- ------------
$ 7,439,200 $ 8,922,307
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PILOT NETWORK SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service revenues........................ $ 2,524,965 $ 6,300,238 $11,317,302
Cost of service revenues................ 1,424,068 4,181,426 9,825,413
----------- ----------- -----------
Gross margin............................ 1,100,897 2,118,812 1,491,889
Operating costs and expenses:
Sales and marketing................... 1,791,823 3,109,058 4,306,466
Engineering and development........... 162,236 274,627 798,687
General and administrative............ 765,549 1,064,401 1,550,562
----------- ----------- -----------
Operating expenses.................. 2,719,608 4,448,086 6,655,715
----------- ----------- -----------
Operating loss...................... (1,618,711) (2,329,274) (5,163,826)
Interest income......................... 20,234 27,620 96,949
Interest expense........................ (151,832) (350,012) (567,673)
----------- ----------- -----------
Net loss............................ (1,750,309) (2,651,666) (5,634,550)
Accretion on redeemable convertible
preferred stock........................ (262,593) (478,304) (1,069,234)
----------- ----------- -----------
Net loss attributable to common
stockholders........................... $(2,012,902) $(3,129,970) $(6,703,784)
=========== =========== ===========
Basic and diluted net loss per share.... $ (1.07) $ (1.58) $ (3.31)
=========== =========== ===========
Shares used in computing basic and
diluted net loss per share............. 1,889,048 1,982,422 2,025,470
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PILOT NETWORK SERVICES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED MARCH 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON TOTAL
PREFERRED STOCK STOCK ADDITIONAL DEFERRED STOCKHOLDERS'
---------------- ----------------- PAID-IN STOCK ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
--------- ------ --------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31,
1995................... 1,400,000 $1,400 1,777,390 $1,778 $ 79,331 $ -- $ (848,162) $ (765,653)
Issuance of common
stock................. -- -- 182,250 182 16,221 -- -- 16,403
Accretion on Series B,
C, D, E, and F
redeemable convertible
preferred stock....... -- -- -- -- -- -- (262,593) (262,593)
Net loss............... -- -- -- -- -- -- (1,750,309) (1,750,309)
--------- ------ --------- ------ ---------- ----------- ------------ ------------
Balance as of March 31,
1996................... 1,400,000 $1,400 1,959,640 $1,960 $ 95,552 $ -- $ (2,861,064) $ (2,762,152)
Issuance of common
stock................. -- -- 96,916 97 15,225 -- -- 15,322
Repurchase of common
stock................. -- -- (54,834) (55) (4,880) -- -- (4,935)
Accretion on Series B,
C, D, E, and F
redeemable convertible
preferred stock....... -- -- -- -- -- -- (478,304) (478,304)
Net loss............... -- -- -- -- -- -- (2,651,666) (2,651,666)
--------- ------ --------- ------ ---------- ----------- ------------ ------------
Balance as of March 31,
1997................... 1,400,000 $1,400 2,001,722 $2,002 $ 105,897 $ -- $ (5,991,034) $ (5,881,735)
Issuance of common
stock................. -- -- 72,706 73 8,815 -- -- 8,888
Repurchase of common
stock................. -- -- (23,892) (24) (1,844) -- -- (1,868)
Accretion on Series B,
C, D, E, and F
redeemable convertible
preferred stock....... -- -- -- -- -- -- (1,069,234) (1,069,234)
Deferred compensation
related to grant of
common stock options.. -- -- -- -- 1,055,280 (1,055,280) -- --
Amortization of
deferred compensation. -- -- -- -- -- 164,337 -- 164,337
Net loss............... -- -- -- -- -- -- (5,634,550) (5,634,550)
--------- ------ --------- ------ ---------- ----------- ------------ ------------
Balance as of March 31,
1998................... 1,400,000 $1,400 2,050,536 $2,051 $1,168,148 $ (890,943) $(12,694,818) $(12,414,162)
========= ====== ========= ====== ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PILOT NETWORK SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(1,750,309) $(2,651,666) $(5,634,550)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization.......... 449,649 1,221,919 2,273,612
Amortization of deferred compensation.. -- -- 164,337
Changes in operating assets and lia-
bilities:
Trade receivables..................... (323,213) (238,528) (341,349)
Prepaid and other assets.............. (172,743) 78,428 (261,174)
Accounts payable...................... 106,037 352,460 1,474,952
Accrued expenses...................... 224,208 197,650 121,711
Deferred revenue...................... 660,033 528,376 284,076
----------- ----------- -----------
Net cash used in operating activi-
ties................................ (806,338) (511,361) (1,918,385)
----------- ----------- -----------
Cash flows used in investing activi-
ties--capital expenditures............. (596,609) (650,865) (1,470,162)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from sale of redeemable
convertible preferred stock........... 902,700 4,501,266 2,990,000
Principal payments of obligations under
capital leases........................ (244,507) (688,616) (1,243,032)
Proceeds from the issuance of common
stock................................. 16,403 15,322 8,888
Repurchase of common stock............. -- (4,935) (1,868)
----------- ----------- -----------
Net cash provided by financing activ-
ities............................... 674,596 3,823,037 1,753,988
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (728,351) 2,660,811 (1,634,559)
Cash and cash equivalents at beginning
of year................................ 1,148,810 420,459 3,081,270
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 420,459 $ 3,081,270 $ 1,446,711
=========== =========== ===========
Supplemental disclosure of cash flow in-
formation:
Cash paid during the period-interest... $ 136,413 $ 330,407 $ 567,673
=========== =========== ===========
Noncash financing activities:
Assets acquired under capital lease ob-
ligations............................. $ 1,319,530 $ 2,244,512 $ 3,318,592
=========== =========== ===========
Accretion of redeemable preferred
stock................................. $ 262,593 $ 478,304 $ 1,069,234
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Pilot Network Services, Inc. (the Company), was incorporated in California
in August 1992. Pilot Network Services provides comprehensive security
services that incorporate high-bandwidth connectivity and enable secure
electronic commerce over the Internet.
Revenue Recognition
Revenues consist primarily of monthly fees for secure access and hosting
services, installation and management services. Secure access and hosting
service fees are recognized ratably over the term of the contract, generally
one year. Installation fees are recognized over the installation period,
generally 60 days. Management services, which include security audits and
consulting arrangements, are recognized as the service is performed.
Cash Equivalents
The Company considers all highly liquid instruments with a remaining
maturity of 90 days or less at the date of purchase to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally over three
years. Depreciation expense includes amortization of assets recorded under
capital lease. Equipment held under capital leases is amortized over the
shorter of the lease term or the estimated useful life of the asset.
Software Development Costs
Software development costs are expensed as incurred until the technological
feasibility of the related product has been established. After technological
feasibility is established, any additional software development costs would be
capitalized in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards ("SFAS") No. 86, CAPITALIZATION OF SOFTWARE
DEVELOPMENT COSTS. Through March 31, 1998, the Company's process for
developing software was essentially completed concurrently with the
establishment of technological feasibility in the form of a working model,
and, accordingly, no software costs have been capitalized to date. Software
development costs incurred prior to achieving technological feasibility are
charged to engineering and development expense as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years that those differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Accounting for Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock-based
employee compensation plans.
F-7
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company evaluates the recoverability of its identifiable tangible assets
under SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires identifiable
assets to be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. If an asset is considered to be impaired, the carrying amount of
that asset is reduced to its fair value, resulting in a charge to income.
Assets to be disposed of are reported at the lower of the carrying amounts or
fair value less costs to sell. As of March 31, 1998, the Company did not
consider any of its assets to be impaired.
Advertising
Advertising costs are expensed as incurred and are included in sales and
marketing expense. The Company had no advertising expense for the years ended
March 31, 1996 and 1997, and approximately $24,000 during the year ended March
31, 1998.
Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using either the as-if-
converted method for convertible preferred stock or the treasury stock method
for options and warrants. The effect of including convertible preferred stock,
options and warrants would have been antidilutive during all periods presented
and, as a result, such effect has been excluded from the computation of
diluted net loss per share. Pursuant to SEC Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued for nominal consideration
and options and warrants granted for nominal consideration prior to the
anticipated effective date of the initial public offering (IPO) are included
in the calculation of basic and diluted net loss per share, as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
Excluded from the computation of diluted earnings per share for the year
ended March 31, 1998 are options to acquire 1,125,312 shares of Common Stock
with a weighted-average exercise price of $0.68 because their effects would be
anti-dilutive. Also excluded from the computation of diluted earnings per
share for the year ended March 31, 1998 are 7,329,696 common share equivalents
resulting from the assumed conversion of the Series A, B, C, D, E and F
preferred stock because their effects would be anti-dilutive.
F-8
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Had the outstanding shares of Redeemable Convertible Preferred Stock and the
Series A Preferred Stock converted to common stock as of April 1, 1997 or the
date of issuance, if later, pro forma basic and diluted earnings per share
would have been as follows:
<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------
YEAR ENDED MARCH 31, 1998
---------------------------------------
WEIGHTED AVERAGE
NET LOSS SHARES PER SHARE
----------- ---------------- ---------
<S> <C> <C> <C>
Basic and diluted loss per share....... $(6,703,784) 2,025,470 $(3.31)
Pro forma adjustment for accretion and
conversion of preferred stock......... 1,069,234 7,329,696 --
----------- --------- ------
Pro forma basic and diluted loss per
share................................. $(5,634,550) 9,355,166 $ (.60)
=========== ========= ======
</TABLE>
Concentration of Risk
The Company provides its services throughout the United States to a wide
user base. During the years presented no single customer accounted for greater
than 5% of total service revenue. The Company performs credit evaluations of
its customers' financial condition and, generally, does not require collateral
from its customers. Management makes estimates as to its credit losses and to
date its estimates have not differed materially from actual results. Overall,
credit risk is limited due to the large number of customers in differing
industries and geographic areas.
The Company purchases its network management hardware from a limited number
of suppliers.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short
maturity of those instruments.
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
disclosures 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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently issued SFAS No.
130, "REPORTING COMPREHENSIVE INCOME." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. It does not, however, require a specific format, but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company is in the process of
determining its preferred format. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
F-9
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The FASB also recently issued SFAS No. 131, "DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company sells its services in one
industry segment. Therefore, the Company has determined that it currently does
not have any separately reportable business segments.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of March 31:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Network and computer equipment....................... $4,616,932 $ 8,273,673
Furniture and fixtures............................... 265,116 456,829
Purchased software................................... 162,271 576,712
Leasehold improvements............................... 200,901 718,941
---------- -----------
5,245,220 10,026,155
Less accumulated depreciation and amortization....... 1,766,515 4,032,307
---------- -----------
$3,478,705 $ 5,993,848
========== ===========
</TABLE>
The gross amount of capitalized leased assets included in property and
equipment was approximately $3,856,000 and $4,994,000 and related accumulated
amortization was approximately $1,445,000 and $3,182,000 as of March 31, 1997
and 1998, respectively.
(3) COMMITMENTS
Leases
The Company has entered into equipment leases with various leasing
institutions providing for financing of equipment purchases of up to
$5,000,000 at varying interest rates. Borrowings under the leases are
generally repayable in monthly installments over periods ranging from 36 to 48
months and a mandatory buyout, and are secured by a lien on the leased
equipment.
The Company is obligated under certain noncancelable operating leases for
office space and equipment expiring at various dates through 2001. Rent
expense for the years ended March 31, 1996, 1997 and 1998 was $201,519,
$464,503 and $636,031, respectively.
F-10
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule of future minimum payments required under
capital and operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of March 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
YEAR ENDING MARCH 31:
1999................................................ $2,206,861 $1,104,225
2000................................................ 1,844,261 1,127,691
2001................................................ 1,366,650 622,669
2002................................................ 847,931 291,928
2003................................................ 52,039 219,461
Thereafter.......................................... -- 752,501
---------- ----------
Total minimum lease payments...................... 6,317,742 $4,118,475
==========
Less amount representing interest (at rates ranging
from 14.5% to 14.7%)............................... 1,323,940
----------
4,993,802
Less current portion of capital lease obligations... 1,549,585
----------
Capital lease obligations, net of current portion... $3,444,217
==========
</TABLE>
Agreement
On June 18, 1996, the Company entered into an agreement with AmeriData
Technologies Inc. (Subsequently purchased by GE Capital Information
Technologies Solutions, Inc.) ("AmeriData") whereby the Company granted
AmeriData options to purchase 200,000 shares of the Company's Common Stock at
$2.00 per share and AmeriData agreed to sell the Company's secure Internet
services to AmeriData customers in exchange for a commission on the monthly
recurring revenue received in the first two years of these new customer
contract. The fair value of the options granted to AmeriData was immaterial
using the following assumptions: no dividend yield; risk free interest rate of
6.5%: volatility of .60; expected life for the option of five years; and a
fair value of common stock of $.40. The amounts incurred through March 31,
1998, have not been material.
401(k) Retirement Plan
Effective July 1, 1995 the Company established a 401(k) defined contribution
retirement plan (the "Retirement Plan") covering all full-time employees with
greater than one months' service. The Retirement Plan provides for voluntary
employee contributions from 1% to 15% of annual compensation, subject to a
maximum limit allowed by Internal Revenue Service guidelines. The Company may
contribute such amounts to the accounts of participants in the Retirement Plan
as determined by the Board of Directors. However, to date, the Company has not
made any contribution to the Retirement Plan.
F-11
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards................. $ 1,816,595 $ 3,522,247
Plant and equipment--depreciation differences.... (13,855) 48,932
Research credit carryforwards.................... -- 34,070
Other reserves and accruals...................... 207,164 200,050
----------- -----------
Total gross deferred tax assets................ 2,009,904 3,805,299
Less valuation allowance......................... (2,009,904) (3,805,299)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
The net increase in the valuation allowance was approximately $1,796,000 and
$1,039,000 for the years ended March 31, 1997 and 1998, respectively. Due to
recent operating losses the Company believes that sufficient uncertainty
exists with respect to future realization of these deferred tax assets;
therefore, it has established a valuation allowance against all net deferred
tax assets.
The Company has net operating loss carryforwards for federal income tax
return purposes of approximately $9,500,000 which can be used to reduce future
taxable income. These carryforwards expire in 2008 through 2012. As of March
31, 1998, the Company had California operating loss carryforwards of
approximately $3,800,000 available to offset future income subject to
California franchise tax. The difference between the federal loss
carryforwards and the California loss carryforwards results primarily from a
50% limitation on California loss carryforwards, and certain research and
development costs that were deferred for California tax purposes. The
California net operating loss carryforwards expire in various amounts from
1998 through 2002. The Company also has federal and California tax credit
carryforwards of approximately $20,000 and $14,000, respectively, as of March
31, 1998. These tax credits expire through 2012.
Under the Tax Reform Act of 1986, the amounts of any benefit from net
operating losses and credits that can be carried forward may be limited in the
event of an ownership change as defined in the Internal Revenue Code, Section
382.
(5) STOCKHOLDERS' DEFICIT
Convertible Preferred Stock and Redeemable Convertible Preferred Stock
The Company has outstanding six series of preferred stock: Series A, B, C,
D, E and F. Each share of preferred stock is convertible, at the option of the
holder, into fully paid shares of common stock. The conversion rate is one-
for-one, subject to adjustments for stock dividends, stock splits and capital
reorganizations and dilution.
In January 1994 the Company issued 1,661,646 shares of Series B Redeemable
Convertible Preferred Stock at $0.365 per share. In March 1995, the Company
issued 1,488,200 shares of
F-12
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Series D Redeemable Convertible Preferred Stock at $0.875 per share. In
December 1995 and January 1996, the Company issued 1,210,068 shares of Series
C Redeemable Convertible Preferred Stock at $0.73 per share upon the exercise
of warrants outstanding. In July 1996, the Company issued 783,118 shares of
Series E Redeemable Convertible Preferred Stock at $2.00 per share. From March
1997 through February 1998, the Company issued 1,220,000 shares of Series F
Redeemable Convertible Preferred Stock and warrants to purchase 600,000 shares
of Series F Preferred Stock for $5.00 per share and an exercise price on the
warrants of $6.00 per share.
The preferred stock automatically converts to common stock upon the closing
of an underwritten public offering of shares of the Company's common stock
resulting in total proceeds of at least $7,500,000 and with a minimum share
price of at least $5.00. The holders of the preferred stock are entitled to
vote on an "as if converted" basis on all matters brought to a vote of the
Company's stockholders.
The Series B, C, D, E and F preferred stock are redeemable after January 28,
1999 upon written request of the holders of the majority of such shares,
acting as a single class. The redemption price is equal to the original
purchase price plus 12% per annum for the period the preferred stock was
outstanding, less dividends previously paid.
Shares of Series A, B, C, D, E and F preferred stock have liquidation
preferences of $0.035, $0.365, $0.73, $0.875, $2.00 and $5.00, respectively,
plus all declared but unpaid dividends.
The holders of Series A, B, C, D, E and F preferred stock are entitled to
noncumulative dividends at annual rates of $0.005, $0.03, $0.06, $0.088, $0.20
and $0.50 per share, respectively, when and if declared by the Board of
Directors.
In the event of a liquidation, consolidation, merger or winding up of the
Company prior to conversion, holders of preferred stock are entitled to
receive, in preference to the holders of common stock, an amount equal to
their liquidation preference or a pro rata share of the remaining assets,
based on their ownership of the Company.
Preferred stock issued and outstanding as of March 31, 1998 was as follows:
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AND REDEMPTION
DESIGNATED OUTSTANDING AMOUNT
---------- ------------- -----------
<S> <C> <C> <C>
Series A................................ 1,400,000 1,400,000 $ --
Series B................................ 1,913,424 1,661,644 909,385
Series C................................ 1,210,068 1,210,068 1,117,450
Series D................................ 1,686,200 1,488,200 1,767,851
Series E................................ 783,118 783,118 1,883,854
Series F................................ 1,840,000 1,220,000 6,464,763
--------- --------- -----------
8,832,810 7,763,030 $12,143,303
========= ========= ===========
</TABLE>
Warrants
In connection with lease financings, the Company has issued warrants for the
purchase of 27,124 and 115,786 shares of Series B and Series D Redeemable
Preferred Stock, at weighted average exercise prices of $0.365 and $1.53,
respectively.
F-13
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1997 and 1998, the Company issued warrants to purchase 600,000 shares
of Series F Redeemable Preferred Stock to the purchases of Series F Redeemable
Preferred Stock at an exercise price of $6.00 per share in conjunction with
the issuance of the Series F Redeemable Preferred Stock.
The fair value of all warrant issuances calculated using the Black-Scholes
option pricing model was not material, using the following assumptions:
dividend yield--none; expected life--contractual term; risk free interest
rate--6%; volatility--60. Automatic termination will occur for any remaining
warrants upon the closing of the sale of the Company's common stock in a
public offering, in which the gross proceeds exceed $7,500,000 and the
offering price of the common stock exceeds $5.00 per share.
Stock Option Plan
During fiscal 1995, the Company adopted its 1994 Stock Option Plan and the
1994 Restricted Stock Purchase Plan. On April 17, 1997, the plans were merged
into a single plan and the authorized shares were increased resulting in an
aggregate 1,200,000 shares reserved for issuance. The plan, as amended, allows
the Board of Directors to issue nonqualified stock options, incentive stock
options or restricted stock to employees, officers, directors, advisors or
contractors of the Company.
The plan expires 10 years from the date of adoption. Options and restricted
stock are granted at fair market value at date of grant for incentive stock
options or no less than 85% of fair market value at the date of grant for
nonqualified options. Options and restricted stock generally vest over 4
years, with 25% vesting after one year and monthly thereafter, and expire 10
years from grant date.
As of March 31, 1998, 94,722 shares of restricted common stock held by
management were subjected to repurchase by the Company at prices ranging from
$0.035 to $0.20 per share.
F-14
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes stock option and restricted stock activity as
if the plans had been combined at the beginning of the periods presented:
<TABLE>
<CAPTION>
WEIGHTED
AVAILABLE AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
---------- ----------- --------------
<S> <C> <C> <C>
Balances, March 31, 1995.............. 825,054 67,416 $0.07
Granted............................. (598,250) 598,250 0.09
Exercised........................... -- (182,250) 0.09
Canceled............................ 167,000 (167,000) 0.09
---------- --------- -----
Balances, March 31, 1996.............. 393,804 316,416 0.09
Granted............................. (412,000) 412,000 0.31
Exercised........................... -- (96,916) 0.16
Canceled............................ 169,542 (169,542) 0.22
Repurchased......................... 54,834 -- 0.09
---------- --------- -----
Balances, March 31, 1997.............. 206,180 461,958 0.23
Authorized.......................... 830,140 --
Granted............................. (1,020,000) 1,020,000 0.82
Exercised........................... -- (72,706) 0.12
Canceled............................ 283,940 (283,940) 0.57
Repurchased......................... 23,892 -- 0.08
---------- --------- -----
Balances, March 31, 1998.............. 324,152 1,125,312 0.68
========== ========= =====
Exercisable as of March 31, 1998...... 68,617 0.22
========= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING NUMBER OF
EXERCISE NUMBER OF CONTRACTUAL SHARES
PRICES SHARES LIFE EXERCISABLE
-------- --------- ----------- -----------
<S> <C> <C> <C>
$0.035................................... 27,416 6.5 23,418
0.09.................................... 93,542 7.4 58,294
0.20.................................... 58,354 8.2 21,104
0.40.................................... 43,000 8.6 15,980
0.75.................................... 830,000 9.5 18,438
1.50.................................... 73,000 9.8 --
--------- -------
0.035-1.50.............................. 1,125,312 137,234
========= =======
</TABLE>
The Company accounts for the plan using the intrinsic value method. As such,
compensation expense is recorded if on the date of grant the current fair
value per share of the underlying stock exceeds the exercise price per share.
With respect to certain options granted during fiscal 1998, the Company has
recorded deferred compensation of $1,055,280 for the difference at the grant
date between the exercise price per share and the fair value per share, based
upon independent valuations and management's estimate of the fair value of the
Company's stock on the various grant dates of the common stock underlying the
options. This amount is being amortized on an accelerated basis over the
vesting period of the individual options, generally four years.
F-15
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with SFAS No. 123, the Company's net loss would have
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss attributable to common
stockholders:
As reported........................ $(2,012,902) $(3,129,970) $(6,703,784)
Pro forma.......................... (2,105,200) (3,132,204) (6,727,281)
Net loss per share:
As reported basic and diluted net
loss per share.................... $ (1.07) $ (1.58) $ (3.31)
Pro forma basic and diluted net
loss per share.................... $ (1.07) $ (1.58) $ (3.32)
Shares used in computing reported
and pro forma basic and diluted
net loss per share................ 1,889,048 1,982,422 2,025,470
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions; no
dividend yield; risk free interest rate of 6.5%; and expected life for the
options of five years.
The effect of applying SFAS No. 123 for disclosing compensation costs may
not be representative of the effects on pro forma net loss for future years
because pro forma net loss reflects compensation costs only for stock options
granted in fiscal 1996, 1997 and 1998 and does not consider compensation costs
for stock options granted prior to April 1, 1995.
(6) SUBSEQUENT EVENTS
Equipment Financing
On April 1, 1998, the Company increased its equipment financing commitment
with a financial institution for financing of equipment purchases up to
$5,000,000 at interest rates of approximately 15%. The Company's ability to
draw more than $2,000,000 of this line is subject to receiving $3,000,000 of
new equity investment. Borrowing under the financing is repayable in monthly
installments of principal and interest over 48 months and is secured by a lien
on the leased equipment.
Debt Financing
On May 11, 1998, the Company negotiated a line of credit with a financial
institution for an aggregate amount of $1,500,000. The line of credit bears
interest at a minimum of 11% per annum and is secured by assets of the
Company.
Stock Based Compensation Plans
On June 12, 1998, the Stockholders approved the Company's 1998 Stock Option
Plan (the 1998 Plan). The 1998 plan reserves 1,000,000 shares plus annual
increases limited to the lesser of 500,000 shares, 3% of the Company's
outstanding common stock, or the number determined by the Board of Directors.
Also on June 12, 1998, the shareholders approved the 1998 Directors
F-16
<PAGE>
PILOT NETWORK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Stock Option Plan which reserves 200,000 shares of Common Stock and a 1998
Employee Stock Purchase Plan which reserves 200,000 shares of Common Stock.
The 1998 Employee Stock Purchase Plan provides for automatic annual increases
of the lesser of 100,000 shares, 1/2% of the Company's outstanding Common
Stock or an amount determined by the Board of Directors.
Reincorporation
On June 12, 1998, the Board of Directors approved the Company's
reincorporation in the state of Delaware and a 2 for 1 split of common and
preferred stock. Following shareholder approval, the Certificate of
Incorporation of the Delaware successor corporation will authorize 40,000,000
shares of common stock, $.001 par value per share, and 9,432,810 shares of
preferred stock, $.001 par value per share. The accompanying financial
statements have been retroactively restated to give effect to the
reincorporation and stock split.
Initial Public Offering
In June 1998, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company and certain stockholders of the Company to sell shares of the
Company's common stock in connection with a proposed initial public offering
("IPO"). If the offering is consummated under the terms presently anticipated,
all the then outstanding shares of the Company's redeemable convertible
preferred stock will automatically convert into shares of common stock on a
one-for-one basis upon the closing of the proposed IPO.
F-17
<PAGE>
PILOT'S GLOBAL EXPANSION
[Chart shows current Network Security Centers and New Centers commencing
operations in 1998 and identified on a globe. Chart indicates:
Arrows pointing to Europe and Asia to indicate anticipated
international expansion. Legend indicates the following types of
operations:
-- Pilot Network Security Centers
-- New Centers commencing operations in 1998
-- Anticipated International Expansion]
The Company currently has Network Security Centers in the San Francisco, Los
Angeles, New York and Chicago, and is commencing operations in the Boston,
Washington D.C., Minneapolis and London metropolitan areas during 1998. The
Company intends to establish additional Network Security Centers in the United
States and internationally, although there can be no assurance with respect to
the timing or extent of such expansion.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 4
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 48
Certain Relationships and Related Transactions............................ 58
Principal and Selling Stockholders........................................ 61
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 66
Underwriting.............................................................. 68
Legal Matters............................................................. 69
Experts................................................................... 70
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
[PILOT NETWORK SERVICES LOGO]
[LOGO OF ARTISAN COMPONENTS]
SHARES
COMMON STOCK
DEUTSCHE BANK SECURITIES
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST
PROSPECTUS
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale
of the Common Stock being registered hereby. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq National Market listing fee:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee....................... $ 16,539
NASD filing fee..................................................... 6,107
Nasdaq National Market listing fee.................................. 87,000
Blue Sky fees and expenses.......................................... 2,000
Printing and engraving expenses..................................... 130,000
Legal fees and expenses............................................. 300,000
Accounting fees and expenses........................................ 250,000
Directors and Officers Insurance expenses........................... 130,000
Transfer Agent and Registrar fees................................... 15,000
Miscellaneous....................................................... 63,354
----------
Total............................................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers, as well as other
employees and individuals, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with
the defense or settlement of such actions, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, bylaws, disinterested director vote, stockholder vote,
agreement or otherwise.
The Company's Restated Certificate of Incorporation limits the liability of
directors to the full extent permitted by Delaware law. Delaware law provides
that a corporation's certificate of incorporation may contain a provision
eliminating or limiting the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. The Company's Bylaws provide
that the Company shall indemnify its directors and officers and may indemnify
its employees and agents to the fullest extent permitted by law. The Company
believes that indemnification under its Bylaws covers at least negligence and
gross negligence on the part of indemnified parties.
II-1
<PAGE>
The Company intends to enter into agreements which indemnify its directors
and executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1995, the registrant has issued and sold unregistered securities
as follows:
(1) In May 1996, the Registrant issued warrants to purchase shares of Series
D Preferred Stock convertible into an aggregate of 45,000 shares of
Common Stock to a total of 2 entities at an exercise price of $2.00 per
share in connection with an equipment financing.
(2) In February and March 1997, the Registrant issued warrants to purchase
shares of Series D Preferred Stock convertible into an aggregate of
22,500 shares of Common Stock to a total of 2 entities at an exercise
price of $2.00 per share in connection with an equipment financing.
(3) In July 1996, the Registrant issued and sold shares of Series E Preferred
Stock convertible into an aggregate of 783,118 shares of Common Stock to
a total of 9 investors for an aggregate purchase price of $1,566,236.
(4) In March 1997, the Registrant issued and sold shares of Series F
Preferred Stock convertible into an aggregate of 600,000 shares of Common
Stock for an aggregate purchase price of $3,000,000 and a warrant to
purchase shares of Series F Preferred Stock convertible into an aggregate
of 300,000 shares of Common Stock at an exercise price of $6.00 per share
to one investor.
(5) In March 1997, the Registrant issued to an investment management company
shares of Series F Preferred Stock convertible into an aggregate of
20,000 shares of Common Stock in consideration of services rendered in
connection with the Registrant's issuance and sale of Series F Preferred
Stock.
(6) In December 1997, the Registrant issued and sold shares of Series F
Preferred Stock convertible into an aggregate of 400,000 shares of Common
Stock for an aggregate purchase price of $2,000,000 and a warrant to
purchase shares of Series F Preferred Stock convertible into an aggregate
of 200,000 shares of Common Stock at an exercise price of $6.00 per share
to one investor.
(7) In February 1998, the Registrant issued and sold shares of Series F
Preferred Stock convertible into 200,000 shares of Common Stock for an
aggregate purchase price of $1,000,000 and a warrant to purchase shares
of Series F Preferred Stock convertible into 100,000 shares of Common
Stock at an exercise price of $6.00 per share to one investor.
Each of the foregoing purchases and sales were exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 4(2) thereof on the basis that the transactions did
not involve public offerings.
(8) From June , 1995 through March 31, 1998, the registrant granted stock
options to purchase 1,630,000 shares of Common Stock, with exercise
prices ranging from $0.09 to
II-2
<PAGE>
$1.50 per share, to employees, consultants, and directors pursuant to its
1994 Stock Plan. Of these options, options for 502,482 have been canceled
without being exercised, options for 51,914 shares have been exercised and
options for 1,075,604 shares remain outstanding. From June 1, 1995 through
March 31, 1998, the registrant also granted stock options outside of any
plan to purchase 200,000 shares of the registrant's Common Stock, with an
exercise price of $2.00 per share. Of these options, none have been
canceled, none have been exercised and 200,000 remain outstanding.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to either Rule 701 promulgated
thereunder on the basis that these options were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to consideration, as provided by Rule 701, or pursuant
to Section 4(2) thereof on the basis that the transactions did not involve
a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and
Pilot Network Services, Inc., a California corporation.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 1994 Stock Plan, as amended, including form of stock agreements.
10.3 1998 Stock Option Plan, including form of stock option agreement.
10.4 1998 Directors' Stock Option Plan, including form of stock option
agreement.
10.5 1998 Employee Stock Purchase Plan, including form of subscription
agreement.
10.6 Amended and Restated Investors' Rights Agreement dated March 31,
1997, as amended, between the Registrant and certain holders of
the Registrant's securities.
10.7 (a) Sublease dated April 25, 1995, between the Registrant and
Computer Associates International, Inc.; (b)* Lease dated June 26,
1992 between Alameda Real Estate Investments and ASK Computers
Systems, Inc.
10.8 (a) Sublease dated March 17, 1998 between the Registrant and TCSI
Corporation; (b)* Sublease between TCSI Corporation and Computer
Associates International, Inc.; (c) Lease dated June 26, 1992
between Alameda Real Estate Investments and ASK Computers Systems,
Inc. (included in Exhibit 10.7(b)).
10.9 Industrial Complex Lease dated July 11, 1997 between the
Registrant and Great Oak, L.L.C.
10.10 Standard Office Lease dated January 14, 1998 between the
Registrant and Pacific Corporate Towers LLC., as amended February
1998.
10.11 a) Sublease dated October 25, 1995, as amended, between the
Registrant and RFG Co., Ltd.; (b) Master Lease dated June 14, 1988
between Newport Office Center I Co., and Recruit U.S.A., Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.12 (a) Sublease dated April 30, 1997 between Nippon Travel Agency Pacific, Inc. and
the Registrant; (b) Sublease dated January 23, 1992 between the Newport Office
Services and Nippon Travel Agency Pacific, Inc.; (c) Master Lease dated June 14,
1988 between Newport Office Center I Co., and Recruit U.S.A., Inc. (included in
Exhibit 10.11(b)).
10.13 Loan and Security Agreement dated May 11, 1998 between the Registrant and
Transamerica Business Credit Union.
10.14 Master Loan and Security Agreement dated September 1, 1997 between the
Registrant and Transamerica Business Credit Corporation.
10.15 Series F Preferred Stock Purchase Warrant dated March 31, 1997 between the
Registrant and the Trustees of The General Electric Pension Trust.
10.16 Series F Preferred Stock Purchase Warrant dated December 22, 1997 between the
Registrant and General Electric Capital Corporation.
10.17 Management Bonus Plan.
10.18 Stock Purchase and Restriction Agreement dated January 28, 1994, as amended,
between the Registrant, Marketta Silvera and certain of the Registrant's stockholders.
10.19 Stock Purchase and Restriction Agreement dated March 14, 1995, between the
Registrant, Marketta Silvera and certain of the Registrant's stockholders.
10.20 Stock Purchase and Restriction Agreement dated June 15, 1996 between the
Registrant, Marketta Silvera and certain of the Registrant's stockholders.
10.21 Stock Option Agreement dated May 20, 1998 between the Registrant and
William C. Leetham.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5).
27 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY
OF ALAMEDA, STATE OF CALIFORNIA, ON JUNE 22, 1998.
Pilot Network Services, Inc.
/s/ M. Marketta Silvera
By: _________________________________
M. Marketta Silvera
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints M. Marketta Silvera and William C. Leetham, and
each one of them, his attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and any related
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. This
Power of Attorney may be signed in several counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ M. Marketta Silvera President, Chief June 22, 1998
- ------------------------------------- Executive Officer and
(M. MARKETTA SILVERA) Director (Principal
Executive Officer)
/s/ William C. Leetham Sr. Vice President, June 22, 1998
- ------------------------------------- Finance and
(WILLIAM C. LEETHAM) Administration, Chief
Financial Officer,
Treasurer and Secretary
(Principal Financial
Officer)
/s/ Robert G. Carrade Vice President, Finance June 22, 1998
- ------------------------------------- and Administration
(ROBERT G. CARRADE) (Principal Accounting
Officer)
/s/ Shanda Bahles Director June 22, 1998
- -------------------------------------
(SHANDA BAHLES)
/s/ William B. Elmore Director June 22, 1998
- -------------------------------------
(WILLIAM B. ELMORE)
/s/ K. Flynn McDonald Director June 22, 1998
- -------------------------------------
(K. FLYNN MCDONALD)
/s/ Thomas O'Rourke Director June 22, 1998
- -------------------------------------
(THOMAS O'ROURKE)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and
Pilot Network Services, Inc., a California corporation.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 1994 Stock Plan, as amended, including form of stock agreements.
10.3 1998 Stock Option Plan, including form of stock option agreement.
10.4 1998 Directors' Stock Option Plan, including form of stock option
agreement.
10.5 1998 Employee Stock Purchase Plan, including form of subscription
agreement.
10.6 Amended and Restated Investors' Rights Agreement dated March 31,
1997, as amended, between the Registrant and certain holders of
the Registrant's securities.
10.7 (a) Sublease dated April 25, 1995, between the Registrant and
Computer Associates International, Inc.; (b)* Lease dated June 26,
1992 between Alameda Real Estate Investments and ASK Computers
Systems, Inc.
10.8 (a) Sublease dated March 17, 1998 between the Registrant and TCSI
Corporation; (b)* Sublease between TCSI Corporation and Computer
Associates International, Inc.; (c) Lease dated June 26, 1992
between Alameda Real Estate Investments and ASK Computers Systems,
Inc. (included in Exhibit 10.7(b)).
10.9 Industrial Complex Lease dated July 11, 1997 between the
Registrant and Great Oak, L.L.C.
10.10 Standard Office Lease dated January 14, 1998 between the
Registrant and Pacific Corporate Towers LLC., as amended February
1998.
10.11 a) Sublease dated October 25, 1995, as amended, between the
Registrant and RFG Co., Ltd.; (b) Master Lease dated June 14, 1988
between Newport Office Center I Co., and Recruit U.S.A., Inc.
10.12 (a) Sublease dated April 30, 1997 between Nippon Travel Agency
Pacific, Inc. and the Registrant; (b) Sublease dated January 23,
1992 between the Newport Office Services and Nippon Travel Agency
Pacific, Inc.; (c) Master Lease dated June 14, 1988 between
Newport Office Center I Co., and Recruit U.S.A., Inc. (included in
Exhibit 10.11(b)).
10.13 Loan and Security Agreement dated May 11, 1998 between the
Registrant and Transamerica Business Credit Union.
10.14 Master Loan and Security Agreement dated September 1, 1997 between
the Registrant and Transamerica Business Credit Corporation.
10.15 Series F Preferred Stock Purchase Warrant dated March 31, 1997
between the Registrant and the Trustees of The General Electric
Pension Trust.
10.16 Series F Preferred Stock Purchase Warrant dated December 22, 1997
between the Registrant and General Electric Capital Corporation.
10.17 Management Bonus Plan.
10.18 Stock Purchase and Restriction Agreement dated January 28, 1994,
as amended, between the Registrant, Marketta Silvera and certain
of the Registrant's stockholders.
10.19 Stock Purchase and Restriction Agreement dated March 14, 1995,
between the Registrant, Marketta Silvera and certain of the
Registrant's stockholders.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20 Stock Purchase and Restriction Agreement dated June 15, 1996
between the Registrant, Marketta Silvera and certain of the
Registrant's stockholders.
10.21 Stock Option Agreement dated May 20, 1998 between the Registrant
and William C. Leetham.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5).
27 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
_______________, by and between Pilot Network Services, Inc., a Delaware
corporation (the "Company"), and IndemniteeName~ (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
-2-
<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice
------------------
of a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
-3-
<PAGE>
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
-4-
<PAGE>
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
---
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
-5-
<PAGE>
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
-6-
<PAGE>
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of
-7-
<PAGE>
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
Pilot Network Services, Inc.
By: ___________________________________
Title: ___________________________________
Address: 1080 Marina Village Parkway
Alameda, CA 94501
AGREED TO AND ACCEPTED:
IndemniteeName~
__________________________
(Signature)
Address: IndemniteeAddress1~
IndemniteeAddress2~
-9-
<PAGE>
EXHIBIT 10.2
PILOT NETWORK SERVICES, INC.
1994 STOCK PLAN
(AS AMENDED THROUGH APRIL 24, 1998)
1. Purposes of the Plan. The purposes of this 1994 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan. The Plan is not intended to qualify as an employee stock
purchase plan under Section 423 of the Code.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Pilot Network Services, Inc., a California
-------
corporation.
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between
<PAGE>
locations of the Company or between the Company, its Subsidiaries or their
respective successors. For purposes of this Plan, a change in status from an
Employee to a consultant or from a consultant to an Employee will not constitute
a termination of employment.
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" or "ISO" means an Option intended to
---------------------- ---
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
-2-
<PAGE>
(p) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1994 Stock Plan.
----
(s) "Reporting Person" means an officer, director, or greater than ten
----------------
percent shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(u) "Restricted Stock Purchase Agreement" means an agreement in the
-----------------------------------
form approved by the Board to purchase Common Stock of the Company pursuant to
the Plan.
(v) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,700,000 shares (subject to adjustments for stock splits,
stock dividends and like transactions) of Common Stock, plus an automatic annual
increase to the shares available for issuance on the first trading day of each
of the fiscal years of the Company commencing in 1999, 2000, 2001 and 2002 by an
amount equal to the lesser of (i) three percent (3%) of the total number of the
Company's Common Stock issued and outstanding as of the last business day of the
immediately preceding fiscal year, or (ii) 300,000 shares (subject to
adjustments for stock splits, stock dividends and like transactions as provided
for in the Plan). The shares may be authorized, but unissued, or reacquired
Common Stock. If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares are repurchased by the Company pursuant
to a repurchase option under the Restricted Stock Purchase Agreement, such
Shares, unless the Plan shall have been terminated, shall become available for
reissuance under the Plan. In addition, any shares of Common Stock which are
retained by the Company upon exercise of an Option or Stock Purchase Right in
order to
-3-
<PAGE>
satisfy the exercise or purchase price for such Option or Stock Purchase Right
or any withholding taxes due with respect to such exercise shall be treated as
not issued and shall continue to be available under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, the Plan shall be administered by (A) the Board if the Board
may administer the Plan in compliance with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan. No person serving as a member of an Administrator that has
authority with respect to grants to Reporting Persons shall be eligible to
receive any grant under the Plan which would cause such member to cease to be
"disinterested" within the meaning of Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(iv) Voting. Members of the Board or Committee who are eligible
------
to acquire Options or Shares under the Plan may vote on matters affecting the
administration of the Plan, except that no such member shall act upon the
granting of Options or the sale of Shares under the Plan to such member, but any
member may be counted in determining the existence of
-4-
<PAGE>
a quorum at any meeting of the Board or Committee during which action is taken
with respect to the granting of Options or the sale of Shares to such member.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to accelerate the exercisability of any Option;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and contained in Restricted Stock Purchase Agreements;
(x) to construe and interpret the Plan and awards granted
pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options.
-5-
<PAGE>
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined as
of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with such Optionee's right or the Company's right
to terminate his or her employment or consulting relationship at any time, with
or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years from such date of effectiveness
unless sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting
-6-
<PAGE>
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted.
-7-
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee within the time
specified herein; or (ii) the Optionee is an Employee who becomes a Consultant
within the time specified herein.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her disability , Optionee may, but
only within six (6) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. However, to the extent that such
Optionee's disability does not fall within the meaning of total and permanent
disability as set forth in Section 22(e)(3) of the Code and Optionee fails to
exercise an Option which is an ISO within three (3) months of the date of
termination, the Option will not qualify for ISO treatment under the Code. To
the extent that Optionee was not entitled to exercise the Option at the date of
-8-
<PAGE>
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or any consulting
relationship, or within thirty (30) days following the termination of the
Optionee's Continuous Status as an Employee or consulting relationship, the
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee was entitled to exercise the Option at the date
of death or, if earlier, the date of termination of the consulting relationship
or Continuous Status as an Employee. To the extent that Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase and the price to be paid.
(b) Restricted Stock Purchase Agreement; Purchase Price and other
-------------------------------------------------------------
Terms. The offer shall be accepted by execution of a Restricted Stock Purchase
- -----
Agreement. The price of Shares to be purchased, the terms of payment, vesting
restrictions and other terms and conditions of the purchase of the Shares, shall
be determined by the Administrator in accordance with the California
Corporations Code and set forth in the Restricted Stock Purchase Agreement,
provided that the purchase price shall not be less than the fair market value of
such Shares at the time of purchase. Payment for the Shares may be in
installments or at one time, as the Administrator shall determine, and provision
may be made for aiding any purchaser in paying for the Shares by promissory
notes or otherwise as the Administrator may determine in its sole discretion.
-9-
<PAGE>
In addition, the Company may lend money to, or guarantee any
obligation of or otherwise assist any Participant in acquiring Shares under the
Plan whenever the Board determines that such loan or guaranty may reasonably be
expected to benefit the Company. Such loan or guaranty or other assistance, and
any promissory note accepted as payment for the Shares, shall be with interest
sufficient to avoid imputation of interest income under Sections 483 or 1274 of
the Internal Revenue Code of 1986, as amended, and may be secured or unsecured
in such manner as the Board shall approve, provided that any such loan or
promissory note shall in all events be full recourse to the Purchaser.
(c) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
Purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse such rate as the
Administrator may determine, but at a minimum rate of 20% per year.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of restricted stock purchase agreements need not be the
same with respect to each purchaser.
(e) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be
-10-
<PAGE>
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined (the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy
tax withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided,
-11-
<PAGE>
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or Stock
Purchase Right or to substitute an equivalent option, in which case such Option
or Stock Purchase Right shall terminate upon the consummation of the merger or
sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options. Options and Stock Purchase Rights may
------------------------------
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised or purchased during the lifetime of the Optionee, only by the
Optionee.
14. Time of Granting Options. The date of grant of an Option or Stock
------------------------
Purchase Right shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other date as is determined by the Board. Notice of the determination shall be
given to each Employee or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including
-12-
<PAGE>
the requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options or Stock Purchase Rights already
granted, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
In addition, any such amendment or termination of the Plan shall not affect
Shares already subject to Restricted Stock Purchase Agreements, except as
provided in said Restricted Stock Purchase Agreements, and such Restricted Stock
Purchase Agreements shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise between the
purchaser and the Administrator, which agreement must be in writing and signed
by purchaser and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, the rules and regulations promulgated
- ---------------
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange. All Options and Stock Purchase Rights issued under
the Plan shall become void in the event such approval is not obtained.
20. Information to Optionees and Purchasers. The Company shall provide
---------------------------------------
financial statements at least annually to each Optionee during the period such
Optionee has one or more
-13-
<PAGE>
Options outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options or Stock Purchase Rights under the Plan is limited to key employees
whose duties in connection with the Company assure their access to equivalent
information.
21. Compliance with Laws and Regulations. Options and Shares shall not be
------------------------------------
issued under this Plan unless the issuance and delivery of such Options or
Shares shall comply with all relevant provisions of law, including without
limitation, the Securities Act, and the rules and regulations promulgated
thereunder, state securities laws and the requirements of any stock exchange
upon which such Options or Shares may then be listed.
22. Withholding. No stock shall be granted under the Plan to any
-----------
participant until the participant has made arrangements acceptable to the Board
for the satisfaction of federal, state, and local income and social security tax
withholding obligations incident to the receipt of Stock under the Plan.
-14-
<PAGE>
STOCK OPTION AGREEMENT
BETWEEN
PILOT NETWORK SERVICES, INC.
AND
OPTIONEE~
* * * * * * * * * *
THERE IS NOT CURRENTLY, AND THERE MAY NEVER BE, A PUBLIC TRADING MARKET (SUCH AS
THE NEW YORK STOCK EXCHANGE OR THE OVER-THE-COUNTER MARKET) FOR THE SHARES OF
COMMON STOCK THAT MAY BE ACQUIRED BY EXERCISING THIS OPTION. ESTABLISHING A
PUBLIC MARKET FOR THE COMMON STOCK DEPENDS UPON A NUMBER OF FACTORS. PILOT
NETWORK SERVICES, INC. IS NOT MAKING ANY COMMITMENT THAT A PUBLIC MARKET WILL BE
ESTABLISHED IN EITHER THE NEAR OR LONG TERM. THEREFORE, YOUR ABILITY TO SELL
THE COMMON STOCK MAY EFFECTIVELY NOT EXIST OR MAY BE LIMITED TO PRIVATELY
NEGOTIATED SALES, WHICH MAY IN TURN SIGNIFICANTLY LIMIT THE TIMES AND PRICES AT
WHICH YOUR STOCK MAY BE SOLD. ACCORDINGLY, IT IS POSSIBLE THAT YOU MAY LOSE ALL
OR A PORTION OF YOUR INVESTMENT IN THESE SHARES.
THE OPTION GRANTED PURSUANT TO THIS STOCK OPTION AGREEMENT AND THE SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE OPTION OR THE SHARES UNDER THE
SECURITIES ACT, OR AN OPINION OF COUNSEL, WHICH IS SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS OPTION AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
* * * * * * * * * *
<PAGE>
You have been granted an option under the Pilot Network Services, Inc.
(the "Company") 1994 Stock Option Plan (the "Plan"). This Agreement describes
your option.
Number of Shares Your option is for NumberofShares~ shares (the
"Shares")of Common Stock of the Company.
Exercise Price You may purchase your Shares for $PricePerShare~
per share (the "Exercise Price"), which was the
fair market value of the Company's Common Stock on
GrantDate~ (the "Grant Date"), as determined by
the Company's Board of Directors.
Type of Option You have an incentive stock option ("ISO") for
NumberofShares~ shares.
Note: ISO's receive preferential treatment under
U.S. tax laws.
Vesting Commencement Date The Vesting Commencement Date of your option is
VestingCommencement~.
Exercise Price Vesting Schedule. Your right to exercise this
----------------
option vests over a four-year period as follows:
VestingSchedule~ Fractional shares shall be
rounded to the nearest whole share.
Termination of Vesting. No additional Shares
----------------------
become exercisable after your employment with the
Company or any of its Subsidiaries (as defined
under the Plan) has terminated for any reason.
During a leave of absence from the Company, no
Shares shall become exercisable.
Restrictions. The exercise of your rights to
------------
purchase any Shares is conditioned upon compliance
with the Securities Act of 1933, as amended (the
"Securities Act"), all applicable state securities
laws and all applicable requirements of any stock
exchange or over the counter market on which the
Company's Common Stock may be listed or traded at
the time of exercise.
Term Your option will expire on Expiration~ or earlier
if your employment with the Company, or any of its
Subsidiaries, is terminated as explained below.
2
<PAGE>
Termination of Employment Regular. If your employment with the Company or
-------
any of its Subsidiaries ends for any reason (other
than death or permanent disability), your option
will expire on the 30th day after your termination
date.
Death. If you die while an employee of the Company
-----
or any of its Subsidiaries, then your option will
expire twelve (12) months after the date of death.
Subject to the Company's Right of First Refusal
(as defined below), during that twelve (12) month
period, your estate, designated beneficiary (or
beneficiaries) or heirs may exercise the
unexercised vested portion of your option.
Disability. If your employment with the Company or
----------
any of its Subsidiaries ends because of your
permanent disability, then your option will expire
six (6) months after your termination date.
Leaves of Absence. For purposes of this option,
-----------------
your employment does not end if you go on a leave
of absence approved by the Company's Chief
Executive Officer in advance.
Restriction on Resale Compliance with Securities Laws. The Shares have
-------------------------------
not been registered under the Securities Act and
therefore cannot be resold and must be held
indefinitely unless they are registered under the
Securities Act or unless an exemption from such
registration is available. The certificate(s)
representing the Shares may bear a legend to that
effect. The Company is under no obligation to
register the Shares and an exemption may not be
available or may not permit you to transfer Shares
in the amounts or at the times proposed by you. In
the event the Shares are not registered under the
Securities Act but an exemption is available which
requires an investment representation or other
representation, you agree that at the time of
exercise the Shares being acquired upon exercising
this option are being acquired for investment, and
not with a view to the sale or distribution
thereof, and you agree to make such other
representations as are deemed necessary or
appropriate by the Company and its counsel.
Rule 144 promulgated under the Securities Act
permits certain resales of unregistered
securities, however, it is not presently available
with respect to the Shares and, in any event
requires that the Shares be paid for and then held
for the holding period required under Rule 144.
3
<PAGE>
In addition, the Shares cannot be resold unless
the transfer is in compliance with all applicable
state securities laws and all applicable
requirements of any stock exchange or over the
counter market on which the Company's Common Stock
may be listed or traded at the time of transfer.
Market Standoff Agreement. In connection with the
-------------------------
initial public offering of the Company's
securities and upon request of the Company or the
underwriters managing any underwritten offering of
the Company's securities, you agree not to sell,
make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any
Shares (other than those included in the
registration) without the prior written consent of
the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180
days) from the effective date of such registration
as may be requested by the Company or such
managing underwriters.
Company Restrictions. Regardless of whether the
--------------------
offering and sale of shares under the Plan have
been registered under the Securities Act or have
been registered or qualified under the securities
laws of any state, the Company may impose
restrictions upon the sale, pledge or other
transfer of such shares (including the placement
of appropriate legends on stock certificates) if,
in the judgment of the Company and its counsel,
such restrictions are necessary or desirable in
order to achieve compliance with the Securities
Act, the securities laws of any state or other law
or with restrictions imposed by the Company's
underwriters.
Company's Right of First Before any Shares held by you or any transferee
Refusal (referred to herein as the "Holder") may be sold
or otherwise transferred (including transfer by
gift or operation of law), the Company or its
assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions
set forth herein (the "Right of First Refusal").
4
<PAGE>
Notice of Proposed Transfer. The Holder of the
---------------------------
Shares will deliver to the Company a written notice
(the "Notice") stating: (i) the Holder's bona fide
intention to sell or otherwise transfer such
Shares; (ii) the name of each proposed purchaser or
other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or
other consideration for which the Holder proposes
to transfer the Shares (the "Offered Price"). The
Holder will offer the Shares at the Offered Price
to the Company or its assignee(s).
Exercise of Right of First Refusal. At any time
----------------------------------
within thirty (30) days after receipt of the
Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to
purchase all or a portion of the Shares proposed to
be transferred to any of the Proposed Transferees.
The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s)
pursuant to the Right of First Refusal shall be the
Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent
value of the non-cash consideration shall be
determined by the Board of Directors of the Company
in good faith. Payment of the Purchase Price will
be made, at the option of the Company or its
assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of
the Holder to the Company (or to the assignee, if
applicable), or by any combination thereof within
thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the
Notice.
Holder's Right to Transfer. If the Shares proposed
--------------------------
in the Notice to be transferred are not purchased
by the Company and/or its assignee(s), then the
Holder may sell or otherwise transfer such Shares
to the Proposed Transferee(s) at the Offered Price
or at a higher price, provided that such sale or
other transfer is consummated within ninety (90)
days after the date of the Notice and provided
further that the Proposed Transferee agrees in
writing that the provisions of this Agreement shall
continue to apply to the Shares in the hands of
such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed
Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First
Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
5
<PAGE>
Termination of Right of First Refusal. The Right of
-------------------------------------
First Refusal shall terminate as to any Shares
after the first sale of Common Stock of the Company
to the general public pursuant to a registration
statement filed with and declared effective by the
Securities and Exchange Commission under the
Securities Act.
Legends All certificates evidencing Shares acquired under
this Agreement in an unregistered transaction shall
bear the following restrictive legend (and such
other restrictive legends as are required or deemed
advisable under the provisions of any applicable
law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES."
If, in the opinion of the Company and its counsel,
any legend placed on a stock certificate
representing Shares sold under this Agreement is no
longer required, you shall be entitled to exchange
such certificate for a certificate representing the
same number of shares but lacking such legend. Any
determination by the Company and its counsel with
respect to legends shall be conclusive and binding
on you.
6
<PAGE>
Exercise of Option Notice of Exercise. When you wish to exercise this
------------------
option, you must notify the Company (on forms
provided by the Company) at the following address:
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, California 94501
Attn: Chief Executive Officer
Your notice must specify how many shares you wish
to purchase. The notice will be effective when it
is received by the Company's Chief Executive
Officer.
Form of Payment. When you submit your notice of
---------------
exercise, you must include payment of the Exercise
Price for the Shares you are purchasing. Payment
may be made in one (or a combination) of the
following forms:
- Your personal check, a cashier's check, or a
money order;
- Irrevocable directions to a securities
broker approved by the Company to sell your
Shares and to deliver all or a portion of
the sale proceeds to the Company in payment
of the option price. (The balance of the
sales proceeds, if any, will be delivered to
you.) This form of payment will be
acceptable only when shares of the Company's
Common Stock are registered for sale on an
established stock exchange or a national
market system, including the National Market
System of the National Association of
Securities Dealers, Inc. Automated Quotation
("NASDAQ") System. The directions must be
given by signing a form provided by the
Company.
- Any other form of payment approved by the
Company's Board of Directors.
Tax Consequences Set forth below is a brief summary as of the date
of this option of some of the federal and
California tax consequences of exercise of this
option and disposition of the Shares. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
7
<PAGE>
Exercise of ISO. If this option is an ISO,
---------------
there will be no regular federal income tax
liability or California income tax liability
upon the exercise of the option, although
the excess, if any, of the fair market value
of the Shares on the date of exercise over
the Exercise Price will be treated as an
adjustment to alternative minimum taxable
income and therefore may subject you to the
alternative minimum tax in the year of
exercise.
Exercise of NSO. If this option is not an
---------------
ISO, you will have regular federal and
California income tax liability upon the
exercise of the option. You will be treated
as having received compensation income
(taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market
value of the Shares on the date of exercise
over the Exercise Price. If you are an
employee, the Company will be required to
withhold from your compensation or collect
from you and pay to the applicable taxing
authorities an amount equal to a percentage
of this compensation income at the time of
exercise.
Disposition of Shares. In the case of an
---------------------
NSO, if Shares are held for at least one
year after the exercise date, gain or loss
realized on disposition of the Shares will
be treated as long-term capital gain or loss
for federal and California income tax
purposes. In the case of an ISO, if Shares
transferred pursuant to the option are held
for at least one year after exercise and are
disposed of at least two years after the
Grant Date, any gain realized on disposition
of the Shares will also be treated as long-
term capital gain for federal and California
income tax purposes. If Shares purchased
under an ISO are disposed of within such on
year period or within two years after the
Grant Date, any gain realized on such
disposition will be treated as compensation
income (taxable at ordinary income rates) to
the extent of the difference between the
Exercise Price and the lesser of (1) the
fair market value of the Shares on the date
of exercise, or (2) the sale price of the
Shares. The remaining gain, if any, will be
capital gain, and will be long-term capital
gain if the Shares are disposed of more than
one year after the exercise date.
8
<PAGE>
Notice of Disqualifying Disposition of ISO Shares.
-------------------------------------------------
If the option granted to you herein is an ISO, and
if you sell or otherwise dispose of any of the
Shares acquired pursuant to the ISO on or before
the later of (1) the date two years after the Grant
Date, or (2) the date one year after the date of
exercise, you shall immediately notify the Company
in writing of such disposition. You may be subject
to income tax withholding by the Company on the
compensation income recognized by you from the
early disposition by payment in cash or out of the
current earnings paid to you.
Transfer of Option Prior to your death, only you may exercise this
option, and you cannot transfer or assign this
option. However, you may dispose of this option in
your will or by specifically designating a
beneficiary (or beneficiaries) on the form provided
by the Company.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your former spouse, nor is
the Company obligated to recognize your former
spouse's interest in your option in any other way.
Employee Rights Your option or this Agreement does not give you the
right to be retained as an employee by the Company
or its Subsidiaries. The Company and its
Subsidiaries reserve the right to terminate your
employment at any time, with or without cause.
Stockholder Rights You, or your estate or heirs, have no rights as a
stockholder of the Company until a certificate for
your Shares has been issued. Except as described in
the Plan, no adjustments are made for dividends or
other rights if the applicable record date occurs
before your stock certificate is issued.
Cancellation and Regrant The Company may at any time cancel this option
without your consent, if at the same time the
Company grants you a new option with a lower option
price for the number of shares remaining under this
option.
Miscellaneous Other Agreements. The text of the Plan is
----------------
incorporated in this Agreement by reference. This
Agreement and the Plan constitute the entire
understanding between you and the Company regarding
this option. Any prior agreements, commitments or
negotiations concerning this option are superseded.
9
<PAGE>
Successors and Assigns. The Company may assign any
----------------------
of its rights under this Agreement to single or
multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer
herein set forth, this Agreement shall be binding
upon you and your heirs, executors, administrators,
successors and assigns.
Notices. Any notice required or permitted hereunder
-------
shall be given in writing and shall be deemed
effectively given upon personal delivery or upon
deposit in the United States mail by certified
mail, with postage and fees prepaid, addressed to
the other party at its address as shown below
beneath its signature, or to such other address as
such party may designate in writing from time to
time to the other party.
Applicable Law. This Agreement will be interpreted
--------------
and enforced under the laws of the State of
California.
10
<PAGE>
You acknowledge receipt of a copy of the Plan and represent that you are
familiar with the terms and provisions thereof, and hereby accepts this option
subject to all of the terms and provisions thereof. You have reviewed the Plan
and this option in their entirety, have had an opportunity to obtain the advice
of counsel prior to executing this option and fully understands all provisions
of the option. You hereby agree to accept as binding, conclusive and final all
decisions or interpretations of the Company upon any questions arising under the
Plan or this option.
PILOT NETWORK SERVICES, INC.
By:___________________________________
Its:__________________________________
Address: 1080 Marina Village Parkway
Alameda, California 94501
OPTIONEE
By:___________________________________
Optionee~
Address:______________________________
______________________________________
______________________________________
11
<PAGE>
1994 STOCK OPTION PLAN
EXERCISE NOTICE
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, CA 94501
Attention: Chief Executive Officer
1. Exercise of Option. Effective as of ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
--------
_________ shares of the Common Stock (the "Shares") of Pilot Network Services,
------
Inc., a California corporation (the "Company") pursuant to the Company's 1994
-------
Stock Option Plan, as amended (the "Plan") and the Stock Option Agreement dated
----
_________________ (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $__________ per Share for a total purchase price of $__________.
Optionee has received, read and understood the Plan and the Option Agreement and
understands that Optionee is bound by their terms and conditions, including
without limitation, the Company's Right of First Refusal and Market Standoff
Agreement set forth in the Option Agreement..
2. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Optionee is
purchasing these Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). Optionee understands that the Shares have not been registered under the
Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Optionee's investment
intent as expressed herein.
(b) Optionee further acknowledges and understands that the Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Optionee
further acknowledges and understands that the Company is under no obligation to
register the Shares. Optionee understands that the certificate(s) evidencing
the Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(c) Optionee is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the securities
exempt under Rule 701 may be resold by the Optionee
<PAGE>
ninety (90) days thereafter, subject to the satisfaction of certain of the
conditions specified by Rule 144, including, among other things: (1) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph (c), Optionee acknowledges and agrees to the restrictions set forth in
paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the time
of purchase, then the Shares may be resold by the Optionee in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than the required holding period under Rule
144, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three month period not exceeding the specified limitations
stated therein, if applicable.
(d) Optionee further understands that at the time he or she wishes to
sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Optionee would be precluded from selling the Shares under
Rule 144 or 701 even if the minimum holding period had been satisfied.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
(f) Optionee understands that Optionee may suffer adverse tax
consequences as a result of Optionee's purchase or disposition of the Shares.
Optionee represents that Optionee has consulted any tax consultants Optionee
deems advisable in connection with the purchase or disposition of the Shares and
that Optionee is not relying on the Company for any tax advice.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in the
Plan.
-2-
<PAGE>
4. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below in the Option Agreement or legends
substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be
required by state or federal securities laws, including, without limitation, any
legend required by the Commissioner of Corporations of the State of California.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached hereto.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records. The Company shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement or
(ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any Optionee or other transferee to whom such Shares shall have
been so transferred.
5. Successors and Assigns. The Company may assign any of its rights
----------------------
under the Option Agreement or the Plan, and such rights benefit of the
successors and assigns of the Company. All transferees of Shares or any
interest therein will receive and hold such Shares or interest subject to the
provisions of this Notice, the Option Agreement and the Plan. Any sale or
transfer of the Company's Shares shall be void unless the provisions of this
Notice, the Option Agreement and the Plan are satisfied.
6. Entire Agreement. The Plan and the Option Agreement are incorporated
----------------
herein by reference. This Exercise Notice, the Plan and the Option Agreement
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and shall be governed by and continued in
accordance with California law except for that body of law pertaining to
conflict of laws.
7. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
-3-
<PAGE>
The Optionee has executed this Notice as of the date first set forth above.
OPTIONEE
____________________________________
Signature
____________________________________
Printed Name
I, ________________, spouse of Optionee, have read and hereby approve this
Notice, and the Option Agreement. In consideration of Company's granting my
spouse the right to purchase the Shares as set forth in the Option Agreement, I
hereby agree to be irrevocably bound by the Notice, the Option Agreement and the
Plan and further agree that any community property or other such interest shall
hereby be similarly bound. I hereby appoint my spouse as my attorney-in-fact
with respect to any amendment or exercise of any rights under such agreements.
__________________________________
Spouse of Optionee
-4-
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
---------- -----------------------
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or transferee of such security at
the time the certificate evidencing the security is delivered to the issuee or
transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or Subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 10.3
PILOT NETWORK SERVICES, INC.
1998 STOCK OPTION PLAN
----------------------
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary (as
---------
defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section
---------------
4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
------------
(h) "Company" shall mean Pilot Network Services, Inc., a California
-------
corporation.
(i) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
--------
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an
<PAGE>
Employee to a Consultant or from a Consultant to an Employee will not constitute
a termination of employment.
(k) "Director" shall mean a member of the Board.
--------
(l) "Employee" shall mean any person (including any Named Executive,
--------
Officer or Director) employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (if
for a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
-2-
<PAGE>
(r) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the Plan.
------
(t) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1998 Stock Option Plan.
----
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
----------
Act as the same may be amended from time to time, or any successor provision.
(y) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,000,000 Shares of Common Stock (as adjusted to reflect a
two-for-one stock split effective as of ____ __, 1998), plus an annual increase
on the first day of each of the Company's fiscal years in 1999, 2000, 2001, 2002
and 2003 equal to the lesser of (i) 500,000 Shares (as adjusted to reflect a
two-for-one stock split effective as of ____ __, 1998), (ii) three percent (3%)
of the Shares outstanding on the last day of the immediately preceding fiscal
year, or (iii) such lesser number of Shares as the Board shall determine. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) COMPOSITION OF ADMINISTRATOR.
----------------------------
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
------------------------------
and by the legal requirements relating to the administration of incentive stock
option plans, if any, of
-3-
<PAGE>
applicable securities laws and the Code (collectively, the "Applicable Laws"),
---------------
grants under the Plan may (but need not) be made by different administrative
bodies with respect to Directors, Officers who are not directors and Employees
who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
-----------------------------------------------------
respect to grants of Options to Employees or Consultants who are also Officers
or Directors of the Company, grants under the Plan shall be made by (A) the
Board, if the Board may make grants under the Plan in compliance with Rule 16b-3
and Section 162(m) of the Code as it applies so as to qualify grants of Options
to Named Executives as performance-based compensation, or (B) a Committee
designated by the Board to make grants under the Plan, which Committee shall be
constituted in such a manner as to permit grants under the Plan to comply with
Rule 16b-3, to qualify grants of Options to Named Executives as performance-
based compensation under Section 162(m) of the Code and otherwise so as to
satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
--------------------------------------------
to grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed pursuant to
-------
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
-4-
<PAGE>
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
-------- -------
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) TYPE OF OPTION. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
--------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 20 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
-------- -------
Option, the term shall be
-5-
<PAGE>
no more than ten (10) years from the date of grant thereof or such shorter term
as may be provided in the Option Agreement. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in this Plan, the maximum number of Shares which may be subject to options
granted to any one Employee under this Plan for any fiscal year of the Company
shall be 1,000,000 (as adjusted to reflect a two-for-one stock split effective
as of ____ __, 1998).
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be such price as is determined
by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant; or
(B) granted to any person other than a Named Executive,
the per Share exercise price shall be no less than 85% of the Fair Market Value
per Share on the date of grant.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined
-6-
<PAGE>
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) any combination of the foregoing methods
of payment, or (8) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3)
-7-
<PAGE>
months in the case of an Incentive Stock Option or six (6) months in the case of
a Nonstatutory Stock Option, as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the optionee does not exercise such Option (which he or she
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding twelve (12) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
-8-
<PAGE>
(e) RULE 16B-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. WITHHOLDING TAXES. As a condition to the exercise of Options granted
-----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than the applicable taxes, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
--------
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to
-9-
<PAGE>
which the Option is exercised but such Optionee shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.
13. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution; provided that the Administrator
may in its discretion grant transferable Nonstatutory Stock Options pursuant to
option agreements specifying (i) the manner in which such Nonstatutory Stock
Options are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or a transferee permitted by this Section 13.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the shareholders
----------
of the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a (i) proposed sale
of all or substantially all of the assets of the Company, or (ii) a merger,
consolidation or other capital reorganization of the Company (other than one in
which the holders of more than fifty percent (50%) of the shares of capital
stock of the Company outstanding immediately prior to such transaction continue
to hold (either by the voting securities remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by
-10-
<PAGE>
the voting securities of the Company, or such surviving entity, outstanding
immediately after such merger or consolidation), the Option shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
For purposes of this Section 14(b), an Option shall be considered assumed,
without limitation, if, at the time of issuance of the stock or other
consideration upon such merger or sale of assets, each Optionee would be
entitled to receive upon exercise of an Option the same number and kind of
shares of stock or the same amount of property, cash or securities as the
Optionee would have been entitled to receive upon the occurrence of such
transaction if the Optionee had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 14).
15. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
- -------- -------
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 20 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
shareholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code.
-11-
<PAGE>
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
--------------------
approval under Section 16(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 20 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
20. SHAREHOLDER APPROVAL.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such shareholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the
-12-
<PAGE>
Company obtained after such registration shall be solicited substantially in
accordance with Section 14(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 20(b) hereof, then the Company shall, at or prior to
the first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
-13-
<PAGE>
PILOT NETWORK SERVICES, INC.
1998 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee's Name and Address:
Optionee~
OptioneeAddress1~
OptioneeAddress2~
You have been granted an option to purchase Common Stock of Pilot Network
Services, Inc., (the "Company") as follows:
-------
Board Approval Date: ___________________________
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): GrantDate~
Exercise Price Per Share: ExercisePrice~
Total Number of Shares Granted: SharesGranted~
Total Price of Shares Granted: TotalExercisePrice~
Type of Option: NoSharesISO~ Shares Incentive Stock
Option
NoSharesNSO~ Shares Nonstatutory
Stock Option
Term/Expiration Date: Term/ExpirDate~
Vesting Commencement Date: VestingStartDate~
Vesting Schedule: VestingSchedule~
Termination Period: Option may be exercised for a period of
90 days after termination of employment
or consulting relationship except as
set out in Sections 7 and 8 of the
Stock Option Agreement (but in no event
later than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the Pilot Network Services, Inc. 1998 Stock Option Plan
and the Stock Option Agreement, all of which are attached and made a part of
this document.
OPTIONEE: PILOT NETWORK SERVICES, INC.
__________________________________ By:_________________________________
SIGNATURE
__________________________________ TITLE:______________________________
PRINT NAME
-2-
<PAGE>
PILOT NETWORK SERVICES, INC.
STOCK OPTION AGREEMENT
----------------------
1. GRANT OF OPTION. Pilot Network Services, Inc., a California
---------------
corporation (the "Company"), hereby grants to the Optionee named in the Notice
-------
of Stock Option Grant attached to this Agreement ("Optionee"), an option (the
--------
"Option") to purchase the total number of shares of Common Stock (the "Shares")
- ------- ------
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to
--------------
the terms, definitions and provisions of the 1998 Stock Option Plan (the "Plan")
----
adopted by the Company, which is incorporated in this Agreement by reference.
In the event of a conflict between the terms of the Plan and the terms of this
Agreement, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms used in this Agreement shall have the meanings defined in
the Plan.
To the extent designated an Incentive Stock Option in the Notice of Stock
Option Grant, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and, to the extent not so designated, this Option is intended to be a
- -----
Nonstatutory Stock Option.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) RIGHT TO EXERCISE.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in paragraphs
(iii) and (iv) below.
(iii) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Stock Option
Grant.
(iv) If designated an Incentive Stock Option in the Notice of
Stock Option Grant, in the event that the Shares subject to this Option (and all
other Incentive Stock Options granted to Optionee by the Company or any Parent
or Subsidiary) that vest in any calendar year have an aggregate fair market
value (determined for each Share as of the Date of Grant of the option covering
such Share) in excess of $100,000, the Shares in excess of $100,000 shall be
treated as subject to a Nonstatutory Stock Option, in accordance with Section 5
of the Plan.
(b) METHOD OF EXERCISE.
------------------
(i) This Option shall be exercisable by delivering to the Company a
written notice of exercise (in the form attached as Exhibit A) which shall state
---------
the election to
<PAGE>
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such Shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee
agrees to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
------------
-2-
<PAGE>
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
-----------
Date"), exercise this Option during the Termination Period set out in the Notice
- ----
of Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified in the Notice of Stock Option Grant, the
Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified in this
Agreement, the Option shall terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee:
-----------------
(a) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee or Consultant since
the date of grant of the Option, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had Optionee continued living and remained in Continuous
Status as an Employee or Consultant three (3) months after the date of death,
subject to the limitation contained in Section 2(i)(d) above in the case of an
Incentive Stock Option; or
(b) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 10 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution.
The designation of a beneficiary does not constitute a transfer. An Option may
be exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
-3-
<PAGE>
10. TERM OF OPTION. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by reference,
shall confer upon Optionee any right with respect to continuation as an Employee
or Consultant with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) DISPOSITION OF SHARES. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is
-4-
<PAGE>
a Nonstatutory Stock Option, then gain realized on the disposition of Shares
will be treated as long-term or short-term capital gain depending on whether or
not the disposition occurs more than one year after the exercise date. In the
case of either an Incentive Stock Option or a Nonstatutory Stock Option, the
long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes as a maximum rate of 28% if the Shares are held more than
one year but less than 18 months after exercise and at 20% if the Shares are
held more than 18 months after exercise.
(d) NOTICE OF DISQUALIFYING DISPOSITION. If the Option granted to
-----------------------------------
Optionee in this Agreement is an Incentive Stock Option, and if Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to the Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
13. SIGNATURE. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
-5-
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Pilot Network Services, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Pilot Network
Services, Inc. Common Stock, under and pursuant to the Company's 1998 Stock
Option Plan and the Stock Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ____________________________
The shares should be issued as follows:
Name: ___________________________
Address: ___________________________
___________________________
___________________________
Signed: ___________________________
Date: ___________________________
<PAGE>
EXHIBIT 10.4
PILOT NETWORK SERVICES, INC.
1998 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Pilot Network Services, Inc., a Delaware
-------
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
--------
(g) "Employee" shall mean any person, including any officer or
--------
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
--------
(l) "Outside Director" shall mean a Director who is not an Employee.
----------------
<PAGE>
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1998 Directors' Stock Option Plan.
----
(o) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares may
----
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. If Shares which were acquired upon exercise of an Option
are subsequently repurchased by the Company, such Shares shall not in any event
be returned to the Plan and shall not become available for future grant under
the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who is an Outside Director on the
effective date of this Plan shall automatically be granted an Option to purchase
5,000 Shares on the effective date of this Plan (the "Initial Option").
--------------
(iii) Each Outside Director who becomes an Outside Director after
the effective date of this Plan shall be automatically granted an Option to
purchase 25,000 Shares (the "First Option") on the date on which such person
------------
first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board of Directors to fill a vacancy.
<PAGE>
(iv) Each Outside Director shall thereafter be automatically
granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the date
-----------------
of each Annual Meeting of the Company's stockholders immediately following which
such Outside Director is serving on the Board, provided that, on such date, he
or she shall have served on the Board for at least six (6) months prior to the
date of such Annual Meeting.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors receiving an
Option on such date on the automatic grant date. Any further grants shall then
be deferred until such time, if any, as additional Shares become available for
grant under the Plan through action of the stockholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
(vi) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
stockholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 17 hereof.
(vii) The terms of each Initial Option granted hereunder shall
be as follows:
(1) the Initial Option shall be exercisable only which the
Outside Director remains a Directors of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be equal to the
price at which Shares are first sold to the public pursuant to the Company's
registration statement under the Securities Act of 1933, as amended, relating to
the Company's initial public offering of securities; and
(3) the Initial Option shall become exercisable on the
first anniversary of the date of grant of the Initial Option.
(viii) The terms of each First Option granted hereunder shall be
as follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
<PAGE>
(3) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
each of the first, second, third and fourth anniversaries of the date of grant
of the Option.
(ix) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and
(3) the Subsequent Option shall become exercisable as to
one hundred percent (100%) of the Shares subject to the Subsequent Option on the
first anniversary of the date of grant of the Subsequent Option.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the President or his or
-----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such
<PAGE>
misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof.
8. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board; provided, however, that where there is a public market for the Common
-------- -------
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
---------------
Journal. With respect to any Options granted hereunder concurrently with the
- -------
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.
(c) FORM OF CONSIDERATION. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
<PAGE>
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board) from the date of such termination, exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the
<PAGE>
date of termination, or if he or she does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as Director for six (6) months (or such lesser period of time as is
determined by the Board) after the date of death. Notwithstanding the foregoing,
in no event may the Option be exercised after its term set forth in Section 7
has expired.
(ii) Three (3) months after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each outstanding
Option, and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
- -------- -------
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall
<PAGE>
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of (i) a dissolution or
----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, or (iii) a merger, consolidation or other capital
reorganization of the Company (other than one in which the holders of more than
fifty percent (50%) of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such merger or consolidation) (any such
transaction described in (i), (ii) or (iii) referred to herein as a "Corporate
---------
Transaction"), (A) an Optionee shall have the right to exercise his or her
- -----------
Option as to all of the Optioned Stock, including Shares as to which the Option
would not otherwise be exercisable, immediately prior to the consummation of
such of such Corporate Transaction, and (B) the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the successor corporation
does not agree to such assumption or substitution, in which case the Option
shall terminate upon the consummation of such Corporate Transaction. For
purposes of this Section 11(b), an Option shall be considered assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
such Corporate Transaction, each Optionee would be entitled to receive upon
exercise of an Option the same number and kind of shares of stock or the same
amount of property, cash or securities as the Optionee would have been entitled
to receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 11).
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
- -------- ----
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
<PAGE>
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such stockholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
stockholder approval.
<PAGE>
EXHIBIT 10.5
PILOT NETWORK SERVICES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Pilot Network Services, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Pilot Network Services, Inc., a Delaware
-------
corporation.
(e) "Compensation" shall mean all regular straight time gross earnings
------------
and commissions, and shall not include payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
--------
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period of
-------------
the Plan.
(l) "Offering Date" shall mean the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" shall mean a period of twelve (12) months
---------------
commencing on January 1 and July 1 of each year, except for the first Offering
Period as set forth in Section 4(a).
(n) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value (as defined in Section 7(b) below) of a Share of Common Stock on
the Offering Date or on the Purchase Date, whichever is lower; provided,
however, that in the event (i) the Company's stockholders approve an increase in
the number of Shares available for issuance under the Plan, and (ii) all or a
portion of such additional Shares are to be issued with respect to one or more
Offering Periods that are underway at the time of such stockholder approval
("Additional Shares"), and (iii) the Fair Market Value of a Share of Common
- -------------------
Stock on the date of such approval (the "Approval Date Fair Market Value") is
-------------------------------
higher than the Fair Market Value on the Offering Date for any such Offering
Period, then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market
Value of a Share of Common Stock on the Purchase Date, whichever is lower.
(r) "Share" shall mean a share of Common Stock, as adjusted in
-----
accordance with Section 19 of the Plan.
(s) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code;
-2-
<PAGE>
provided, however, that eligible Employees may not participate in more than one
Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the
Fair Market Value (as defined in Section 7(b) below) of such stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
-------------------------------------
(a) OFFERING PERIODS. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or about May 1 and November 1 of each year (or at such other time
or times as may be determined by the Board of Directors). The first Offering
Period shall commence on the beginning of the effective date of the Registration
Statement on Form S-1 for the initial public offering of the Company's Common
Stock (the "IPO Date") and continue until October 31, 2000. The Plan shall
--------
continue until terminated in accordance with Section 19 hereof. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on May 1 shall end on April 30 two years later. A
Purchase Period commencing on November 1 shall end on October 31 two years
later. The first Purchase Period shall commence on the IPO Date and shall end
on April 30, 1999. The Board of Directors of the Company shall have the power
to change the duration and/or frequency of Purchase Periods with respect to
future purchases without stockholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Purchase
Period to be affected.
5. PARTICIPATION.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which
-3-
<PAGE>
shall be not less than 1% and not more than 20%) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
----------------------------------
(a) The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than ten percent (10%) (or such greater percentage as the
Board may establish from time to time before an Offering Date, which percentage
shall not exceed twenty percent (20%)) of such participant's Compensation on
each such payday; provided however that the Board shall have the authority to
increase the maximum percentage which participants may have deducted from their
Compensation to an amount not in excess of twenty percent (20%) of a
participant's Compensation on each such payday. All payroll deductions made by
a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period,
may decrease the rate of his or her Contributions during the Offering Period by
completing and filing with the Company a new subscription agreement. The change
in rate shall be effective as of the beginning of the next calendar month
following the date of filing of the new subscription agreement, if the agreement
is filed at least ten (10) business days prior to such date and, if not, as of
the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. GRANT OF OPTION.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided, however, that the maximum number of
Shares an Employee may purchase during each Offering
-4-
<PAGE>
Period shall be 2,000 Shares, and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing price of the Common Stock for such date (or, in
the event that the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported by the National Association of Securities
Dealers Automated Quotation (Nasdaq) National Market or, if such price is not
reported, the mean of the bid and asked prices per share of the Common Stock as
reported by Nasdaq or, in the event the Common Stock is listed on a stock
exchange, the Fair Market Value per share shall be the closing price on such
exchange on such date (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal. For purposes of the Offering Date under the first Offering
- --------------
Period under the Plan, the Fair Market Value of a share of the Common Stock of
the Company shall be the Price to Public as set forth in the final prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424 under the
Securities Act of 1933, as amended.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. The Shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any cash remaining to the credit of a participant's account
under the Plan after a purchase by him or her of Shares at the termination of
each Purchase Period, or which is insufficient to purchase a full Share, shall
be carried over to the next Purchase Period if the Employee continues to
participate in the Plan, or if the Employee does not continue to participate,
shall be returned to said participant.
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of
-5-
<PAGE>
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on the
--------------------
first Purchase Date of an Offering Period is less than the Fair Market Value of
the Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. INTEREST. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. STOCK.
-----
(a) The maximum number of Shares which shall be made available for
sale under the Plan shall be 200,000 Shares, plus an annual increase on the
first day of each of the Company's fiscal years in 1999, 2000, 2001, 2002 and
2003 equal to the lesser of (i) 100,000 Shares, (ii) one-half of one percent
(1/2%) of the Shares outstanding on the last day of the immediately preceding
fiscal year, or (iii) such lesser number of Shares as is determined by the
Board, subject to adjustment upon changes in capitalization of the Company as
provided in Section 19. If the total number of Shares which would otherwise be
subject to options granted pursuant to Section 7(a) on the Offering Date of an
Offering Period exceeds the number of Shares then available under the Plan
(after deduction of all Shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the Shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of Shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
-6-
<PAGE>
14. ADMINISTRATION. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. DESIGNATION OF BENEFICIARY.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. TRANSFERABILITY. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. USE OF FUNDS. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of Shares
purchased and the remaining cash balance, if any.
-7-
<PAGE>
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per Share of Common Stock
--------
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of (i) a proposed sale of all or substantially all of
the assets of the Company, or (ii) a merger, consolidation or other capital
reorganization of the Company (other than one in which the holders of more than
fifty percent (50%) of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such merger or consolidation), each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Purchase Date (the "New Purchase Date"). If the Board
-----------------
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Purchase
Date, that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each Share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares of
Common Stock); provided, however, that if such
-------- -------
-8-
<PAGE>
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in Fair Market Value to the per Share consideration received by holders of
Common Stock in the sale of assets, merger, consolidation or other
reorganization.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
------------------------
(a) The Board may at any time terminate or amend the Plan. Except as
provided in Section 19, no such termination may affect options previously
granted, provided that an Offering Period may be terminated by the Board on a
Purchase Date if the Board determines that the termination of the Plan is in the
best interests of the Company and the stockholders or if continuation of an
Offering Period would cause the Company to incur adverse accounting charges
resulting from a change in the generally accepted accounting rules applicable to
such plan. Except as provided in Section 19, no amendment make any change in
any option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-9-
<PAGE>
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
----------------------------
the earlier to occur of its adoption by the Board of Directors or its approval
by the stockholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
PILOT NETWORK SERVICES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the Pilot
Network Services, Inc. 1998 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can decrease the rate of my Contributions on one occasion only
during any Offering Period by completing and filing a new Subscription Agreement
with such decrease taking effect as of the beginning of the calendar month
following the date of filing of the new Subscription Agreement, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that, unless
I discontinue my participation in the Plan as provided in Section 10 of the
Plan, my election will continue to be effective for each successive Offering
Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Pilot Network Services, Inc. 1998 Employee
Stock Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ____________________________________
(First) (Middle) (Last)
_____________________ ____________________________________
(Relationship) (Address)
____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
-2-
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE: ________________________
SOCIAL SECURITY #: ________________
DATE: _____________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
___________________________________
(Signature)
___________________________________
(Print name)
-3-
<PAGE>
PILOT NETWORK SERVICES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Pilot Network Services, Inc. 1998 Employee Stock Purchase Plan (the "Plan")
----
for the Offering Period _________. This withdrawal covers all Contributions
credited to my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ____________________________________________
Signature of Employee
____________________________________________
Social Security Number
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (this "AGREEMENT") is
made and entered into as of March 31, 1997 by and among Pilot Network Services,
Inc., a California corporation (the "COMPANY"), M. Marketta Silvera ("SILVERA")
and the investors listed on Schedule 1 attached hereto (referred to herein
----------
individually as an "INVESTOR" and collectively as the "INVESTORS").
RECITALS
A. The Company and certain of its shareholders entered into an Investors'
Rights Agreement ("EXISTING RIGHTS AGREEMENT") dated July 18, 1996 pursuant to
which the Company granted certain registration rights to such shareholders.
B. The Company and a certain Investor (the "SERIES F INVESTOR") propose to
enter into a Series F Stock and Warrant Purchase Agreement dated as of the date
hereof (the "SERIES F PURCHASE AGREEMENT") pursuant to which such Investor has
agreed to purchase shares of Series F Preferred Stock (the "SERIES F SHARES")
and a warrant for the purchase of Series F Preferred Stock (the "SERIES F
WARRANT") from the Company.
C. The execution and delivery of this Agreement by the Company and such
Investor are conditions to the purchase of the Series F Shares by the Series F
Investor. Accordingly, the Company and the Investors deem it necessary and
advisable and in their best interests, and the Company also deems it in the best
interests of the shareholders of the Company, to amend and restate the Existing
Rights Agreement and grant the Series F Investor the registration rights
provided herein, subject to execution of this Agreement by the Investors.
D. As a material inducement and consideration to each Series F Investor to
enter into the Series F Purchase Agreement and to perform its obligations
thereunder, the Company and the other Investors have agreed to enter into,
execute and deliver this Agreement on the terms and subject to the conditions
set forth below.
AGREEMENT
NOW, THEREFORE, on the basis of the preceding facts, and as a material
inducement and consideration to the Series F Investor to enter into the Series F
Purchase Agreement and to perform its obligations thereunder, and in
consideration of mutual covenants set forth below, the parties to this Agreement
agree as follows:
1. Registration Rights.
-------------------
1.1 Definitions. For the purposes of this Agreement, the following words
-----------
shall have the meanings set forth below:
<PAGE>
(a) "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Common Stock" means the Company's Stock.
(c) "Company's Notice" shall have the meaning set forth in Section 1.2
hereof.
(d) "Initiating Holders" means the holders of Registrable Stock
initially requesting registration of Registrable Stock pursuant to Section 1.2
of this Agreement.
(e) "Investor Notice" shall have the meaning forth in Section 1.4
hereof.
(f) "Long-Form Registration Statement" means a registration statement
on Form S-1 or Form S-2 or any similar form of registration statement adopted by
the Commission from and after the date hereof.
(g) "Prospective Sellers" shall have the meaning set forth in Section
1.7(a)(ii) hereof.
(h) "Series F Purchase Agreement" shall have the meaning set forth in
Recital B to this Agreement.
(i) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the subsequent declaration or ordering of
the effectiveness of such registration statement or document.
(j) "Registrable Stock" means (i) any Common Stock issued or issuable
upon conversion of the Series A, Series B, Series C, Series D, Series E or
Series F Preferred Stock held by the Investors, and the Series B Preferred Stock
and the Series F Preferred Stock, if any, issued upon exercise of any warrants
held by the Investors (the "CONVERSION SHARES"); (ii) any Common Stock held by
Silvera (the "FOUNDERS SHARES"); (iii) any Common Stock issued or issuable with
respect to the Conversion Shares or Founders Shares by reason of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization; (iv) any other
shares of Common Stock now held or hereafter acquired by persons holding the
securities described in clauses (i) and (ii) above; (v) any Common Stock issued
or issuable upon the conversion of the Series D Preferred Stock held by the
Warrant Holders, and the Series D Preferred Stock, if any, issued upon exercise
of any Warrants held by the Warrant Holders (provided that the securities
described in this subsection (v) shall be considered "Registrable Stock" only
with respect to Sections 1.4, 1.5, 1.7, 1.8, 1.9, 1.12, 1.13, 1.14, 1.15 and
1.16 hereof); and (vi) any Common Stock issued or issuable upon the conversion
of the Series D Preferred Stock held by Glen McLaughlin, and the Series D
Preferred Stock, if any, issued upon exercise of any warrants held by Glen
McLaughlin; provided, however, that Common Stock or other securities shall only
be treated as Registrable Securities if and so long as they have not been (A)
sold to or through a broker or dealer or underwriter in a
-2-
<PAGE>
public distribution or a public securities transaction or (B) sold in
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon
consummation of such sale. For purposes of Section 1.2(a) and Section 3.8,
Registrable Securities shall not include the Founder's Shares. A person shall be
deemed to be a holder of Registrable Stock when such person has a right to
acquire such Registrable Stock (by conversion or otherwise) regardless of
whether such acquisition has actually been effected.
Subject to the assignment provisions contained in Section 1.15, each
share of Registrable Stock shall continue to be Registrable Stock in the hands
of each subsequent holder thereof; provided that each share of Registrable Stock
shall cease to be Registrable Stock when transferred to any person who is not
affiliated with a holder in accordance with a registered public offering or in
accordance with Rule 144 promulgated by the Commission under the Securities Act.
For the purposes of this Agreement, the officers, directors and shareholders, in
the case of a corporation, and the partners, in the case of a partnership, of a
holder, without limitation, shall be deemed to be affiliated with such holder.
(k) "Requesting Holders" shall have the meaning set forth in Section
1.2 hereof.
(l) "Securities Act" means the Securities Act of 1933, as amended.
(m) "Series F Shares" shall have the meaning set forth in Recital B to
this Agreement.
(n) "Series F Warrant" shall have the meaning set forth in Recital B
to this Agreement.
(o) "Short-Form Registration Statement" means a registration statement
on Form S-3 or any similar form of registration statement adopted by the
Commission from and after the date hereof.
(p) "Warrant Holders" shall mean MMC/GATX Partnership No. 1 and
Phoenix Leasing Incorporated. Each Warrant Holder shall be admitted to this
Agreement as an "Investor," but only to the extent necessary for the exercise of
their rights as holder of Registrable Stock.
1.2 Required Registrations.
----------------------
(a) Demand Registration. If, at any time after the earlier to occur
-------------------
of March 15, 1999 or the date that is six (6) months after the effective date of
the first registration statement filed by the Company covering an offering of
the Company's securities (other than a registration relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a Rule 145 transaction, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Stock), holders of at least
-3-
<PAGE>
twenty five percent (25%) of the Registrable Stock then outstanding propose to
dispose of, pursuant to a Long-Form Registration Statement, at least twenty five
percent (25%) of the Registrable Stock then outstanding, then such holders may
request the Company in writing to effect such registration, stating the form of
registration statement under the Securities Act to be used, the number of shares
of Registrable Stock to be disposed of and the intended method of disposition of
such shares.
(b) Short-Form Registration. If at any time at which the Company is
-----------------------
entitled to file a registration statement on a Short-Form Registration
Statement, holders of at least twenty percent (20%) of the Registrable Stock,
excluding Founders Shares, then outstanding propose to dispose of Stock pursuant
to a Short-Form Registration Statement, then such holders may request the
Company in writing to effect such registration, stating the form of registration
statement under the Securities Act to be used, the number of shares of
Registrable Stock to be disposed of and the intended method of disposition of
such shares; provided that, if the Company has, within the twelve (12) month
period preceding the date of such request, already effected one registration via
a Short-Form Registration Statement pursuant to this Section 1.2(b), then the
Company shall not be obligated to effect any such registration until at least
twelve (12) months have expired from the effective date of the last Short-Form
Registration Statement, and; provided, further, however, that the Company shall
not be obligated to effect any such registration pursuant to this Section 1.2(b)
if the holders propose to sell Registrable Stock at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than $500,000
or in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service or process in
effecting such registration, qualification or compliance.
(c) Upon receipt of the request of the Initiating Holders pursuant to
Section 1.2(a) or 1.2(b) above, the Company shall give prompt written notice
thereof to all other holders of Registrable Stock. Subject to the provisions of
Section 1.3 below, the Company shall use its best efforts promptly to effect the
registration under the Securities Act of all shares of Registrable Stock
specified in the requests of the Initiating Holders and the requests (stating
the number of shares of Registrable Stock to be disposed of and the intended
method of disposition of such shares) of other holders of shares of Registrable
Stock ("REQUESTING HOLDERS") given within 15 days after receipt of such notice
from the Company.
1.3 Limitations on Required Registrations.
-------------------------------------
(a) The Company shall not be required to prepare and file more than
two (2) Long-Form Registration Statements, which actually become or are declared
effective, at the request of holders of Registrable Stock pursuant to Section
1.2(a) hereof. The foregoing, however, shall not limit the Company's obligation
from time to time to prepare and file up to one (1) Short-Form Registration
Statement each twelve (12) months if requested by holders of Registrable Stock
pursuant to Section 1.2(b) hereof.
(b) Only Common Stock may be included in a registration, and, whenever
a registration requested by the holders of Registrable Stock is for a firmly
under written offering, if the underwriters determine, in their sole discretion,
that the number of shares of Common Stock
-4-
<PAGE>
so included which are to be sold by the holders of Registrable Stock is limited
due to market conditions, the holders (including both the Initiating Holders and
the Requesting Holders) of Registrable Stock proposing to sell their shares in
such underwriting and registration shall share pro rata in the available portion
of the registration in question, such sharing to be based upon the number of
shares of Registrable Stock then held by such holders, respectively. The
underwriters may reduce the number of shares of Registrable Securities to be
included in the initial public offering of the Company's Common Stock at their
sole discretion; provided that, the number of shares of Registrable Securities
requesting inclusion in any post-initial public offering registration actually
registered in such offering shall not be reduced below thirty percent (30%) of
the requesting shares without the consent of a majority of the Initiating
Holders and the Requesting Holders. If any holder of Registrable Stock
disapproves of the terms of the underwriting, such holder may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The Registrable Stock so withdrawn shall also be withdrawn from
registration; provided, however, that, except with respect to Company-initiated
registration statements, if by the withdrawal of such Registrable Stock a
greater number of shares of Registrable Stock held by other holders of
Registrable Stock may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
holders of Registrable Stock who have included Registrable Stock in the
registration the right to include additional Registrable Stock in the same
proportion used in determining the limitation imposed by the provisions of this
Section 1.3(b). The right of a holder of Registrable Stock to participate in an
underwritten offering shall be conditioned upon such holder accepting the terms
of the underwriting and entering into an underwriting agreement in customary
form with the underwriter(s) selected for such underwriting by the Company
(c) The Company shall not be required to prepare and file a
registration statement pursuant to Section 1.2 hereof which would become
effective within 180 days following the effective date of a registration
statement filed by the Company with the Commission pertaining to an underwritten
public offering of securities for cash for the account of the Company or if the
Initiating Holders' request for registration is received by the Company
subsequent to such time as the Company in good faith gives written notice to the
holders of Registrable Stock that the Company is commencing to prepare a
Company-initiated registration statement and the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective.
(d) Notwithstanding the foregoing, if the Company shall furnish to the
Initiating and Requesting Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided, however, that the Company may not utilize
this right more than once in any 12-month period.
1.4 Incidental Registration. If the Company at any time proposes to
-----------------------
register any of its securities for sale for its own account or for the account
of any other person (other than a
-5-
<PAGE>
registration relating either to the sale of securities to employees of the
Company pursuant to a stock option, stock purchase or similar plan or a Rule 145
transaction, or a registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of Registrable Stock), it shall each such time give
written notice (the "COMPANY'S NOTICE"), at its expense, to all holders of
Registrable Stock of its intention to do so at least 30 days prior to the filing
of a registration statement with respect to such registration with the
Commission. If any holder of Registrable Stock desires to dispose of all or part
of such stock, it may request registration thereof in connection with the
Company's registration by delivering to the Company, within thirty (30) days
after receipt of the Company's Notice, written notice of such request (the
"PIGGYBACK NOTICE") stating the number of shares of Registrable Stock to be
disposed of and the intended method of disposition of such shares by such holder
or holders. The Company shall use its best efforts to cause all shares of
Registrable Stock specified in the Piggyback Notice to be registered under the
Securities Act so as to permit the sale or other disposition (in accordance with
the intended methods thereof as aforesaid) by such holder or holders of the
shares so registered, subject, however, to the limitations set forth in Section
1.5 hereof.
1.5 Limitations on Incidental Registration.
--------------------------------------
(a) If the registration of which the Company gives notice pursuant to
Section 1.4 above is for the purpose of permitting a disposition of securities
by the Company pursuant to a firm commitment underwritten offering, the notice
shall so state, and the Company shall have the right to limit the aggregate size
of the offering or the number of shares to be included therein by shareholders
of the Company if requested to do so in good faith by the managing underwriter
of the offering and only securities which are to be included in the underwriting
may be included in the registration.
(b) Whenever the number of shares which may be registered pursuant to
Section 1.4 is limited by the provisions of Section 1.5(a) above, the Company
shall have priority as to sales over the holders of Registrable Stock and each
holder hereby agrees that it shall withdraw its securities from such
registration to the extent necessary to allow the Company to include all the
shares which the Company desires to sell for its own account to be included
within such registration; provided that, except with respect to the first Long-
Form Registration Statement effected by the Company on its own initiative, in no
event shall the Registrable Stock requested to be included pursuant to Section
1.4 above be reduced below thirty percent (30%) of the total amount of
securities included in such offering. The holders of Registrable Stock given
rights by Section 1.4 above shall share pro rata (as a single class) in the
available portion of the registration in question, such sharing to be based upon
the number of shares of such stock then held by each of such holders,
respectively.
1.6 Designation of Underwriter. In the case of any registration initiated
--------------------------
by the holders of Registrable Stock pursuant to the provisions of Section 1.2
hereof which is proposed to be effected pursuant to a firm commitment
underwriting, the Company shall have the right to designate the managing
underwriter, and all holders of Registrable Stock participating in the
registration shall sell their shares only pursuant to such underwriting;
provided, however, that so
- -------- -------
-6-
<PAGE>
long as the Trustees of the General Electric Pension Fund (the "GE FUND") shall
hold any Registrable Stock and GE Fund sells Registrable Stock pursuant to a
registration under Section 1.2 or 1.4 hereof, if the General Electric Company
has a 5% or more interest, direct or indirect, in an underwriter participating
in such registration, GE Fund shall have the right to approve or disapprove the
participation of such underwriter in such registration.
1.7 Registration Procedures.
-----------------------
(a) If and when the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of shares of
Registrable Stock the Company shall:
(i) prepare and file with the Commission a registration statement
with respect to such shares and use its best efforts to cause such registration
statement to become and remain effective for up to 120 days as provided herein;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective and current for up to 120 days and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all shares
covered by such registration statement, including such amendments and
supplements as may be necessary to reflect the intended method of disposition
from time to time of the holder or holders of such shares who have requested
that any of their shares be sold or otherwise disposed of in connection with the
registration (the "PROSPECTIVE SELLERS");
(iii) furnish to each Prospective Seller such number of copies of
each prospectus, including preliminary prospectuses, in conformity with the
requirements of the Securities Act, and such other documents, as the Prospective
Seller may reasonably request in order to facilitate the public sale or other
disposition of the shares owned by it;
(iv) use its best efforts to register or qualify the shares
covered by such registration statement under such other securities or blue sky
or other applicable laws of such jurisdictions as each Prospective Seller shall
reasonably request to enable such seller to consummate the public sale or other
disposition of the shares owned by such seller; provided that, the Company shall
not be required in connection therewith or as a election thereto to qualify to
do business or to file a general consent to service of process in any such
jurisdiction.
(v) upon written request, furnish to each Prospective Seller a
signed counterpart, addressed to the Prospective Sellers and their underwriters,
if any, of: (A) an opinion of counsel for the Company, dated the effective date
of the registration statement; and (B) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the registration statement; covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and (in the case of the accountants' letter) with respect to
the events subsequent to the date of the financial statements, as are
customarily covered (at the time of such registration) in the opinions of
issuers' counsel and in accountants' letters delivered to the underwriters in
connection with underwritten public offerings of securities;
-7-
<PAGE>
(vi) cause all such shares to be listed on each securities
exchange on which similar securities issued by the Company are then listed;
(vii) provide a transfer agent and registrar for all such shares
not later than the effective date of such registration statement;
(viii) perform its obligation under an underwriting agreement and
take all such other customary actions as the holders of a majority of the shares
being sold reasonably request in order to expedite or facilitate the disposition
of such shares; and
(ix) make available for inspection by any Prospective Seller or
managing underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such Prospective Seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company as reasonably
requested by such Prospective Seller or underwriter, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such Prospective Seller, underwriter, attorney, accountant or agent in
connection with the preparation of such registration statement.
(b) Each Prospective Seller of such shares shall furnish to the
Company such information as the Company may reasonably require from the
Prospective Seller for inclusion in the registration statement (and the
prospectus included therein) and shall also enter into and perform any
obligations under an underwriting agreement.
(c) The Prospective Sellers shall not (until further notice) effect
sales of the shares covered by the registration statement after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a registration statement or prospectus.
1.8 Expenses of Registration.
------------------------
(a) All expenses incurred in effecting any registration requested
pursuant to Section 1.2 or 1.4 hereof, including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company, reasonable
fees and disbursements for one counsel for the holders of Registrable Stock and
expenses of any audits incidental to or required by any such registration,
("REGISTRATION EXPENSES") shall be borne by the Company; provided, however, that
(i) each Prospective Seller shall bear underwriting discounts or brokerage fees
or commissions relating to the sale of its shares; and (ii) the Company shall be
required to bear the Registration Expenses for a maximum of two (2) Long Form
Registration Statements and not more than one (1) Short Form Registration
Statement within any twelve (12) month period.
(b) All Registration Expenses incurred in effecting any Long-Form
Registration Statement after the second Long-Form Registration Statement (if
permitted by the Company) or more than one (1) Short-Form Registration Statement
in any twelve (12) month period (if permitted by the Company) shall be borne pro
rata by the holders of the Registrable
-8-
<PAGE>
Stock included in such registration, in accordance with the number of shares
being sold in such registration.
(c) Notwithstanding the foregoing, the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to either
Section 1.2(a) or 1.2(b) if the registration request is subsequently withdrawn
at the request of the holders of a majority of the Registrable Stock to be
registered (in which case all participating holders shall bear such expenses),
unless the holders of a majority of the Registrable Stock agree to forfeit their
right to one (1) paid demand registration pursuant to the subsection of Section
1.2(a) under which the request was made; provided, however, that if at the time
of such withdrawal, the holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the
Initiating Holders at the time of their request, then the holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 1.2.
1.9 Indemnification.
---------------
(a) The Company shall indemnify and hold harmless each holder
requesting or joining in a registration of such securities and each of its
officers, directors, partners and agents, each underwriter (as defined in the
Securities Act) and each controlling person of any holder or underwriter, if
any, (within the meaning of the Securities Act) (collectively the "HOLDER") with
respect to which registration or qualification of Registrable Stock has been
effected pursuant to this Agreement, against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which such
Holder may be subject under the Securities Act, under any other federal or state
regulation or statute or at common law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement (or alleged untrue statement) of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any other document, or (ii) any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any violation by the Company of the
Securities Act or any Blue Sky law, or any rule or regulation promulgated under
the Securities Act or any Blue Sky law, or any other law, applicable to the
Company in connection with any such registration, qualification or compliance
((i), (ii) and (iii) are each referred to hereafter as a "VIOLATION"), and shall
reimburse each such Holder for any legal or other expenses reasonably incurred
by such Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to any Holder in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or omission made in such registration statement, preliminary
prospectus, summary prospectus, prospectus, or amendment or supplement thereto,
or any other document, in reliance upon and in conformity with written
information furnished to the Company by such Holder specifically for use
therein.
-9-
<PAGE>
(b) Each holder requesting or joining in a registration of such
securities whose Registrable Stock are included in the securities as to which
registration or qualification is being effected pursuant to this Agreement,
shall indemnify and hold harmless the Company, each underwriter (as defined in
the Securities Act) and each controlling person of the Company or underwriter,
if any, (within the meaning of the Securities Act) and any other Holder selling
securities with respect to which registration or qualification has been effected
pursuant to this Agreement, against any losses, claims, damages or liabilities,
joint or several (or actions in respect thereof), to which the Company,
underwriter, controlling person or Holder may be subject under the Securities
Act, under any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon written information furnished by the
holder expressly for use in connection with such registration, and shall
reimburse the Company, underwriter, controlling person or Holder for any legal
or other expenses reasonably incurred by the Company, underwriter, controlling
person or Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the holder shall not
be liable to the Company, underwriter, controlling person or Holder in any such
case to the extent that any such loss, claim, damage or liability exceeds the
net proceeds from the offering received by such holder from the underwriters.
The indemnity provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company,
underwriter, controlling person or Holder.
(c) If the indemnification provided for in Section 1.9(a) or 1.9(b)
above is unavailable to an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, then the indemnifying party in lieu
of indemnifying such indemnified party thereunder shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, expenses or liabilities, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party, or by the indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 1.9(c) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9(c), no holder
shall be required to contribute any amount in excess of the amount by
-10-
<PAGE>
which the total price at which the Registrable Stock sold by it exceeds the
amount of any damages which such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentations (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(d) Promptly after receipt by an indemnified party under Section
1.9(a) or 1.9(b) above of notice of the commencement of any action, such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such Sections or to any liability under this Section 1.9
the extent that it has not been prejudiced as a proximate result of such
failure. In case any such action shall be brought against any indemnified
party, and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties). Upon the permitted assumption
by the indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under this Section 1.9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time, (iii) the indemnifying party and its
counsel do not actively and vigorously pursue the defense of such action or (iv)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
1.10 Inclusion of Additional Shares in Required Registrations; Other
---------------------------------------------------------------
Company Initiated Registrations. The Company shall not register securities for
- -------------------------------
sale for the account of any other person in any registration requested by the
holders of Registrable Stock pursuant to Section 1.2 hereof unless permitted to
do so by the written consent of holders who hold at least fifty percent (50%) of
the Registrable Stock as to which registration has been requested. The Company
may not cause any other registration of securities for sale for its own account
or for the account of any other person to become effective within 180 days after
the effective date of any registration requested by the holders of Registrable
Stock pursuant to Section 1.2 hereof.
1.11 Rights which May Be Granted to Other Persons. The Company shall not
--------------------------------------------
grant any person registration rights which shall in any way whatsoever impair
the priority of the registration rights granted to the Investors in this
Agreement.
-11-
<PAGE>
1.12 Rule 144 Requirements. Immediately after the date on which a
---------------------
registration statement filed by the Company under the Securities Act becomes
effective, the Company shall undertake to make publicly available, and available
to the holders of Registrable Stock, such information as is necessary to enable
the holders of Registrable Stock to make sales of such stock pursuant to Rule
144 of the Commission under the Securities Act. The Company shall furnish to
any such holder, upon request, a written statement executed by the Company as to
the steps it has taken to comply with the current public information
requirements of Rule 144.
1.13 Delay of Registration. No holder of Registrable Stock shall have any
---------------------
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.14 Holdback. If the Company files a registration statement in
--------
connection with an underwritten public offering, a holder of Registrable Stock
shall not effect any sale or distribution of any shares (except pursuant to such
registration statement) of the capital stock of the Company, whether now owned
or hereafter acquired, during the period requested by the underwriters
commencing with the effective date of such registration statement and ending on
the close of business on a date which is not more than one hundred and eighty
(180) days thereafter or such time as the registration statement is withdrawn,
whichever is earlier; provided however that all officers and directors of the
Company enter into similar agreements.
1.15 Assignment of Registration Rights. The rights to cause the Company
---------------------------------
to register Registrable Stock pursuant to this Agreement may be assigned (but
only with all related obligations) by the Investors to a transferee or assignee
(other than a competitor of the Company) of such securities who, after such
assignment or transfer, holds at least 40,000 shares of the Registrable Stock
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations) originally purchased by such Investor
(assuming exercise of all Warrants), provided (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.14; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act. A transfer of
any Registrable Stock by the Investors to a partner or affiliate of such
Investors shall be exempt from the minimum shareholding requirements of this
Section 1.15.
1.16 Termination of Registration Rights. Neither the Investors nor
----------------------------------
Silvera shall be entitled to exercise any right provided for in this Agreement
(a) after seven (7) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Securities
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public or (b) at such time as a holder holds
Registrable Stock constituting less than one percent (1%) of the outstanding
voting stock of the Company.
-12-
<PAGE>
2. Right of First Refusal.
----------------------
2.1 Rights of Investors. If at any time prior to the expiration date of
-------------------
the period set forth in Section 2.5 below, the Company determines to issue any
additional shares of its capital stock, or warrants, options, rights or other
securities convertible into its capital stock, (collectively the "EQUITY
SECURITIES"), the Company shall first give each of the current holders of Series
A, Series B, Series C, Series D, Series E and Series F Preferred Stock (the
"RIGHTHOLDERS"), the right to purchase such Rightholders' pro rata share (as
defined below) of such Equity Securities in order to allow each Rightholder to
maintain its percentage interest in the Company by delivering to them a written
offer which shall state the price and other terms and conditions of the proposed
issuance. If the Company proposes to issue the Equity Securities for
consideration other than solely cash and/or promissory notes, the offer to the
Rightholders shall, to the extent of such consideration, permit the Rightholders
to pay in lieu thereof, cash equal to the fair market value (as determined in
good faith by the Board of Directors of the Company) of such consideration, and
the offer shall state the Company's estimate of such fair market value. The
Board of Directors shall fix the period of the offer which shall be a minimum of
30 days or such longer period as is necessary to determine the fair market value
of the consideration referred to in the preceding sentence.
2.2 Acceptance of Company Offer. A Rightholder may accept an offer only
---------------------------
by giving written notice to the Company before the offer expires that such
Rightholder has accepted the offer to purchase some or all of the securities
offered (the "ACCEPTED SECURITIES"); provided, however, that the maximum number
or amount of Equity Securities a Rightholder shall be entitled to purchase shall
be equal to that number or amount of securities to be issued multiplied by a
fraction, the numerator of which shall be the aggregate number of shares of
outstanding Common Stock and/or Preferred Stock (calculated on an as converted
basis) held by such Rightholder and the denominator of which shall be the
aggregate number of outstanding shares of Common Stock and/or Preferred Stock
(calculated on an as converted basis) as of the time the written offer by the
Company under Section 2.1 is given and prior to the issuance of the Equity
Securities subject to the offer.
Promptly following the expiration of the offer, the Company shall allocate
the securities subscribed for among the Rightholders accepting or partially
accepting the offer (the "SUBSCRIBING HOLDERS"), pro rata, based upon their
respective holdings as aforesaid, and shall by written notice (the "ACCEPTANCE
NOTICE") advise all Subscribing Holders of the number or amount of securities
allocated to each of the Subscribing Holders. Within ten (10) days following
receipt of the Acceptance Notice, each of the Subscribing Holders shall deliver
to the Company payment in full for the Accepted Securities purchased by it
against delivery by the Company to each Subscribing Holder of a certificate or
certificates evidencing the Accepted Securities purchased by such Subscribing
Holder.
2.3 Issuances to Third Parties. To the extent the offer is not subscribed
--------------------------
by the Rightholders, the Company may, for a period of ninety (90) days
thereafter, issue and sell the unaccepted securities, or any of them, upon terms
and conditions no less favorable to the Company than those specified in such
offer, to any person or persons.
-13-
<PAGE>
2.4 Excluded Transactions. Notwithstanding the provisions of this Section
---------------------
2, the Company shall not be required to first offer the Equity Securities to the
Rightholders if:
(a) The issuance by the Company is pursuant to the conversion of any
shares of the Series A, Series B, Series C, Series D, Series E or Series F
Preferred Stock, or upon the exercise of the Warrants to the purchase Series B,
Series C, Series D or Series F Preferred Stock of the Company;
(b) The issuance by the Company is of stock or options granted under
an employee or non-employee director stock plan approved by the Board of
Directors;
(c) The issuance by the Company is a result of the acquisition of the
assets or stock of another company in exchange for shares of capital stock of
the Company;
(d) The issuance by the Company is pursuant to a registration
statement filed under the Securities Act;
(e) The issuance by the Company is of Common Stock upon conversion or
exercise of any Equity Security which was not subject to the rights set forth in
this Section 2 or for which such rights were not exercised;
(f) The issuance by the Company is of Equity Securities in connection
with corporate partnering arrangements or other strategic relationships in terms
approved by the Company's Board of Directors; provided, however, that such
relationship is not with an entity whose primary business is financial
investments;
(g) The issuance by the Company is of warrants as of the date hereof
which are exercisable for shares of stock of the Company or the issuance is of
warrants exercisable for up to an additional 10,000 (as adjusted to reflect
stock dividends, stock splits or like transactions) shares of stock of the
Company, or the issuance of stock upon exercise of such warrants, in connection
with leasing of equipment or purchase of equipment for the Company;
(h) The issuance by the Company is of convertible debt or warrants
issued as of the date hereof, or the issuance is of warrants or convertible debt
exercisable for up to an additional 50,000 (as adjusted to reflect stock
dividends, stock splits or like transactions) shares of stock of the Company, or
the issuance of stock upon exercise or conversion of such securities, to banks
or other similar financial institutions (as designated by the Company's Board of
Directors) in connection with debt financing transactions; or
(i) The issuance by the Company is of shares of Series A, Series B,
Series C, Series D or Series E Preferred Stock or of Series F Shares pursuant to
the Series F Purchase Agreement.
2.5 Termination. All rights granted in this Section 2 shall terminate
-----------
upon (a) the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act covering the
offer and sale of the Common Stock of the
-14-
<PAGE>
Company in which all outstanding Preferred Stock of the Company is converted
into Common Stock of the Company, and (b) with respect to each Rightholder, at
such time as a Rightholder holds securities of the Company constituting less
than one percent (1%) of the outstanding voting stock of the Company, whichever
is earlier.
2.6 Waiver. The right of first refusal provided under this section may be
------
waived only by each individual holder with respect to the then outstanding
shares of Common Stock owned by such Rightholder (assuming conversion of all
shares of Preferred Stock and exercise of any options or warrants held by said
Rightholder).
2.7 Assignment of Rights of First Refusal. The right of first refusal
-------------------------------------
granted under this Section 2 may only be assigned by a Rightholder to a
transferee or assignee if the Rightholder transfer at least 40,000 shares
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations) of the Company's Common Stock
(treating all shares of Preferred Stock for this purpose as though converted
into Common Stock).
2.8 Prior Agreements. The provisions of this Section 2 states the entire
----------------
understanding of the parties regarding rights of first refusal with respect to
issuances of stock by the Company, and shall be deemed to amend and restate in
all respects the rights of first refusal provisions contained in the Existing
Rights Agreement.
3. Miscellaneous.
-------------
3.1 Adjustments Affecting Registrable Securities. The Company shall not
--------------------------------------------
effect a stock split or combination of shares or take any other action, or
permit any change to occur, with respect to its equity securities, which would
adversely affect at such time the ability of the holders of Registrable Stock to
include such stock in a registration undertaken pursuant to this Agreement or
which would adversely affect the marketability of such stock in any such
registration.
3.2 Notices. All notices, demands or other communications hereunder shall
-------
be in writing and shall be deemed given when delivered personally, mailed by
certified mail, return receipt requested, sent by overnight courier service or
telecopied, telegraphed or telexed (transmission confirmed), or otherwise
actually delivered: (i) if to the Company to
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, CA 94501
Attn: M. Marketta Silvera;
if to the Investors to the addresses indicated on Schedule 1; and if to Silvera
to
99 Tappan Lane
Orinda, California 94563,
-15-
<PAGE>
or at such other address and numbers as may have been furnished by such person
in writing to the other parties.
3.3 Severability and Governing Law. Should any Section or any part of a
------------------------------
Section within this Agreement be rendered void, invalid or unenforceable by any
court of law for any reason, such invalidity or unenforceability shall not void
or render invalid or unenforceable any other Section or part of a Section in
this Agreement. This Agreement is made and entered into in the State of
California and the laws of said state shall govern the validity and
interpretation hereof and the performance by the parties hereto of their
respective duties and obligation hereunder.
3.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
3.5 Captions and Section Headings. Section titles or captions contained
-----------------------------
in this Agreement are inserted as a matter of convenience and for reference
purposes only, and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
3.6 Singular and Plural, Etc. Whenever the singular number is used herein
-------------------------
and where required by the context, the same shall include the plural, and the
neuter gender shall include the masculine and feminine genders.
3.7 Costs and Attorneys' Fees. In the event that any action, suit, or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall recover all of such party's costs, and attorneys' fees
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom. As used herein, "attorneys' fees" shall
mean the full and actual costs of any legal services actually rendered in
connection with the matters involved, calculated on the basis of the usual fee
charged by the attorneys performing such services.
3.8 Amendments and Waivers. Neither this Agreement nor any term hereof
----------------------
may be changed, waived, discharged or terminated orally or in writing, except
that any term of this Agreement may be amended and the observance of any such
term may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company,
the holders of at least a majority of the Registrable Stock then in existence
and the holders of a majority of the Registrable Stock issued or issuable upon
conversion of the Series F Preferred Stock; or, to the extent provided in
Section 2.6, by the individual holder; or, to the extent provided in the proviso
to Section 1.6, by GE Fund; provided, however, that no such amendment or waiver
shall affect the provisions of this Section 3.8, no such waiver shall extend to
or affect any other obligation not expressly waived, and no such waiver shall
effect any rights granted hereunder to Founder Shares unless all holders of such
stock join in any such written consent.
-16-
<PAGE>
3.9 Successors and Assigns. All rights, covenants and agreements of the
----------------------
parties contained in this Agreement shall, except as otherwise provided herein,
be binding upon and inure to the benefit of their respective successors and
assigns.
3.10 Specific Performance. The parties hereto agree that the capital
--------------------
stock of the Company cannot be purchased or sold in the open market and that,
for these reasons, among others, the parties will be irreparably damaged in the
event that this Agreement is not specifically enforceable. Accordingly, in the
event of any controversy concerning the capital stock which is the subject of
this Agreement, or any right or obligation to register such securities, such
right or obligation shall be enforceable in a court of equity by specific
performance. The rights granted in this Section 3.10 shall be cumulative and
not exclusive, and shall be in addition to any and all other rights which the
parties hereto may have hereunder, at law or in equity.
3.11 Termination of Existing Rights Agreement. This Agreement contains
----------------------------------------
the entire understanding of the parties, and there are no further or other
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof. The signatories to this Agreement (other
than the Company), as the holders of more than fifty percent (50%) in interest
of the Registrable Securities (as defined in the Existing Rights Agreement),
hereby agree that the Existing Rights Agreement is hereby amended and restated
in its entirety by this Agreement, and the Existing Rights Agreement shall be of
no further force or effect.
3.12 Trustees Not Liable. Any obligation of The Trustees of General
-------------------
Electric Pension Trust shall be enforceable solely against the assets of such
Pension Trust and not against any Trustee (individually or in the aggregate) or
GEPT Investment Management Incorporated.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
THE "COMPANY"
PILOT NETWORK SERVICES, INC.,
a California corporation
By:/s/ M. Marketta Silvera
------------------------------
M. Marketta Silvera, President
THE "INVESTORS"
EL DORADO VENTURES III, L.P.,
a California limited partnership
By: El Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
------------------------------
EL DORADO TECHNOLOGY IV, L.P.,
a California limited partnership
By: El Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
------------------------------
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: El Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
------------------------------
-18-
<PAGE>
JEFFREY T. WEBBER
By: /s/ Jeffrey T. Webber
--------------------------------------
Jeffrey T. Webber
WILLIAM B. ELMORE
By: /s/ William B. Elmore
--------------------------------------
William B. Elmore
MARKETTA SILVERA
By: /s/ Marketta Silvera
--------------------------------------
Marketta Silvera
TECHNOLOGY FUNDING VENTURES PARTNERS V, AN
AGGRESSIVE GROWTH FUND, L.P., a Delaware
limited partnership
By: Technology Funding, Inc., Managing
General Partner
By: /s/ Gregory T. George
--------------------------------------
Its: Vice President
-------------------------------------
-19-
<PAGE>
O'ROURKE INVESTMENTS CORPORATION, a
California corporation
By: /s/ Thomas O'Rourke
-----------------------------
Title: President
---------------------------
LAMBDA IV, LLC, a Delaware limited liability
company
By: /s/ Anthony Lamport
-----------------------------
Title: Manager
---------------------------
GLEN MCLAUGHLIN
By: /s/ Glen McLaughlin
-----------------------------
Glen McLaughlin
WILLIAM E. KIRSCH
By: /s/ William E. Kirsch
-----------------------------
William E. Kirsch
STEVEN M. COSTELLA, TRUSTEE, OR
SUCCESSOR TRUSTEE, OF THE
STEVEN M. COSTELLA TRUST,
DATED MAY 8, 1989
By: /s/ Steven M. Costella
-----------------------------
Its:
----------------------------
-20-
<PAGE>
PHOENIX LEASING INCORPORATED
By: /s/ illegible
--------------------------------------
Title:
-----------------------------------
MMC/GATX PARTNERSHIP NO. 1
By: GATX Capital Corporation,
as agent
By: /s/ illegible
--------------------------------------
Title:
-----------------------------------
GLEN WALLACE MCLAUGHLIN
By: /s/ Glen Wallace McLaughlin
--------------------------------------
HELEN ELIZABETH MCLAUGHLIN O'ROURKE
By: /s/ Helen Elizabeth McLaughlin O'Rourke
--------------------------------------
THE TRUSTEES OF THE GENERAL ELECTRIC PENSION
TRUST
By: /s/ David H. Wrederecht
--------------------------------------
Title: Trustee
----------------------------------
-21-
<PAGE>
SCHEDULE 1
LIST OF INVESTORS
El Dorado Ventures III, L.P.
20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
El Dorado Technology IV, L.P.
20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
El Dorado C&L Fund, L.P.
20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
Technology Funding Ventures Partners V,
an Aggressive Growth Fund, L.P.
2000 Alameda de las Pulgas
San Mateo, California 94403
Attn: Gregory George
Jeffrey Webber
R.B. Webber & Company
1717 Embarcadero Road, Suite 2000
Palo Alto, California 94303
William Elmore
6 Tevis Place
Palo Alto, California 94306
O'Rourke Investment Corporation
12930 Saratoga Avenue, Suite B-7
Saratoga, California 95070
Attn: Thomas O'Rourke
Lambda IV, L.L.C.
Lambda Fund Management, Inc.
380 Lexington Avenue, 54th Floor
New York, New York 10168
Attn: Anthony Lamport
<PAGE>
Glen McLaughlin
Venture Leasing Associates
14016 Camino Barco
Saratoga, California 95070
William E. Kirsch
c/o Costella Kirsch, Inc.
873 Santa Cruz Avenue
Suite 207
Menlo Park, California 94025
Steven M. Costella, Trustee, or Successor Trustee,
of the Steven M. Costella Trust dated 5/8/89
c/o Costella Kirsch, Inc.
873 Santa Cruz Avenue
Suite 207
Menlo Park, California 94025
Phoenix Leasing Incorporated
2401 Kerner Boulevard
San Rafael, CA 94901-5529
Attn: Margaret Peterson
MMC/GATX Partnership No. 1
c/o GATX Capital Corporation
4 Embarcadero Center
Suite 2200
San Francisco, California 94111
Attn: Contract Administrator
The Trustees of the General Electric Pension Trust
c/o G. E. Investments
3003 Summer Street
Stamford, CT 06904-7900
Attn: David H. Wiederecht
-2-
<PAGE>
EXHIBIT 10.7
THIS SUBLEASE (the "Sublease") is entered into as of the date set forth in
Section 1.l(e) below, by and between the Sublandlord and the Subtenant set forth
below.
WITNESSETH
----------
1. SUBLEASE SUMMARY AND DEFINITIONS.
---------------------------------
1.1. The Sublease provisions and definitions set forth in this Section 1.1
in summary form are solely to facilitate convenient reference by the parties. If
there is any conflict between this Section and any other provisions of this
Sublease, the latter shall control.
(a) Sublandlord's Name COMPUTER ASSOCIATES
and address: INTERNATIONAL, INC.
1 Computer Associates Plaza
Islandia, N.Y. 11788-7000
Attn: Senior Vice President - Facilities
(b) Sublandlord's State of
Incorporation: Delaware
(c) Subtenant's Name and
address: PILOT NETWORK SERVICES, INC.
1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA
ATTN: PRESIDENT AND CEO
(d) Subtenant's State of
Incorporation:
(e) Sublease Date: April _____, 1995
(f) Overlandlord's Name and
Address: Alameda Real Estate Investors
Vintage Properties
393 Vintage Park Drive
Suite 210
Foster City, CA 94404
(g) Overlease: Lease dated June 25, 1992 between
Overlandlord and Sublandlord as amended
by Amendment No. 1 dated January 29,
1993 and Amendment No. 2 dated December
1, 1994.
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(h) Unincorporated provisions
of the Overlease: Articles: 2B, 2C, 3A, 3B(xv), 3C, 3D, 4B, 4C,
4E, 4H, 5, 14, 32, 36, 45 and 46
Exhibits: A, B, B1 and C
(i) Building: 1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA
(j) Premises: 16,293 Rentable Square Feet on the 5th floor,
except during the first 12 months (see
Section 2.2)
(k) Sublease Commencement
Date: July 1, 1995
(1) Sublease Expiration Date: June 30, 2000
(m) Base Rent:
Annual
Rent per rentable
Yearly Periods square foot Monthly Base Rent Annual Base Rent
- -------------- ----------------- ----------------- ----------------
7/1/95 - 6/30/96 $14.40 $12,000.00 $144,000.00
7/1/96 - 6/30/97 $19.20 $26,068.80 $312,825.60
7/1/97 - 6/30/98 $21.00 $28,512.75 $342,153.00
7/1/98 - 6/30/99 $22.80 $30,956.70 $371,480.40
7/1/99 - 6/30/00 $24.60 $33,400.65 $400,807.80
(n) Prepaid Base Rent: $36,000.00
(o) Operating Expenses: Increases over base year of 1995 (See Article
13) adjusted to 95% occupancy. Real estate
tax base shall be fiscal year beginning 1995.
(p) Subtenant's Proportionate 12% in first 12 months
Share: 19.6% thereafter
Subtenant's proportionate share may decrease
during the Sublease Term if Sublandlord's
leased square footage increases.
(q) Electric Charge: Included in rent (See Article 15)
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(r) Security Deposit: $75,000 in form of Letter of Credit (See
Article 16)
(s) Alterations: SEE ARTICLES 7 AND 15
(t) Brokers: For Sublandlord: BT Commercial
For Subtenant: BT Commercial
(u) Parking: Per Overlease
(v) Renewal: One option at the end of the Sublease Term
through September 30, 2004 with the Base Rent
equal to 95% of Fair Market Value. (See
Article 19)
2. SUBLEASE GRANT
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2.1. By lease (hereinafter referred to as the "Overlease") described above,
the Overlandlord leased to Sublandlord certain space (hereinafter called the
"Leased Space") in the Building in accordance with the terms of the Overlease. A
copy of the Overlease (from which certain terms which do not relate to
Subtenant's obligations hereunder may have been deleted) is annexed hereto as
EXHIBIT A.
2.2. In consideration of the obligation of Subtenant to pay rent as herein
provided and in consideration of the other terms, covenants and conditions
hereof, Sublandlord hereby leases to Subtenant and Subtenant hereby hires from
Sublandlord, upon and subject to the provisions of this Sublease and the
Overlease, the square feet of rentable area as set forth in SECTION 1.1 herein
(comprising a portion of the Leased Space) and as shown hatched on EXHIBIT B
annexed hereto and made a part hereof (hereinafter called the "Premises").
Notwithstanding the foregoing, during the first twelve (12) months from the
Sublease Commencement Date, the Premises shall only consist of 10,000 rentable
square feet as set forth on EXHIBIT C. In the event Subtenant occupies any space
other than the space set forth in EXHIBIT C during the first twelve (12) months
of this Sublease without Sublandlord's written approval, Subtenant hereby agrees
that this Sublease will automatically be deemed amended so that the Premises
shall be 16,293 rentable square feet as of the first date of such unauthorized
usage, and Subtenant shall thereupon be responsible for payment of Base Rent and
Additional Rent with respect to the 16,293 rentable square feet.
3. SUBLEASE TERM
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3.1. Subject to the other provisions hereof, this Sublease shall continue
in full force and effect for a primary term beginning on the Sublease
Commencement Date and ending on the Sublease Expiration Date as defined above.
Such term, as it may be extended or modified only by written agreement of the
parties or pursuant to an express provision of this Sublease, is herein called
the "Sublease Term".
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4. RENT
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4.1. Subtenant, in consideration of this Sublease agrees to pay to
Sublandlord as rent ("Base Rent") the amounts set forth in Section 1.1 hereof.
Base Rent is payable in advance and without demand, at Sublandlord's office (or
such other location as Sublandlord shall designate) by check in equal monthly
installments, on the first day of each month during the Sublease Term without
any set-off, off-set, abatement or reduction whatsoever. Subtenant's failure to
receive an invoice from Sublandlord for the rent shall not relieve Subtenant
from its obligation of timely payment hereunder. The Prepaid Base Rent shall be
paid upon Subtenant's execution of this Sublease.
4.2. As used in this Sublease, "Rent" shall mean the Base Rent, the
Operating Expense reimbursements pursuant to Section 1.1, and all other monetary
obligations provided for in this Sublease to be paid by Subtenant, all of which
constitute rental in consideration for this Sublease.
4.3. In the event the rent is not paid within five (5) business days
after it is due as aforesaid, interest shall accrue thereon at the lesser of 21%
per annum or the maximum rate permitted by law. In addition, if the rent is not
paid by the tenth day of any given month, Subtenant shall pay as a penalty to
Sublandlord an additional amount equal to five percent (5%) of the rent which is
due, but not less than $100.
5. ASSIGNMENT OR UNDERLETTING
--------------------------
5.1. Subtenant shall not (a) assign this Sublease, nor (b) permit this
Sublease to be assigned by operation of law or otherwise, nor (c) underlet all
or any desk space therein to be occupied by any person(s), without first
obtaining:
(a) Overlandlord's consent and all other required consents to such
assignment or subletting as set forth in and pursuant to the
Overlease, and
(b) Sublandlord's consent.
Notwithstanding anything hereinbefore contained in Section 5.1
hereof, in the event Subtenant desires Sublandlord's consent to an assignment of
this Sublease or an underletting of all of the Premises, Subtenant by notice in
writing (a) shall notify Sublandlord of the name of the proposed assignee or
undertenant, furnish such information as to the proposed assignee's or
undertenant's financial responsibility and standing as Sublandlord may require,
and advise Sublandlord of the covenants, agreements, terms, provisions and
conditions contained in the proposed assignment or underlease and (b) shall
offer to vacate the Premises and to Surrender the same to Sublandlord as of a
date (hereafter called the "Surrender Date") specified in said offer which shall
be the last day of any calendar month during the term hereof, provided, however,
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that the Surrender Date shall not be earlier than the date occurring 120 days
after the giving of such notice nor be later than the effective date of the
proposed assignment or the
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commencement date of the term of the proposed underlease. Sublandlord may accept
such offer by notice to Subtenant given within 60 days after the receipt of such
notice from Subtenant. If Sublandlord accepts such offer, Subtenant shall
surrender to Sublandlord, effective as of the Surrender Date, all Subtenant's
right, title and interest in and to the entire Premises. If the Premises be so
surrendered by Subtenant, this Sublease shall be canceled and terminated as of
the Surrender Date with the same force and effect as if the Surrender Date were
the date hereinbefore specified for the expiration of the full term of this
Sublease.
5.2. In the event Sublandlord does not accept such offer of Subtenant
referred to in SECTION 5.2 hereof, Sublandlord covenants not to unreasonably
withhold its consent to such proposed assignment or underletting by Subtenant of
the Premises to the proposed assignee or undertenant on said covenants,
agreements, terms, provisions and conditions set forth in notice to Sublandlord
referred to in clause (a) of the first sentence of SECTION 5.2 hereof; provided,
--------
however, that Sublandlord shall not in any event be obligated to consent to any
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such proposed assignment or underletting unless:
(a) the proposed assignee or undertenant is of a financial standing
and is engaged in a business and the Premises will be used in a
manner which is in keeping with the then standards of the Building ;
(b) the proposed assignee or undertenant is a reputable party;
(c) the assignment or underletting shall not have the effect (or
give the utility company servicing the Building with electricity
cause to claim) that Sublandlord may not service the Premises, or
any part thereof, with electricity on a "rent inclusion" basis;
(d) Sublandlord shall have the right, upon five (5) days prior
written notice to Subtenant, to require Subtenant thereafter to pay
to Sublandlord a sum equal to: (i) any rent or other consideration
paid to Subtenant by any undertenant which is in excess of the fixed
annual rent and additional rent then being paid by Subtenant to
Sublandlord pursuant to the terms of this Sublease, and (ii) any
other profit or gain realized by Subtenant from any such assignment
or underletting in connection with any underletting; all sums
payable hereunder by Subtenant shall be paid to Sublandlord as
additional rent immediately upon receipt thereof by Subtenant and,
if requested by Sublandlord, Subtenant shall promptly enter into a
written agreement with Sublandlord setting forth the amount of
additional rent to be paid to Sublandlord pursuant to this Section;
(e) there shall be no default by Subtenant under any of the terms,
covenants and conditions of this Sublease at the time that
Sublandlord's consent to any such assignment or underletting is
requested and on the effective date of the assignment
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or the proposed underlease;
(f) the proposed assignee or undertenant shall not be (i) a
government or any subdivision or agency thereof, (ii) a school
college, university or educational institution of any type, whether
for profit or non-profit, (iii) a direct competitor of Sublandlord
or (iv) an employment or recruitment agency;
(g) Subtenant shall reimburse Sublandlord for any reasonable
expenses that may be incurred by Sublandlord in connection with the
proposed assignment or underlease, including without limitation the
reasonable costs of making investigations as to the acceptability of
a proposed assignee or undertenant and reasonable legal expenses
incurred in connection with the granting of any requested consent to
the assignment or underlease;
(h) such proposed underletting will result in there being no
more than one occupant of the Premises including Subtenant.
6. TERMS OF THE OVERLEASE
----------------------
6.1. Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Overlease, all of the
terms, covenants, conditions and provisions in the Overlease are hereby
incorporated in, and made a part of this Sublease, and such rights and
obligations as are contained in the Overlease are hereby imposed upon the
respective parties hereto; the Sublandlord herein being substituted for the
Landlord in the Overlease, and the Subtenant herein being substituted for the
Tenant named in the Overlease; provided, however, that the Sublandlord herein
shall not be liable for any defaults by Overlandlord and, if Overlandlord is not
the fee owner, the owner in fee of the land and Building of which the Premises
are a part. If the Overlease shall be terminated for any reason during the term
hereof, then and in that event this Sublease shall thereupon automatically
terminate and Sublandlord shall have no liability to Subtenant by reason
thereof. Upon the termination of this Sublease, whether by forfeiture, lapse of
time or otherwise, or upon the termination of Subtenant's right to possession,
Subtenant will at once surrender and deliver up the Premises in good condition
and repair, reasonable wear and tear excepted.
6.2. This Sublease is subject to, and Subtenant accepts this Sublease
subject to, any amendments and supplements to the Overlease hereafter made
between Overlandlord and Sublandlord, provided that any such amendment or
supplement to the Overlease will not prevent or adversely affect the use by
Subtenant of the Premises in accordance with the terms of this Sublease,
increase the obligations of Subtenant or decrease its rights under the Sublease
or in any other way materially adversely affect Subtenant.
6.3. This Sublease is subject and subordinate to the Overlease and to all
ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real
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property of which the Premises are a part and all renewals, modifications,
replacements and extensions of any of the foregoing. This Section 6.3 shall be
self-operative and no further instrument of subordination shall be required. To
confirm such subordination, Subtenant shall execute promptly any certificate
that Sublandlord may request.
7. CONDITION OF PREMISES
---------------------
7.1. Subtenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," with the understanding
that there shall be no obligation on the part of Sublandlord to incur any
expense whatsoever in connection with the preparation of the Premises for
Subtenant's occupancy thereof except the building systems shall be in good
working order. In addition, Subtenant shall be entitled to the following
payments:
(a) Upon Subtenant's occupancy of the Sublease Premises, Sublandlord shall
provide Subtenant with $70,000 cash allowance towards tenant improvements;
(b) Provided Subtenant is not then in default under this Sublease beyond
any applicable cure period, on the first anniversary of the Sublease
Commencement Date, Sublandlord shall provide Subtenant with $44,051 cash
allowance towards additional tenant improvements; and
(c) Provided Subtenant is not then in default under this Sublease beyond
any applicable cure period, Sublandlord shall, upon Subtenant's written request
given on or after the first anniversary of the Sublease Commencement Date,
provide Subtenant with a loan in the amount of $32,586 which amount shall be
amortized over the then remaining Sublease Term at the rate of nine percent (9%)
in accordance with the terms of the Promissory Note which will be executed by
Subtenant simultaneously with this Sublease and provided to Sublandlord.
With respect to the payments made under Sections (a) and (b) above, one
half of the payments will be made upon presentation to Sublandlord of the
contract of the general contractor performing the improvements as well as all
necessary permits and plans, and the balance shall be paid upon receipt of a
certificate of occupancy. Any work performed by Subtenant shall be in accordance
with the terms of the Overlease and Section 15 herein.
8. USE OF PREMISES
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8.1. Subtenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Subtenant's business.
9. CONSENT OF OVERLANDLORD
-----------------------
9.1. This Sublease is conditioned upon the consent thereto by
Overlandlord which consent shall be evidenced by Overlandlord's signature
appended hereto or a separate consent in the form utilized by Overlandlord for
such purposes. Subtenant shall be solely responsible for any fees or charges
imposed by the Overlandlord in connection with the obtaining of such
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consent. Provided Overlandlord's consent does not materially affect the terms of
this Sublease, Subtenant shall immediately execute any documents requested by
Overlandlord in order to obtain Overlandlord's approval, and in the event such
documents are not signed and returned by Subtenant within five (5) days of
receipt, Subtenant hereby appoints Sublandlord as its attorney in fact and
authorizes Sublandlord to execute same on Subtenant's behalf.
9.2. Sublandlord makes no representation with respect to obtaining
Overlandlord's approval of this Sublease and, in the event that Overlandlord
notifies Sublandlord that Overlandlord will not give such approval, Sublandlord
will so notify Subtenant and, upon receipt of such notification by Sublandlord
of the disapproval by Overlandlord, this Sublease shall be deemed to be null and
void and without force or effect, and Sublandlord and Subtenant shall have no
further obligations or liabilities to the other with respect to this Sublease.
9.3. Except as otherwise specifically provided herein, wherever in this
Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord. If Overlandlord should refuse such consent
or approval, Sublandlord shall be released of any obligation to grant its
consent or approval whether or not Overlandlord's refusal, in Subtenant's
opinion, is arbitrary or unreasonable.
10. DEFAULT
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10.1. Subtenant acknowledges that the services to be rendered to the
Premises are to be rendered by Overlandlord. Anything in this Sublease to the
contrary notwithstanding, if there exists a breach by Sublandlord of any of its
obligations under this Sublease and, concurrently, a corresponding breach by
Overlandlord under the Overlease of its obligations under the Overlease exists,
then and in such event, Subtenant's sole remedy against Sublandlord in the event
of any breach of obligations under this Sublease shall be the right to pursue a
claim in the name of Sublandlord against Overlandlord, and Sublandlord agrees
that it will, at Subtenant's expense, cooperate with Subtenant in the pursuit of
such claim.
10.2. Anything contained in any provisions of this Sublease to the
contrary notwithstanding, Subtenant agrees, with respect to the Premises, to
comply with and remedy any default claimed by Overlandlord and caused by
Subtenant, within the period allowed to Sublandlord as tenant under the
Overlease, even if such time period is shorter than the period otherwise allowed
in the Overlease, due to the fact that notice of default from Sublandlord to
Subtenant is given after the corresponding notice of default from Overlandlord.
Sublandlord agrees to forward to Subtenant, upon receipt thereof by Sublandlord,
a copy of each notice of default received by Sublandlord in its capacity as
tenant under the Overlease. Subtenant agrees to forward to Sublandlord, promptly
upon receipt thereof, copies of any notices received by Subtenant with respect
to the Premises from Overlandlord or from any governmental authorities.
10.3. Subtenant acknowledges that upon breach of any provisions of this
Sublease by
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Subtenant, any rights or options granted to Subtenant under this Sublease or the
Overlease relating to expansion, renewal, or any other equity option, shall
immediately terminate and shall not be exercisable for the remainder of the
Sublease term. If and whenever there shall occur any event of default of this
Sublease, Sublandlord may, at Sublandlord's option, in addition to any other
remedy or right given under the Overlease or by law or equity, do any one or
more of the following:
(a) Terminate this Sublease without notice to Subtenant, in which
Subtenant shall immediately surrender possession of the Premises to
Sublandlord;
(b) Terminate Subtenant's right to possession of the Premises under
this Sublease without terminating the Sublease itself, by written
notice to Subtenant, in which event Subtenant shall immediately
surrender possession of the Premises to Sublandlord;
(c) Enter upon and take possession of the Premises and expel or
remove Subtenant and any other occupant therefrom, with or without
having terminated this Sublease;
(d) Alter locks and other security devices at the Premises with or
without having terminated this Sublease or Subtenant's right to
possession under the Sublease;
(e) Enter upon the Premises by force if necessary without being
liable for prosection or any claim for damages therefor, and do
whatever Subtenant is obligated to do under the terms of this
Sublease; and Subtenant agrees to reimburse Sublandlord on demand
for any direct or indirect expenses which Sublandlord or
Overlandlord may incur in thus effecting compliance with Subtenant's
obligations under this Sublease, and Subtenant further agrees that
Sublandlord shall not be liable for any damages resulting to
Subtenant from such action.
10.4. It is hereby expressly stipulated by Sublandlord and Subtenant that
any of the above listed actions including, without limitation, termination of
this Sublease, termination of Subtenant's right to possession, and re-entry by
Sublandlord, will not affect the obligations of Subtenant for the unexpired
Sublease Term, including the obligations to pay unaccrued monthly rentals and
other charges provided in this Sublease for the remaining portion of the
Sublease Term. If an event of default occurs, Sublandlord is entitled and is
hereby authorized, without notice to Subtenant, to enter upon the Premises by
use of a master key, a duplicate key, or other peaceable means, and to change,
alter, and/or modify the door locks on all entry doors of the Premises, thereby
permanently excluding Subtenant, and its officers, principals, agents,
employees, and representatives therefrom. In the event that Sublandlord has
either terminated
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Subtenant's right to possession of the Premises pursuant to the foregoing
provisions of this Sublease, or has terminated the Sublease by reason of
Subtenant's default, Sublandlord shall not thereafter be obligated to provide
Subtenant with a key to the Premises at any time; provided, however, that in any
such instance, during Sublandlord's normal business hours and at the convenience
of Sublandlord, and upon the written request of Subtenant accompanied by such
written waiver and releases as the Sublandlord may require, Sublandlord will
escort Subtenant or its authorized personnel to the Premises to retrieve any
personal belongings or other property of Subtenant. If Sublandlord elects to
exclude Subtenant from the Premises without permanently repossessing the
Premises or terminating the Sublease pursuant to the foregoing provisions of
this Sublease, the Sublandlord (at any time prior to actual permanent
repossession or termination) shall not be obligated to provide Subtenant a key
to re-enter the Premises until such time as all delinquent rental and other
amounts due under this Sublease have been paid in full (and all other defaults,
if any, have been completely cured to Sublandlord's satisfaction), and
Sublandlord has been given assurance reasonably satisfactory to Sublandlord
evidencing Subtenant's ability to satisfy its remaining obligations under this
Sublease. During any such temporary period of exclusion, Sublandlord will,
during Sublandlord's regular business hours, and at Sublandlord's convenience,
upon written request by Subtenant accompanied by such waivers and releases as
the Sublandlord may require, escort Subtenant or its authorized personnel to the
Premises to retrieve personal belongings of Subtenant or its employees. This
remedy of Sublandlord shall be in addition to, and not in lieu of, any of its
other remedies set forth in this Sublease, the Overlease, or otherwise available
to Sublandlord at law or in equity.
10.5. Exercise by Sublandlord of any one or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Premises by Subtenant, whether by agreement or by operation of
law, it being understood that such surrender can be effected only by the written
agreement of Sublandlord and Subtenant. No such alteration of locks or other
security devices and no removal or other exercise of dominion by Sublandlord
over the property of Subtenant or others at the Premises shall be deemed
unauthorized or constitute a conversion, Subtenant hereby consenting, after any
event of default, to the aforesaid exercise of dominion over Subtenant's
property within the Premises. All claims for damages by reason of such re-entry
and/or repossession and/or alteration of locks or other security devices are
hereby waived, as are all claims for damages by reason of any distress warrant,
forcible detainer proceedings, sequestration proceedings or other legal process.
Subtenant agrees that any re-entry by Sublandlord may be pursuant to a judgment
obtained in forcible detainer proceedings or other legal proceedings or without
the necessity for any legal proceedings, as Sublandlord may elect, and
Sublandlord shall not be liable in trespass or otherwise.
11. SUBLANDLORD REPRESENTATION
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11.1. Sublandlord represents (a) that it is the holder of the interest of
the tenant under the Overlease, (b) that the Overlease is in full force and
effect.
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12. BROKERS
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12.1. Subtenant covenants, represents and warrants that Subtenant has had
no dealings or communications with any broker or agent in connection with the
consummation of this Sublease other than those set forth in SECTION 1.1 hereof,
and Subtenant covenants and agrees to pay, hold harmless and indemnify
Sublandlord from and against any and all cost, expense (including reasonable
attorneys' fees) or liability for any compensation, commissions or charges
claimed by any broker or agent other than such brokers with respect to this
Sublease or the negotiation thereof.
13. ADDITIONAL RENT
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13.1. Subtenant stipulates that it is familiar with the provisions of
Subsections 4F and 7 of the Overlease. In the event of any payment of expense by
Sublandlord during the term of this Sublease which is attributable to the
provisions of Subsections 4F and 7 of the Overlease (such additional rent
payable by Sublandlord pursuant to Subsections 4F and 7 of the Overlease being
hereinafter called "Subsections 4F and 7 Expense") then Subtenant shall pay as
additional rent pursuant to this Sublease an amount equal to 12% of Subsections
4F and 7 Expense and 19.6% of Subsections 4F and 7 Expense with respect to the
remainder of the Sublease Term in excess of those incurred for the Calendar
year 1995. For purposes of this Section 13.1 of this Sublease, the Premises
shall be deemed to contain 10,000 rentable square feet during the first year of
this Sublease and 16,293 rentable square feet during the remainder of the
Sublease Term and the Leased Space shall be deemed to contain 83,091 rentable
square feet. At any time after payment by Sublandlord of any Subsections 4F and
7 Expense, Sublandlord may deliver to Subtenant a statement with respect to the
payment of the Subsections 4F and 7 Expense and, within ten (10) days after
delivery of such statement, Subtenant shall pay to Sublandlord additional rent
determined as aforesaid in this Section 13.1. Additional rent payable pursuant
to this Section 13.1 shall be based solely upon actual payments made by
Sublandlord pursuant to the provisions of Subsection 4F and 7 of the Overlease.
Subtenant shall not have the right to question the propriety of or the basis for
any such payment and Sublandlord shall be under no obligation to contest any
such payment. Sublandlord shall, however, at the written request of Subtenant,
furnish to Subtenant evidence of such payment. Notwithstanding anything to the
contrary contained in this Section 13.1 of this Sublease, the base year for real
estate tax escalation shall be the fiscal year 1995 and the base year for
operating expense escalation shall be the calendar year 1995.
14. ELECTRIC CHARGE
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14.1. Electric charges for normal office usage are included in the rent
paid hereunder. Any electric services in excess of normal office usage shall be
charged separately as Additional Rent.
15. ALTERATIONS
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15.1. In the event Subtenant is permitted to perform alterations in the
Premises hereunder, Subtenant may make no changes, alterations, additions,
improvements or decorations
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in, to or about the Premises without submitting detailed plans and construction
schedules to Sublandlord and receiving Sublandlord's prior written consent to
such plans. Subtenant shall make no changes, alterations, additions,
improvements or decorations which would result in Overlandlord charging
Sublandlord for the cost of same, including any removal costs associated
therewith and Subtenant shall comply with all laws and regulations relating to
such construction including, but not limited to, receipt of certificates of
occupancy, permits and ADA requirements, and shall be responsible for all costs
associated therewith. Sublandlord may impose reasonable guidelines as may be
necessary to protect its occupancy and rights provided in the Overlease,
including placing reasonable restrictions on times when certain types of work
may be performed in order to prevent undue intrusion and noise to Sublandlord or
other tenants in the Leased Premises.
16. SECURITY DEPOSIT
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16.1. As security for the faithful performance and observance by
Subtenant of the terms, provisions, covenants and conditions of this Sublease,
Subtenant is simultaneously herewith delivering to Sublandlord a check in the
amount of $36,000. In addition, Subtenant shall provide Sublandlord,
simultaneously with the execution of this Sublease, with an irrevocable Letter
of Credit in the amount of $75,000 drawn on a reputable financial institution,
which terms shall provide that it shall remain in effect until Sublandlord
provides the financial institution with a notice that Subtenant has fulfilled
all of its responsibilities under the Sublease and that the Sublease has expired
or otherwise terminated, and that the Letter of Credit will be subject to the
terms of this Article and is considered additional security hereunder.
16.2. In the event Subtenant defaults in respect of any of the terms,
provisions, covenants and conditions of this Sublease, including, but not
limited to, the payment of annual fixed rent and additional rent, Sublandlord
may use, apply or retain the whole or any part of the security so deposited to
the extent required for the payment of any annual fixed rent and additional rent
or any other sum as to which Subtenant is in default or for any sum which
Sublandlord may expend or may be required to expend by reason of Subtenant's
default in respect of any of the terms, provisions, covenants, and conditions of
this Sublease, including, but not limited to, any damages or deficiency accrued
before or after summary proceedings or other re-entry by Landlord.
16.3. In the event that Subtenant defaults in respect of any of the
terms, provisions, covenants and conditions of the Sublease and Sublandlord
utilizes all or any part of the security but does not terminate this Sublease as
provided herein, Sublandlord may in addition to exercising its rights as
provided in Section 16.2, retain the unapplied and unused balance of the
principal amount of the security as security for the faithful performance and
observance by Subtenant thereafter of the terms, provisions and conditions of
this Sublease and may use, apply or retain the whole or any part of said balance
to the extent required for payment of rent, additional rent, or any other sum as
to which Subtenant is in default or for any sum which Sublandlord may expend or
be required to expend by reason of Subtenant's default in respect
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of any of the terms, covenants, and conditions of this Sublease. In the event
Sublandlord applies or retains any portion or all of the security delivered
hereunder, Subtenant shall forthwith restore the amount so applied or retained
so that at all times the amount deposited shall be no less than the security
required by SECTION 16.1.
16.4. In the event that Subtenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Sublease, the
security, together with the interest accrued thereon, shall be returned to
Subtenant (i) after the Sublease Expiration Date and after delivery of entire
possession of the Premises to Sublandlord, or (ii) upon Sublandlord's receipt of
an equivalent amount of security from a assignee or undertenant pursuant to an
assignment or underletting permitted by Section 5 of this Sublease. In the event
of an assignment of the Overlease by Sublandlord, Sublandlord shall have the
right to transfer any interest it may have in the security to the assignee and
Sublandlord shall thereupon be released by Subtenant from all liability for the
return of such security, provided such assignee assumes any responsibilities of
Sublandlord with respect to such security, and Subtenant agrees to look solely
to the new sublandlord for the return of said security; and it is agreed that
the provisions hereof shall apply to every transfer or assignment made of the
security to a new sublandlord. Subtenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited herein
as security and that neither Sublandlord nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
17. QUIET ENJOYMENT
---------------
17.1. So long as Subtenant pays all of the rent and additional rent due
under this Sublease and performs all of Subtenant's other obligations hereunder,
Subtenant shall peacefully and quietly have, hold and enjoy the Premises
subject, however, to the terms, provisions and obligations of this Sublease and
the Overlease.
17.2. In the event Subtenant does not completely vacate the Premises by
the Sublease Expiration Date or earlier termination of this Sublease, Subtenant
shall indemnify and hold harmless Sublandlord in respect of any and all holdover
charges or penalties imposed under the Overlease upon Sublandlord in respect of
the entire Leased Space and in respect of any and all costs, liabilities or
expenses (including attorneys fees) suffered by Sublandlord in respect of same,
as and when such costs, liabilities or expenses are incurred. In this regard,
Subtenant shall, if requested by Sublandlord, in Sublandlord's sole discretion,
defend Sublandlord against any action or proceeding brought against Sublandlord
which arises out of said holdover.
18. RENEWAL
-------
18.1. Subtenant shall have the renew this Sublease upon expiration of the
Sublease Term for an additional term expiring on September 30, 2004 by providing
Sublandlord with notice of such intent to renew at least twelve (12) months
prior to the Sublease Expiration Date. The Base Rent due during such renewal
term shall be at 95% of the then prevailing fair market value for comparable
space in the area.
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19. TEMPORARY SPACE
---------------
19.1. Upon approval of this Sublease by Overlandlord, Subtenant shall be
entitled to use up to 1,500 square feet of space on the fifth floor of the
Building (the "Temporary Space") until the Sublease Commencement Date at which
time Subtenant shall only have access to the Premises as defined herein.
Subtenant agrees that its use of the Temporary Space shall be in accordance with
and in compliance with the terms of this Sublease and the relevant provisions of
the Overlease, including the insurance provisions therein, except that Subtenant
shall not be obligated to pay Base Rent on the Temporary Space and shall only be
responsible for payment of electric charge and operating expenses with respect
thereto.
20. NO WAIVER
---------
20.1. The failure of Sublandlord to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this Sublease
or of any of the Rules and Regulations set forth or hereafter adopted by
Sublandlord, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Sublandlord of rent with knowledge of the breach on
any covenant of this Sublease shall not be deemed a waiver of such breach and no
provision of this Sublease shall be deemed to have been waived by Sublandlord
unless such waiver be in writing signed by Sublandlord. No payment by Subtenant
or receipt by Sublandlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated base rent, additional rent or other charge, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Sublandlord may accept such check
or payment without prejudice to Sublandlord's right to recover the balance of
such base rent, additional rent or other charge, or pursue any other remedy in
this Sublease provided. No act or thing done by Sublandlord or Sublandlord's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of the demised premises and no agreement to accept such surrender
shall be valid unless in writing signed by Sublandlord. No employee of
Sublandlord of Sublandlord's agent shall have any power to accept the keys of
the demised premises prior to the termination of the Sublease and the delivery
of keys to any such agent or employee shall not operate as a termination of the
Sublease or a surrender of the demised premises.
21. NOTICES
-------
21.1. Any notice, demand or communication which, under the terms of this
Sublease or under any statute or municipal regulation must or may be given or
made by the parties hereto, shall be in writing and given or made by mailing the
same by registered or certified mail, return receipt requested to the address
and person designated in Section 1.1(a) and (c) herein.
Either party, however, may designate such new or other address to which
such notices, demands or communications thereafter shall be given, made or
mailed by notice (given in the manner prescribed herein). Any such notice,
demand or communication shall be deemed given or served, as the case may be, on
the date of the posting thereof. In the event Subtenant's
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address is not set forth above, notice to Subtenant shall be deemed sufficient
if sent to the Premises.
22. MISCELLANEOUS
-------------
22.1. Where applicable, Subtenant shall be responsible for all additional
costs incurred as a result of this Sublease including, but not limited to,
security cards, keys and parking cards.
22.2. This Sublease may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
22.3. This Sublease shall not be binding upon Sublandlord unless and until
it is signed by Sublandlord and delivered to Subtenant. This SECTION 22.3 shall
not be deemed to modify the provisions of SECTION 9 hereof.
22.4. This Sublease constitutes the entire agreement between the parties
and all representations and understandings have been merged herein.
22.5. This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals of
the day and year first above written.
ATTEST: COMPUTER ASSOCIATES INTERNATIONAL, INC.,
Sublandlord
_______________________ By___________________________
ATTEST: PILOT NETWORK SERVICES, Subtenant
[SIGNATURE ILLEGIBLE]
- ----------------------- By [SIGNATURE ILLEGIBLE]
---------------------------
ACKNOWLEDGED AND AGREED:
ALAMEDA REAL ESTATE INVESTORS, Overlandlord
By ____________________
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<PAGE>
EXHIBIT 10.8
SUBLEASE
THIS SUBLEASE (the "Sublease") is entered into as of the date set forth in
Section 1.1(e) below, by and between the Sublandlord and the Subtenant set forth
below.
W I T N E S S E T H
- - - - - - - - - -
1. SUBLEASE SUMMARY AND DEFINITIONS.
---------------------------------
1.1. The Sublease provisions and definitions set forth in this Section 1.1
in summary form are solely to facilitate convenient reference by the parties. If
there is any conflict between this Section and any other provisions of this
Sublease, the latter shall control.
(a) SUBLANDLORD'S NAME TCSI CORPORATION
AND ADDRESS: 1080 Marina Village Parkway
Alameda, California 94501
Attention: Vice President-Finance
(b) SUBLANDLORD'S STATE
OF INCORPORATION: NEVADA
(c) SUBTENANT'S NAME PILOT NETWORK SERVICES
AND ADDRESS: 1080 Marina Village Parkway
Alameda, California 94501
Attention: Chief Financial Officer
(d) SUBTENANT'S STATE
OF INCORPORATION: California
(e) SUBLEASE DATE: March 17, 1998
(f) OVERSUBLANDLORD'S COMPUTER ASSOCIATES INTERNATIONAL, INC.
NAME AND ADDRESS: 1 Computer Associates Plaza
Islandia, NY 11788-7000
Attention: Senior Vice President--
Facilities
(g) OVERSUBLEASE: Sublease dated July 12, 1996, between
Sublandlord and Oversublandlord.
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(h) OVERLANDLORD'S ALAMEDA REAL ESTATE INVESTORS
NAME AND ADDRESS: Vintage Properties
398 Vintage Park Drive, Suite 210
Foster City, California 94404
Attention:
----------------------
(i) OVERLEASE: Lease dated June 25, 1992, between
Overlandlord and Oversublandlord, as
amended by Amendment No. 1, dated January
29, 1993, and Amendment No. 2, dated
December 1, 1994.
(J) PREMISES: Approximately 6,000 rentable square feet on
the ground floor of 1080 Marina Village
Parkway, Alameda, California, described in
Exhibit "A," hereto (the "Premises")
(k) SUBLEASE
COMMENCEMENT April 17, 1998
DATE: (See Article 3, herein.)
(l) SUBLEASE
EXPIRATION
DATE: June 30, 2000
(M) BASE MONTHLY RENT: $11,400.00
(N) PREPAID BASE RENT: $11,400.00, paid upon execution
(o) OPERATING EXPENSES/
TAXES: To be paid by Subtenant pursuant to
Article 13 herein.
(p) SECURITY DEPOSIT: $11,400.00
(q) ALTERATIONS: (See Article 7, herein.)
(r) BASE YEAR: January 1 - December 31, 1998
(s) BROKERS:
For SUBLANDLORD: COLLIERS PARRISH INTERNATIONAL, INC.
For SUBTENANT: CUSHMAN REALTY CORPORATION
(t) SUBTENANT'S
PROPORTIONAL SHARE: 8.22%
(u) BUILDING: The "Building" is that certain office
building commonly known as 1080 Marina
Village Parkway, Alameda, California.
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2. SUBLEASE GRANT.
--------------
2.1. By lease (hereinafter referred to as the "Overlease") described
above, the Overlandlord leased to Oversublandlord the Premises in accordance
with the terms of the Overlease. A copy of the Overlease has been received by
Subtenant. By Sublease (hereinafter referred to as the "Oversublease"), the
Oversublandlord leased to Sublandlord the Premises in accordance with the terms
of the Oversublease. A copy of the Oversublease has been received by Subtenant.
2.2. In consideration of the obligation of Subtenant to pay rent as herein
provided and in consideration of the other terms, covenants and conditions
hereof, Sublandlord hereby leases to Subtenant and Subtenant hereby hires from
Sublandlord, upon and subject to the provisions of this Sublease, the
Oversublease and the Overlease, the Premises.
3. SUBLEASE TERM.
-------------
3.1. Subject to the other provisions hereof, this Sublease shall continue
in full force and effect for a term beginning on the Sublease Commencement Date
and ending on the Sublease Expiration Date as defined above. Such term is herein
called the "Sublease Term."
3.2. The Sublease Commencement Date shall be the later of the date set
forth in Section 1.1(k), above, or the date Sublandlord gives Subtenant notice
that it has substantially completed the tenant improvements set forth in Exhibit
"B," hereto ("Sublandlord's Work"). If for any reason there is a delay in
Sublandlord's delivery of the Premises, Sublandlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Sublease,
or the obligations of Subtenant hereunder, or extend the tenant hereof,
provided, however, that if possession of the Premises is not delivered to
Subtenant on or before June 1, 1998, Subtenant may, in its sole discretion,
terminate this Sublease.
4. RENT.
----
4.1. Subtenant, in consideration of this Sublease, agrees to pay to
Sublandlord as rent (the "Base Rent") the amounts set forth in Section 1.1,
hereof. Base Rent is payable in advance and without demand, at Sublandlord's
office (or such other location as Sublandlord shall designate in writing) by
check, in equal monthly installments on the first (1st) day of each month during
the Sublease Term without any set-off, off-set, abatement or reduction
whatsoever. Subtenant's failure to receive an invoice from Sublandlord for the
rent shall not relieve Subtenant
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from its obligation of timely payment hereunder. The Prepaid Base Rent shall be
paid upon Subtenant's execution of this Sublease. In the event the Sublease
Commencement Date is after the first (1st) day of the month, Subtenant shall be
entitled to a prorated credit for each such day after the first (1st) day of the
month to be applied toward the next month's payment.
4.2. As used in this Sublease, "Rent" shall mean the Base Rent, the
Operating Expense reimbursements pursuant to Sections 1.1 and Article 13, and
all other monetary obligations provided for in this Sublease to be paid by
Subtenant, all of which constitute rental in consideration for this Sublease.
4.3. In the event the rent is not paid by the fifth (5th) day of any given
month, interest shall accrue thereon at the maximum rate permitted by law. In
addition, if the rent is not paid by the tenth (10th) day of any given month,
Subtenant shall pay to Sublandlord, as liquidated damages, and not as a penalty,
an additional amount equal to five percent (5%) of the rent that is due, but not
less than One Hundred Dollars ($100.00).
5. ASSIGNMENT OR UNDERLETTING.
--------------------------
5.1. Subtenant shall not (a) assign this Sublease, or (b) permit this
Sublease to be assigned by operation of law or otherwise, or (c) underlet all or
any desk space therein to be occupied by any person(s), without first obtaining:
(a) Overlandlord' s and Oversublandlord's consents and all other
required consents to such assignment or subletting as set forth in and
pursuant to the Overlease and the Oversublease; and
(b) Sublandlord's consent.
5.2. In light of the very short duration of the Sublease Term, Subtenant
agrees that either Overlandlord, Oversublandlord or Sublandlord may withhold its
respective consent to a proposed sublease or assignment of this Sublease in the
respective sole and absolute discretion of Overlandlord or Sublandlord, and that
this Sublease provision is fair and reasonable under the circumstances of the
Sublease.
6. TERMS OF THE OVERLEASE AND OVERSUBLEASE.
---------------------------------------
6.1. Except as herein otherwise expressly provided, and except for the
obligation to pay rent and additional rent under the Overlease and the
Oversublease (collectively, the "Overleases"), all of the terms, covenants,
conditions and provisions in the Overleases are hereby incorporated in, and made
a
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part of, this Sublease, and such rights and obligations as are contained in the
Overleases are hereby imposed upon the respective parties hereto; the
Sublandlord herein being substituted for the landlords in the Overleases, and
the Subtenant herein being substituted for the tenants named in the Overleases;
provided, however, that the Sublandlord herein shall not be liable for any
defaults by Overlandlord or Oversublandlord. Neither Sublandlord nor Subtenant
shall take any action that shall cause there to occur a default under the terms
of the Overleases (or either of them), nor shall either fail to take any action
the failure of which shall cause there to occur such default. If the Overleases
(or either of them) shall be terminated for any reason during the term hereof,
then and in that event this Sublease shall thereupon automatically terminate and
Sublandlord shall have no liability to Subtenant by reason thereof. Upon the
termination of this Sublease, whether by forfeiture, lapse of time or otherwise,
or upon the termination of Subtenant's right to possession, Subtenant will at
once surrender and deliver up the Premises in good condition and repair,
reasonable wear and tear excepted. Sublandlord and Subtenant shall promptly
deliver to the other any and all notices received from the Overlandlord or
Oversublandlord or their agents that affect the other's rights or obligations
under the Overleases (or either of them) or this Sublease.
6.2. This Sublease is subject to, and Subtenant accepts this Sublease
subject to, any amendments and supplements to the Overleases hereafter made
between the parties thereto, provided that any such amendment or supplement to
the Overleases (or either of them) will not prevent or adversely affect the use
by Subtenant of the Premises in accordance with the terms of this Sublease,
increase the obligations of Subtenant or decrease its rights under the Sublease,
or in any other way materially adversely affect Subtenant.
6.3. This Sublease is subject and subordinate to the Overleases and to all
ground or underlying leases and to all mortgages that may now or hereafter
affect such leases or the real property of which the Premises are a part, and
all renewals, modifications, replacements and extensions of any of the
foregoing. This Section 6.3 shall be self-operative, and no further instrument
of subordination shall be required. To confirm such subordination, Subtenant
shall execute promptly any certificate that Sublandlord may request.
7. CONDITION OF PREMISES.
---------------------
7.1. Sublandlord shall cause to be performed Landlord's Work in a
professional manner. Except for Landlord's Work, Subtenant agrees to take the
Premises "as is." Notwithstanding the foregoing, if a duly authorized
regulatory authority or court of competent jurisdiction shall hereafter
determine that the
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Premises violate the terms of the Americans With Disabilities Act (the "ADA"),
and that such violation existed prior to the Sublease Commencement Date, then
the cost of abating the violation shall be borne by Sublandlord; provided,
further, that if such violation results from any alteration or improvement of
the Premises performed by or at the direction of Subtenant, then the cost of
abating the violation shall be borne by Subtenant.
8. USE OF PREMISES.
---------------
8.1. Subtenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Subtenant's business.
9. CONSENT OF OVERLANDLORD AND OVERSUBLANDLORD.
-------------------------------------------
9.1. This Sublease is conditioned upon the consent thereto by Overlandlord
and the Oversublandlord (collectively, the "Overlandlords"), which consent shall
be evidenced by Overlandlords' signatures appended hereto or separate consents
in the form utilized by Overlandlords for such purposes. Subtenant shall be
solely responsible for any fees or charges imposed by Overlandlords in
connection with the obtaining of such consent. Provided Overlandlords' consent
does not materially affect the terms of this Sublease, Subtenant shall
immediately execute any documents requested by Overlandlords in order to obtain
Overlandlords' approval; and, in the event such documents are not signed and
returned by Subtenant within five (5) days of receipt, Subtenant hereby appoints
Sublandlord as its attorney-in-fact and authorizes Sublandlord to execute same
on Subtenant's behalf.
9.2. Sublandlord makes no representation with respect to obtaining
Overlandlords' approval of this Sublease and, in the event that Overlandlords
(or either of them) notify Sublandlord that Overlandlords (or either of them)
will not give such approval, Sublandlord will so notify Subtenant and, upon
receipt of such notification by Sublandlord of the disapproval by Overlandlords
(or either of them), this Sublease shall be deemed to be null and void and
without force or effect, and Sublandlord and Subtenant shall have no further
obligations or liabilities to the other with respect to this Sublease.
9.3. Except as otherwise specifically provided herein, wherever in this
Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord and/or Oversublandlord. If Overlandlord
and/or Oversublandlord should refuse such consent or approval, Sublandlord shall
be released of any obligation to grant its
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<PAGE>
consent or approval, whether or not such refusal, in Subtenant's opinion, is
arbitrary or unreasonable.
10. DEFAULT.
-------
10.1. Subtenant acknowledges that the services to be rendered to the
Premises are to be rendered by Overlandlord. Anything in this Sublease to the
contrary notwithstanding, if there exists a breach by Sublandlord of any of its
obligations under this Sublease and, concurrently, a corresponding breach by
Overlandlord and/or Oversublandlord under the Overlease or Oversublease exists,
then, and in such event, Subtenant's sole remedy against Sublandlord in the
event of any breach of obligations under this Sublease shall be the right to
pursue a claim in the name of Sublandlord against Overlandlord or
Oversublandlord (as the case may be), and Sublandlord agrees that it will, at
Subtenant's expense, cooperate with Subtenant in the pursuit of such claim.
10.2. Anything contained in any provisions of this Sublease to the contrary
notwithstanding, Subtenant agrees, with respect to the Premises, to comply with
and remedy any default claimed by Overlandlord and/or Oversublandlord and caused
by Subtenant, within the period allowed to Sublandlord as tenant under the
Overlease or the Oversublease (as the case may be), even if such time period is
shorter than the period otherwise allowed in the Overlease or the Oversublease
(as the case may be), due to the fact that notice of default from Sublandlord to
Subtenant is given after the corresponding notice of default from Overlandlord
and/or Oversublandlord. Sublandlord agrees to forward to Subtenant, upon receipt
thereof by Sublandlord, a copy of each notice of default received by Sublandlord
in its capacity as tenant under the Overlease and/or the Oversublease. Subtenant
agrees to forward to Sublandlord, upon receipt thereof, copies of any notices
received by Subtenant with respect to the Premises from Overlandlord,
Oversublandlord or from any governmental authorities.
10.3. If and whenever there shall occur any event of default of this
Sublease, Sublandlord may, at Sublandlord's option, in addition to any other
remedy or right given under the Overlease or the Oversublease or by law or
equity, do any one or more of the following:
(a) Terminate this Sublease, in which event Subtenant shall
immediately surrender possession of the Premises to Sublandlord;
(b) Terminate Subtenant's right to possession of the Premises under
this Sublease without terminating the Sublease itself, by written notice to
Subtenant, in which event Subtenant shall immediately surrender possession
of the Premises to Sublandlord;
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(c) Enter upon the Premises by force if necessary without being
liable for prosecution or any claim for damages therefor, and do whatever
Subtenant is obligated to do under the terms of this Sublease; and
Subtenant agrees to reimburse Sublandlord on demand for any direct or
indirect expenses that Sublandlord, Oversublandlord or Overlandlord may
incur in thus effecting compliance with Subtenant's obligations under this
Sublease, and Subtenant further agrees that Sublandlord shall not be liable
for any damages resulting to Subtenant from such action.
10.4. It is hereby expressly stipulated by Sublandlord and Subtenant that
any of the above listed actions, including, without limitation, termination of
this Sublease, termination of Subtenant's right to possession, and reentry by
Sublandlord, will not affect the obligations of Subtenant for the unexpired
Sublease Term, including the obligations to pay unaccrued monthly rentals and
other charges provided in this Sublease for the remaining portion of the
Sublease Term. Sublandlord is entitled to the same remedies as Overlandlord has
under the Overlease in addition to the above.
11. SUBLANDLORD REPRESENTATION.
--------------------------
11.1. Sublandlord represents (a) that it is the holder of the interest of
the subtenant under the Oversublease, and (b) that the Oversublease is in full
force and effect and no default exists under the Oversublease.
12. BROKERS.
-------
12.1. Each party hereto covenants, represents and warrants to the other
that is has had no dealings or communications with any broker or agent in
connection with the consummation of this Sublease other than the brokers
identified in Section 1.1(s), above, and each party covenants and agrees to pay,
hold harmless and indemnify the other from and against any and all cost, expense
(including reasonably attorneys' fees) or liability for any compensation,
commissions or charges claimed by any other broker or agent with respect to this
Sublease or the negotiation thereof.
13. OPERATING EXPENSES/TAXES.
------------------------
13.1. All charges for standard Operating Expenses and Property Taxes, as
defined in the Overlease, incurred during normal business hours for the Base
Year set forth in Section 1.1(r), above, shall be included in the Base Rent
herein.
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13.2. Subtenant shall play to Sublandlord Subtenant's Proportional share of
increases above the Base Year in Operating Expenses and Property Taxes passed
through to Sublandlord pursuant to the terms of the Oversublease. Upon
Sublandlord's receipt of Oversublandlord's statement setting forth the amount of
Sublandlord's share of Operating Expenses and Property Taxes, Sublandlord shall
prepare and deliver to Subtenant a statement setting forth the calculation of
Subtenant's Proportional Share of increases above the Base Year. Subtenant shall
pay, as additional rent, the amount set forth in said statement within ten (10)
days of Subtenant's receipt thereof.
14. ALTERATIONS.
-----------
14.1. In the event Subtenant is permitted to perform alterations in the
Premises hereunder, Subtenant may make no changes, alterations, additions,
improvements or decorations in, to or about the Premises without submitting
detailed plans and construction schedules to Sublandlord and receiving
Sublandlord's prior written consent to such plans. Subtenant shall make no
changes, alterations, additions, improvements or decorations that would result
in Overlandlord or Oversublandlord charging Sublandlord for the cost of same,
including any removal costs associated therewith, and Subtenant shall comply
with all laws and regulations relating to such construction, including, but not
limited to, receipt of certificates of occupancy, permits and ADA requirements,
and shall be responsible for all costs associated therewith. Sublandlord may
impose reasonable guidelines as may be necessary to protect its occupancy and
rights provided in the Overlease and Oversublease, including placing reasonable
restrictions on times when certain types of work may be performed in order to
prevent undue intrusion and noise to Sublandlord or other tenants in the
Building.
15. SECURITY DEPOSIT.
----------------
15.1. As security for the faithful performance and observance by Subtenant
of the terms, provisions, covenants and conditions of this Sublease, Subtenant
is simultaneously herewith delivering to Sublandlord a security deposit in the
amount set forth in Section 1.1(p) (the "Security Deposit"). In the event that
Sublandlord applies any portion of the security in respect of a default by
Subtenant, Subtenant shall forthwith restore the amount so applied so that at
all times the amount of the Security Deposit shall be not less than the security
required to be maintained from time to time. Sublandlord may apply the whole or
any part of the Security Deposit to the extent required for the payment of any
sum as to which Subtenant is in default, or for any sum that Sublandlord may
expend or may be required to expend by reason of Subtenant's default.
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accept such check or payment without prejudice to Sublandlord's right to recover
the balance of such Base Rent, additional rent or other charge, or pursue any
other remedy in this Sublease provided. No act or thing done by Sublandlord or
Sublandlord's agents during the term hereby demised shall be deemed an
acceptance of a surrender of the demised premises, and no agreement to accept
such surrender shall be valid unless in writing, signed by Sublandlord. No
employee of Sublandlord or Sublandlord's agent shall have any power to accept
the keys of the demised premises prior to the termination of the Sublease, and
the delivery of keys to any such agent or employee shall not operate as a
termination of the Sublease or a surrender of the demises premises.
18. NOTICES.
-------
18.1. Any notice, demand or communication which, under the terms of this
Sublease or under any statute or municipal regulation, must or may be given or
made by the parties hereto shall be in writing and given or made by mailing the
same by registered or certified mail, return receipt requested, to the address
and person designated in Sections 1.1(a) and (c), herein.
Either party, however, may designate such new or other address to
which such notices, demands or communications thereafter shall be given, made or
mailed by notice (given in the manner prescribed herein). Any such notice,
demand or communication shall be deemed given or served, as the case may be, on
the date of the posting thereof. In the event Subtenant's address is not set
forth above, notice to Subtenant shall be deemed sufficient if sent to the
Premises.
19. MISCELLANEOUS.
-------------
19.1. Where applicable, Subtenant shall be responsible for all additional
costs incurred as a result of this Sublease, including, but not limited to,
security cards, keys and parking cards.
19.2. This Sublease may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharged is sought.
19.3. This Sublease shall not be binding upon Sublandlord unless and until
it is signed by Sublandlord and delivered to Subtenant. This Section 19.3 shall
be not deemed to modify the provisions of Section 9, hereof.
19.4. This Sublease constitutes the entire agreement between the parties,
and all representations and understandings have been merged herein.
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19.5. This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on
the day and year first above written.
PILOT NETWORK SERVICES,
Subtenant
By: /s/ Robert G. Canade, Vice President of Finance
------------------------------------------------
Name/Title
TCSI CORPORATION, Sublandlord
By: /s/ illegible, Chief Financial Officer
------------------------------------------------
Name/Title
ACKNOWLEDGED AND AGREED:
ALAMEDA REAL ESTATE INVESTORS, a
California Limited Partnership,
Overlandlord
By: VINTAGE PROPERTIES, a
California corporation, its
General Partner
By:_____________________________
Name/Title
COMPUTER ASSOCIATES
INTERNATIONAL, INC.,
Oversublandlord
By:_____________________________
Name/Title
-12-
<PAGE>
[DIAGRAM APPEARS HERE]
PLAN SUBLEASE AREA LEVEL ONE
<PAGE>
[DIAGRAM APPEARS HERE]
PLAN SUBLEASE AREA LEVEL TWO
<PAGE>
[LETTERHEAD OF COMPUTER(R) ASSOCIATES]
March 23, 1998
VIA AIRBORNE AND CERTIFIED MAIL
- -------------------------------
RETURN RECEIPT REQUESTED
- ------------------------
TCSI Corporation
1080 Marina Village Parkway
Alameda, CA 94591
Attn: Mr. Art Wilder, CFO
RE: CONSENT TO SUB-SUBLEASE
- ---------------------------
1080 MARINA VILLAGE PARKWAY, ALAMEDA, CA
- --------------------------------------------
Dear Mr. Wilder:
We acknowledge receipt of your request for Sublandlord's consent to a Sub-
sublease Agreement between TCSI Corporation and Pilot Networks Services, Inc.
CA hereby consents to the Sub-Sublease subject to the terms of this letter as
well as the terms and conditions of the Overlease and the Sublease. Of course,
the approval of the Overlandlord is also required.
This consent shall not be construed as a waiver or release of TCSI or any
other party from liability under any existing agreements, nor be construed as
relieving any party from the obligation of obtaining Overlandlord's and CA's
consent to any subsequent assignment, subletting or occupancy.
This consent shall also not be construed to increase CA's liabilities
under the Sublease or to create any direct relationship between CA and Pilot.
This consent is also subject to our review of the Sub-sublease Agreement between
TCSI and Pilot which should be submitted for our review as soon as possible and
prior to the commencement of any occupancy.
In the event that any alterations are intended with respect to the
Premises, please make sure that all relevant provisions of the Overlease and
Sublease are consulted and all necessary approvals are received. Additionally,
<PAGE>
Mr. Art Wilder
March 23, 1998
Page 2
please comply with the provisions of Section 5(d) of the Sublease regarding the
payment to Sublandlord of 50% of any profits realized under this sub-sublease.
Sincerely,
/s/ Bonnie L. Yeomans
Bonnie L. Yeomans
Attorney
<PAGE>
Exhibit 10.9
INDUSTRIAL COMPLEX LEASE
(Illinois)
Industrial Complex: Northwest Business Center
-----------------------------------------
Landlord: Great Oak, L.L.C
---------------------------------------------------
Tenant: Pilot Network Services
---------------------------------------------------
INDEX TO LEASE
<TABLE>
<CAPTION>
TITLE PAGE
<S> <C>
ARTICLE 1. DEFINITIONS AND CERTAIN BASIC PROVISIONS....................... 1
ARTICLE 2. GRANTING CLAUSE................................................ 2
ARTICLE 3. DELIVERY OF DEMISED PREMISES................................... 2
ARTICLE 4. RENT........................................................... 2
ARTICLE 5. BOOKS AND RECORDS.............................................. 4
ARTICLE 6. TENANT'S RESPONSIBILITY FOR TAXES, OTHER
REAL ESTATE CHARGES AND INSURANCE EXPENSES..................... 4
ARTICLE 7. COMMON AREA.................................................... 5
ARTICLE 8. LOADING DOCK................................................... 6
ARTICLE 9. USE AND CARE OF DEMISED PREMISES............................... 7
ARTICLE 10. MAINTENANCE AND REPAIR OF DEMISED PREMISES..................... 7
ARTICLE 11. ALTERATIONS.................................................... 8
ARTICLE 12. LANDLORD'S RIGHT OF ACCESS..................................... 9
ARTICLE 13. SIGNS; STORE FRONTS............................................ 9
ARTICLE 14. UTILITIES...................................................... 9
ARTICLE 15. INSURANCE COVERAGES............................................ 10
ARTICLE 16. WAIVER OF LIABILITY; MUTUAL WAIVER OF SUBROGATION.............. 11
ARTICLE 17. DAMAGES BY CASUALTY............................................ 11
ARTICLE 18. EMINENT DOMAIN................................................. 12
ARTICLE 19. ASSIGNMENT AND SUBLETTING...................................... 13
ARTICLE 20. SUBORDINATION; ATTORNMENT; ESTOPPELS........................... 14
ARTICLE 21. TENANT'S INDEMNIFICATION....................................... 14
ARTICLE 22. DEFAULT BY TENANT AND REMEDIES................................. 15
ARTICLE 23. LANDLORD'S CONTRACTUAL SECURITY INTEREST....................... 19
ARTICLE 24. HOLDING OVER................................................... 19
ARTICLE 25. NOTICES........................................................ 20
ARTICLE 26. COMMISSIONS.................................................... 20
ARTICLE 27. REGULATIONS.................................................... 20
ARTICLE 28. HAZARDOUS MATERIALS............................................ 21
ARTICLE 29. MISCELLANEOUS.................................................. 22
</TABLE>
EXHIBITS
- --------
EXHIBIT "A" DESCRIPTION OF LANDLORD'S PROPERTY
EXHIBIT "B" DEMISED PREMISES
EXHIBIT "C" CONSTRUCTION: TENANT ACCEPTANCE OF SPACE "AS IS"
EXHIBIT "D" TENANT CONSTRUCTION RULES AND REGULATIONS
EXHIBIT "E" MINIMUM GUARANTEED RENT SCHEDULE
SCHEDULES
- ---------
SCHEDULE "A" LIST OF ASBESTOS-CONTAINING MATERIALS
<PAGE>
INDUSTRIAL COMPLEX LEASE
(Illinois)
ARTICLE 1.
DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.1 The following list sets out certain defined terms and certain
financial and other information pertaining to this lease;
(a) "Landlord": Great Oak, L.L.C.
(b) Landlord's address: c/o GE Capital Realty Group, Inc. 16479
Dallas Parkway, Suite 400, Two Bent Tree Tower, Dallas, Texas 75248-2661,
Attention: Asset Management and Legal Department.
(c) "Tenant": Pilot Network Services, Inc.
(d) Tenant's address: 1080 Marina Village Parkway
Alameda, CA 94501
(e) Tenant's trade name: Pilot Network Services
(f) Tenant's Guarantor (if applicable, attach Guaranty as an
exhibit): N/A
(g) "Agent": Draper and Kramer, Inc.
(h) "Industrial Complex": Landlord's property located in the City of
Rolling Meadows, Cook County, Illinois, which property is described or shown on
Exhibit "A" attached to this lease. With regard to Exhibit "A." the parties
- ----------- ------------
agree that the exhibit is attached solely for the purpose of locating the
Industrial Complex and the Demised Premises within the Industrial Complex and
that no representation, warranty, or covenant is to be implied by any other
information shown on the exhibit (i.e., any information as to buildings, tenants
or prospective tenants, etc. is subject to change at any time).
(i) "Demised Premises": that certain area in the Industrial Complex
containing approximately 3,737 square feet in area (measured by calculating
lengths and widths to the exterior of outside walls and to the center of
interior walls) and being described or shown cross-hatched on the floor plan(s)
attached hereto as Exhibit "B." ; commonly known as 2100 Golf Road, Suite 480
Rolling Meadows, Illinois
(j) "Commencement Date": The earlier of Tenant's occupancy of the
Demised Premises or September 30, 1997.
(k) Lease Term: Commencing on the Commencement Date and continuing
for five years and no months after the Commencement Date; provided that if the
Commencement Date is a date other than the first day of a calendar month, the
lease term shall be extended by the number of days remaining in the calendar
month in which the Commencement Date occurs.
(l) Minimum guaranteed rental: 2,491.33
(m) Common area maintenance charge: A minimum of $336.33 per month,
payable in advance.
(n) Prepaid rental: $4,095.13, being an estimate of the minimum
guaranteed rental, common area maintenance charge and Tenant's obligations for
taxes, other real estate charges and insurance, for the 1 month(s) of the lease
term, such prepaid rental being due and payable upon execution of this lease.
Note: If Tenant desires credit for prepaid rental upon execution of this lease,
Tenant should list the check number ________ drawee bank
_________________________________, date of check ______________ 19__ and amount
$__________.
(o) Security deposit _______________________, such security deposit
being due and payable upon execution of this lease. Note: If Tenant desires
credit for the security deposit upon execution of this lease, Tenant should list
the check number _________, drawee bank ________________________________, date
of check ______________, 19__ and amount $_____________.
(p) Permitted use: ______________________________________________ and
for no other purpose whatsoever.
1.2 The following chart is provided as an estimate of Tenant's initial
monthly payment broken down into its components. This chart, however, does not
supersede the specific provisions contained elsewhere in this lease.
<PAGE>
Initial Minimum Guaranteed Rental $2,491.33
--------
(Sections 1.1(1) and 4.1)
Initial Common Area Maintenance Charge $336.33
--------
(Sections 1.1(m) and 7.4)
Initial Escrow Payment for Taxes and
Other Real Estate Charges $1,245.67
--------
(Article 6)
Initial Escrow Payment for Insurance $21.80
--------
(Article 6)
Initial Sales Tax Payment $0.00
--------
(Section 4.3)
Total Initial Monthly Payment $4,095.13
========
ARTICLE 2.
GRANTING CLAUSE
2.1 Landlord leases the Demised Premises to Tenant, and Tenant leases the
Demised Premises from Landlord, upon the terms and conditions set forth in this
lease.
ARTICLE 3.
DELIVERY OF DEMISED PREMISES
3.1 Except to the extent modified by Landlord's express assumption of
construction obligations, if any, in EXHIBIT "C" attached to this lease, the
-----------
Demised Premises is being leased "AS IS," with Tenant accepting all defects, if
any; and Landlord makes no warranty of any kind, express or implied, with
respect to the Demised Premises and the Loading Dock (as defined in Section 8.1
hereof) (without limitation, Landlord makes no warranty as the habitability,
fitness or suitability of the Demised Premises for a particular purpose nor as
to the absence of any toxic or otherwise hazardous substances, except as set
forth herein). This Section 3.1 is subject to any contrary requirements under
applicable law; however, in this regard Tenant acknowledges that it has been
given the opportunity to inspect the Demised Premises and to have qualified
experts inspect the Demised Premises prior to the execution of this lease. *
3.2 Landlord represents and warrants to Tenant that the Demised Premises
is vacant and shall remain so until possession thereof is delivered to Tenant.
ARTICLE 4.
RENT
<PAGE>
4.2 Rental shall accrue from the Commencement Date, and shall be payable
to Landlord, at Landlord's address.
4.3 Tenant shall pay to Landlord minimum guaranteed rental in monthly
installments in the amounts specified in Section 1.1 (i) of this lease and
Exhibit E, attached hereto and made a part hereof. The first such monthly
installment shall be due and payable on or before the Commencement Date, and
subsequent installments shall be due and payable on or before the first day of
each succeeding calendar month during the lease term provided that if the
Commencement Date is a date other than the first day of a calender month, there
shall be due and payable on or before such date as minimum guaranteed rental for
the balance of such calendar month a sum equal to that proportion of the rent
specified for the first full calendar month as herein provided, which the number
of days from the Commencement Date to the end of the calendar month during which
the Commencement Date shall fall bears to the total number of days in such
month. Tenant agrees to pay to Landlord, if assessed by the jurisdiction in
which the Industrial Complex is located, any sales, excise or other tax imposed,
assessed or levied in connection with Tenant's payment of rents.
4.4 It is understood that the minimum guaranteed rental is payable on or
before the first day of each calendar month (in accordance with Section 4.2
above), without offset or deduction of any nature. In the event any rental is
not received within ten (10) days after its due date for any reason whatsoever,
or if any rental payment is by check which is returned for insufficient funds,
then in addition to the past due amount Tenant shall pay to Landlord one of the
following (the choice to be at the sole option of Landlord unless one of the
choices is improper under applicable law, in which event the other alternative
will automatically be deemed to have been selected): (a) a late charge in an
amount equal to ten percent (10%) of the rental then due, in order to compensate
Landlord for its administrative and other overhead expenses such late charge
shall be incurred commencing with the second late payment: or (b) interest on
the rental then due at the maximum contractual rate which could legally be
charged in the event of a loan of such rental to Tenant (but in no event to
exceed 1-1/2% per month), such interest to accrue continuously on any unpaid
balance due to Landlord by Tenant during the period commencing with the rental
due date and terminating with the date on which Tenant makes full payment of all
amounts owing to Landlord at the time of said payment. Any such late charge or
interest payment shall be payable as additional rental under this lease, shall
not be considered as deduction from percentage rental nor a waiver by Landlord
of any default by Tenant hereunder, and shall be payable immediately on demand.
4.5 If Tenant fails in two (2) consecutive months to make rental
payments within ten (10) days after due, Landlord, in order to reduce its
administrative costs, may require, by giving written notice to Tenant (and in
addition to any late charge or interest accruing pursuant to Section 4.4 above,
as well as any other rights and remedies accruing pursuant to Article 22 or
Article 23 below, or any other provision of this lease or at law), that minimum
guaranteed rentals are to be paid quarterly in advance instead of monthly, and
that all future rental payments are to be made on or before the due date by
cash, cashier's check, or money order and that the delivery of Tenant's personal
or corporate check will no longer constitute a payment of rental as provided in
this Lease. Any acceptance of a monthly rental payment or of a personal or
corporate check thereafter by Landlord shall not be construed as a subsequent
waiver of said rights.
4.6 Tenant shall pay when due any and all sales taxes levied, imposed or
assessed by the United States of America, the State of Illinois, or any
political subdivision thereof or other taxing authority upon the minimum
guaranteed rental, additional rent and all other sums payable hereunder.
4.7 Any and all minimum guaranteed rentals and other sums due and
payable by Tenant hereunder (including, without limitation, amounts payable
under Article 6 and Section 7.4 hereof) shall be deemed rent for all purposes
hereunder.
<PAGE>
4.7 Any and all minimum guaranteed rentals and other sums due and
payable by Tenant hereunder (including, without limitation, amounts payable
under Article 6 and Section7.4 hereof) shall be deemed rent for all purposes
hereunder.
ARTICLE 5.
BOOKS AND RECORDS
5.2 Tenant shall, when requested by Landlord from time to time (but not
in excess of once per year) furnish a true and accurate audited statement of its
financial condition prepared in conformity with recognized accounting principles
and in a form reasonably satisfactory to Landlord.
ARTICLE 6.
TENANT'S RESPONSIBILITY FOR TAXES, OTHER
REAL ESTATE CHARGES AND INSURANCE EXPENSES
6.1 Tenant shall also be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Demised Premises which
taxes shall be paid when due and before any delinquency. If any such taxes are
levied against Landlord or Landlord's property and if Landlord elects to pay the
same after thirty (30) days written notice to Tenant of such election or if the
assessed value of Landlord's property is increase by inclusion of personal
property and trade fixtures placed by Tenant in the Demised Premises and
Landlord elects to pay the taxes after thirty (30) days written notice to Tenant
of such election based on such increase, Tenant shall pay to Landlord within
thirty (30) days after Tenant's receipt of written demand that part of such
taxes for which Landlord can demonstrate Tenant is primarily liable hereunder.
6.2 Tenant shall also be liable for "Tenant's proportionate share" (as
defined below) of all "real estate charges" (as defined below) and "insurance
expenses" (as defined below) related to the Industrial Complex or Landlord's
ownership of the Industrial Complex for each calendar year during which any
portion of the lease term falls. Tenant's obligations under this Section 6.2
shall be prorated during any partial calendar year (i.e., the first year and the
last year of the lease term). "Tenant's proportionate share" shall be a
fraction, the numerator of which is the total floor area (all of which is deemed
"leasable") in the Demised Premises and the denominator of which is the total
leasable floor area of all buildings in the Industrial Complex at the time when
the respective charge was incurred, excluding, however, areas for which any such
real estate charges or insurance expenses, or both, are paid by a party or
parties other than Landlord. "Real estate charges" shall include ad valorem
taxes, general and special assessments, parking surcharges, any tax or charge
for governmental services (such as street maintenance or fire protection) which
are attributable to the transfer or transaction directly or indirectly
represented by this Lease, by any sublease or assignment hereunder or by other
Leases in the Industrial Complex or by any document to which Tenant is a party
creating or transferring (or reflecting the creation or transfer) or any
interest or an estate in the Demised Premises and any tax or charge which
replaces or is in addition to any of such above-described "real estate charges";
real estate charges shall also include any reasonable fees, expenses or costs
(including reasonable attorney's fees, expert fees and the like) incurred by
Landlord in protesting or contesting any assessments levied or the tax rate.
"Real estate charges" shall not be deemed to included sales tax payable by
Tenant pursuant to Section 4.3 above and any franchise, estate, inheritance or
general income tax ???? "Insurance expenses" shall include all premiums and
other expenses incurred by Landlord for liability insurance and fire and
extended coverage property insurance (plus whatever endorsements or special
coverages which Landlord, in Landlords sole but commercially reasonable
discretion, may consider appropriate) business interruption, and rent loss,
earthquake and any other insurance policy which may be carried by Landlord
insuring the Demised Premises, the Common Area, the Industrial Complex, or any
improvements. Real estate charges "for" a given calendar year shall mean real
estate charges which are assessed to become a lien during such calendar year,
rather than real estate charges which are due for payment or paid in such
calendar year.
6.3 Tenant's proportionate share of real estate charges and insurance
expenses for each calendar year during which any portion of the lease term falls
shall be estimated by Landlord (based upon the most recently ascertainable
information relative to such items) and written notice of such estimates shall
be given to Tenant prior to the beginning of each such calendar year, and
thereafter from time to time as Landlord obtains updated information regarding
such expense items. Tenant shall pay Landlord, each month, at the same time as
the minimum guaranteed rental is due, an amount equal to one-twelfth (1/12) of
said estimate of Tenant's proportionate share of real estate charges and
insurance expenses. In the event Landlord's estimate of such amounts is not
given by Tenant prior to the beginning of any applicable calendar year, and
until such time as Landlord revises any previous estimate given to Tenant,
Tenant shall continue to pay to Landlord, in monthly installments, such amounts
based on the most recent estimate given by Landlord; provided, however, that on
the first day of the calendar month following the month in which Landlord
notifies Tenant of any change in such estimate, Tenant shall pay to Landlord a
lump sum equal to the most recent estimate of Tenant's proportionate share of
real estate charges and insurance expenses, as revised by Landlord, minus (a)
any prior monthly installments on account thereof made by Tenant for such
calendar year, and minus (b) any monthly installments on account thereof which
are not yet due and payable for the remainder of such calendar year. Thereafter,
Tenant shall pay Landlord monthly installments on account of Tenant's
proportionate share of real estate charges and insurance expenses based on the
new revised estimate thereof given by Landlord.
6.4 Landlord shall deliver Tenant a statement or statements showing the
actual Tenant's proportionate share of real estate charges and insurance
expenses for each calendar year as soon as reasonably feasible after same are
determined. Within thirty (30) days after delivery of such statement or
statements. Tenant shall pay to Landlord, or Landlord shall credit against the
next rental payment or payments due from Tenant, as the case may be, the
difference between the actual Tenant's proportionate share of real estate
charges and insurance expenses for such calendar year and the sum of the
monthly estimated installments on account thereof which were paid by Tenant
relative to such calendar year. Tenant's and Landlord's obligations to pay
Landlord such difference to the other, if applicable, shall survive the
expiration or termination of this lease.
6.5 In the event that any payment due from Tenant to Landlord is not
received within ten (10) days after its due date for any reason whatsoever,
after ten (10) days written notice is received by Tenant of Landlord's
non-receipt thereof, or if any such payment is by check which is returned for
insufficient funds, then in addition to the amount then due Tenant shall pay to
Landlord interest on the amount then due at the maximum contractual rate which
could legally be charged in the event of a loan of such amount to Tenant (but in
no event to exceed 1-1/2% per month), such interest to accrue continuously on
any unpaid balance until paid.
ARTICLE 7.
COMMON AREA
7.1 The term "Common Area" is defined for all purposes of all this lease
as that part of the Industrial Complex intended for the common use of all
tenants, including amount other facilities (as such may be applicable to the
Industrial Complex), parking areas, private streets and alleys, landscaping,
curbs, loading areas, sidewalks, malls and promenades (enclosed or otherwise),
lighting facilities, drinking fountains, meeting rooms, public toilets, and the
like, but excluding (i) space in buildings (now or hereafter existing)
designated for rental for commercial purposes, as the same may exist from time
to time; (ii) streets and alleys maintained by a public authority; (iii) areas
within the industrial Complex which may from time to time not be owned by
Landlord (unless subject to a cross-access agreement benefiting the area which
includes the Demised Premises); and (iv) areas leased to a single-purpose user
where access is restricted. In addition, although the roof(s) of the
building(s) in the Industrial Complex are not literally part of the Common Area,
they will be deemed to be so included for purposes of (i) Landlord's ability to
prescribe rules and regulations regarding same, and (ii) their inclusion for
purposes of common area maintenance reimbursement. Landlord reserves the right
to change from time to time the dimensions and location of the Common Area, as
well as the dimensions, identities, locations and types of any buildings, signs
or other improvements in the Industrial Complex. For example, and without
limiting the generally of the immediately preceding sentence, Landlord may from
time to time substitute for any parking area other areas reasonably accessible
to the tenants of the Industrial Complex, which areas may be elevated, surface
or underground.
7.2 Tenant, and its employees and customers, and when duly authorized
pursuant to the provisions of this lease, its subtenants, licensees and
concessionaires, shall have the nonexclusive right to use the Common Area
(excluding roofs of building in the Industrial Complex) as constituted from
time to time, such use to be in common with Landlord, other tenants in the
Industrial Complex and other persons permitted by the Landlord to use the same,
and subject to rights of governmental authorities, easements, other restrictions
or record, and such reasonable rules and regulations governing use as Landlord
from time to time prescribe. For example, and without limiting the generally
of Landlord's ability to establish rules and regulations governing all aspects
of the Common Area, Tenant agrees as follows:
(a) Landlord may from time to time designate specific areas within
the Industrial COmplex or in reasonable proximity thereto in which automobiles
owned by Tenant, its employees, subtenants, licensees, and concessionaires
shall be parked; and in this regard, Tenant shall furnish to Landlord upon
request a complete list of license numbers of all automobiles operated by
Tenant, its employees, its subtenants, its licensees or its concessionaires, or
their employees; and Tenant agrees that if any automobile or other vehicle owned
by Tenant or any of its employees, its subtenants, its licensees or its
concessionaires, or their employees, shall at any time be parked in any part of
the Industrial Complex other than the specified areas designated for employee
parking, Tenant shall pay to Landlord as additional rent upon demand an amount
equal to the daily rate or charge for such parking as established by Landlord
from time to time for each day, or part thereof, that such automobile or other
vehicle is so parked.
(b) Tenant shall not solicit business within the Common Area nor
take any action which would interfere with the rights of other persons to use
the Common Area. Notwithstanding the foregoing, Landlord represents and
warrants to Tenant that the parking areas shall be available on a nonexclusive
basis for use by Tenant, its employees, agents, invitees, licensees, subtenants,
etc. free of charge.
<PAGE>
(c) Landlord may temporarily close any part of the Common Area for
such periods of time as may be necessary to make repairs or alterations or to
prevent the public from obtaining prescriptive rights.
(d) With regard to the roof(s) of the building(s) in the Industrial
Complex, use of the roof(s) is reserved to Landlord, or with regard to any
tenant demonstrating to Landlord's satisfaction a need to use same, to such
tenant after receiving prior written consent from Landlord.
7.3 Landlord shall be responsible for the operation, management and
maintenance of the Common Area, the manner of maintenance and the expenditures
therefor to be in the sole discretion of Landlord, but to be generally in
keeping with similar industrial centers within the same geographical area as the
Industrial Complex. Landlord shall be the sole determinant of the type and
amount of security services to be provided, if any. Except to the extent caused
by Landlord's negligence, Landlord shall not be liable to Tenant, and Tenant
hereby waives any claim against Landlord for (i) any unauthorized or criminal
entry of third parties into the Demised Premises or Industrial Complex, (ii) any
damage to persons or property, or (iii) any loss of property in and about the
Demised Premises or Industrial Complex from any unauthorized or criminal acts of
third parties, regardless of any action, inaction, failure, breakdown or
insufficiency of security.
7.4 In addition to the rentals and other charges prescribed in this lease,
Tenant shall pay to Landlord Tenant's proportionate share of the cost of
operation and maintenance of the Common Area which may be incurred by Landlord
in its discretion, including, among other costs, those for lighting, painting,
cleaning, policing, inspecting, repairing, replacing, and, if there is an
enclosed mail or promenade in the Industrial Complex, heating and cooling;
Tenant's proportionate share of capital expenditures and expenses incurred by
Landlord to increase the operating efficiency of the Industrial Complex or to
cause the Common Area to comply with applicable Regulations (as such term is
defined in Section 27.1), it being agreed that the cost of such capital
expenditures and installation shall be amortized over the reasonable life of the
capital expenditure, with the reasonable life and amortization schedule being
determined in accordance with generally accepted accounting principles
consistently applied; a reasonable portion of whatever management fee Landlord
pays to the property manager for the Industrial Complex; a reasonable allowance
for Landlord's overhead costs and the cost of any insurance for which Landlord
is not reimbursed pursuant to Section 6.2. but specifically excluding all
expenses paid or reimbursed pursuant to Article 6. In addition, although the
roof(s) of the building(s) in the Industrial Complex are not literally part of
the Common Area, Landlord and Tenant agree that roof maintenance, repair and
replacement shall be included as a common area maintenance item to the extent
not specifically allocated to Tenant under this lease nor to another tenant
pursuant to its lease. With regard to capital expenditures other than the
capital expenditures contemplated by the first sentence of this Section, (i) the
original investment in capital improvements, i.e., upon the initial construction
of the Industrial Complex, shall not be included, and (ii) improvements and
replacements, to the extent capitalized on Landlord's records, shall be included
only to the extent of a reasonable depreciation or amortization (including
interest accruals commensurate with Landlord's interest costs). The
proportionate share to be paid by Tenant of the cost of operation and
maintenance of the Common Area shall be computed on the ratio that the total
floor area (all of which is deemed "leasable") of the Demised Premises bears to
the total leasable floor area of all buildings within the industrial Complex
which is open and occupied (excluding, however, areas owned or maintained by a
party or parties other than Landlord); provided that in no event shall such
share be less than the amount specified in Section 1.1(m) above. If this lease
should commence on a date other than the first day of a calendar year or
terminate on a date other than the last day of a calendar year, Tenant's
reimbursement obligations under this Section 7.4 shall be prorated based upon
Landlord's expenses for the entire calendar year. Tenant shall make such payment
to Landlord on demand, at intervals not more frequent than monthly. Landlord
may, at its option, make monthly or other periodic charges based upon the
estimated annual cost of operation and maintenance of the Common Area, payable
in advance but subject to adjustment after the end of the year on the basis of
the actual cost for such year. Landlord has the right to establish as a reserve,
such amounts as Landlord deems reasonable for the maintenance, repair and
restoration of the roof and parking of the Industrial Complex. In the event that
any payment due from Tenant to Landlord is not received within ten (10) days
after its due date for any reason whatsoever, or if any such payment is by check
which is returned for insufficient, funds, then, in addition to the amount then
due. Tenant shall pay to Landlord interest on the amount then due at the maximum
contractual rate which could legally be charged in the event of a loan of such
amount to Tenant (but in no event to exceed 1-1/2% per month), such interest to
accrue continuously on any unpaid balance until paid. Any delay or failure of
Landlord in delivering any estimate or statement described in this Section 7.4
or in computing or billing Tenant's proportionate share of the foregoing costs
shall not constitute a waiver of landlord a right to require an increase in rent
as provided herein or in any way impair continuing obligations of Tenant under
this Section. Tenant's proportionate share of the foregoing costs shall not
increase from year to year more than 25% per year cumulative and compounding.
Any cost of operation and maintenance of the Common Area which is beyond the
control of the Landlord, shall not be considered when calculating the preceding
limitation.
ARTICLE 8
LOADING DOCK
8.1 Tenant shall have a license to use and occupy the loading dock(s)
outside the Demised Premises as shown on Exhibit "B" (collectively, the "Loading
-----------
Dock"). Subject to the provisions of this lease,and such rules and regulations
as may be promulgated by Landlord from time to time, Tenant, its employees
agents, contractors, licensees, guests and invitees may use the Loading Dock for
loading and
<PAGE>
access to and from the Demised Premises for the permitted use set forth in
Section 1.1(p) above. Tenant's use of the Loading Dock shall be at its sole
risk, and Landlord shall not be liable for any injury to any person or property,
or for any loss or damage to any vehicle or its contents resulting from theft,
collision vandalism or any other cause whatsoever, except to the extent caused
by the negligence of Landlord. Tenant shall cause its personnel and visitors to
remove their vehicles from the Loading Dock at the end of each business day. In
the event the Loading Dock is intended for use in common with other tenants in
the Industrial Complex, Tenant shall pay Landlord within ten (10) days after
rendition of a bill thereof an equitable share of the costs of maintenance and
repair of the Loading Dock as such costs are allocated by Landlord based upon
the estimated use by each of the respective tenants using the Loading Dock.
ARTICLE 9,
USE AND CARE OF DEMISED PREMISES
9.1 The Demised Premises shall be used and occupied by Tenant solely for
the permitted use specified in Section 1.1.(p) above and for no other purpose.
Tenant, at its sole cost and expense, shall obtain and keep in effect during the
term, all permits, licenses and other authorizations necessary to permit Tenant
to use and occupy the Demised Premises for the permitted use. Without limiting
the generality of the foregoing, Tenant shall not use or store any gasoline,
flammable or so called "Red Label" materials in or about the Demised Premises.
All equipment used within the Demised Premises shall be subject to approval by
Landlord's Insurance carriers and shall be Underwriters Laboratory or Factory
Mutual approved for the uses intended, evidence of which shall be furnished to
Landlord upon request. Tenant shall not operate any machinery or equipment in
the Demised Premises which, in Landlord's sole discretion, shall cause any
excessive noise, vibration or damage or disturbance to the other tenants in the
Industrial Complex.
9.2 Tenant shall take good care of the Demised Premises and keep the same
free from waste at all times. Tenant shall not overload the floors in the
Demised Premises, nor deface or injure the Demised Premises or Loading Dock.
Tenant shall keep the Demised Premises clean and free from dirt, rubbish, ice or
snow at all time. Tenant shall store all trash and garbage within the Demised
Premises or in a trash dumpster or similar container approved by Landlord as to
type, location and screening: and Tenant shall arrange for the regular pick-up
of such trash and garbage at Tenant's expense (unless Landlord finds its
necessary to furnish such a service, in which event Tenant shall be charged an
equitable portion of the total of the charges to all tenants using the service).
Receiving and delivery of goods and merchandise and removal of garbage and trash
shall be made only in the manner and areas prescribed by Landlord. Tenant shall
not operate an incinerator or burn trash or garbage within the Industrial
Complex.
ARTICLE 10.
MAINTENANCE AND REPAIR OF DEMISED PREMISES
10.1 Landlord shall keep the foundation, the exterior walls (except plate
glass: windows, doors and other exterior openings: window and door frames,
molding, closure devices, locks and hardware: special store fronts: lighting,
heating, air conditioning, plumbing and other electrical, mechanical and
electromotive installation, equipment and fixtures: signs, placards, decorations
or other advertising media of any type; and interior painting or other treatment
of exterior walls) and roof (subject to the second sentence in Section 7.4
above) of the Demised Premises in good repair. Landlord, however, shall not be
required to make any repairs occasioned by the act or negligence of Tenant, its
agents, contractors, employees, subtenants, invitees, customers, licensees and
concessionaires (including, but not limited to, roof leaks resulting from
Tenant's Installation of air conditioning equipment or any other roof
penetration or placement); and the provisions of the previous sentence are
expressly recognized to be subject to the provisions of Article 17 and Article
18 of this lease. In the event that the Demised Premises should become in need
of repairs required to be made by Landlord hereunder, Tenant shall give
immediate written notice thereof to Landlord and Landlord shall have a
reasonable time after receipt by Landlord of such written notice in which to
make such repair provided, however, that if any roofleak, the repair of which is
Landlord's responsibility, shall render unusable the service center within the
Demised Premises, then Landlord shall commence such repairs within 24 hours of
notice thereof, and diligently thereafter pursue same to completion. If Landlord
fails to do so, Tenant shall have the right to repair any roofleak at Landlord's
expense and the cost thereof shall be reimbursed to Tenant within 10 days of
submission of invoice therefor. Landlord shall not be liable to Tenant for any
interruption of Tenant's business or inconvenience caused due to any work
performed in the Demised Premises or in the Industrial Complex pursuant to
Landlord's rights and obligations under the Lease, so long as the work is
performed without negligence or willful misconduct.
10.2 Tenant shall keep the Demised Premises and the Loading Dock (unless
it is used in common with other tenants) in good, clean and habitable condition
and shall at its sole cost and expense keep the Demised Premises free of
insects, rodents, vermin and other pests and make all needed repairs and
replacements, Including replacement of cracked or broken glass, except for
repairs and replacements required to be made by Landlord under the provisions of
Section 10.1, Article 17 and Article 18. Without limiting the coverage of the
previous sentence, it is understood that Tenant's responsibilities therein
include the repair and replacement in accordance with all applicable Regulations
of all lighting, heating, air conditioning, plumbing and other electrical,
mechanical and electromotive installation, equipment and fixtures and also
include all utility repairs in ducts, conduits, pipes and wiring, and any sewer
stoppage located in the Demised Premises, regardless of when or how the defect
or other cause for repair or replacement occurred or became apparent. If any
repairs required to be made by Tenant hereunder are not made within ten (10)
days after written notice delivered to Tenant by Landlord, Landlord
<PAGE>
may at its option make such repairs without liability to Tenant for any loss or
damage which may result to its stock or business by reason of such repairs and
Tenant shall pay to Landlord upon demand, as additional rental hereunder, the
cost of such repairs plus interest at the maximum contractual rate which could
legally be charged in the event of a loan of such payment to Tenant (but in no
event to exceed 1-1/2% per month), such interest to accrue continuously from the
date of payment by Landlord until repayment by Tenant. At the expiration of this
lease, Tenant shall surrender the Demised Premises in good condition, excepting
reasonable wear and tear and losses required to be restored by Landlord in
Section 10.1, Article 17 and Article 18 of this lease.
ARTICLE 11.
ALTERATIONS
11.1 Tenant shall not make any alterations, additions or improvements to
the Demised premises (collectively, the "Alterations") without the prior written
consent of Landlord which consent shall not be unreasonably withheld or delayed
except for the installation of unattached, movable trade fixtures which may be
installed without drilling, cutting or otherwise defacing the Demised Premises.
Tenant shall furnish complete plans and specifications to Landlord at the time
it requests Landlord's consent to any Alterations if the desired Alterations (i)
will affect the Industrial Complex's mechanical, electrical, plumbing or life
safety systems or services, or (ii) will require the filing of plans and
specifications with any governmental or quasi-governmental agency or authority,
or (iii) will cost in excess of five thousand Dollars ($5,000.). Subsequent to
obtaining Landlord's consent and prior to commencement of the Alterations,
Tenant shall deliver to Landlord any building permit required by applicable law
and a copy of the executed construction contract(s). Tenant shall reimburse
Landlord within ten (10) days after the rendition of a bill for all of
Landlord's actual reasonable out-of-pocket costs incurred in connection with any
Alterations, including, without limitation, all management, engineering, outside
consulting, and construction fees incurred by or on behalf of Landlord for the
review and approval of Tenant's plans and specifications and for the monitoring
of construction of the Alterations. If Landlord consents to the making of any
Alteration, such Alteration shall be made by Tenant at Tenant's sole cost and
expense by a contractor approved in writing by Landlord which approval shall not
be unreasonably withheld or delayed. Tenant shall require its contractor to
maintain insurance in such amounts and in such form as Landlord may reasonably
require. Any construction, alteration, maintenance, repair, replacement,
installation, removal or decoration undertaken by Tenant in connection with the
Demised Premise shall be completed in accordance with plans and specifications
which must be approved by Landlord which approval shall not be unreasonably
withheld or delayed, shall be carried out in a good, workmanlike and prompt
manner and in accordance with the provisions of Exhibit "D" annexed hereto,
-----------
shall comply with all applicable Regulations of the authorities having
jurisdiction thereof, and shall be subject to supervision by Landlord or its
employees, agents or contractors. Without limiting the generality of the
immediately preceding sentence, any installation or replacement of Tenant's
heating or air conditioning equipment must be effected strictly in accordance
with Landlord's instructions, the Clean Air Act and all other applicable
Regulations. Without Landlord's prior written consent which approval shall not
be unreasonably withheld or delayed, Tenant shall not use any * portion of the
Common Areas either within or without the Industrial Complex in connection with
the making of any Alterations. If the Alterations which Tenant causes to be
constructed result in Landlord being required to make any alterations and/or
improvements to other portions of the Industrial Complex in order to comply with
any applicable Regulations, and Landlord has so notified Tenant prior to
Tenant's undertaking of such alterations, then Tenant shall reimburse Landlord
upon demand for all costs and expenses incurred by Landlord in making such
alterations and/or improvements. Any Alterations made by Tenant shall become the
property of Landlord upon installation and shall remain on and be surrendered
with the Demised Premises upon the expiration or sooner termination of this
lease, except Tenant shall upon demand by Landlord, at Tenant's sole cost and
expense, forthwith and with all due diligence remove all or any portion of any
Alterations made by Tenant which are designated by Landlord to be removed
_______________ and repair and restore the Demised Premises in a good and
workmanlike manner to their original condition, reasonable wear and tear
excepted.
11.2 All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner with new materials of first-
class quality, lien-free and in compliance with all governmental requirements
and Regulations, and in such manner as to cause a minimum of interference with
other construction in progress and with the transaction of business in the
Industrial Complex. Tenant agrees to Indemnify Landlord and hold Landlord
harmless against any loss, liability or damage resulting from such work.
11.3 In the event Tenant uses a general contractor to perform construction
with within the Demised Premises, Tenant shall during or after completion of
such work, require said general contractor to execute and deliver to Landlord a
waiver and release of any and all claims against Landlord and liens against the
Industrial Complex to which such contractor might at any time be entitled.
11.4 Nothing contained in this lease shall be construed as constituting
the consent or request of Landlord, express or implied, to or for the
performance by any contractor, laborer, materialman or vendor of any labor or
services or for the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to the Demised Premises or any
part thereof. All materialmen, contractors, artisans, mechanics, laborers and
any other persons now or hereafter furnishing any labor, services, materials,
<PAGE>
supplies or equipment to Tenant with respect to any portion of the Demised
Premises are hereby charged with notice that they must look exclusively to
Tenant to obtain payment for same. Tenant and any subtenants shall have no power
to do any act or make and contract which may create or be the foundation of any
lien, mortgage or other encumbrance upon the reversionary or other estate of
Landlord, or any interest of Landlord in the Demised Premises. NOTICE IS HEREBY
GIVEN THAT LANDLORD IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING THE
DEMISED PREMISES OR ANY PART THEREOF, AND THAT NO MECHANICS' OR OTHER LIENS FOR
ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF
LANDLORD IN AND TO THE DEMISED PREMISES.
11.5 In the event that Landlord elects to remodel all or any portion of
the Industrial Complex, Tenant will cooperate with such remodeling, including
Tenant's tolerating temporary inconveniences (and even the temporary removal of
Tenant's signs in order to facilitate such remodeling, as it may relate to the
exterior of the Demised Premises).
ARTICLE 12.
LANDLORD'S RIGHT OF ACCESS
12.1 Landlord and Landlord's and representatives shall have the right to
enter the Demised Premises at any time in case of an emergency, and, except for
access to the service center at all reasonable times for any purpose permitted
pursuant to the terms of this lease, including, but not limited to, examining
the Demised Premises as long as Landlord is accompanied by Tenant; making such
repairs or alterations therein as may be necessary or appropriate in Landlord's
sole judgment for the safety and preservation thereof; erecting, installing,
maintaining, repairing or replacing wires, cables, conduits, vents ducts,
risers, pipes, HVAC, equipment or plumbing equipment running in, to, or through
the Demised Premises; showing the Demised Premises to prospective purchasers or
mortgagees and during the last year of this lease, prospective tenants; and
posting notices of nonresponsibility.
12.2 Tenant shall give Landlord a key for all of the doors for the Demised
Premises, excluding Tenant's vaults, safes and files. Landlord shall have the
right to use any and all means to open the doors to the Demised Premises in an
emergency in order to obtain entry thereto without liability to Tenant therefor.
Any entry to the Demised Premises by Landlord by any of the foregoing means, or
otherwise, shall not be construed or deemed to be a forcible or unlawful entry
into or a detainer of the Demised Premises, or an eviction, partial eviction or
constructive eviction of Tenant from the Demised Premises or any portion
thereof, and shall not relieve Tenant of its obligations hereunder.
ARTICLE 13.
SIGNS; STORE FRONTS
13.1 Tenant shall not place or permit to be placed any signs upon (i) the
roof of the Demised Premises, or (ii) the Common Areas or any exterior area of
the Industrial Complex without Landlord's prior written approval which approval
shall not be unreasonably withheld or delayed provided any proposed sign is
placed only in those locations as may be designated by Landlord, and complies
with the sign criteria promulgated by Landlord from time to time. Upon request
of Landlord, Tenant shall immediately remove any sign, advertising material or
lettering which Tenant has placed or permitted to be placed upon the exterior or
Interior surface of any door or window or at any point inside the Demised
Premises, on the exterior of the Industrial Complex if required in connection
with any cleaning, maintenance or repairs to the Industrial Complex or which in
Landlord's reasonable opinion, is of such a nature as to not be in keeping with
the standards of the Industrial Complex and if Tenant fails to do so, Landlord
may without liability remove the same at Tenant's expense. Tenant shall comply
with such regulations as may from time to time be promulgated by Landlord
governing signs, advertising material or lettering of all tenants in the
Industrial Complex.
ARTICLE 14.
UTILITIES
14.1 Tenant shall obtain all water, electricity, sewerage, gas, telephone
and other utilities directly from the public utility company furnishing same.
Any meters required in connection therewith shall be installed at Tenant's sole
cost. Tenant shall pay all utility deposits and fees, and all monthly service
charges for water, electricity, sewage, gas, telephone and any other utility
services furnished to the Demised Premises during the term of this lease. In the
event any such utilities are not separately metered on the Commencement Date,
then until such time as such services are separately metered, Tenant shall pay
Landlord Tenant's equitable share of the cost of such services, as reasonably
determined by Landlord. If for any reason the use of any utility is measured on
a meter(s) indicating the usage of Tenant and other tenants of the Industrial
Complex, Tenant and such other tenants shall allocate the cost of such utility
amongst themselves and shall each be responsible for the payment of its
allocable share. Landlord shall furnish and install all piping, feeders, risers
and other connections necessary to bring utilities to the perimeter walls of the
Demised Premises. Anything to the contrary notwithstanding, Tenant shall remain
obligated for the payment
<PAGE>
of Tenant's pro rata share of any heating costs and/or other utilities or
services furnished to the Common Areas pursuant to Section 7.4.
14.2 Tenant shall have the right to use the existing heating, air
conditioning and ventilation equipment in the Demised Premises, if any. All such
equipment shall be maintained, repaired and replaced, as necessary, by
Landlord and shall be included in the cost of operation and maintenance of the
Common Area and shall be surrendered by Tenant to Landlord at the end of the
term of this lease together with the Demised Premises. Except as set forth in
Section 3.1, Landlord makes no representation or warranty as to the condition or
capacity of such equipment. Landlord shall have no obligation whatsoever to
provide the Demised Premises with heat, air conditioning, ventilation or hot
water.
14.3 Landlord shall not be liable for any interruption whatsoever, nor
shall Tenant be entitled to an abatement or reduction of rent on account
thereof, in utility services not furnished by Landlord, nor for interruptions in
utility services furnished by Landlord which are due to fire, accident, strike,
acts of God or other causes beyond the control of Landlord or which are
necessary or useful in connection with making any alterations, repairs or
improvements.
14.4 Tenant shall not install any equipment which exceeds or overloads the
capacity of the utility facilities serving the Demised Premises.
ARTICLE 15.
INSURANCE COVERAGES
15.1 Landlord shall procure and maintain throughout the term of this lease
a policy or policies of insurance, at its sole cost and expense (but subject to
Article 6 above), causing the Industrial Complex to be insured under standard
fire and extended coverage insurance (excluding hurricane and storm insurance
unless readily obtainable at commercially reasonable rates) and liability
insurance (plus whatever endorsements or special coverages Landlord, in its sole
discretion, may consider appropriate), to the extent necessary to comply with
Landlord's obligations pursuant to other provisions of this lease.
15.2 Tenant shall procure and maintain throughout the term of this lease,
at its sole cost and expense, the following insurance:
(1) Comprehensive General Liability Insurance providing coverage for
bodily injury (including death), property damage and products liability
insurance (where such exposure exists). This policy shall contain a broad
form contractual liability endorsement under which the insurer agrees to
insure Tenant's obligations under Article 21 hereof. Such insurance shall
have a combined single limit of not less than Three Million Dollars
($3,000,000) per occurrence, or such greater amount as Landlord may from
time to time require;
(2) Fire and extended coverage insurance covering Tenant's personal
property, fixtures, improvements, wall coverings, floor coverings, window
coverings, alterations, furniture, equipment, lighting, ceilings, heating,
ventilation and air conditioning equipment, interior plumbing and plate
glass against loss or damage by fire, flood, windstorms, hail, earthquakes,
explosion, riot, damage from aircraft and vehicles, smoke damage, vandalism
and malicious mischief and such other risks as are from time to time
covered under "extended coverage" endorsements and special extended
coverage endorsements commonly known as "all risks" endorsements,
containing the waiver of subrogation required in Section 16.3 of this lease
and in an amount equal to the greater of the full replacement value or the
amount required by the holder of any mortgage from time to time placed upon
the Industrial Complex or a portion of the Industrial Complex containing
the Demised Premises;
(3) State Worker's Compensation Insurance in the statutorily mandated
limits and Employers Liability Insurance with limits of not less than Five
Hundred Thousand Dollars ($500,000), or such greater amount as Landlord may
from time to time require; and
(4) Such other insurance as Landlord may reasonably require from time
to time.
It is expressly understood and agreed that the foregoing minimum limits of
insurance coverage shall not limit the liability of Tenant for its acts or
omissions as provided in this lease. All of the foregoing insurance policies
(with the exception of Worker's Compensation Insurance to the extent not
available under statutory law) shall name Landlord, any mortgagee or any
managing agent for the Industrial Complex and such other parties as Landlord
shall from time to time designated as an additional insured as their respective
interests may appear, and shall provide that any loss shall be payable to
Landlord and any other additional insured parties as their respective interests
may appear. All insurance required hereunder shall be placed with companies
which are rated A:VII or better by Best's Insurance Guide and licensed to do
business in the State where the Industrial Complex is located. All such policies
shall be written as primary policies. Any other policies, including Landlord's
policy, will serve as excess coverage. Tenant shall deliver duplicate original
copies of all such policies and all endorsements thereto, prior to the
Commencement Date, or, in the case of renewals thereto, fifteen (15) days prior
to the expiration of the prior insurance policy, together with evidence that
such policies are fully
<PAGE>
paid for, and that no cancellation, material change or non-renewal thereof shall
be effective except upon thirty (30) days' prior written notice from the Insurer
to Landlord. If Tenant should fall to comply with the foregoing requirement
relating to Insurance, Landlord may obtain such Insurance and Tenant shall pay
to Landlord on demand as additional rental hereunder the premium cost thereof
plus interest at the maximum contractual rate (but in no event to exceed 1-1/2%
per month) from the date of payment by Landlord until repaid by Tenant.
ARTICLE 16.
WAIVER OF LIABILITY; MUTUAL WAIVER OF SUBROGATION
16.1 Landlord and Landlord's agents and employees shall not be liable to
Tenant, nor to Tenant's employees, agents or visitors, nor to any other person
whomsoever, for any injury to person or damage to property caused by the Demised
Premises or other portions of the Industrial Complex becoming out of repair or
by defect or failure of any structural element of the Demised Premises or of any
equipment, pipes or wiring, or broken glass, or by the backing up of drains, or
by gas, water, steam, electricity, or oil leaking, escaping or flowing into the
Demised Premises (except where due to Landlord's and Landlord's employee's and
agent's willful failure to make repairs required to be made by Landlord
hereunder, after the expiration of a reasonable time after written notice to
Landlord of the need for such repairs, and except to the extent caused by the
negligence of Landlord and Landlord's employee's and agent's nor shall Landlord
be liable to Tenant, nor to Tenant's employees, agents or visitors, nor to any
other person whomsoever, for any loss or damage that may be occasioned by or
through the acts or omissions of other tenants of the Industrial Complex or of
any other persons whomsoever, excepting only duly authorized employees and
agents of Landlord. Landlord shall not be held responsible in any way on account
of any construction, repair or reconstruction (including widening) of any
private or public roadways, walkways or utility lines.
16.2 Landlord shall not be liable to Tenant or to Tenant's employees,
agents, contractors, or to any other person whomsoever, for any injury to person
or damage to property on or about the Demised Premises or the Common Area caused
by the negligence or misconduct of Tenant, its employees, agents, subtenants,
Invitees, customers, licensees or concessionaires, or of any other person
entering the Industrial Complex under express or implied Invitation of Tenant
(with the exception of customers in the Common Area), or arising out of the use
of the Demised Premises by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations under this lease; and Tenant hereby agrees to indemnify Landlord and
hold Landlord harmless from any loss, expense or claims arising out of such
damage or injury. Furthermore, Tenant agrees to indemnify Landlord and hold
Landlord harmless from and against any and all liability, claims, demands,
causes of action of any kind and nature arising or growing out of or in any way
connected with Tenant's use, occupancy, management or control of the Demised
Premises and Tenant's operations or activities in the Industrial Complex.
16.3 Landlord and Tenant each hereby release the other from any and all
liability or responsibility to the other, or to any other party claiming through
or under them by way of subrogation or otherwise, for any loss or damage to
property caused by a casualty which is insurable under the respective standard
fire and extended coverage insurance policies required to be carried by such
party under Article 15 above; provided, however, that this mutual waiver shall
be applicable only with respect to a loss or damage occurring during the time
when such property Insurance policies, which are readily available in the
marketplace, contain a clause or permit an endorsement to the effect that any
such release shall not adversely affect or impair the policy or the right of the
Insured party to receive proceeds under the policy; provided, further, that this
release shall not be applicable to the portion of any damage which is not
reimbursed by the damaged party's insurer because of the "deductible" in the
damaged party's insurance coverage. The release specified in this Section 16.3
is cumulative with any releases or exculpations which may be contained in other
provisions of this lease. Landlord and Tenant agree that all policies of
insurance obtained by them pursuant to the terms of this lease shall contain
provisions or endorsements thereto waiving the insurer's rights of subrogation
with respect to claims against the other, and, unless the policies permit waiver
of subrogation without notice to the insurer, each shall notify its Insurance
companies of the existence of the waiver and indemnity provisions set forth in
this lease.
ARTICLE 17.
DAMAGES BY CASUALTY
17.1 Tenant shall give immediate written notice to the Landlord of any
damage caused to the Demised Premises by fire or other casualty.
17.2 In the event that the Demised Premises shall be damaged or destroyed
fire or other casualty insurable under standard fire and extended coverage
Insurance and Landlord or Tenant does not elect to terminate this lease as
hereinafter provided, Landlord shall proceed with reasonable diligence and at
its sole cost and expense to rebuild and repair the Demised Premises. If
Landlord fails to complete such repair or rebuilding within 180 days from the
date of the casualty, Tenant may terminate this Lease at any time thereafter
prior to such completion by written note to Landlord. In the event (a) the
building in which the Demised Premises are located is destroyed or substantially
damaged by a casualty not covered by Landlord's or Tenant's insurance, or (b)
such building is destroyed or rendered untenantable to an extent in excess of
fifty percent (50%) of the first floor area by a casualty covered by Landlord's
Insurance, or any portion of Tenant's service center is destroyed, (c) the
holder of a mortgage, deed of trust or other lien on such building at the time
of the casualty elects, pursuant to such
<PAGE>
mortgage, deed of trust or other lien, to require the use of all or part of
Landlord's Insurance proceeds in satisfaction of all or part of the indebtedness
secured by the mortgage, deed of trust or other lien, or (d) Landlord and Tenant
determine within 60 days of the casualty that restoration of the Demised
Premises cannot be completed within 180 days of the casualty, or (e) the Demised
Premises shall be damaged to the extent of 50% or more of the cost of
replacement, then Landlord or Tenant may elect either to terminate this lease.
Written notice to Tenant or Landlord of such election shall be delivered to the
other party within sixty (60) days after the occurrence of such casualty and if
such election to terminate is so delivered, Landlord shall proceed to rebuild
and repair with reasonable diligence and at its sole cost and expense.
17.3 Landlord's obligation to rebuild and repair under this Article 17
shall in any event be limited to restoring one of the following (as may be
applicable): (a) If this lease does not include an attached exhibit describing
Landlord's Initial construction responsibility ("Landlord's Work"), restoring
the Demised Premises to substantially the condition in which the same existed
prior to such casualty, exclusive of any alterations, additions, Improvements,
fixtures and equipment installed by Tenant, or (b) restoring Landlord's Work, as
described in the applicable exhibit attached to this lease (if such an exhibit
is attached), to substantially the same condition in which the same existed
prior to the casualty. Tenant agrees that promptly after completion of such work
by Landlord, Tenant will proceed with reasonable diligence and at Tenant's sole
cost and expense to restore, repair and replace all alterations, additions,
improvements, fixtures, signs and equipment installed by Tenant, or, if an
exhibit describing Tenant's Work is attached hereto, all Items of Tenant's Work
as described in such exhibit, as the case may be.
17.4 Tenant agrees that during any period of reconstruction or repair of
the Demised Premises, it will continue the operation of Its business within the
Demised Premises to the extent practicable. During the period from the
occurrence of the casualty until Landlord's repairs are completed, the minimum
guaranteed rental and all charges hereunder shall be reduced to such extent as
may be fair and reasonable under the circumstances which shall be 100% if
Tenant's service center is inoperable or substantially compromised and Tenant
does not use or occupy the Demised Premises during such period.
ARTICLE 18.
EMINENT DOMAIN
18.1 If more than fifteen percent (15%) of the floor area of the Demised
Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private purchase in lieu thereof, this lease shall terminate and the rent shall
be abated during the unexpired portion of this lease, effective on the date
physical possession is taken by the condemning authority.
18.2 If less than fifteen percent (15%) of the floor area of the demised
Premises and no portion of Tenant's service center should be taken as aforesaid,
this lease shall not terminate; however, the minimum guaranteed rental payable
hereunder during the unexpired portion of this lease shall be reduced in
proportion to the area taken, effective on the date physical possession is taken
by the condemning authority. Following such partial taking, Landlord shall make
all necessary repairs or alterations to the remaining premises or, if an exhibit
describing Landlord's Work is attached to this lease, all necessary repairs
within the scope of Landlord's Work as described in such exhibit, as the case
may be, required to make the remaining portions of the Demises Demised Premises
an architectural whole, but in no event shall Landlord be required to expend an
amount greater than the award actually received by Landlord in connection with
such taking.
18.3 If any part of the Common Area should be taken as aforesaid, this
lease shall not terminate, nor shall the rent payable hereunder be reduced,
except that either Landlord or Tenant may terminate this lease if the area of
the Common Area remaining following such taking plus any parking area provided
by Landlord in reasonable proximity to the Industrial Complex shall be less than
eighty percent (80%) of the area of the Common Area Immediately prior to the
taking. Any election to terminate this lease in accordance with this provision
shall be evidenced by written notice of termination delivered to the other party
within thirty (30) days after the date physical possession is taken by the
condemning authority.
18.4 All compensation awarded for any taking (or the proceeds of private
sale in lieu thereof) of the Demised Premises or Common Area shall be the
property of Landlord, and Tenant hereby assigns its interest in any such award
to Landlord; provided, however, Landlord shall have no interest in any award
made to Tenant for Tenant's moving and relocation expenses or for the loss of
Tenant's fixtures and other tangible personal property if a separate award for
such Items is made to Tenant as long as such separate award does not reduce the
amount of the award that would otherwise be awarded to Landlord, and subject to
the terms of any mortgage or ground lease encumbering the Industrial Complex.
18.5 Notwithstanding anything to the contrary, Landlord may terminate the
Lease with no further liability to Tenant if (i) 50% or more of the gross
leasable area of the Industrial Complex is taken or (ii) if following any taking
Landlord's mortgagee elects to require Landlord to apply all or a portion of
such award to the outstanding indebtedness.
<PAGE>
ARTICLE 19.
ASSIGNMENT AND SUBLETTING
19.1 Tenant shall not assign or in any manner transfer this lease or any
estate or Interest therein, or sublet the Demised Premises or any part thereof,
or grant any license, concession or other right of occupancy of any portion of
the Demised Premises without the prior written consent of Landlord. Landlord
agrees that it will not withhold consent in an unreasonable and arbitrary manner
(as further explained in Section 29.4 of this lease); however, in determining
whether or not to grant its consent, Landlord shall be entitled to take into
consideration factors such as Landlord's desired tenant mix, the reputation and
net worth of the proposed transferee, and the then current market conditions
(including market rentals). In addition, Landlord shall also be entitled to
charge Tenant a reasonable fee for processing Tenant's request not to exceed
$500.00. Consent by Landlord to one or more assignments or sublettings shall
not operate as a waiver of Landlord's rights as to any subsequent assignments
and sublettings. In all events, Landlord can refuse to consent to an assignment
or sublease if there shall exist any uncured default of Tenant or, a matter
which will become a default with the passage of time. Provided however,
Landlord's consent is not required if 1) Tenant subleases or assigns the Lease
to an affiliate or subsidiary; 2)Tenant remains liable under this lease; 3)
Proposed Subtenant or assignees is general office use or use similar to Tenant
and 4) Sublessee or assignee agrees to be liable for all terms of the Lease.
19.2 If Tenant is a corporation, partnership or other entity and if at any
time during the term of this lease the person or persons who own a majority of
either the outstanding voting rights or outstanding ownership interests of
Tenant at the time of the execution of this lease cease to own a majority of
such voting rights or ownership Interests (except as a result of transfers by
devise or descent), the loss of a majority of such voting rights or ownership
interests shall be deemed an assignment of this lease by Tenant and, therefore,
subject in all respects to the provisions of Section 19.1 above. The previous
sentence shall not apply, however, if at the time of the execution of this lease
or at any time during the Lease Term, Tenant is a corporation and the
outstanding voting shares of capital stock of Tenant are listed on a recognized
security exchange or over-the-counter market.
19.3 Notwithstanding anything to the contrary contained herein, and
without prejudice to Landlord's right to require a written assumption from each
assignee, any person or entity to whom this lease is assigned including, without
limitation, assignees pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. Paragraph 101 et seq. (the "Bankruptcy Code") shall automatically be
deemed, by acceptance of such assignment or sublease or by taking actual or
constructive possession of the Demised Premises, to have assumed all obligations
of Tenant arising under this lease effective as of the earlier of the date of
such assignment or sublease or the date on which the assignee or sublessee
obtains possession of the Demised Premises. In the event this lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, any
and all monies or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord and shall
remain the exclusive property of Landlord and not constitute the property of
Tenant or Tenant's estate within the meaning of the Bankruptcy Code. All such
money or other consideration not paid or delivered to Landlord shall be held in
trust for the benefit of Landlord and shall be promptly paid or delivered to
Landlord.
19.4 Notwithstanding any assignment or subletting, Tenant and any
guarantor of Tenant's obligations under this lease shall at all times remain
fully responsible and liable for the payment of the rent herein specified and
for compliance with all of its other obligations under this lease (even if
future assignments and sublettings occur subsequent to the assignment or
subletting by Tenant, and regardless of whether or not Tenant's approval has
been obtained for such future assignments and sublettings). Moreover, in the
event that the rental due and payable by a sublessee (or a combination of the
rental payable under such sublease plus any bonus or other consideration
therefor or incident thereto) exceeds the rental payable under this lease, or if
with respect to a permitted assignment, permitted license or other transfer by
Tenant permitted by Landlord, the consideration payable to Tenant by the
assignee, licensee or other transferee exceeds the rental payable under this
lease, then Tenant shall be bound and obligated to pay Landlord all such excess
rental and other excess consideration within ten (10) days following receipt
thereof by Tenant from such sublessee, assignee, licensee or other transferee,
as the case may be. Finally, in the event of an assignment or subletting, it is
understood and agreed that all rentals paid to Tenant by an assignee or
sublessee shall be received by Tenant in trust for Landlord, to be forwarded
immediately to Landlord without offset or reduction of any kind; and upon
election by Landlord such rentals shall be paid directly to Landlord as
specified in Section 4.2 of this lease (to be applied as a credit and offset to
Tenant's rental obligation).
19.5 Tenant shall not mortgage, pledge or otherwise encumber its Interest
in this lease or in the Demised Premises.
19.6 In the event of the transfer and assignment by Landlord of its
interest in this lease and in the building containing the Demised Premises to a
person expressly assuming Landlord's obligations under this lease, Landlord
shall thereby be released from any further obligations hereunder, and Tenant
agrees to look solely to such successor in Interest of the Landlord for
performance of such obligations. Any security given by Tenant to secure
performance of Tenant's obligations hereunder may be assigned and transferred by
Landlord to such successor in interest and Landlord shall thereby be discharged
of any further obligation relating thereto.
<PAGE>
ARTICLE 20.
SUBORDINATION: ATTORNMENT; ESTOPPELS
20.1 Provided that Tenant shall receive a written non-disturbance
agreement from any and all mortgagees, trustees, and other lienholders, Tenant
accepts this lease subject and subordinate to any mortgage, deed of trust or
other lien presently existing or hereafter placed upon the Industrial Complex or
any portion of the Industrial Complex which includes the Demised Premises, and
to any renewals, modifications and extensions thereof and this subordination
shall be self operative and no further instrument of subordination is needed.
Tenant agrees that any mortgagee shall have the right at any time to subordinate
its mortgage, deed of trust or other lien to this lease: provided, however,
notwithstanding that this lease may be (or is made to be) superior to a
mortgage, deed of trust or other lien, the mortgagee shall not be liable for
prepaid rentals, security deposits and claims accruing during or with respect to
Landlord's ownership, any amendment or modification made to this lease without
its prior written consent or any offsets or claims against Landlord; further
provided that the provisions of a mortgage, deed of trust or other lien relative
to the right of the mortgagee with respect to proceeds arising from an eminent
domain taking (including a voluntary conveyance by Landlord) and provisions
relative to proceeds arising from insurance payable by reason of damage to or
destruction of the Demised Premises shall be prior and superior to any contrary
provisions contained in this instrument with respect to the payment or usage
thereof. Landlord is hereby irrevocably vested with full power and authority to
subordinate this lease to any mortgage, deed of trust or other lien hereafter
placed upon the Demised Premises or the Industrial Complex as a whole, and
Tenant agrees upon demand to execute such further instruments subordinating this
lease as Landlord may request. Provided that Tenant shall receive a written non-
disturbance agreement from any and all mortgagees, trustees, and other
lienholders, if the holder of any mortgage, indenture or deed of trust or
similar instrument (each a "Mortgagee") succeeds to Landlord's interest in the
Demised Premises, Tenant shall, upon request of any such Mortgagee,
automatically become the tenant of and attorn to and recognize such Mortgagee as
the landlord under this lease and will pay to it all rents and other amounts
payable by Tenant under this lease, in accordance with the applicable terms of
this lease. Notwithstanding that the foregoing provisions of this Section are
self-operative, upon request of Landlord or any Mortgagee, Tenant shall execute
and deliver to Landlord and to such Mortgagee a subordination and attornment
agreement in recordable form confirming the foregoing and otherwise in form and
substance acceptable to Landlord and such Mortgagee. Provided that Tenant shall
receive a written non-disturbance agreement from any and all mortgagees,
trustees, and other lienholders.
20.2 Except as set forth in Section 9.2 above, Tenant may not exercise any
remedies for default by Landlord hereunder unless and until Landlord and the
holder(s) of any indebtedness secured by mortgage, deed of trust or other lien
on the Demised Premises, of which Tenant has written notice, including address
thereof, shall have received written notice of such default and a reasonable
time (not less than 30 days) shall thereafter have elapsed without the default
having been cured.
20.3 Tenant agrees that it will from time to time upon request by Landlord
execute and deliver to Landlord a written statement addressed to Landlord (and
to a party[ies] designated by Landlord), which statement shall identify Tenant
and this lease, shall certify that this lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as so modified), shall confirm that Landlord is not in default as to
any obligations of Landlord under this lease (or if Landlord is in default,
specifying any default), shall confirm Tenant's agreements contained above in
this Article 20, and shall contain such other information or confirmations as
Landlord may reasonably require.
ARTICLE 21.
TENANT'S INDEMNIFICATION
21.1 To the extent permitted by applicable law, except in the case of
Landlord's negligence or willful misconduct, Tenant shall indemnify, defend and
hold harmless Landlord, Landlord's asset manager, Landlord's subasset manager,
Landlord's partners, any subsidiary or affiliate of Landlord and the officers,
directors, shareholders, partners, employees, managers, independent contractors,
attorneys and agents of any of the foregoing (collectively, the "Indemnitees")
from and against any and all claims, demands, causes of action, judgments, costs
and expenses, and all losses and damages (including consequential and punitive
damages) arising from Tenant's use of the Demised Premises or from the conduct
of its business or from any activity, work, or other acts or things done,
permitted or suffered by Tenant in or about the Demised Premises, and shall
further indemnify, defend and hold harmless the indemnitees from and against any
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this lease, or
arising from any act, omission or negligence or willful or criminal misconduct
of Tenant, or any officer, agent, employee,
<PAGE>
independent contractor, guest, or invitee thereof, and from all costs,
attorneys' fees and disbursements, and liabilities incurred in the defense of
any such claim or any action or proceeding which may be brought against, out of
or in any way related to this lease. Upon notice from Landlord, Tenant shall
defend any such claim, demand, cause of action or suit at Tenant's expense by
counsel satisfactory to Landlord in its sole discretion. As a material part of
the consideration to Landlord for this lease, Tenant hereby assumes all risk of
damage to property or injury to persons in, upon or about the Demised Premises
from any cause, and Tenant hereby waives all claims with respect thereto against
Landlord (except to the extent caused by the negligence of Landlord). Tenant
shall give immediate notice to Landlord in case of casualty or accidents in the
Demised Premises. The provisions of this Article 21 shall survive the expiration
or sooner termination of this lease.
21.2 All personal property of Tenant, including goods, wares, merchandise,
inventory, trade fixtures and other personal property of Tenant, shall be stored
at the sole risk of Tenant. Landlord or its agents shall not be liable for any
loss 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 Industrial Complex or from the pipes, appliances or plumbing works therein
or from the roof, street or subsurface or from any other places resulting from
dampness or any other cause whatsoever, or from the act or negligence of any
other tenant or any officer, agent, employee, contractor or guest of any such
tenant, except personal injury caused by or due to the negligence or willful
misconduct of Landlord. Landlord or its agents shall not be liable for
interference with the electrical service, ventilation, or for any latent defect
in the Demised Premises.
21.3 The parties hereto acknowledge that all or a part of the Demised
Premises may be used for the storage and shipment of goods not owned by Tenant,
and Landlord is not willing to enter into this lease unless Tenant indemnifies
the Indemnitees to Landlord's satisfaction from any liability on the part of the
Indemnitees to the owner(s) of such goods for damage to the same arising out of
any acts or omissions of the Indemnitees. As a material inducement to Landlord
to enter into this lease, and to the fullest extent permitted by applicable law,
Tenant agrees to defend, indemnify and hold the Indemnitees harmless from and
against any and all losses, claims, liabilities, obligations and damages imposed
upon or incurred or asserted against the Indemnitees by reason of damage to
goods of persons storing such goods with Tenant, notwithstanding the fact that
such losses, claims, liabilities, obligations or damages may have been caused by
the acts or omissions of Landlord. Tenant agrees that at all times during which
it shall store goods not owned by it in the Demised Premises, it shall insure
the indemnity described under this Section 21.3 in a manner reasonably
satisfactory to Landlord. Landlord shall not be deemed a bailee, consignee, or
warehouseman (or responsible for the standard of care incidental thereto) with
respect to any goods stored or shipped to or from the Demised Premises for
consignment or bailment and Tenant shall insert a clause to that effect in all
warehouse receipts or consignment agreements for the storage or, shipment of
goods to or from the Demised Premises.
ARTICLE 22.
DEFAULT BY TENANT AND REMEDIES
22.1 The following events shall be deemed to be events of default by
Tenant under this lease:
(a) Tenant shall fail to pay any installment of rental or any other
obligation under this lease involving the payment of money and such failure
shall continue for a period of ten (10) days after written notice thereof to
Tenant; provided, however, that for each calendar year during which Landlord
-------- -------
has already given Tenant three written notices of the failure to pay an
installment of rental, no further notice shall be required (i.e., the event of
default will automatically occur on the tenth day after the day upon which the
rental was due).
(b) Tenant shall fail to comply with any provision of this lease,
other than as described in subsection (a) above, and either shall not cure
such failure within fifteen (15) days after written notice thereof to Tenant
provided, however, that if such default is of a nature that it cannot be cured
within 15 days, Tenant shall not be in default hereunder provided that the
cure is commenced within such 15 day period and is diligently pursued
thereafter to completion, or shall cure that particular failure but shall
willfully fail to comply with the same provision of the lease within three (3)
months after Landlord's written notice.
(c) Tenant or any guarantor of Tenant's obligations under this lease
shall become insolvent, or shall make a transfer in fraud of creditors, or
shall make an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligations under this lease
shall file a petition under any section or chapter of the federal Bankruptcy
Code, as amended, or under any similar law or statue of the United States or
any state thereof; or Tenant or any guarantor of Tenant's obligations under
this lease shall be adjudged bankrupt or insolvent in proceedings filed
against Tenant or any guarantor of Tenant's obligations under this lease
thereunder.
(e) A receiver or Trustee shall be appointed for the Demised
Premises or for all or substantially all of the assets of Tenant or any
guarantor of Tenant's obligations under this lease.
(f) Tenant shall desert or shall commence to desert the Demised
Premises or any substantial portion of the Demised Premises.
<PAGE>
(g) Tenant shall do or permit to be done anything which creates a
lien upon the Demised Premises or upon all or any part of the Industrial
Complex; which lien is not released within 15 days of Tenant's receipt of
written notice thereof.
(h) Any transfer of a substantial portion of the assets of Tenant, or
any incurrence of a material obligation by Tenant, unless such transfer or
obligation is undertaken or incurred in the ordinary course of Tenant's business
or in good faith for equivalent consideration, or with Landlord's consent.
(i) The default of any guarantors if any of Tenant's obligations
hereunder under any guaranty of this Lease, or the attempted repudiation or
revocation of any such guaranty.
22.2 Upon the occurrence of any such event of default, Landlord shall have
the option to pursue any one or more of the following remedies to the extent
permitted by law:
(a) Without any further notice or demand whatsoever, Tenant shall be
obligated to reimburse Landlord for the damages suffered by Landlord as a result
of the event of default, plus interest on such amount at the maximum contractual
rate which could legally be charged in the event of a loan of such amount to
Tenant (but in no event to exceed 1-1/2% per month); and Landlord may pursue a
monetary recovery from Tenant.
(b) Without any further notice or demand whatsoever Landlord may take
any action, including entering upon and taking possession of the Demised
Premises, as Landlord deems reasonably necessary in order to protect the Demised
Premises from deterioration, and may continue to demand from Tenant the monthly
rentals and other charges provided in this lease. Without limitation of the
foregoing, in the event of any default described in subsection (b) of Section
22.1 of this lease, Landlord shall have the right to enter upon the Demised
Premises, by force if necessary, and do whatever Tenant is obligated to do under
the terms of this lease; and Tenant agrees to reimburse Landlord on demand for
any reasonable expenses which Landlord may incur and thus affecting compliance
with Tenant's obligations under this lease, and Tenant further agrees that
Landlord shall not be liable for any damages resulting to the Tenant from such
action. Further, it is agreed that in the event of any default in subsection (g)
of Section 22.1 of this lease, Landlord may pay or bond around such lien,
whether or not contested by Tenant, and in such event Tenant agrees to reimburse
Landlord within 10 days written demand for all reasonable costs and expenses
incurred in connection with any such action, with Tenant further agreeing that
Landlord shall in no event be liable for any damages or claims resulting from
such action.
(c) Landlord may terminate this lease by giving Tenant notice of
Landlord's election to do so, in which event the terms of this lease shall end,
and all right, title and interest of Tenant hereunder shall expire on the date
stated in such notice. In the event of such termination, Tenant shall
immediately surrender the Demised Premises to Landlord in the condition required
under this lease for the surrender at the expiration of the term hereof, and if
Tenant fails to do so, Landlord may, without prejudice to any other remedy which
Landlord may have for possession or otherwise, enter upon and take possession of
the Demised Premises and expel or remove Tenant and any person who may be
occupying said Demised Premises or any part thereof, by force if necessary,
without being liable for prosecution or any claim for damages therefor.
(d) Landlord may terminate the right of Tenant to possession of the
Demised Premises without terminating this lease, by giving written notice to
Tenant that Tenant's right of possession shall end on the date stated in such
notice, whereupon the right of Tenant to possession of the Demised Premises or
any part thereof shall cease on the date stated on such notice. In the event of
such termination of possession, Tenant shall immediately surrender the Demised
Premises to Landlord, and if Tenant fails to do so, Landlord may, without
prejudice to any other remedy which Landlord may have for possession or
otherwise, enter upon and take possession of the Demised Premises and expel or
remove Tenant and any other person who may. be occupying said Demised Premises
or any part thereof.
(e) Landlord may enforce any and all of the provisions of this lease
and enforce and protect the rights of Landlord hereunder by suit or suits in
equity or at law for the specific performance of any covenant or agreement
contained herein, or for the enforcement of any other appropriate legal or
equitable remedy, including recovery of all monies due or to become due from
Tenant under any provisions of this lease.
22.3 (a) If Landlord exercises either of the remedies provided for in
subparagraphs (c) or (d) of the foregoing Section 22.2, Tenant shall surrender
possession and vacate the Demised Premises and immediately deliver possession
thereof to Landlord in the condition for surrender otherwise required under this
lease, and Landlord may reenter and take complete and peaceful possession of the
Demised Premises, with or without process of law, full and complete license to
do so being hereby granted to Landlord, and Landlord may remove all occupants
and property therefrom, using such force as may be necessary, without being
deemed in any manner guilty of trespass, eviction or forcible entry and detainer
<PAGE>
and without relinquishing Landlord's right to rentals or any other rights given
to Landlord hereunder or by operation of law.
(b) If Landlord terminates the right of Tenant to possession of the
Demised Premises without terminating this lease, as provided for by subparagraph
(d) of this Section 22.2, Landlord shall have the right to immediate recovery of
all amounts then due hereunder. Such termination of possession shall not release
Tenant, in whole or in part, from Tenant's obligation to pay all rentals
hereunder for the full term of this lease, and Landlord shall have the right,
from time to time, to recover from Tenant, and Tenant shall remain liable for,
all minimum guaranteed rentals, Tenant's proportionate share of all real estate
charges and insurance expenses. Tenant's proportionate share of the cost of
operation and maintenance of the Common Area and any other sums accruing as they
become due under this lease during the period from the date of such notice of
termination of possession to the stated end of the term. In any such case
Landlord may, without any obligation (except as otherwise required by applicable
law), relet the Demised Premises or any part thereof for the account of Tenant
for such rent, for such time (which may be for a term extending beyond the term
of this lease) and upon such terms as Landlord shall determine and collect the
rents from reletting. Landlord shall not be required to accept any tenant
offered by Tenant or to observe any instructions given by Tenant relative to
such reletting. Also, in any such case, Landlord may make repairs, alterations
and additions in or to the Demised Premises and redecorate the same to the
extent reasonably deemed by Landlord necessary or desirable and, in connection
therewith, change the locks to the Demised Premises, and Tenant shall, upon
demand, pay the reasonable cost of all the foregoing together with Landlord's
reasonable expenses of reletting. The rents from any such reletting shall be
applied first to the payment of the expenses of re-entry, redecoration, repair
and alterations and the expenses of reletting, and second to the payment of
rentals and other charges herein provided to be paid by Tenant. Any excess or
residue shall operate only as an offsetting credit against the amount of rentals
and other charges due and owing from Tenant hereunder as the same thereafter
becomes due and payable, and the use of such offsetting credit to reduce the
amount of rentals and other charges due Landlord, if any, shall not be deemed to
give Tenant any right, title or interest in or to such excess or residue, and
any such excess or residue shall belong to Landlord solely, and in no event
shall Tenant be entitled to a credit on its indebtedness to Landlord in excess
of the aggregate sum of rentals and other charges which would have been paid by
Tenant for the period for which the credit to Tenant is being determined had no
event of default hereunder occurred. No such re-entry or repossession, repairs,
alterations and additions, or reletting shall be construed as an eviction of
Tenant or as an election on Landlord's part to terminate this lease, unless
written notice of such intention shall be given to Tenant, nor shall the same
operate to release Tenant in whole or in part from any of Tenant's obligations
hereunder, and Landlord may, at any time and from time to time, sue and recover
judgment for any deficiencies from time to time remaining after the application
of the proceeds of any such reletting.
(c) If this lease is terminated by Landlord as provided for by
subparagraph (c) of Section 22.2, Landlord shall be entitled to recover from
Tenant all rentals and other charges accrued and unpaid for the period up to and
including such termination date as well as all other additional sums payable by
Tenant or which Tenant is liable or in respect of which Tenant has agreed to
indemnify Landlord under any of the provisions of this lease, which may be then
owing and unpaid, together with all cost and expenses, including court costs
and reasonable attorneys' fees, incurred by Landlord in the enforcement of its
rights and remedies hereunder. In addition, Landlord shall be entitled to
recover as damages for loss of the bargain and not as a penalty: (i) the
unamortized portion of leasing commissions and Landlord's contribution to the
cost of Tenant Improvements and alterations, if any, installed by either
Landlord or Tenant pursuant to this lease: (ii) the aggregate sum which, at the
time of such termination, represents the excess, if any, of the present value of
the aggregate rentals and other charges which would have been payable after the
termination date and for the balance of the term hereof to the extent this lease
had not been terminated, over the then-present value of the then-aggregate fair
rental value of the Demised Premises for the balance of such term (such present
value to be computed in each case on the basis of eight percent (8%) per annum
discount from the respective dates upon which such rentals would have been
payable hereunder had this lease not been terminated); and (iii) any damages, in
addition thereto, including reasonable attorneys' fees and court costs, which
Landlord shall sustain by reason of the breach of any of the covenants of this
lease other than the payment of rent.
(d) All property of Tenant removed from the Demised Premises by
Landlord pursuant to any provisions of this lease or of law may be handled,
removed, demolished or stored by Landlord at the cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord for all reasonable expenses
incurred by Landlord in such removal and storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. All such property not removed from the Demised Premises by Tenant on or
before the end of term, however terminated (or on or before the earlier
termination of Tenant's right of possession of the Demised Premises), shall, at
Landlord's option be conclusively deemed to have been conveyed by Tenant to
Landlord by bill of sale, without further payment or credit by Landlord to
Tenant on account thereof.
(e) Pursuit of any of the above remedies shall not preclude pursuit of
any other remedies prescribed in other sections of this lease and any other
remedies provided by law or in equity. Forbearance by Landlord to enforce one or
more of the remedies herein provided upon event of default shall not be deemed
or construed to constitute a waiver of such default.
<PAGE>
(f) It is expressly agreed that in determining "the monthly rentals
and other charges provided in this lease," as that term is used throughout
subsections 22.2(c)(i) and 22.2(c)(ii) above, there shall be added to the
minimum guaranteed rental (as specified in Sections 1.1(i) and 4.1 of this
lease) a sum equal to the charges for maintenance of the Common Area (as
specified in Sections 1.1(m) and 7.4 of this lease), and the payments for taxes,
charges and insurance (as specified in Article 6 of this lease).
22.4 It is further agreed that, in addition to payments required pursuant
to subsections 22.2(b) and 22.2(c) above, Tenant shall compensate Landlord for
all reasonable expenses incurred by Landlord in repossession (including, among
other expenses, any increase in insurance premiums caused by the vacancy of the
Demised Premises), all reasonable expenses incurred by Landlord in reletting
(including, among other expenses, repairs, remodeling, replacements,
advertisements and brokerage fees), all concessions granted to a new tenant upon
reletting, all losses incurred by Landlord as a direct or indirect result of
Tenant's default.
22.6 If on account of any breach or default by Tenant or Landlord in its
obligations hereunder. Tenant or Landlord shall employ an attorney to present,
enforce or defend any of their rights or remedies hereunder, the prevailing
party agrees to pay any reasonable attorneys' fees incurred by the other in such
connection.
22.8 Tenant acknowledges its obligation to deposit with Landlord the sum
stated in Section 1.1(0) above, to be held by Landlord without interest as
security for the performance by Tenant of Tenant's covenants and obligations
under this lease. Tenant agrees that such deposit may be commingled with
Landlord's other funds and is not an advance payment of rental or a measure of
Landlord's damages in case of default by Tenant. Upon the occurrence of any
event of default by Tenant, Landlord may, from time to time, without prejudice
to any other remedy provided herein or provided by law, use such fund to the
extent necessary to make good any arrears of rentals and any other damage,
injury, expense or liability caused to Landlord by such event of default, and
Tenant shall pay to Landlord on demand the amount so applied in order to restore
the security deposit to its original amount. If Tenant is not then in default
hereunder, any remaining balance of such deposit shall be returned by Landlord
to Tenant upon termination of this lease (subject to the provisions of Section
19.6 above).
22.9 (a) In the event of any default described in subsection (d) of
Section 22.1 of this lease, any assumption and assignment must conform with the
requirements of the Bankruptcy Code and, in order to provide Landlord with the
assurances contemplated by the Bankruptcy Code, Tenant must fulfill the
following obligations, in addition to any other reasonable obligations that
Landlord may require, before any assumption of this lease is effective: (i) all
defaults under subsection (a) of Section 22.1 of this lease must be cured within
ten (10) days after the date of assumption; (ii) all other defaults under
Section 22.1 of this lease other than under subsection (d) of Section 22.1 must
be cured within fifteen (15) days after the date of assumption; (iii) all actual
monetary losses incurred by Landlord (including, but not limited to, reasonable
attorneys' fees) must be paid to Landlord within ten (10) days after the date of
assumption; and (iv) Landlord must receive within ten (10) days after the date
of assumption a security deposit in the amount of six (6) months minimum
guaranteed rent (using the minimum guaranteed rent in effect for the first full
month immediately following the assumption) and an advance prepayment of minimum
guaranteed rent in the amount of three (3) months minimum guaranteed rent (using
the minimum guaranteed rent in effect for the first full month immediately
following the assumption), both sums to be held by Landlord in accordance with
Section 22.8 above and deemed to be rent under this lease for the purposes of
the Bankruptcy Code as amended and from time to time in effect.
(b) In the event this lease is assumed in accordance with the
requirements of the Bankruptcy Code and this lease, and is subsequently
assigned, then, in addition to any other reasonable obligations that Landlord
may require and in order to provide Landlord with the assurances contemplated by
the Bankruptcy Code, Landlord shall be provided with (i) a financial statement
of the proposed assignee prepared in accordance with generally accepted
accounting principles consistently applied, though on a cash basis, which
reveals a net worth in an amount sufficient, in Landlord's reasonable judgment,
to assure
<PAGE>
the future performance by the proposed assignee of Tenant's obligations under
this lease; or (ii) a written guaranty by one or more guarantors with financial
ability sufficient to assure the future performance of Tenant's obligations
under this lease, such guaranty to be in form and content satisfactory to
Landlord and to cover the performance of all of Tenant's obligations under this
lease.
22.10 Tenant hereby waives the service of any statutory notice which might
be required pursuant to the provisions of 735 ILCS 5/9-209 and 5/9-210 and
agrees that Landlord shall be required to serve only the notices described in
this Article 22 as a condition to Landlord's exercise of any of its remedies
hereunder.
ARTICLE 23.
LANDLORD'S CONTRACTUAL SECURITY INTEREST
23.2 Notwithstanding Section 23.1, Landlord agrees that it will
subordinate its security interest and landlord's lien to the security interest
of Tenant's supplier or institutional financial source for as long as the rental
account of Tenant under this lease is current (or is brought current), provided
that Landlord approves the transaction as being reasonably necessary to Tenant's
operations at the Demised Premises, and further provided that the subordination
must be limited to a specified transaction and specified items of the fixtures,
equipment or inventory involved in the transaction.
ARTICLE 24.
HOLDING OVER
24.1 In the event Tenant remains in possession of the Demised Premises
after the expiration of this lease and without the execution of a new lease, it
shall be deemed to be occupying said premises as a tenant at sufferance (or, at
Landlord's election, as a tenant from month to month) at a rental equal to the
minimum guaranteed rental herein provided plus fifty percent (50%) of such
amount and otherwise subject to all the conditions, provisions and obligations
of this lease insofar as the same are applicable to a month-to-month tenancy.
Neither any provision hereof nor acceptance by Landlord of rent after such
expiration or earlier termination shall be deemed a consent to a holdover
hereunder or result in a renewal of this Lease or an extension of the Term.
Notwithstanding any provision to the contrary contained herein, (i) Landlord
expressly reserves the right to require Tenant to surrender possession of the
Demised Premises upon the expiration of the Term of this Lease or upon the
earlier termination hereof, the right to reenter the Demised Premises, and the
right to assert any remedy at law or in equity to evict Tenant and collect
damages in
<PAGE>
connection with any such holding over, and (ii) Tenant shall Indemnify, defend
and hold Landlord harmless from and against any and all claims, demands,
actions, losses, damages, obligations, costs and expenses, including, without
limitation, attorneys' fees incurred or suffered by Landlord by reason of
Tenant's failure to surrender the Demised Premises on the expiration or earlier
termination of this Lease in accordance with the provisions of this Lease.
ARTICLE 25.
NOTICES
25.1 Wherever any notice is required or permitted hereunder, such notice
shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when actually received by
the designated addressee or, if earlier and regardless of whether actually
received or not, when deposited in the United States mail, postage prepaid,
certified mail, return receipt requested, addressed to the parties hereto at the
respective addresses set out in Section 1.1 above (or at Landlord's option, to
Tenant at the Demised Premises), or at such other addresses as they have
theretofore specified by written notice.
25.2 If and when included within the term "Landlord" as used in this
instrument there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such notice
specifying some individual at some specific address for the receipt of notices
and payments to the Landlord; if and when included within the term "Tenant" as
used in this instrument there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address for the receipt of
notices and payment to Tenant. All parties included within the terms "Landlord"
and "Tenant," respectively, shall be bound by notice and payments given in
accordance with the provisions of this Article to the same effect as if each had
received such notice or payment. In addition, Tenant and Landlord agree that
actions by Landlord and Tenant and notices to the other Tenant hereunder may be
taken or given by their attorney or other agent.
ARTICLE 26.
COMMISSIONS
26.1 Landlord shall pay to the Agent (as set forth in Section 1.1(g)
hereof) a commission for negotiating this lease, in accordance with the
Exclusive Listing Agreement-Leasing between Landlord and Agent having an
effective date of December 15, '96. Tenant and Landlord warrant that they have
had no dealings with any broker or agent in connection with this lease, other
than Agent, whose commission shall be paid as hereinabove provided, and Hiffman
Shaffer Associates, Inc., whose commission shall be paid by Agent. Landlord and
Tenant covenant to pay, hold harmless and indemnify each other from and against
any all cost, expense or liability for any compensation, commissions or charges
claimed by any broker or agent utilized by the indemnitor with respect to this
lease or the negotiation hereof.
ARTICLE 27.
REGULATIONS
27.1 Landlord and Tenant acknowledge that there are now in effect and may
hereafter be enacted or go into effect federal, state, county and municipal
laws, orders, rules, directives and regulations relating to or affecting the
Demised Premises or the Industrial Complex, concerning the impact on the
environment of construction, land use, maintenance and operation of structures,
toxic or otherwise hazardous substances, and the conduct of business, including,
without limitation, the Americans With Disabilities Act of 1990 and the Clean
Air Act and regulations issued thereunder (all of the foregoing, as amended from
time to time, being herein called the "Regulations"). Tenant will not cause or
permit to be caused, any act or practice, by negligence, omission or otherwise,
that would adversely affect the environment or do anything or permit anything to
be done that would violate any of said Regulations. Moreover, Tenant shall have
no claim against Landlord by reason of any changes Landlord may make in the
Industrial Complex or the Demised Premises pursuant to said Regulations or any
charges imposed upon Tenant. Tenant's customers or other invitees pursuant to
same.
27.2 If, by reason of any Regulations, the payment to, or collection by,
Landlord of any rental or other charge (collectively referred to hereinafter as
"Lease Payments") payable by Tenant to Landlord pursuant to the provisions of
this lease is in excess of the amount (the "Maximum Charge") permitted thereof
by the Regulations, then Tenant, during the period (the "Freeze Period") when
the Regulations shall be in force and effect shall not be required to pay, nor
shall Landlord be permitted to collect, any sum in excess of the Maximum Charge.
Upon the earlier of (i) the expiration of the Freeze Period, or (ii) the
issuance of a final order or judgment of a court of competent jurisdiction
declaring the Regulations to be invalid or not applicable to the provisions of
this lease, Tenant, to the extent not then proscribed by law, and commencing
with the first day of the month immediately following, shall pay to Landlord as
additional rental, in equal monthly installments during the balance of the term
of this lease, a sum equal to the cumulative difference between the Maximum
Charges and the Lease Payments during the Freeze Period. If any provisions of
this Section, or the application thereof, shall to any extent be declared to be
invalid and unenforceable, the same
<PAGE>
shall not be deemed to affect any of the other provisions of this section or of
this lease, all of which shall be deemed valid and enforceable to the fullest
extent permitted by law.
27.3 Tenant acknowledges that it will be wholly responsible for any non-
structural accommodations or alterations which need to be made to the Demised
Premises to accommodate disabled employees and customers of Tenant, including
without limitation, compliance with all of the requirements under the Americans
with Disabilities Act of 1990, and regulations promulgated thereunder (the
"Act"). Any alterations made to the Demised Premises in order to comply with the
Act or other comparable statutes must be made solely at Tenant's expense and in
compliance with all terms and requirements of the lease. Landlord agrees to make
reasonable efforts to ensure that the Common Area is in compliance with the Act
as of the date hereof. If a complaint is received by Landlord from either a
private or government complaint regarding noncompliance with the Act or
otherwise regarding disability access to the Common Area of the Industrial
Complex, Landlord reserves the right to mediate, contest, comply with or
otherwise respond to such complaint as Landlord deems to be reasonably prudent
under the circumstances. If Landlord decides to make alterations to the Common
Area of the Industrial Complex in response to any such complaints or in response
to legal requirements Landlord considers to be applicable to the Common Area of
the Industrial Complex, the cost of such alterations shall be included in the
Common Area maintenance charge under the lease. Landlord and Tenant agree that
so long as the governmental entity or entitles charged with enforcing the Act or
any other comparable statutes have not expressly required Landlord to take
specific action to effectuate compliance with the Act or such statutes, Landlord
shall be conclusively deemed to be in compliance with the Act and all such other
comparable statutes. Tenant agrees to provide Landlord with written notice
should Tenant become aware of a violation of such statutes with respect to the
Common Area. In the event Landlord is required to take action to effectuate
compliance with such statutes, Landlord shall have a reasonable period of time
to make the improvements and alterations necessary to effectuate such
compliance, which period of time shall be extended by any time necessary to
cause any necessary improvements and alterations to be made. If, as a result of
Tenant's Alterations or its particular use of the Demised Premises (i.e., other
than for general industrial use), Landlord is required to alter the Common Area
in order to comply with the Act or other comparable statutes, Tenant shall pay
the cost of such alterations under Landlord's demand.
ARTICLE 28.
HAZARDOUS MATERIALS
28.1 During the term of this lease, Tenant shall comply with all
Environmental Laws and Environmental Permits (each as defined in Section 28.7
hereof) applicable to the operation or use of the Demised Premises, will cause
all other persons occupying or using the Demised Premises to comply with all
such Environmental Laws and Environmental Permits, will immediately pay or cause
to be paid all costs and expenses incurred by reason of such compliance, and
will obtain and renew all Environmental Permits required for operation or use of
the Demised Premises.
28.2 Tenant shall not generate, use, treat, store, handle, release or
dispose of, or permit the generation, use, treatment, storage, handling, release
or disposal of Hazardous Materials (as defined in Section 28.7 hereof) on the
Demised Premises, or the Industrial Complex, or transport or permit the
transportation of Hazardous Materials to or from the Demised Premises or the
Industrial Complex except for limited quantities used or stored at the Demised
Premises and required in connection with the routine operation and maintenance
of the Demised Premises, and then only upon the written consent of Landlord and
in compliance with all applicable Environmental Laws and Environmental Permits.
28.3 At any time and from time to time during the term of this Lease or
upon expiration thereof, Landlord may perform, at Tenant's sole cost and
expense, an environmental site assessment report concerning the Demised
Premises, prepared by an environmental consulting firm chosen by Landlord,
indicating the presence or absence of Hazardous Materials caused or permitted by
Tenant and the potential cost of any compliance, removal or remedial action in
connection with any such Hazardous Materials on the Demised Premises. Tenant
shall grant and hereby grants to Landlord and its agents access to the Demised
Premises and specifically grants Landlord an irrevocable non-exclusive license
to undertake such an assessment; and the cost of such assessment shall be
immediately due and payable on demand. Tenant shall comply, at its cost, with
all recommended actions described in such assessment (or, at Landlord's
election, Tenant shall pay all costs incurred by Landlord by reason of such
compliance by Landlord).
28.4 Tenant will immediately advise Landlord in writing of any of the
following: (1) any pending or threatened Environmental Claim (as defined in
Section 28.7 hereof) against Tenant relating to the Demised Premises or the
Industrial Complex; (2) any condition or occurrence on the Demised Premises or
the Industrial Complex that (a) results in noncompliance by Tenant with any
applicable Environmental Law, or (b) could reasonably be anticipated to form the
basis of an Environmental Claim against Tenant or Landlord or the Demised
Premises; (3) any condition or occurrence on the Demised Premises or any
property adjoining the Demised Premises that could reasonably be anticipated to
cause the Demised Premises to be subject to any restrictions on the ownership,
occupancy, use or transferability of the Demised Premises under any
Environmental Law; and (4) the actual or anticipated taking of any removal or
remedial action by Tenant in response to the actual or alleged presence of any
Hazardous Material on the Demised Premises or the Industrial Complex. All such
notices shall describe in reasonable detail the nature of the claim,
<PAGE>
investigation, condition, occurrence or removal or remedial action and Tenant's
response thereto. In addition, Tenant will provide Landlord with copies of all
communications regarding the Demised Premises with any government or govern-
mental agency relating to Environmental Laws, all such communications with any
person relating to Environmental Claims, and such detailed reports of any such
Environmental Claim as may reasonably be requested by Landlord.
28.5 Tenant will not change or permit to be changed the present use of the
Demised Premises unless Tenant shall have notified Landlord thereof in writing
and Landlord shall have determined, in its sole and absolute discretion, that
such change will not result in the presence of Hazardous Materials on the
Demised Premises except for those described in Section 28.2 above.
28.6 (a) Tenant agrees to defend, indemnify and hold harmless the
indemnitees (as defined in Section 21.1) from and against all obligations
(including removal and remedial actions), losses, claims, suits, judgments,
liabilities, penalties, damages (including consequential and punitive damages),
costs and expenses (including attorneys' and consultants' fees and expenses) of
any kind or nature whatsoever that may at any time be incurred by, imposed on or
asserted against such indemnitees directly or indirectly based on, or arising or
resulting from (a) the actual or alleged presence of Hazardous Materials on the
Industrial Complex which is caused or permitted by Tenant and (b) any
Environmental Claim relating in any way to Tenant's operation or use of the
Demised Premises (the "Hazardous Materials Indemnified Matters"). The provisions
of this Article 28 shall survive the expiration or sooner termination of this
lease.
(b) To the extent that the undertaking in the preceding paragraph may
be unenforceable because it is violative of any law or public policy, Tenant
will contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Hazardous Materials
Indemnified Matters incurred by the indemnitees.
(c) All sums paid and costs incurred by Landlord with respect to any
Hazardous Materials Indemnified Matter shall bear interest at the lesser of (i)
eighteen (18%) percent per annum, or (ii) the maximum legal rate of interest
allowed by the state in which the Industrial Complex is located, from the date
so paid or incurred until reimbursed by Tenant, and all such sums and costs
shall be Immediately due and payable on demand.
28.7 (a) "Hazardous Materials" means (i) petroleum or petroleum products,
natural or synthetic gas, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and radon gas; (ii) any substances defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants,"
or words of similar import, under any applicable Environmental Law; and (iii)
any other substance exposure which is regulated by any governmental authority;
(b) "Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now or hereafter in
effect and in each case as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or Hazardous
Materials, including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et
--
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.;
- --- -- ---
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801 et seq.; the
-- ---
Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the Toxic Substances Control
-- ---
Act, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et
-- --- --
seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the Atomic
- --- -- ---
Energy Act, 42 U.S.C. (S)(S) 2011 et seq.; the Federal Insecticide, Fungicide
-- ---
and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; the Occupational Safety and
-- ---
Health Act, 29 U.S.C. (S)(S) 651 et seq.; and the Illinois Environmental
-- ---
Protection Act, 415 ILCS 5/1 et seq.; (c) "Environmental Claims" means any and
-- ---
all administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of non-compliance or violation, investigations,
proceedings, consent orders or consent agreements relating in any way to any
Environmental Law or any Environmental Permit, including without limitation (i)
any and all Environmental Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law and (ii) any and all Environmental
Claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to health, safety or the
environment; (d) "Environmental Permits" means all permits, approvals,
identification numbers, licenses and other authorizations required under any
applicable Environmental Law.
ARTICLE 29.
MISCELLANEOUS
29.1 Nothing in this lease shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent, nor any
other provision contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of landlord and tenant.
<PAGE>
29.2 Tenant shall not for any reason withhold or reduce Tenant's required
payments of rentals and other charges provided in this lease, it being agreed
that the obligations of Landlord under this lease are independent of Tenant's
obligations except as may be otherwise expressly provided. The immediately
preceding sentence shall not be deemed to deny Tenant the ability of pursuing
all rights granted it under this lease or at law; however, at the direction of
Landlord, Tenant's claims in this regard shall be litigated in proceedings
different from any litigation involving rental claims or other claims by
Landlord against Tenant (i.e., each party may proceed to a separate judgment
without consideration, counterclaim or offset as to the claims asserted by the
other party).
29.3 The liability of Landlord, any agent of Landlord, or any of their
respective officers, directors, shareholders, or employees to Tenant for or in
respect of any default by Landlord under the terms of this lease or in respect
of any other claim or cause of action shall be limited to the interest of
Landlord in the Industrial Complex, and Tenant agrees to look solely to
Landlord's interest in the Industrial Complex and the rents and profits
therefrom for the recovery and satisfaction of any judgment against Landlord,
any agent of Landlord, or any of respective officers, directors, shareholders,
and employees. Any action based upon such liabilities shall be commenced within
six (6) months following the date of said assignment of this lease by Landlord
and no such action shall be brought thereafter.
29.4 In all circumstances under this lease where the prior consent of one
party (the "consenting party"), whether it be Landlord or Tenant, is required
before the other party (the "requesting party") is authorized to take any
particular type of action, such consent shall not be withheld in a wholly
unreasonable and arbitrary manner; however, the requesting party agrees that its
exclusive remedy if it believes that consent has been withheld improperly
(including, but not limited to, consent required from Land lord pursuant to
Section 19.1) shall be to institute litigation either for a declaratory judgment
or for a mandatory injunction requiring that such consent be given (with the
requesting party hereby waiving any claim for damages, attorneys' fees or any
other remedy unless the consenting party refuses to comply with a court order or
judgment requiring it to grant its consent).
29.5 Except for Tenant's obligation to pay rent and other charges
hereunder, whenever a period of time is herein prescribed for action to be taken
by Landlord or Tenant, Landlord or Tenant as the case may be, shall not be
liable or responsible for, and there shall be excluded from the computation of
any such period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of Landlord or Tenant, as the case may be.
29.7 If any provision of this lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this lease shall not be affected thereby.
29.8 If this lease is in fact a sublease, Tenant accepts this lease
subject to all of the terms and conditions of the underlying lease under which
Landlord holds the Industrial Complex as lessee. Tenant covenants that it will
do no act or thing which would constitute a violation by Landlord of its
obligation under such underlying lease; provided, however, that Tenant's
agreement in this regard is premised on Landlord's assurances to the effect that
the terms of this lease do not violate such underlying lease.
29.9 The laws of the State of Illinois shall govern the interpretation,
validity, performance and enforcement of this lease. Venue for any action under
this lease shall be the county in which rentals are due pursuant to Section 4.2
and Section 1.1 of this lease.
29.10 The captions used herein are for convenience only and do not limit
or amplify the provisions hereof.
29.11 Whenever herein the singular number is used, the same shall include
the plural, and words of any gender shall Include each other gender.
29.12 All covenants and obligations contained within this lease shall bind
and inure to the benefit of Landlord, its successors and assigns, and shall be
binding upon Tenant, its permitted successors and assigns.
29.13 This lease contains the entire agreement between the parties, and no
rights are created in favor of either party other than as specified or expressly
contemplated in this lease. No brochure, rendering, information or
correspondence shall be deemed to be a part of this agreement unless
specifically incorporated herein by reference. In addition, no agreement shall
be effective to change, modify or
<PAGE>
terminate this lease in whole or in part unless such is in writing and duly
signed by the party against whom enforcement of such change, modification or
termination is sought.
29.14 LANDLORD AND TENANT HEREBY ACKNOWLEDGE THAT THEY ARE NOT RELYING
UPON ANY BROCHURE, RENDERING, INFORMATION, REPRESENTATION OR PROMISE OF THE
OTHER, OR OF THE AGENT, EXCEPT AS MAY BE EXPRESSLY SET FORTH
[PLACE AN "X" OR OTHER MARK DESIGNATING A CHOICE IN THE APPROPRIATE BOX]
[X] IN THIS LEASE
[_] IN ____________AS WELL AS IN THIS LEASE.
NOTE: IF NO "X" (OR OTHER MARK DESIGNATING A CHOICE) IS PLACED IN EITHER BOX IN
THIS SECTION 29.14, THEN THE FIRST BOX WILL BE DEEMED TO HAVE BEEN MARKED.
29.15 No waiver of any of the terms, covenants, provisions, conditions,
rules and regulations imposed by this Lease, and no waiver of any legal or
equitable relief or remedy, shall be implied by the failure of Landlord or
Tenant to assert any rights, declare any forfeiture, or for any other reason. No
waiver of any of the terms, provisions, covenants, conditions, rules and
regulations shall be valid unless it shall be in writing signed by the other
party. No waiver by Landlord or forgiveness of performance by Landlord for one
or more Tenants shall constitute a waiver or forgiveness of performance in
respect to Tenant. Landlord's or Tenant's consent to or approval of any act by
the other requiring the other's consent or approval under this Lease shall not
be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act of the other. No act or thing done by Landlord or
the other's agents during the Term of this Lease shall be deemed an acceptance
of a surrender of the Demised Premises, unless in writing signed by Landlord.
The delivery of the keys to any employee or agent of Landlord shall not operate
as a termination of the Lease or a surrender of the Demised Premises. The
acceptance of any rent by Landlord following a breach of this Lease by Tenant
shall not constitute a waiver by Landlord of such breach or any other breach
unless such waiver is expressly stated writing signed by Landlord.
29.16 Tenant shall deliver and surrender to Landlord possession of the
Demised Premises (including all of Tenant's permanent work upon and to the
Demised Premises, all replacements and all fixtures permanently attached to the
Demised Premises) immediately upon the expiration of the Term or the termination
of this Lease in as good condition and repair as the same were on the delivery
date (loss by any insured casualty and ordinary wear and tear only excepted) and
deliver the keys at the office of Landlord or Landlord's agent; provided,
however, that upon Landlord's request made at least thirty (30) days prior to
the end of the Term, or the date Tenant is otherwise required to vacate the
Demised Premises, Tenant shall remove all fixtures and equipment affixed to the
Demised Premises by Tenant, and repair and restore the Demised Premises to their
condition on the delivery date (loss by any insured casualty and ordinary wear
and tear only excepted), at Tenant's sole expense. The removal shall be
performed prior to the earlier of the end of the Term or the date Tenant is
required to vacate the Demised Premises.
29.17 Tenant shall not record this Lease. Without the prior written consent
of Landlord, Tenant shall not record any memorandum of this Lease, short form or
other reference to this Lease.
29.18 The submission of this lease for examination does not constitute a
reservation of or option for the Demised Premises or any other space in the
Industrial Complex, and shall not vest any right in Tenant. This lease shall
become effective as a lease only upon its execution and delivery by the parties.
29.19 LANDLORD AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER
PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THE DEMISED PREMISES
(INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS LEASE OR ANY
CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY INDUCED OR IS
OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LANDLORD
TO ENTER AND ACCEPT THIS LEASE.
<PAGE>
29.21 Landlord convenants that it has full right, power and authority to
make this Lease and that Tenant on paying all of the rent and performing all of
Tenant's other obligations in this Lease, shall peaceably and quietly have, hold
and enjoy the Demised Premises during the term without hinderance, ejection or
molestation by any person lawfully claiming by, through or under Landlord.
29.22 This lease consists of twenty-nine Articles and Exhibits "A" through
"E". With the exception of Article 7, in the event any provision of an exhibit
shall be inconsistent with a provision in the body of the lease, the provision
as set forth in the exhibit shall be deemed to control.
EXECUTED as of the latest date accompanying a signature by Landlord or
Tenant below.
LANDLORD: Great Oak L.L.C.
--------------------------------------------
a __________________________________________
By: GE CAPITAL REALTY GROUP, INC.,
its agent
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Name: [NAME ILLEGIBLE]
------------------------------
Title: VP
-----------------------------
Date of Signature: 7-11-97
Taxpayer Identification No.____________
TENANT: [TENANT]
By: /s/ Marketta Silvera
-----------------------------------------
Name: M. Marketta Silvera
------------------------------------
Title: CEO
-----------------------------------
Date of Signature: 6-19-97
Taxpayer Identification No. 94-3164036
AGENT: [AGENT]
By: ________________________________________
Name: __________________________________
Title: _________________________________
Date of Signature: _________________________
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF LANDLORD'S PROPERTY
----------------------------------
[PICTURE OF PROPERTY APPEAR HERE]
<PAGE>
EXHIBIT "B"
-----------
DEMISED PREMISES
---------------
[PICTURE OF PROPERTY APPEAR HERE]
<PAGE>
EXHIBIT "C"
-----------
CONSTRUCTION TENANT ACCEPTANCE OF SPACE "AS IS"
-----------------------------------------------
ARTICLE I. GENERAL
-------
Tenant hereby accepts the Demised Premises "as is" and "ready for occupancy."
Prior to any modification of the existing premises, Tenant shall adhere to the
following:
ARTICLE II. PRE-CONSTRUCTION OBLIGATIONS
----------------------------
A. Plans, diagrams, schedules and other data relating to work to be
performed by Tenant must be furnished by Tenant to Landlord complete,
sufficient to obtain a building permit ("Plans") and ready for
Landlord's consideration and final approval within fifteen (15) days
after execution of this lease (or at such other time as may be
specified by this exhibit). Without limiting the generality of the
immediately preceding sentence, Tenant's submissions must include a
floor plan, a reflected ceiling plan, a plumbing plan, elevations of
walls and a fixture plan. All drawings shall be at scale of either
1/8" or 1/4". Within ten (10) days following the date of Landlord's
receipt of the Plans, Landlord will advise Tenant of Landlord's
approval or disapproval of the Plans. If Landlord disapproves any
aspect of the Plans, Landlord shall so notify Tenant and specify the
reasons for such disapproval. Landlord may also specify how any such
disapproved item may be made reasonably acceptable to Landlord, and
Tenant shall, within five (5) days thereafter, deliver to Landlord
revised Plans incorporating the revisions required by Landlord. Tenant
agrees and understands that the review of all Plans by or on behalf of
the Landlord pursuant to this Exhibit C is solely to protect the
interests of Landlord in the Building and the Premises, and Landlord
shall not be the guarantor of, nor responsible for, the correctness or
accuracy of any such items or compliance of such Plans with applicable
design or engineering standards or applicable laws. Similarly,
Landlord is making the services of Landlord's Architect available to
Tenant solely as an accommodation to Tenant and Landlord shall have no
liability whatsoever for any error or omission by Architect in the
performance of Architect's services for the benefit of Tenant should
Landlord be delayed in responding within the period above, the
Commencement Date and rental commencement date under this Lease shall
be extended for the period of delays for which Landlord was
responsible.
B. Tenant shall secure Landlord's written approval of all designs, plans,
specifications, materials, contractors and contracts for work to be
performed by Tenant before beginning the work (including following
whatever "work letter" instructions, if any, which Landlord may
deliver to Tenant in connection with the work), and shall secure all
necessary licenses and permits to be used in performing the work.
C. The insurance requirements under Article 15 of the lease and the
indemnity requirements under Article 16 of the lease shall apply
during the construction contemplated in this exhibit, and Tenant shall
provide evidence of appropriate insurance coverage prior to beginning
any of Tenant's work. Tenant shall provide Landlord with evidence of
insurance covering both Tenant and Tenant's contractor against damage
to their personal property, as well as against third-party liability
and workers' compensation claims arising out of all construction and
associated activities. All policies of insurance shall be subject to
Landlord's prior approval which approval shall not be unreasonably
withheld or delayed by in excess of ten (10) days after submission
thereof to Landlord and shall be endorsed showing Landlord as an
additional named insured (or if permitted by Landlord, may provide a
waiver of subrogation against Landlord).
ARTICLE III. DESCRIPTION OF TENANT'S WORK
----------------------------
A. Signs: Tenant shall pay for all signs and the installation thereof,
Including the electrical hook-up, subject to the provisions of Section
13.1 of this lease.
B. Utilities: All meters or other measuring devices in connection with
utility services shall be provided by Tenant. All service deposits
shall be made by Tenant at Tenant's expense.
C. All work undertaken by Tenant shall be Tenant's expense and (subject
to payment by Landlord of the construction allowance defined below)
shall not damage the building or any part thereof. Any roof
penetration shall be performed by Landlord's roofer or, at Landlord's
option, by a bonded roofer approved in advance by Landlord. The work
shall be begun only after Landlord has given consent, which consent
shall in part be conditioned reasonably upon Tenant's plans, to
include material reasonably acceptable to Landlord, in order to
prevent injury to the roof and to spread the weight of the equipment
being installed. Tenant shall also be responsible for obtaining and
paying for professional inspections of any structural work (including,
without limitation, any roof work or concrete work).
D. All work undertaken by Tenant shall be awarded to a contractor of
Tenant's choice subject to Landlord's written approval for another
contractor to complete Tenant's work.
<PAGE>
Landlord will pay to Tenant up to $10.00 per square foot of the Demised
Premises, as a reimbursement for Tenant's bona fide (and verified) construction
expenses paid to parties not related to Tenant. Such payment will be due only
upon (i) completion of all improvements to Landlord's satisfaction; (ii)
Tenant's delivery to Landlord of a true copy of its Certificates of Occupancy
(or similar governmental occupancy permit); (iii) Landlord's satisfaction that
all bills have been paid to Tenant's contractors, subcontractors and
professionals; and (iv) Tenant's commencement of business in the Demised
Premises.
In the event Landlord and Tenant cannot agree on plans, diagrams, schedules and
other data relating to Tenant's improvements and equipment, (including a backup
generator, a UPS system and a redundant HVAC System for the service center),
prior to the Commencement Date, then Tenant subject to article 10.2 of this
Lease may terminate this Lease upon 1) 15 days prior written notice and 2)
payment to Landlord of all of Landlord's out-of-pocket expenses incurred up the
Commencement Date.
Initialed:
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: MMS
---------------------
<PAGE>
EXHIBIT "E"
-----------
Minimum Guaranteed Rent Schedule
--------------------------------
<TABLE>
<CAPTION>
Lease Period Minimum Guaranteed Rental
------------ -------------------------
<S> <C>
Lease Commencement through $2,491.33
July 31, 1998, inclusive
August 1, 1998 through $2,566.07
July 31,1999, inclusive
August 1, 1999 through $2,643.06
July 31, 2000, inclusive
August 1, 2000 through $2,722.35
July 31, 2001, inclusive
August 1, 2001 through $2,804.02
Lease termination date,
inclusive
</TABLE>
<PAGE>
[LETTERHEAD OF DRAPER AND KRAMER]
June 11, 1997
Mr. Ken Holcomb
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, CA 94501-1057
RE: GENERATOR/UPS/LIEBERT AC UNITS
Dear Mr. Holcomb:
Draper and Kramer has reviewed all information received from Cosentini
Associates regarding the 350 KW diesel generator, 150 KVA U.P.S. and Liebert
cooling systems. The following are Landlord's terms and conditions for approval
of each installation:
Landlord accepts installation of the 350 KW diesel generator outlined in the
information received from Cosentini Associates. The generator must include the
addition of the sound enclosure and muffler to lower the DBA to 55 at 60 feet.
The location of the generator installation is approved on the North side of the
building, either in front of tenant's suite or across the parking lot on the
landscaped peninsula. The landscaping, which must screen the generator from the
street view, is subject to Landlord's approval which approval will not be
unreasonably withheld. Landscape drawings must be submitted to Landlord for
review. Generator size and decibel rating must comply with all regulations and
ordinances of the City of Rolling Meadows. Permits from the City of Rolling
Meadows must be submitted to Landlord before installation of the generator.
Pilot Network Services is responsible for all maintenance and keeping the
generator in good working order. Generator testing must be completed during non-
business hours.
Installation of the 150 KVA U.P.S. system must comply with all state
environmental laws as well as City of Rolling Meadows codes, ordinances and
regulations. A list of hazardous material must be submitted to Landlord if
applicable. If such U.P.S. system meets with the regulations and ordinances of
the City of Rolling Meadows, Landlord approves installation.
Installation of two Liebert cooling units in the service center is approved with
the following guidelines. Condensing portions of the units must be installed on
the roof inside the northern most designated screen area. Condensing units roof
installation must be in an area as not to interfere with the existing units on
the roof. Drawings with intended rooftop location must be submitted to Landlord
for approval which approval will not be unreasonably withheld.
<PAGE>
DRAPER AND KRAMER
Mr. Ken Holcomb
June 11, 1997
Page Two
As all of the above installations are considered alterations to the premises,
Landlord requires Pilot Network Services at the end of the lease term to remove
the 350 KW generator, 150 KVA U.P.S. system and Liebert cooling units and
restore the premises to it's original condition.
This letter, when fully executed shall constitute an amendment to that certain
Lease between Pilot Network Services, Inc. as Tenant and Great Oak, L.L.C., as
Landlord for premises in the Northwest Business Center, Rolling Meadows,
Illinois. Upon compliance by Tenant with the terms and conditions set forth
herein, any terms and conditions set forth in the Lease that prohibit
installation and/or operation of a diesel generator, a U.P.S. and/or a cooling
system (installed on the roof) shall be deemed modified to permit installation
and/or operation of the systems permitted herein, subject to the terms of this
letter. In addition, the Lease shall be amended to authorize tenant to operate
its business in the Premises 24 hours per day, 365 days per year, subject to the
terms and conditions of the Lease as amended by this letter.
Sincerely,
/s/ Gia M. Turcsanyi
Gia M. Turcsanyi
Property Manager
/gmt
cc: Mr. Rich Redeker, Draper and Kramer Incorporated
Mr. Frank Reidelberger, Pilot Network Services
Ms. Nancy Heinrich, Heinrich & Hill
Ms. Rebecca Klein, HSA
TENANT: Pilot Network Services, Inc. LANDLORD: Great Oak, L.L.C.
By: G.E. Capital Realty Group: its Agent
By: /s/ M. Marketta Silvera By: /s/ M. Joe Elsena
--------------------------- -----------------------------
Name: M. MARKETTA SILVERA Name: M. JOE ELSENA
----------------------- -------------------------
Title: CEO Title: VP
---------------------- ------------------------
Date: 6/19/97 Date: 7-11-97
----------------------- ---------------------------
<PAGE>
EXHIBIT 10.10
STANDARD OFFICE LEASE
THIS LEASE is made and entered into as of this 14th day of January, 1998
by and between PACIFIC CORPORATE TOWERS LLC, a Delaware limited liability
company ("Landlord"), and PILOT NETWORK SERVICES, INC., a California corporation
("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises described as Suite No. 450 on the fourth (4th) floor of that building
("Building") whose address is 222 N. Sepulveda Blvd., E1 Segundo, California, as
designated on the plan attached hereto and incorporated herein as Exhibit "A"
(the "Premises") of the project consisting of the building(s), parking
structure(s), land and any other land or improvements surrounding the buildings
which are designated from time to time by Landlord as appurtenant to or
servicing the building(s) (the "Project"), now known as Pacific Corporate Towers
for the term and upon the terms and conditions hereinafter set forth, and
Landlord and Tenant hereby agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
----------------------
1.1 Term.
(a) Scheduled Occupancy Date: March 1, 1998, subject to Article 2.1
hereof and Section 7.0 of the Work Letter Agreement attached as
Exhibit "C".
(b) Scheduled Commencement Date: June 1, 1998, subject to Article 2
hereof and Section 7.0 of the Work Letter Agreement attached as
Exhibit "C".
(c) Scheduled Expiration Date: May 31, 2004, subject to Article 2
hereof.
1.2 Rentable Square Footage: Six thousand five hundred seventy-six
(6,576). The actual rentable square footage of the Premises shall be
determined and set forth in writing by Landlord's
architect/consultant, P. Patrick Murray & Associates, prior to the
Commencement Date in accordance with the Building Owners and Managers
Association national standard (ANSI A65.1-1996). Upon such
determination, which shall be conclusive, the Basic Rental, Security
Deposit, Tenant's Proportionate Share and the Allowance (described in
Paragraph 4.1 of the Work Letter Agreement) shall be appropriately
adjusted by a written amendment to this Lease prepared by Landlord,
which Tenant shall promptly execute upon request by Landlord.
1.3 Basic Rental: Base Monthly
Lease Month Annual Rent Installments
----------- ----------- ------------
1-36 $130,204.80 $10,850.40
37-72 $142,041.60 $11,836.80
(The foregoing Basic Rental amounts are based upon a Basic Rental rate
of $1.65 per rentable square foot per month for months 1-36, and a
Basic Rental rate of $1.80 per rentable square foot per month for
months 37-72.)
1.4 Base Year: 1998
1.5 Tenant's Proportionate Share: One and sixteen one-hundredths (1.16%)
1.6 Security Deposit: $10,850.40
1.7 Permitted Use: General office uses
1.8 Brokers: CB Commercial Real Estate Group, Inc.
and Cushman Realty Corporation
-1-
<PAGE>
1.9 Parking Spaces: Twenty-six (26) unreserved
1.10 Parking Charge: Prevailing rates for monthly parking
1.11 Tenant Address Prior to Lease Commencement Date: Pilot Network
Services, Inc., 1080 Marina Village Parkway, Alameda, CA 94501.
ARTICLE 2
TERM
----
2.1 Early Occupancy. Tenant shall have the right to occupy the Premises
---------------
for a three (3) month period prior to the Commencement Date, as defined in
Article 2.2 below ("Early Occupancy Period") commencing upon the earlier of (i)
the date on which Landlord notifies Tenant that the Tenant Building Standard
Work (as defined in the Work Letter Agreement attached hereto as Exhibit "C")
has been substantially completed, or (ii) the date Tenant first takes possession
of or commences the operation of its business in the Premises. Tenant's
occupancy of the Premises during the Early Occupancy Period shall be subject to
all of the terms and conditions of this Lease except for the obligation to pay
Basic Rental or Direct Costs (as defined in Article 3.3 below). The Tenant
Building Standard Work shall be deemed substantially completed on the date when
such work has been substantially completed in accordance with the Work Letter
Agreement, except for punchlist items, and all building inspections required by
the City of E1 Segundo to permit occupancy of the Premises have been completed.
2.2 Lease Commencement. The term of this Lease ("Lease Term") shall
------------------
commence (the "Commencement Date") on the date that is three (3) months after
the first day of the Early Occupancy Period. The lease term shall expire, unless
earlier terminated, on the date that is the end of the sixth (6th) year after
the Commencement Date.
2.3 Possession. If Landlord is unable to deliver possession of the
----------
Premises to Tenant on or before the Scheduled Occupancy Date, Landlord shall not
be subject to any liability for its failure to do so, and such failure shall not
affect the validity of this Lease nor the obligations of Tenant hereunder, but
the Early Occupancy Period shall commence in accordance with Article 2.1 and the
Lease Term shall commence in accordance with Article 2.2. Notwithstanding the
above, if the Tenant Building Standard Work is not substantially completed on or
before June 1, 1998 for any reason other than a Tenant Delay, any item of the
Tenant Building Standard Work that requires special installation or a long lead
delivery time, or any of the events referenced in Article 27 hereof, then Tenant
shall be entitled to receive a credit of one (1) day of Basic Rental for each
day from and after June 1, 1998 until the date that Landlord delivers possession
of the Premises to Tenant. The credit of Basic Rental shall be applied to the
first Basic Rental becoming due upon the Commencement Date. The foregoing credit
of Basic Rental shall be Tenant's sole and exclusive remedy for any delay by
Landlord in delivering possession of the Premises to Tenant. At any time during
the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth
in Exhibit "D" attached hereto, which Tenant shall execute and return to
Landlord within five (5) days of receipt thereof.
ARTICLE 3
RENTAL
------
3.1 Basic Rental. Commencing on the Commencement Date, Tenant shall pay to
------------
Landlord during the term hereof, at Landlord's office or to such other person or
at such other place as directed from time to time by written notice to Tenant
from Landlord, the monthly and annual sums as set forth in Article 1.3 of the
Basic Lease Provisions, payable in advance on the first day of each calendar
month, without demand, setoff or deduction, and in the event this Lease
commences or the date of expiration of this Lease occurs other than on the first
day or last day of a calendar month, the rent for such month shall be prorated.
Notwithstanding the foregoing, Tenant shall pay to Landlord concurrently with
the execution of this Lease the monthly installment of Basic Rental due for the
first (1st) month of the Lease.
-2-
<PAGE>
3.2 Increase in Costs. The term "Base Year" means the calendar year set
-----------------
forth in Article 1.4 of the Basic Lease Provisions. If, in any calendar year
during the term of this Lease commencing with the calendar year immediately
after the Base Year (each such year a "Comparison Year"), (i) the "Tax Costs"
(as hereinafter defined) paid or incurred by Landlord shall be higher than the
Tax Costs for the Base Year, (ii) the "Operating Costs" (as hereinafter defined)
paid or incurred by Landlord shall be higher than the Operating Costs for the
Base Year, or (iii) the "Insurance Costs" (as hereinafter defined) paid or
incurred by Landlord shall be higher than the Insurance Costs for the Base Year,
Tenant shall pay Landlord as Additional Rent Tenant's Proportionate Share (as
provided in Article 1.5 of the Basic Lease Provisions) of such increase in the
amount by which the respective Tax Costs, Operating Costs and Insurance Costs,
paid or incurred by Landlord in such Comparison Year exceed the respective Tax
Costs, Operating Costs and Insurance Costs incurred or paid by Landlord for the
Base Year. In the event either the Premises and/or the Project is expanded or
reduced, then Tenant's Proportionate Share shall be appropriately adjusted, and
as to the calendar year in which such change occurs, Tenant's Proportionate
Share for such year shall be determined on the basis of the number of days
during that particular calendar year that each such Tenant's Proportionate Share
was in effect. In the event this Lease shall terminate on any date other than
the last day of a calendar year, Tenant's Proportionate Share of Tax Costs,
Operating Costs and Insurance Costs for such calendar year in which this Lease
terminates shall be prorated on the basis of the relationship which the number
of days which have elapsed from the commencement of said calendar year to and
including said date on which this Lease terminates bears to three hundred sixty
(360). Any and all amounts due and payable by Tenant pursuant to Articles 3.2,
3.3 and 3.4 hereof shall be deemed "Additional Rent" and Landlord shall be
entitled to exercise the same rights and remedies upon default in these
payments.
3.3 Definitions. As used herein, the following the terms shall have the
-----------
following meanings:
(a) "Tax Costs" shall mean any and all real estate taxes and other
similar charges on real property or improvements, assessments, water and sewer
charges, and all other charges assessed or levied upon the Project and
appurtenances thereto and the parking or other facilities thereof, or the real
property (the "Property") thereunder (collectively the "Real Property") or
attributable thereto or on the rents, issues, profits or income received or
derived therefrom which are assessed or levied by the United States, the State
of California or any local government authority or agency or any political
subdivision thereof, and shall include Landlord's reasonable legal fees, costs
and disbursements incurred in connection with proceedings for reduction of Tax
Costs or any part thereof; provided, however, if at any time after the date of
this Lease the methods of taxation now prevailing shall be altered so that in
lieu of or as a supplement to or a substitute for the whole or any part of any
Tax Costs, there shall be assessed or levied (a) a tax, assessment, levy,
imposition or charge wholly or partially as a net income, capital or franchise
levy or otherwise on the rents, issues, profits or income derived therefrom, or
(b) a tax, assessment, levy (including but not limited to any municipal, state
or federal levy), imposition or charge measured by or based in whole or in part
upon the real property and imposed upon Landlord, or (c) a license fee measured
by the rent payable under this Lease, then all such taxes, assessments or levies
or the part thereof so measured or based, shall be deemed to be included in the
term "Tax Costs". Except as provided in the foregoing sentence, Tax Costs shall
not include Landlord's gross or net income, franchise or capital stock taxes,
transfer taxes and/or any penalties and fines not due to Tenant's late payment
of Tax Costs.
(b) "Operating Costs" shall mean all costs, expenses and amounts of
every kind and nature incurred by Landlord in connection with the maintenance,
operation, replacement, ownership and repair of the Project, the equipment,
adjacent walks, malls and landscaped and common areas and the parking structure,
areas and facilities of the Project, including, but not limited to, salaries,
wages, medical, surgical and general welfare benefits and pension payments,
payroll taxes, fringe benefits, employment taxes, workers' compensation,
uniforms and dry cleaning thereof for all persons who perform duties connected
with the operation, maintenance and repair of the Project, its equipment and the
adjacent walks and landscaped areas, including janitorial, gardening, security,
parking, operating engineer, elevator, painting, plumbing, electrical,
carpentry, heating, ventilation, air conditioning, window washing,
-3-
<PAGE>
hired services (but excluding persons performing services not uniformly
available to or performed for the benefit of substantially all building
tenants), a reasonable allowance for depreciation of the cost of acquiring or
the rental expense of personal property used in the maintenance, operation and
repair of the Project, accountant's fees incurred in the preparation of rent
adjustment statements and reconciliations of Direct Costs, legal fees, real
estate tax consulting fees, personal property taxes on property used in the
maintenance and operation of the Project, capital expenditures incurred to
effect economies of operation and capital expenditures required by government
regulations, laws, or ordinances; provided, however, if the capital expenditure
has a useful life greater than one year, such capital expenditures shall be
amortized over the useful life of the item in question in accordance with
generally accepted accounting principles, as applied to industry standards,
together with interest thereon at an annual rate of interest equal to the rate
applicable to a Treasury Bill with the same duration as the useful life of the
item in question, plus two and one-half percent (2 1/2%), and the amortized
portion thereof shall be included in Operating Costs; the cost of all charges
for electricity, gas, water and other utilities furnished to the Project,
including any taxes thereon; the cost of all building and cleaning supplies and
materials; the cost of all Charges for cleaning, maintenance and service
contracts and other services with independent contractors (including property
management fees); and license, permit and inspection fees relating to the
Project. In the event, during any calendar year, the Project is less than one
hundred percent (100%) occupied at all times, the Operating Costs shall be
adjusted to reflect the Operating Costs of the Project as though one hundred
percent (100%) occupied at all times, and the increase or decrease in rent shall
be based upon such Operating Costs as so adjusted. Operating Costs shall also
include all management fees and administrative fees. Landlord shall have the
right, from time to time, to equitably allocate some or all of the Operating
Costs among different tenants of the Project (i.e. office space and retail space
tenants of the Project). Operating Costs shall not include (i) depreciation
(except depreciation of personal property used in the maintenance, operation and
repair of the Project), (ii) penalties and fees not occasioned by the acts or
omissions of Tenant, (iii) costs attributable to the misconduct of Landlord,
(iv) brokerage commissions and leasing expenses, (v) debt service, (vi) costs
incurred by Landlord to investigate or remediate Hazardous Materials in the soil
or groundwater of the Project to the extent not caused by Tenant, (vii) costs
for which Landlord is actually reimbursed by third parties, (viii) costs for
services provided directly to Tenant by the service provider and for which
Tenant pays the service provider directly, (ix) costs of services and utilities
which are not made available to all of the tenants of the Property, (x) costs
incurred by Landlord to cause the Project to comply with the Americans With
Disabilities Act and all regulations promulgated thereunder and other laws,
regulations or ordinances to the extent such compliance was required prior to
the date of this Lease, and (xi) Landlord's general corporate overhead and
administrative expense (except to the extent allocable to the Project).
(c) "Insurance Costs" shall mean the cost of all charges for fire and
extended coverage, commercial liability and all other insurance for the Project
required to be carried by Landlord under the Lease or now or hereafter
maintained by Landlord with respect to the Project.
(d) "Direct Costs" as used herein shall mean the Tax Costs, Operating
Costs, and Insurance Costs.
(e) "Phase II" shall mean the portion of the Project consisting of
the building commonly known as 222 North Sepulveda Boulevard ("Phase II
Building") together with the Phase II Building's percentage share (based on a
fraction, the numerator of which is the rentable square footage of the Phase II
Building and the denominator of which is the entire rentable square footage of
the Project) in common facilities of the Project, such as the parking structure,
land and other improvements comprising the Project. Landlord allocates Direct
Costs either to Phase II or to the Project as a whole. Tenant's Proportionate
Share is equal to a fraction, the numerator of which is the rentable square
footage of the Premises and the denominator of which is the rentable square
footage of the Phase II Building. For example, if a cost is allocated only to
Phase II, Tenant's Proportionate Share of such cost shall be equal to a
fraction, the numerator of which is the rentable square footage in Tenant's
Premises and the denominator of which is the total rentable square footage in
the Phase II Building. If Landlord allocates a Direct Cost to the Project as a
whole, then Tenant shall pay its Proportionate Share of the Phase II portion of
such Direct Cost. Tenant's Proportionate Share of the Phase II portion of a
Direct Cost is equal to a fraction, the numerator of which is the rentable
square footage in the Tenant's Premises and the
-4-
<PAGE>
denominator of which is the total rentable square footage of the Phase II
Building. The current rentable square footage of the Phase II Building is five
hundred sixty-five thousand nine hundred sixty-six (565,966). The current
rentable square footage of the Project is one million five hundred forty-two
thousand two hundred seventy (1,542,270).
3.4 Determination of Payment. Landlord shall, prior to the commencement of
------------------------
each Comparison Year, furnish to Tenant a written estimate showing in reasonable
detail Landlord's estimated Direct Costs for the next following Comparison Year
and the amount of Tenant's Proportionate Share of the increase in Tax Costs,
Operating Costs and Insurance Costs appropriately prorated on a monthly basis
for such Comparison Year. Thereafter, on each monthly rental payment date,
Tenant shall pay to Landlord the monthly amount of Tenant's Proportionate Share
of the estimated increase in Direct Costs as shown in said written estimate.
Landlord reserves the right to revise any estimate of Direct Costs if actual or
projected Tax Costs, Operating Costs or Insurance Costs show an increase or
decrease from any earlier estimate for the same Comparison Year. If Landlord
delivers such revised estimate to Tenant at any time during the Comparison Year,
Tenant shall commence payment of such estimated amount with the monthly rental
payment next following the date that is thirty (30) days after the date of
Tenant's receipt of the revised estimate. Neither Landlord's failure to deliver
nor the late delivery of such estimate shall constitute a default by Landlord
hereunder or a waiver of Landlord's right to receive Tenant's Proportionate
Share of the estimated increase in Direct Costs and Tenant shall continue to pay
on the basis of the most recent estimate until Landlord delivers a new estimate
of Direct Costs to Tenant. Within one hundred eighty (180) calendar days
following the close of each Comparison Year during the term hereof, Landlord
shall endeavor to furnish to Tenant a written statement (the "Reconciliation")
showing in reasonable detail Landlord's actual Tax Costs, Operating Costs and
Insurance Costs for the relevant Comparison Year, together with a full statement
of any adjustments necessary to reconcile any sums paid (or credited) hereunder
as Tenant's Proportionate Share of Tax Costs, Operating Costs and Insurance
Costs during such Comparison Year with those sums actually payable and due
hereunder for such Comparison Year as set forth in the Reconciliation. If the
Reconciliation shows that additional sums are due from Tenant hereunder, Tenant
shall pay such sums to Landlord within thirty (30) days of receipt of the
Reconciliation. If the Reconciliation shows that a credit is due Tenant, such
credit shall be credited against the next sums becoming due from Tenant
hereunder. Notwithstanding that the term of this Lease has expired and Tenant
has vacated the Premises, Tenant shall pay to Landlord any additional sums due
Landlord and Landlord shall rebate to Tenant the amount of any credit due
Tenant, as set forth in the Reconciliation for the Comparison Year in which the
Lease Term expired.
3.5 Tenant Review of Direct Costs. Tenant shall have the right, within
-----------------------------
ninety (90) days after the date of Tenant's receipt of the Reconciliation for a
Comparison Year, and after reasonable notice and at reasonable times, to inspect
Landlord's records pertaining to Direct Costs for the Comparison Year in
question at Landlord's regional accounting office or at the Project. Tenant's
failure to exercise its right to inspect records pertaining to Direct Costs for
any Comparison Year within ninety (90) days after the date of Tenant's receipt
of the Reconciliation for such Comparison Year shall be deemed Tenant's waiver
of its right to inspect Landlord's records for such Comparison Year and
acceptance of the Direct Costs paid by Tenant for such Comparison Year.
ARTICLE 4
SECURITY DEPOSIT
----------------
Tenant has deposited with Landlord the sum set forth in Article 1.6 of the
Basic Lease Provisions as security for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant breaches any
provision, covenant or condition of this Lease, including but not limited to the
payment of Basic Rental or Additional Rent, Landlord may (but shall not be
required to) use all or any part of this Security Deposit for the payment of any
sums in default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
Security Deposit is so used or applied, Tenant shall, within five (5) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount and Tenant's failure to do
so shall be a material breach of this Lease. If monthly Basic Rental is
increased, whether
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pursuant to the terms of this Lease, or otherwise, the amount of the Security
Deposit required to be maintained by Tenant shall also be increased so as to
equal, at all times and from time to time, one (1) month's Basic Rental.
Landlord shall not be required to keep this Security Deposit separate from its
general funds and Tenant shall not be entitled to interest on such deposit.
Within thirty (30) days after the expiration of the Lease Term, and provided
there exists no default by Tenant hereunder, the Security Deposit or any balance
thereof shall be returned to Tenant (or, at Landlord's option, to Tenant's
assignee), provided that subsequent to the expiration of this Lease, Landlord
may retain from said Security Deposit (a) any and all amounts permitted by
California Civil Code 1950 but not limited to this section and (b) such sums as
Landlord reasonably estimates will thereafter become due under this Lease.
Should Landlord sell its interest in the Premises during the term hereof, and if
Landlord deposits with the purchaser thereof the then unappropriated funds
deposited by Tenant as aforesaid, Landlord shall be discharged from any
liability with respect to such Security Deposit.
ARTICLE 5
HOLDING OVER
------------
Should Tenant, with Landlord's written consent, hold over after termination
of this Lease, Tenant shall become a tenant from month to month only upon each
and all of the terms herein provided as may be applicable to a month to month
tenancy and any such holding over shall not constitute an extension of this
Lease. During such holding over, Tenant shall pay in advance, monthly, a rental
rate equal to one hundred fifty percent (150%) of the Basic Rental in effect for
the last month of the term of this Lease, in addition to, and not in lieu of,
all other payments required to be made by Tenant hereunder including but not
limited to Tenant's Proportionate Share of Direct Costs. If Tenant holds over
after termination of this Lease without the express written consent of Landlord,
Tenant shall become a tenant at sufferance only, at a rental rate equal to one
hundred fifty percent (150%) of the Basic Rental in effect upon the date of such
termination (pro rated on a daily basis), and otherwise subject to the terms,
covenants and conditions herein specified so far as applicable. Acceptance by
Landlord of rent after such termination shall not constitute a hold over
hereunder or result in a renewal. If Tenant fails to surrender the Premises upon
the expiration or termination of this Lease, Tenant shall indemnify, defend and
hold Landlord harmless from all costs, losses, expenses or liabilities,
including without limitation, costs and attorney fees.
ARTICLE 6
PERSONAL PROPERTY
-----------------
Tenant shall pay, prior to delinquency, all taxes assessed against or
levied upon fixtures, furnishings, equipment and all other personal property of
Tenant located in the Premises. In the event any or all of Tenant's fixtures,
furnishings, equipment and other personal property shall be assessed and taxed
with property of Landlord, Tenant shall pay to Landlord its share of such taxes
within ten (10) days after delivery to Tenant by Landlord of a statement in
writing setting forth the amount of such taxes applicable to Tenant's property.
Tenant shall assume and pay to Landlord at the time of paying Basic Rental any
excise, sales, use, rent, occupancy, garage, parking, gross receipts or other
taxes (other than net income taxes) which may be imposed on or on account of
letting of the Premises or the payment of Basic Rental or any other sums due or
payable hereunder, and which Landlord may be required to pay or collect under
any law now in effect or hereafter enacted. Tenant shall pay directly to the
party or entity entitled thereto all business license fees, gross receipts taxes
and similar taxes and impositions which may from time to time be assessed
against or levied upon Tenant, as and when the same become due and before
delinquency. Notwithstanding anything to the contrary contained herein, any sums
payable by Tenant under this Article 6 shall not be included in the computation
of "Tax Costs."
ARTICLE 7
USE
---
Tenant shall use and occupy the Premises only for the use set forth in
Article 1.7 of the Basic Lease Provisions and shall not use or occupy the
Premises or permit the same to be used or occupied for any other purpose without
the prior written consent of Landlord, and Tenant agrees that it will use the
Premises in such a manner so as not to interfere with or infringe the rights of
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other tenants in the Project. Tenant shall promptly comply with all laws,
statutes, ordinances and governmental regulations or requirements now in force
or which may hereafter be in force relating to or affecting the condition, use
or occupancy of the Premises or the Project. Tenant shall, at its sole cost and
expense, make any alterations, improvements or structural changes that are
required by laws, statutes, ordinances and governmental regulations or
requirements as a result of Tenant's particular use of the Premises or any
alterations, improvements or changes made by Tenant. Tenant shall not do or
permit to be done anything which will invalidate or increase the cost of any
fire and extended coverage insurance policy covering the Project and/or the
property located therein and Tenant shall comply with all rules, orders,
regulations and requirements of any organization which sets out standards,
requirements or recommendations commonly referred to by major fire insurance
underwriters. Tenant shall promptly upon demand reimburse Landlord for any
additional premium charges for such policy by reason of Tenant's failure to
comply with the provisions of this Article.
ARTICLE 8
CONDITION OF PREMISES
---------------------
Except for the work to be performed by Landlord pursuant to the Work Letter
Agreement, Tenant hereby agrees that the Premises shall be taken "as is", "with
all faults", "without any representations or warranties", and Tenant hereby
agrees and warrants that it has inspected the condition of the Premises and the
suitability of same for Tenant's purposes, and Tenant does hereby waive and
disclaim any objection to, cause of action based upon, or claim that its
obligations hereunder should be reduced or limited because of the condition of
the Premises or the Project or the suitability of same for Tenant's purposes.
Tenant acknowledges that neither Landlord nor any agent nor any employee of
Landlord has made any representations or warranty with respect to the Premises
or the Project or with respect to the suitability of either for the conduct of
Tenant's business. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Project were at such time in
satisfactory condition. Tenant hereby waives and releases its right to make
repairs at Landlord's expense pursuant to Sections 1941 and 1942 of the Civil
Code of California or under any similar law, statute or ordinance now or
hereafter in effect.
ARTICLE 9
REPAIRS AND ALTERATIONS
-----------------------
Tenant shall keep the Premises in good condition and repair. All damage or
injury to the Premises or the Project caused by the act or negligence of Tenant,
its employees, agents or visitors, guests, invitees or licensees shall be
promptly repaired by Tenant, at its sole cost and expense, to the satisfaction
of Landlord. After reasonable notice and opportunity to cure (except in an
emergency), Landlord may make any repairs which are not promptly made by Tenant
and charge Tenant for the cost thereof, which cost shall be paid by Tenant
within five (5) days from invoice from Landlord. Tenant shall be responsible for
the design and function of all non-Building standard improvements of the
Premises, whether or not installed by Landlord at Tenant's request. Tenant
waives all rights to make repairs at the expense of Landlord, or to deduct the
cost thereof from the rent. Tenant shall make no alterations, changes or
additions in or to the Premises without Landlord's prior written consent, and
then only by contractors or mechanics approved by Landlord and upon the approval
by Landlord of fully detailed and dimensioned plans and specifications
pertaining to the work in question, to be prepared and submitted by Tenant at
its sole cost and expense. Notwithstanding the foregoing, Tenant may make
"Nonstructural Alterations" without the consent of Landlord provided Tenant
shall have given Landlord at least ten (10) business days prior written notice
of the Nonstructural Alteration describing the Nonstructural Alteration in
reasonable detail and Tenant's compliance with all of the other terms and
conditions of this Article 9 and Article 10, including the requirement that
Tenant deliver plans and specifications for its work to Landlord concurrently
with its notice to Landlord of the work. As used herein, "Nonstructural
Alterations" shall mean alterations or improvements which do not exceed Two
Thousand Five Hundred Dollars ($2,500) in the aggregate in any one calendar year
and which do not affect any Building systems (including utility systems) or the
external appearances of the Building. Tenant shall at its sole cost and expense
obtain all necessary approvals and permits pertaining to any work approved by
Landlord. If Landlord, in approving any work, specifies a commencement date
therefor, Tenant
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shall not commence any work prior to such date. Tenant hereby indemnifies and
agrees to defend and hold Landlord free and harmless from all liens and claims
of lien, and all other liability, claims and demands arising out of any work
done or material supplied to the Premises by or at the request of Tenant. If
permitted alterations, changes, or additions are made, they shall be made at
Tenant's expense and shall be and become the property of Landlord, except that
Landlord may, by written notice to Tenant given at the time of Landlord's
consent to such alterations or improvements, or if Landlord's consent to such
alterations is not required, given within thirty (30) days after the date of
Tenant's notice of such alterations to Landlord, require Tenant at Tenant's
expense to promptly both remove any such alteration, change or addition
installed by Tenant, and to repair any damage to the Premises caused by such
removal and restore the Premises to the condition that existed prior to such
alteration in accordance with all applicable laws, statutes, building codes and
regulations in effect as of the date of such restoration. With regard to
repairs, alterations or any other work arising from or related to this Article
9, Landlord shall be entitled to receive an administrative/supervision fee of
ten percent (10%) of the total cost of all (i) work performed; (ii) materials,
plans and drawings furnished; and (iii) all other costs and expenses related to
such repairs, alterations or other work.
ARTICLE 10
LIENS
-----
Tenant shall keep the Premises, Building and Project free from any
mechanics' liens, vendors liens or any other liens arising out of any work
performed, materials furnished or obligations incurred by Tenant, and Tenant
shall defend, indemnify and hold harmless Landlord from and against any such
lien, claim, liability or action thereon, together with costs of suit and
reasonable attorneys' fees incurred by Landlord in connection with any such
lien, claim, liability or action. Before commencing any work of alteration,
addition or improvement to the Premises, Tenant shall give Landlord at least ten
(10) business days' written notice of the proposed commencement of such work (to
afford Landlord an opportunity to post appropriate notices of non-
responsibility) and if required by Landlord with respect to work to be performed
by Tenant with a cost in excess of Twenty Thousand Dollars ($20,000) shall
secure, at Tenant's own cost and expense, a completion and lien indemnity bond,
satisfactory to Landlord, for said work. In the event that there shall be
recorded against the Premises or the Building or the property of which the
Premises is a part any claim or lien arising out of any such work performed,
materials furnished or obligations incurred by Tenant and such claim or lien
shall not be removed or discharged within ten (10) days of filing, Landlord
shall have the right but not the obligation to pay and discharge said lien
without regard to whether such lien shall be lawful or correct or to require
that Tenant deposit with Landlord in cash, lawful money of the United States,
one hundred fifty percent (150%) of the amount of such claim, which sum may be
retained by Landlord until such claim shall have been removed of record or until
judgment shall have been rendered on such claim and such judgment shall have
become final, at which time Landlord shall have the right to apply such deposit
in discharge of the judgment on said claim and any costs, including attorneys'
fees incurred by Landlord, and shall remit the balance thereof to Tenant. If
Landlord pays and discharges said lien, then Tenant shall reimburse Landlord for
all costs and expenses incurred by Landlord in discharging such lien, including
attorneys' fees, within ten (10) days after the date of receipt of Landlord's
invoice therefor.
ARTICLE 11
PROJECT SERVICES
----------------
11.1 Building Hours. Landlord agrees to furnish to the Premises, at its
--------------
expense, so long as Tenant is not in default hereunder, from 8:00 a.m. to 6:00
p.m. Mondays through Fridays and 9:00 a.m. to 1:00 p.m. on Saturdays, local and
national holidays excepted, air conditioning and heat, elevator service,
electric current for normal lighting and fractional horsepower for office
machines (subject to Article 11.2 hereof) and, on the same floor as the
Premises, water for lavatory and drinking purposes, all in such reasonable
quantities as in the judgment of Landlord is reasonably necessary for the
comfortable occupancy of the Premises. Janitorial and maintenance services will
be furnished five (5) days per week. Such janitorial service shall be provided
in accordance with standards for comparable class "A" office buildings in the
City of E1 Segundo. Tenant shall comply with all rules and regulations which
Landlord may reasonably establish for the proper functioning and protection of
the air conditioning, heating, elevator,
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<PAGE>
electrical and plumbing systems. Landlord shall not be liable for, and there
shall be no rent abatement as a result of, any stoppage, reduction or
interruption of any such services caused by governmental rules, regulations or
ordinances, riot, strike, labor dispute, breakdowns, accidents, necessary
repairs or any other cause. Tenant shall have the right to operate its business
in the Premises twenty-four (24) hours per day provided that Tenant shall pay
for all utilities and other services utilized by Tenant during non-Building
Hours at the standard charges imposed by Landlord from time to time for such
utilities or services. Landlord's obligation to render to the Premises the
services set forth in this Article 11 is conditional upon the payment by Tenant
of all sums due under this Lease, including but not limited to sums which are in
dispute.
11.2 Electricity Use. Landlord shall supply electricity to the Premises
---------------
during Building Hours in an amount sufficient to support a peak electrical
demand, inclusive of lighting, heating, ventilation and air conditioning and
receptacle load ("Peak Demand"), of four (4) watts per rentable square foot in
the Premises. Tenant shall not without the prior written consent of Landlord
connect computers, office machines or other devices to the electrical system in
a manner that would cause the Peak Demand in the Premises to exceed four (4)
watts per rentable square foot. If Tenant shall require electric current to
support a Peak Demand in excess of four (4) watts per rentable square foot in
the Premises, Tenant shall first obtain the written consent of Landlord.
Landlord may withhold consent or withdraw consent to an increase in the
electrical demand of the Premises if (i) Landlord would be required to modify or
increase the electrical capacity of the Building or Project to supply such
additional electricity as a result of current or future Tenant needs, or (ii) if
as a result of supplying such excess electricity to Tenant, Landlord would be
unable to furnish the other current or future tenants in the Project similar
electrical capacity as supplied to Tenant. If Landlord consents to Tenant's use
of electricity in excess of a Peak Demand of four (4) watts per rentable square
foot, Landlord may require an electric current meter to be installed in the
Premises to measure the amount of electric current consumed in the Premises. The
cost of any such meter and of installation, maintenance and repair thereof shall
be paid for by Tenant within ten (10) days after Tenant's receipt of Landlord's
invoice therefor.
Tenant shall pay Landlord for the costs of all electricity supplied to the
Premises during Building Hours in excess of a Peak Demand of four (4) watts per
rentable square foot at the average rates charged by Landlord's utility supplier
together with Landlord's actual administrative charge therefor within thirty
(30) days after receipt of Landlord's invoice. The foregoing shall not be
construed as Landlord's consent to Tenant's use of electricity in excess of a
Peak Demand of four (4) watts per rentable square foot in the Premises. The
costs of electricity furnished to the Premises during Building Hours that does
not exceed a Peak Demand of four (4) watts per rentable square foot shall be
included as part of Operating Costs. Tenant shall pay Landlord for the cost of
electricity supplied to the Premises during non-Building Hours at the average
rate charged by Landlord's utility supplier, together with Landlord's actual
administrative charge therefor within thirty (30) days after receipt of
Landlord's invoice.
11.3 Heat Generating Machines. If any lights, machines or equipment
------------------------
(including but not limited to computers) are used by Tenant in the Premises
which materially affect the temperature otherwise maintained by the air
conditioning system, or generate substantially more heat in the Premises than
would be generated by the building standard lights and usual fractional
horsepower office equipment, Landlord shall have the right to install any
machinery and equipment which Landlord reasonably deems necessary to restore
temperature balance, including but not limited to modifications to the standard
air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand by Landlord. Landlord
shall not be liable under any circumstances for loss of or injury to property,
however occurring, through or in connection with or incidental to failure to
furnish any of the foregoing.
11.4 After-Hours HVAC. If Tenant requires heating, ventilation and/or air
----------------
conditioning during non-Building Hours, Tenant shall give Landlord such advance
notice as Landlord shall reasonably require and shall pay Landlord for such
service Landlord's standard charge in effect from time to time for heating,
ventilation and air conditioning provided during non-Building Hours.
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ARTICLE 12
RIGHTS OF LANDLORD
------------------
Landlord and its agents shall have the right to enter the Premises without
prior notice in the event of an emergency or to provide janitorial services, and
upon reasonable prior notice at all reasonable times for the purpose of
examining or inspecting the same, serving or posting and keeping posted thereon
notices as provided by law, or which Landlord deems necessary for the protection
of Landlord or the Property, showing the same to prospective tenants or
purchasers of the Project, or during the last year of the Lease Term to
prospective tenants, and for making such alterations, repairs, improvements or
additions to the Premises or to the Project as Landlord may deem necessary or
desirable. Landlord and its agents and employees shall not enter Tenant's
service center in the Premises without being escorted by an employee of Tenant,
except in an emergency. If Tenant shall not be personally present to open and
permit an entry into the Premises at any time when such an entry by Landlord is
necessary or permitted hereunder, Landlord may enter by means of a master key or
may enter forcibly, without liability to Tenant except for any failure to
exercise due care for Tenant's property, and without affecting this Lease.
ARTICLE 13
INDEMNITY, EXEMPTION OF LANDLORD FROM LIABILITY
-----------------------------------------------
13.1 Indemnity. Tenant shall indemnify, defend and hold Landlord harmless
---------
from and against any and all claims arising out of Tenant's use of the Premises
or from the conduct of its business or from any activity, work or thing which
may be permitted or suffered by Tenant in or about the Premises and shall
further indemnify, defend and hold Landlord harmless from and against any and
all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under this Lease or arising from any
negligence of Tenant or any of its agents, contractors, employees or invitees,
patrons, customers or members and from any and all costs, attorneys' fees,
expenses and liabilities incurred in the defense of any claim or any action or
proceeding brought thereon, including negotiations in connection therewith.
Tenant hereby assumes all risk of damage to property or injury to persons in or
about the Premises from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except to the extent caused by the gross
negligence or willful misconduct of Landlord.
13.2 Exemption of Landlord from Liability. Landlord shall not be liable
------------------------------------
for injury to Tenant's business, or loss of income therefrom, or for damage that
may be sustained by the person, goods, wares, merchandise or property of Tenant,
its employees, invitees, customers, agents, or contractors, or any other person
in, on or about the Premises directly or indirectly caused by or resulting from
fire, steam, electricity, gas, water, or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, light fixtures, or mechanical or electrical systems, whether such
damage or injury results from conditions arising upon the Premises or upon other
portions of the Building or from other sources or places and regardless of
whether the cause of such damage or injury or the means or repairing the same is
inaccessible to Tenant; provided, however, that the foregoing shall not be
deemed to waive any claims Tenant may have arising out of the gross negligence
or willful misconduct of Landlord. Landlord shall not be liable to Tenant for
any damages arising from any act or neglect of any other tenant of the Project.
Tenant acknowledges that Landlord's election to provide mechanical
surveillance or to post security personnel in the Building is solely within
Landlord's discretion; Landlord shall have no liability in connection with the
decision whether or not to provide such services and Tenant hereby waives all
claims based thereon. Landlord shall not be liable for losses due to theft,
vandalism, or like causes that result from the failure of any security
contractor engaged by Landlord to provide security in accordance with Landlord's
contract with such security contractor; provided, however, that the foregoing
shall not be deemed to waive any claims Tenant may have arising out of the gross
negligence or willful misconduct of Landlord. Tenant shall defend, indemnify,
and hold Landlord harmless from any such claims made by any employee, license,
invitee, contractor, agent, or other person whose presence in, on or about the
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Premises or the Building is attendant to the business of Tenant; except the
foregoing indemnity shall not extend to Landlord's gross negligence or willful
misconduct.
ARTICLE 14
INSURANCE
---------
14.1 Tenant's Insurance. Tenant, shall at all times during the Lease Term,
------------------
and at its own cost and expense, procure and continue in force the following
insurance coverage: (i) Commercial General Liability Insurance with a combined
single limit for bodily injury and property damage of not less than Three
Million Dollars ($3,000,000) per occurrence and Five Million Dollars
($5,000,000) in the annual aggregate, including products liability coverage if
applicable, covering the use of the Premises and the performance of Tenant of
the indemnity agreements set forth in Article 13 hereof; (ii) a policy of
standard fire, extended coverage and special extended coverage insurance (all
risks), including a vandalism and malicious mischief endorsement and sprinkler
leakage coverage (including sprinkler leakage resulting from earthquake) in an
amount equal to the full replacement value new without deduction for
depreciation of all fixtures, furniture, and leasehold improvements installed by
or at the expense of Tenant; and (iii) insurance on all plate or tempered glass
in or enclosing the Premises; for the replacement cost of such glass.
14.2 Form of Policies. The aforementioned minimum limits of policies
----------------
shall in no event limit the liability of Tenant hereunder. Such insurance shall
name Landlord and such other persons or firms with insurable interests, as
Landlord specifies from time to time, as additional insureds with an appropriate
endorsement to the policy(s) and shall be with companies having a rating of not
less than A-VIII in Best's Insurance Guide. Tenant shall furnish to Landlord,
from the insurance companies, or cause the insurance companies to furnish,
certificates of coverage. No such policy shall be cancelable or subject to
reduction of coverage or other modification or cancellation except after thirty
(30) days prior written notice to Landlord by the insurer. All such policies
shall be endorsed to agree that Tenant's policy is primary and that any
insurance covered by Landlord is excess and not contributing with any insurance
requirement hereunder. Tenant shall, at least twenty (20) days prior to the
expiration of such policies, furnish Landlord with renewals or binders. Tenant
agrees that if Tenant does not take out and maintain such insurance or furnish
Landlord with renewals or binders, Landlord may (but shall not be required to)
procure said insurance on Tenant's behalf and charge Tenant the cost thereof,
which amount shall be payable by Tenant upon demand with interest from the date
such sums are expended.
Additionally, Tenant shall maintain Worker's Compensation required by law
and shall provide Landlord with evidence of coverage. Said evidence shall be in
the form of a certificate of insurance and shall provide for Landlord to receive
thirty (30) days notice of cancellation from the insurer.
14.3 Landlord's Insurance. Landlord shall, at Landlord's expense, procure
--------------------
and maintain at all times during the Lease Term, a policy or policies of
insurance covering loss or damage to the Building in the amount of the full
replacement cost new without deduction for depreciation thereof (exclusive of
Tenant's trade fixtures, inventory, personal property and equipment), providing
protection against all perils included within the classification of fire and
extended coverage, vandalism coverage and malicious mischief, sprinkler leakage,
water damage, and special extended coverage on building. Additionally, Landlord
may (but shall not be required to) carry: (i) Bodily Injury and Property Damage
Liability Insurance and/or Excess Liability Coverage Insurance; (ii) Earthquake
and/or Flood Damage Insurance; or (iii) Rental Income Insurance at its election
or if required by its lender from time to time during the term hereof, in such
amounts and with such limits as Landlord or its lender may deem appropriate. The
costs of all such insurance shall be included in Insurance Costs.
14.4 Waiver of Subrogation. The parties release each other and their
---------------------
respective authorized representatives from any claims for damage to any person
or the Premises, and to the fixtures, personal property, improvements, and
alterations of either Landlord or Tenant, in or on the Premises, Building or
Project, that are caused by or result from risks insured against under any
insurance policies carried by the parties and in force at the time of any such
damage. Any policy or policies of fire, extended or similar casualty insurance
which either party obtains in
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connection with the Premises shall include a clause or endorsement denying the
insurer any rights of subrogation against the other party to the extent any
rights have been waived by the insured prior to the occurrence of injury of
loss.
14.5 Compliance with Law. Tenant agrees that it will not, at any time,
-------------------
during the Lease Term, carry any stock of goods or do anything in or about the
Premises that will in any way tend to increase the insurance rates upon the
Building. Tenant agrees to pay Landlord forthwith upon demand the amount of any
increase in premiums for insurance against loss by fire that may be charged
during the Lease Term on the amount of insurance to be carried by Landlord on
the Building resulting from the foregoing, or from Tenant doing any act in or
about said Premises that does so increase the insurance rates, whether or not
Landlord shall have consented to such act on the part of Tenant. If Tenant
installs upon the Premises any electrical equipment which constitutes an
overload of electrical lines of the Premises, Tenant shall at its own expense
make whatever changes are necessary to comply with requirements of the insurance
underwriters and any governmental authority having jurisdiction thereover, but
nothing herein contained shall be deemed to constitute Landlord's consent to
such overloading. Tenant shall, at its own expense, comply with all requirements
of the insurance authority having jurisdiction over the Project necessary for
the maintenance of reasonable fire and extended coverage insurance for the
Premises, including without limitation thereto, the installation of fire
extinguishers or an automatic dry chemical extinguishing system.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
-------------------------
Tenant shall not and have no power to, either voluntarily or by operation
of law, sell, assign, transfer or hypothecate this Lease, or sublet the Premises
or any part thereof, or permit the Premises or any part thereof to be occupied
by anyone other than Tenant or Tenant's employees without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, subject
to compliance with this Article 15. If Tenant is a corporation, limited
liability company, unincorporated association or partnership, the sale,
assignment, transfer or hypothecation of any stock, membership or other
ownership interest in such corporation, limited liability company, association
or partnership in the aggregate of fifty percent (50%) or more shall be deemed a
prohibited assignment within the meaning and provisions of this Article 15.
Tenant may transfer its interest pursuant to this Lease upon the following
express conditions:
(a) That the proposed transferee shall be subject to the prior
written consent of Landlord, which consent shall not be unreasonably withheld;
provided, however, without limiting the generality of the foregoing, it shall be
reasonable for Landlord to deny such consent if any of the following are
applicable:
(i) The use to be made of Premises by the proposed transferee
is (a) not generally consistent with the character and nature of all other
tenancies in the Building or Project, or (b) a use which conflicts with any so-
called "exclusive" then in favor of, or for any use which is the same as that
stated in any percentage lease to, another tenant of the Building or Project, or
(c) a use which would be prohibited by any other portion of this Lease
(including but not limited to any Rules and Regulations then in effect);
(ii) The character, moral stability, reputation or financial
responsibility of the proposed transferee is not reasonably satisfactory to
Landlord or in any event not at least equal to those which were possessed by
Tenant as of the date of execution of this Lease;
(iii) The transferee is either a governmental agency or
instrumentality thereof;
(iv) The proposed transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Building a right to cancel its lease;
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(v) The terms of the proposed transfer will allow the transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the transferee to occupy space
leased by Tenant pursuant to any such right); or
(vi) Either the proposed transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed transferee, (i) occupies space in the Project at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Project at such time, or (iii) has negotiated with Landlord during
the six (6) month period immediately preceding the request for consent notice
from Tenant.
(b) That Tenant shall pay Landlord's standard processing fee and
reasonable attorneys' fees incurred in connection with the review of the request
for consent to transfer, regardless of whether Landlord consents thereto;
(c) That the proposed transferee shall execute an agreement pursuant
to which it shall agree to perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease;
(d) That an executed duplicate original of said assignment and
assumption agreement or other transfer shall be delivered to Landlord within
five (5) days after the execution thereof. Such transfer shall not be binding
upon Landlord until the delivery thereof to Landlord and the execution and
delivery of Landlord's consent thereto. It shall be a condition to Landlord's
consent to any subleasing, assignment or other transfer of part or all of
Tenant's interest in the Premises (hereinafter referred to as a "Transfer") that
(i) Tenant shall be required to pay Landlord's reasonable attorneys' fees and
other costs incurred in connection with the review and execution thereof; (ii)
upon Landlord's consent to any Transfer Tenant shall pay and continue to pay as
Additional Rent over the term of the sublease or assignment to Landlord fifty
percent (50%) of any sums or other economic consideration received by Tenant as
a result of such Transfer, whether denominated rentals or otherwise, which
exceed (a) the cost of all tenant improvements made by Tenant for the Transferee
and amount of all tenant improvement allowances actually provided to and used by
the Transferee (amortized over the term of the Transfer), (b) the amount of
brokerage fees actually paid by Tenant in connection with the Transfer
(amortized over the term of the Transfer), and (c) the sums which Tenant is
obligated to pay Landlord under this Lease (pro-rated to reflect obligations
allocable to that portion of the Premises subject to such Transfer); (iii) any
sublessee of part or all of Tenant's interest in the Premises shall agree that
in the event Landlord gives such sublessee notice that Tenant is in default
under this Lease, such sublessee shall thereafter make all sublease or other
payments directly to Landlord, which will be received by Landlord without any
liability whether to honor the sublease or otherwise (except to credit such
payments against sums due under this Lease), and any sublessee shall agree to
attorn to Landlord or its successors and assigns at their request should this
Lease be terminated for any reason, except that in no event shall Landlord or
its successors or assigns be obligated to accept such attornment; (iv) any such
Transfer and consent shall be effected on forms approved by Landlord and/or its
legal counsel; (v) Landlord may require that Tenant not then be in default
hereunder in any respect; and (vi) Tenant or the proposed subtenant or assignee
shall agree to pay Landlord, upon demand, as additional rent, a sum equal to the
additional costs, if any, incurred by Landlord for maintenance and repair as a
result of any change in the nature of occupancy caused by such subletting or
assignment. If Landlord consents to a requested assignment or sublease, Tenant
hereby agrees that (i) it shall thereupon be deemed, automatically and
irrevocably to have assigned to Landlord as additional security for the
performance and observance of Tenant's obligations and covenants under this
Lease, all rent or other sums received or to be received by Tenant in connection
therewith and (ii) Landlord as assignee and as attorney-in-fact of Tenant, or a
receiver for Tenant whether or not appointed on Landlord's application, may
collect such rent or other sums and apply the same toward Tenant's obligations
under this Lease. Such power of attorney is a right coupled with an interest and
is irrevocable. Notwithstanding the foregoing, Tenant shall have the right to
collect such rent and other sums unless and until Tenant commits any act of
default hereunder. Tenant hereby agrees and acknowledges that the above
conditions imposed upon the granting of Landlord's consent to any proposed
Transfer by Tenant are reasonable. If Tenant desires to
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assign the Lease or sublet the entire Premises, then in lieu of giving such
consent, Landlord may, at Landlord's option, elect to terminate this Lease as of
the proposed effective date of any proposed assignment or subletting. Any sale,
assignment, hypothecation, transfer or subletting of this Lease which is not in
compliance with the provisions of this Article 15 shall be void and shall, at
the option of Landlord, terminate this Lease. In no event shall the consent by
Landlord to an assignment or subletting be construed as relieving Tenant, any
assignee, or sublessee from obtaining the express written consent of Landlord to
any further assignment or subletting or as releasing Tenant from any liability
or obligation hereunder whether or not then accrued and Tenant shall continue to
be fully liable therefor. No collection or acceptance of rent by Landlord from
any person other than Tenant shall be deemed a waiver of any provision of this
Article 15 on the acceptance of any assignee or subtenant hereunder, or a
release of Tenant (or of any successor of Tenant or any subtenant holding
theretofore or thereafter accruing);
(e) Tenant shall not enter into any sublease or assignment in which
any of the following is applicable:
(i) The determination of the amount of rent is expressed in
whole or in part as a percentage of the income or profits derived by the tenant
or subtenant or assignee from the space leased (other than an amount based on a
fixed percentage or percentages of gross receipts or gross sales);
(ii) More than ten percent (10%) of rent is expressly
attributable to personal property, determined at the time the personal property
is placed in service and by reference to relative fair market values of the
personal and other property of the tenant, subtenant or assignee (and not by
reference to any allocation contained in the sublease or assignment documents);
or
(iii) Services are expressly required to be rendered to a tenant
or occupant unrelated to subtenant's or assignee's use of the space and
primarily for its convenience and which are other than those usually or
customarily rendered in connection with the rental of space for occupancy only;
and
(f) In any sublease or assignment in which the amount of rent is
determined in whole or in part by reference to the gross sales or receipts of
the subtenant or assignee such sublease or assignment shall contain a provision
which prohibits subleasing or assigning or if subleasing or assigning is
permitted it shall prohibit the tenant or any successor in interest from
subleasing all or any portion of its leasehold interest for an amount of rent
determined in whole or in part from the income or profits derived by any person
from such interest (other than an amount based in a fixed percentage or
percentages of receipts or sales).
ARTICLE 16
DAMAGE OR DESTRUCTION
---------------------
Except as provided in Article 9, if the Project is damaged by fire or other
insured casualty and the insurance proceeds have been made available therefor by
the holder or holders of any mortgages or deeds of trust covering the Premises
or the Project, the damage shall be repaired by and at the expense of the
Landlord to the extent such insurance proceeds are available therefor and
provided such repairs can, in Landlord's opinion, be made within ninety (90)
days after the occurrence of such damage without the payment of overtime or
other premiums, and until such repairs are completed rent shall be abated in
proportion to the part of the Premises which is unusable by Tenant in the
conduct of its business (but there shall be no abatement of rent by reason of
any portion of the Premises being unusable for a period equal to one (1) day or
less). If repairs cannot, in Landlord's opinion, be made within ninety (90)
days, Landlord may, at its option, make them within a reasonable time and in
such event this Lease shall continue in effect and the rent shall be abated in
the manner provided in this Article 16. Landlord's election to make such repairs
must be evidenced by written notice to Tenant within thirty (30) days after the
learning of the occurrence of the damage. If Landlord elects to make the
repairs, Landlord shall accompany its notice of election to Tenant with a good
faith estimate of the time period required to substantially complete the repair
and restoration of the Premises. If Landlord estimates that the period required
to substantially complete the repair and restoration of the Premises is in
excess of two hundred ten (210) days, or if the damage and destruction occurs in
the last year of
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the term of the Lease, if the estimated time period to complete the repair and
restoration exceeds ninety (90) days, Tenant shall have the right to terminate
the Lease by giving written notice of such termination within ten (10) days
after the date of Tenant's receipt of Landlord's election and good faith
estimate. Tenant's failure to deliver written notice of termination of the Lease
within said ten (10) day period shall be deemed Tenant's waiver of such
termination right. If Landlord does not so elect within such thirty (30) day
period to make such repairs which cannot be made within ninety (90) days, then
either party may, by written notice to the other, cancel this Lease as of the
date of the occurrence of such damage. A total destruction of the Project shall
automatically terminate this Lease. Except as provided in this Article, there
shall be no abatement of rent and no liability of Landlord by reason of any
injury to or interference with Tenant's business or property arising from such
damage or destruction or the making of any repairs, alterations or improvements
in or to any portion of the Project or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant understands that Landlord will not
carry insurance of any kind for Tenant's furniture, furnishings, fixtures or
equipment, and that Landlord shall not be obligated to repair any damage thereto
or replace the same. With respect to any damage which Landlord is obligated to
repair or elects to repair, Tenant, as a material inducement to Landlord
entering into this Lease, irrevocably waives and releases its rights under the
provisions of Sections 1932(2) and 1933(4) of the California Civil Code.
ARTICLE 17
SUBORDINATION
-------------
This Lease is subject and subordinate to any mortgage or deed of trust that
may now or hereafter encumber the Project, and to all renewals, modifications,
consolidations, replacements, and extensions thereof. This clause shall be self-
operative and no further instrument of subordination need be required by any
mortgagee or beneficiary; provided that any such mortgagee or beneficiary may
elect to make this Lease superior to such mortgage or deed of trust by written
instrument delivered to Tenant. In confirmation of such subordination, however,
Tenant shall, within five (5) days after Landlord's request, execute any
certificate or instrument evidencing such subordination that Landlord or its
lender may request. Tenant hereby constitutes and appoints Landlord as Tenant's
attorney-in-fact to execute any such certificate or instrument for and on behalf
of Tenant. In the event of the enforcement by the mortgagee or beneficiary under
any such mortgage or deed of trust of the remedies provided for by law or by
such mortgage or deed of trust, Tenant will, at the option of any person or
party succeeding to the interest of Landlord as a result of such enforcement,
attorn to and automatically become the Tenant of such successor-in-interest
without change in the terms or other provisions of this Lease; provided,
however, that such successor-in-interest shall not be bound by (a) any payment
of rent or additional rent for more than one (1) month in advance, except
advance rental payments expressly provided for in this Lease; (b) any
modification to this Lease made without the written consent of such mortgagee or
beneficiary or such successor-in-interest; (c) liable for any act or omission of
Landlord; or (d) subject to any offset or defense arising prior to the date such
successor-in-interest acquired title to the Project or Building. Upon request by
any mortgagee or beneficiary, Tenant shall execute and deliver an instrument or
instruments confirming the attornment provided for herein.
ARTICLE 18
EMINENT DOMAIN
--------------
If the whole of the Premises or so much thereof as to render the balance
unusable by Tenant shall be taken under power of eminent domain, or is sold,
transferred or conveyed in lieu thereof, this Lease shall automatically
terminate as of the date of such condemnation, or as of the date possession is
taken by the condemning authority, at Landlord's option. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and
fixtures belonging to Tenant and removable by Tenant at the expiration of the
term hereof as provided hereunder or for the interruption of, or damage to,
Tenant's business. In the event of a partial taking, or a sale, transfer or
conveyance in lieu thereof, which does not result in a termination of this
Lease, the
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rent shall be apportioned according to the ratio that the part of the Premises
remaining useable by Tenant bears to the total area of the Premises.
ARTICLE 19
DEFAULT
-------
Each of the following acts or omissions of Tenant or of any guarantor of
Tenant's performance hereunder, or occurrences, shall constitute an "Event of
Default":
(a) Failure or refusal to pay Basic Rental, Additional Rent [Article
3] or any other amount provided hereunder within three (3) calendar days after
the same becomes due or payable hereunder; said three (3) day period shall be in
lieu of, and not in addition to, the notice requirements pertaining to the
unlawful detainer statutes (i.e. C.C.P. (S)(S) 1161, 1161.1(a)-(e));
(b) Failure to perform or observe any other covenant or condition of
this Lease to be performed or observed within thirty (30) days following written
notice to Tenant of such failure. Such thirty (30) day notice shall also
constitute any notice required under Section 1161 of the California Code of
Civil Procedure;
(c) Abandonment or vacating or failure to accept tender of possession
of the Promises or any significant portion thereof;
(d) The taking in execution or by similar process or law (other than
by eminent domain) of the estate hereby created;
(e) To the extent permitted by law, the filing by Tenant or any
guarantor hereunder in any court pursuant to any statute of a petition in
bankruptcy or insolvency or for reorganization or arrangement of for the
appointment of a receiver of all or a portion of Tenant's property; the filing
against Tenant or any guarantor hereunder of any such petition, or the
commencement of a proceeding for the appointment of a trustee, receiver or
liquidator for Tenant, or for any guarantor hereunder, or of any of the property
of either, or a proceeding by any governmental authority for the dissolution or
liquidation of Tenant or any guarantor hereunder, if such proceeding shall not
be dismissed or trusteeship discontinued within thirty (30) days after
commencement of such proceeding or the appointment of such trustee or receiver;
or the making by Tenant or any guarantor hereunder of an assignment for the
benefit of creditors. Tenant hereby stipulates to the lifting of the automatic
stay in effect and relief from such stay for Landlord in the event Tenant files
a petition under the United States Bankruptcy laws, for the purpose of Landlord
pursuing its rights and remedies against Tenant and/or a guarantor of this
Lease; and
(f) Tenant's failure to cause to be released any mechanics liens
filed against the Premises or the Project within twenty (20) days after the date
the same shall have been filed or recorded.
ARTICLE 2O
REMEDIES
--------
(a) In the event of a breach of or default under this Lease as
provided in Article 19 hereof, Landlord may exercise all of its remedies as may
be permitted by law, including but not limited to the remedy provided by
Section 1951.4 of the California Civil Code, and including, terminating this
Lease, reentering the Premises and removing all persons and property therefrom,
which property may be stored by Landlord at a warehouse or elsewhere at the
risk, expense and for the account of Tenant. If Landlord elects to terminate
this Lease, Landlord shall be entitled to recover from Tenant the aggregate of
all amounts permitted by law, including but not limited to, the cost of
recovering the Premises and including (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of 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 that Tenant proves could have been reasonably avoided; (iii) 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
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such rental loss that Tenant proves could be reasonably avoided; and (iv) 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 events would be likely to result therefrom. The "worth
at the time of award" of the amounts referred to in (i) and (ii) above is
computed by allowing interest at the rate often percent (10%) per annum. The
"worth at the time of award" of the amount referred to in (iii) above 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%). Further,
Tenant shall be liable for the unamortized portion of all leasing commissions
paid by or owing by Landlord arising from this Lease and any extensions thereof.
(b) Nothing in this Article 20 shall be deemed to affect Landlord's
right to indemnification for liability or liabilities arising prior to the
termination of this Lease for personal injuries or property damage under the
indemnification clause or clauses contained in this Lease.
(c) Notwithstanding anything to the contrary set forth herein,
Landlord's re-entry to perform acts of maintenance or preservation of or in
connection with efforts to relet the Premises or any portion thereof, or the
appointment of a receiver upon Landlord's initiative to protect Landlord's
interest under this Lease shall not terminate Tenant's right to possession of
the Premises or any portion thereof and, until Landlord does elect to terminate
this Lease, this Lease shall continue in full force and effect and Landlord
shall enforce all of Landlord's rights and remedies hereunder including,
without limitation, the right to recover from Tenant as it becomes due hereunder
all Basic Rental, Additional Rent and other charges required to be paid by
Tenant under the terms hereof.
(d) All rights, powers and remedies of Landlord hereunder and under
any other agreement now or hereafter in force between Landlord and Tenant shall
be cumulative and not alternative and shall be in addition to all rights, powers
and remedies given to Landlord by law, and the exercise of one or more rights or
remedies shall not impair Landlord's right to exercise any other right or
remedy.
(e) Any amount due from Tenant to Landlord hereunder which is not
paid within ten (10) days of when due shall bear interest at the lower of
eighteen percent (18%) per annum or the maximum lawful rate of interest from the
due date until paid, unless otherwise specifically provided herein, but the
payment of such interest shall not excuse or cure any default by Tenant under
this Lease. In addition to such interest: (a) if Basic Rental is not paid within
five (5) days after the same is due, a late charge equal to one and one half
percent (1 1/2%) of the amount overdue or One Hundred Dollars ($100), whichever
is greater, shall be assessed and shall accrue for each calendar month or part
thereof until such rental, including the late charge, is paid in full, which
late charge Tenant hereby agrees is a reasonable estimate of the damages
Landlord shall suffer as a result of Tenant's late payment and (b) an additional
charge of Twenty-five Dollars ($25) shall be assessed for any check given to
Landlord by or on behalf of Tenant which is not honored by the drawee thereof;
which damages include Landlord's additional administrative and other costs
associated with such late payment and unsatisfied checks and the parties agree
that it would be impracticable or extremely difficult to fix Landlord's actual
damage in such event. Such charges for interest and late payments and
unsatisfied checks are separate and cumulative and are in addition to and shall
not diminish or represent a substitute for any or all of Landlord's rights or
remedies under any other provision of this Lease.
(f) Tenant shall be liable for 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.
ARTICLE 21
TRANSFER OF LANDLORD'S INTEREST
-------------------------------
Landlord shall have the right to transfer and assign, in whole or in part,
all its rights and obligations hereunder and in the Project and any other
property referred to herein, and in such event and upon such transfer (any such
transferee to have the benefit of, and be subject to, the
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rights and obligations of Landlord hereunder), Landlord shall be released from
any further obligations hereunder and Tenant agrees to look solely to such
successor-in-interest of Landlord for the performance of such obligations.
ARTICLE 22
BROKERS
-------
Each party represents and warrants to the other party that it has not had
dealings in any manner with any real estate broker, finder or other person with
respect to the Premises and the negotiation and execution of this Lease except
CB Commercial Real Estate Group, Inc. and Cushman Realty Corporation. Except as
to commissions and fees to be paid as provided in this Article 22, Tenant shall
indemnify, defend and hold harmless Landlord from all damage, loss, liability
and expense (including attorneys' fees and related costs) arising out of or
resulting from any claims for commissions or fees that may or have been asserted
against Landlord by any broker, finder or other person with whom Tenant has or
purportedly has dealt with in connection with the Premises and the negotiation
and execution of this Lease. Landlord shall pay broker leasing commissions to CB
Commercial Real Estate Group, Inc. in connection with the negotiation and
execution of this Lease pursuant to a separate agreement. Landlord and Tenant
agree that Landlord shall not be obligated to pay any broker leasing
commissions, consulting fees, finder fees or any other fees or commissions
arising out of or relating to any extended term of this Lease or to any
expansion or relocation of the Premises at any time.
ARTICLE 23
PARKING
-------
Tenant shall be entitled to use of the number of parking passes set forth
in Article 1.9. of Basic Lease Provisions. Tenant shall pay the monthly parking
charge in effect from time to time for the use of such parking passes at the
rate set forth in Article 1.10 of the Basic Lease Provisions. Landlord's current
monthly rate for use of the parking passes is Forty-five Dollars ($45) per
parking pass per month. Such parking shall be available upon terms and
conditions to be established from time to time by Landlord or Landlord's
operator of such parking facilities, but Landlord does not warrant or represent
that the parking will continue to be available if Tenant does not use such
parking spaces continuously from the commencement of the term of this Lease.
Tenant agrees not to overburden the parking facility and agrees to cooperate
with Landlord's other tenants in the use of the parking facilities. Landlord
reserves the right to determine, in its absolute discretion, whether the parking
facilities are becoming overburdened and allocate assigned parking spaces among
Tenant and the other tenants. All visitor parking shall be in parking areas
designated by Landlord upon terms and conditions to be established from time to
time by Landlord or Landlord's operator of such parking facilities.
ARTICLE 24
WAIVER
------
No waiver by Landlord of any provision of this Lease shall be deemed to be
a waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. No provision of this Lease may be waived,
except by an instrument in writing executed by the waiving party. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act of Tenant, whether or not similar
to the act so consented to or approved. No act or thing done by Landlord or
Landlord's agents during the term of this Lease shall be deemed an acceptance of
a surrender of the Premises, and no agreement to accept such surrender shall be
valid unless in writing and signed by Landlord. Any payment by Tenant or receipt
by Landlord of an amount less than the total amount then due hereunder shall be
deemed to be in partial payment only thereof and not a waiver of the balance due
or an accord and satisfaction, notwithstanding any statement or endorsement to
the contrary on any check or any other instrument delivered concurrently
therewith or in reference thereto. Accordingly Landlord may accept any such
amount and negotiate any such check without prejudice to Landlord's right to
recover all balances due and owing and to pursue its other rights against Tenant
under this Lease, regardless of whether Landlord makes any notation on such
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instrument of payment or otherwise notifies Tenant that such acceptance or
negotiation is without prejudice to Landlord's rights.
ARTICLE 25
ESTOPPEL CERTIFICATE
--------------------
Tenant shall, at any time and from time to time, upon not less than ten
(10) days' prior written notice from Landlord, execute, acknowledge and deliver
to Landlord a statement in writing certifying the following information, (but
not limited to the following information in the event further information is
requested by Landlord): (i) 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 modified, is in full force and effect); (ii) the dates to
which the rental and other charges are paid in advance, if any; (iii) the amount
of Tenant's Security Deposit, if any; (iv) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, and
no events or conditions then in existence which, with the passage of time or
notice or both, would constitute a default on the part of Landlord hereunder, or
specifying such defaults, events or conditions, if any are claimed; and (v) such
other information regarding the Lease as may be requested by Landlord. It is
expressly understood and agreed that any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the real
property. Tenant's failure upon Landlord's reasonable request to deliver such
statement within such time shall, at the option of Landlord, constitute a
default under this Lease. Furthermore, Tenant's failure to deliver such
statement within such time shall constitute an admission by Tenant that all
statements contained therein are true and correct. Tenant agrees to execute all
documents required in accordance with this Article 25 within ten (10) days after
delivery of said documents and the failure to execute such documents within ten
(10) days shall entitle Landlord to execute such documents on behalf of Tenant
as Tenant's attorney-in-fact. Tenant does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name,
place and stead to execute such documents pursuant to this Article.
ARTICLE 26
LIABILITY OF LANDLORD
---------------------
The liability of Landlord, any agent of Landlord, or any of the respective
officers, directors, shareholders, or employees to Tenant for or in respect of
any default by Landlord under the terms of this Lease or in respect of any other
claim or cause of action shall be limited to the interest of Landlord in the
Project. Tenant agrees to look solely to Landlord's interest in the Project for
the recovery and satisfaction of any judgment against Landlord, and any agent of
the Landlord, or any of their respective officers, directors, shareholders and
employees.
ARTICLE 27
INABILITY TO PERFORM
--------------------
This Lease and the obligations of Tenant hereunder shall not be affected or
impaired because Landlord is unable to fulfill any of its obligations hereunder
or is delayed in doing so, if such inability or delay is caused by reason of
unavailability of materials, strike or other labor troubles or any other cause
previously or at such time beyond the reasonable control of anticipation of
Landlord.
ARTICLE 28
HAZARDOUS WASTE
---------------
28.1 Environmental Law Compliance. During the term of this Lease, Tenant
----------------------------
shall comply with all Environmental Laws and Environmental Permits (each as
defined in Article 28.4 hereto applicable to the operation or use of the
Premises, will cause all other persons occupying or using the Premises to comply
with all such Environmental Laws and Environmental Permits, and will immediately
pay or cause to be paid all costs and expenses incurred by reason of such
compliance.
28.2 Prohibition. Tenant shall not generate, use, treat, store, handle,
-----------
release or dispose of, or permit the generation, use, treatment, storage,
handling, release or disposal of Hazardous
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Materials (as defined in Article 28.4 hereof) by Tenant's employees, agents,
contractors or invitees on the Premises, or the Project, or transport or permit
the transportation of Hazardous Materials by Tenant's employees, agents,
contractors or invitees to or from the Premises or the Project except for (i)
limited quantities used or stored at the Premises and required in connection
with the routine operation and maintenance of the Premises and (ii) the use and
storage of fuel for Tenant's emergency generator (described in Article 33), and
then only in compliance with all applicable Environmental Laws and Environmental
Permits. Fuel for Tenant's emergency generator shall be stored in an above
ground storage tank in a location in the parking structure of the Project
designated by Landlord. The storage tank shall be double-lined, vented and shall
be equipped with leak detection alarms. Plans and specifications for the storage
tank shall be subject to the prior written approval of Landlord. Tenant shall
obtain all necessary permits from the City of E1 Segundo, the South Coast Air
Quality Management District, State of California and any and all other
governmental agencies for the construction, use and operation of the storage
tank. Tenant shall provide Landlord with copies of its Hazardous Materials Data
Sheet filed with the City of El Segundo and any other permits required for the
construction, use and operation of the storage tank. Tenant shall pay directly
to the taxing authority any taxes or fees imposed upon Tenant's construction,
maintenance, use and operation of the storage tank. Prior to the expiration or
earlier termination of the Lease, and at Tenant's cost and expense, Tenant shall
remove its storage tank from the Project's parking structure in accordance with
all applicable laws and regulations and shall restore the area to the condition
that existed prior to the installation of the storage tank in accordance with
all applicable laws, ordinances, codes and regulations in effect as of the date
of such restoration.
28.3 Indemnity. Tenant agrees to defend, indemnify and hold harmless
---------
Landlord from and against all obligations (including removal and remedial
actions), losses, claims, suits, judgments, liabilities, penalties, damages
(including consequential and punitive damages), costs and expenses (including
attorneys' and consultants' fees and expenses) of any kind or nature whatsoever
that may at any time be incurred by, imposed on or asserted against Landlord
directly or indirectly based on, or arising or resulting from (a) the actual or
alleged presence of Hazardous Materials on the Project which is caused or
permitted by Tenant or its employees, agents, contractors or invitees in the
manner described in Article 28.2, and (b) any Environmental Claim relating in
any way to Tenant's operation or use of the Premises (the "Hazardous Materials
Indemnified Matters"). The provisions of this Article 28 shall survive the
expiration or sooner termination of this lease.
28.4 Definitions. As used herein, the following terms shall have the
-----------
following meanings: "Hazardous Materials" means (i) petroleum or petroleum
products, natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and radon gas; (ii) any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (iii) any other substance exposure to which is regulated by any
governmental authority. "Environmental Law(s)" means any federal, state or local
statute, law, role, regulation, ordinance, code, policy or rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
(S)(S) 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
-- ---
(S)(S) 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-- ---
(S)(S) 1801 et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the
-- --- -- ---
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air
-- ---
Act, 42 U.S.C. (S)(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
-- ---
(S)(S) 300f et seq.; the Atomic Energy Act, 42 U.S.C. (S)(S)2011 et seq.; the
-- --- -- ---
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.;
-- ---
the Occupational Safety and Health Act, 29 U.S.C. (S)(S) 651 et seq.
-- ---
"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, investigations, proceedings, Consent orders or consent
agreements relating in any way to any Environmental Law or any Environmental
Permit, including without limitation (i) any and all Environmental Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
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applicable Environmental law and (ii) any and all Environmental Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Permits" means all permits, approvals, identification numbers,
licenses and other authorizations required under any applicable Environmental
Law.
ARTICLE 29
SURRENDER OF PREMISES: REMOVAL OF PROPERTY
------------------------------------------
29.1 No Merger. The voluntary or other surrender of this Lease by Tenant
---------
to Landlord, or a mutual termination hereof, shall not work a merger, and shall
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies affecting the Premises.
29.2 Surrender. Upon the expiration of the Lease Term, or upon any earlier
---------
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order and condition as the same are now and
hereafter may be improved by Landlord or Tenant, reasonable wear and tear,
repairs which are Landlord's obligation, acts of God, casualty, condemnation,
Hazardous Materials which are not placed, stored, used, disposed or released by
Tenant or its employees, agents, contractors or invitees in or about the
Premises, and alterations, additions or improvements which are not required to
be removed from the Premises pursuant to Article 9 hereof excepted, and shall,
without expense to Landlord, remove or cause to be removed from the Premises all
debris and rubbish, all furniture, equipment, business and trade fixtures, free-
standing cabinet work, moveable partitioning and other articles of personal
property owned by Tenant or installed or placed by Tenant at its own expense in
the Premises, and all similar articles of any other persons claiming under
Tenant unless Landlord exercises its option to have any subleases or
subtenancies assigned to it, and Tenant shall repair all damage to the Premises
resulting from the installation and removal of such items to be removed and
restore such areas to the condition that existed prior to the installation
thereof in accordance with all applicable laws, statutes, building codes and
regulations in effect as of the date of such repair and restoration.
29.3 Disposition of Personal Property. Whenever Landlord shall reenter the
--------------------------------
Premises as provided in Article 12 hereof, or as otherwise provided in this
Lease, any property of Tenant not removed by Tenant upon the expiration of the
Lease Term (or within forty-eight (48) hours after a termination by reason of
Tenant's default), as provided in this Lease, shall be considered abandoned and
Landlord may remove any or all of such items and dispose of the same in any
manner or store the same in a public warehouse or elsewhere for the account and
at the expense and risk of Tenant, and if Tenant shall fail to pay the cost of
storing any such property after it has been stored for a period of ninety (90)
days or more, Landlord may sell any or all of such property at public or private
sale, in such manner and at such times and places as Landlord, in its sole
discretion, may deem proper, without notice or to demand upon Tenant, for the
payment of all or any part of such charges or the removal of any such property,
and shall apply the proceeds of such sale: first, to the cost and expense of
such sale, including reasonable attorneys' fees for services rendered; second,
to the payment of the cost of or charges for storing any such property; third,
to the payment of any other sums of money which may then or thereafter be due to
Landlord from Tenant under any of the terms hereof; and fourth, the balance, if
any, to Tenant.
29.4 Removal of Alterations. All fixtures, equipment, alterations,
----------------------
additions, improvements and/or appurtenances attached to or built into the
Premises prior to or during the Lease Term, whether by Landlord or Tenant and
whether at the expense of Landlord or Tenant, or of both, shall be and remain
part of the Premises and shall not be removed by Tenant at the end of the Lease
Term unless otherwise expressly provided for in this Lease or unless such
removal is required by Landlord pursuant to the provisions of Article 9 above.
Such fixtures, equipment, alterations, additions, improvements and/or
appurtenances shall include but not be limited to: all floor coverings, drapes,
paneling, built-in cabinetry, molding, doors, vaults (including vault doors),
plumbing systems, electrical systems, lighting systems, silencing equipment,
communication systems, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations. Landlord may require Tenant to remove at the
expiration of the Lease Term any alterations, additions or improvements made by
Tenant to the Premises for which Tenant did not
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obtain Landlord's approval or if such consent was not required under Article 9,
for which Tenant did not give Landlord written notice pursuant to Article 9. For
purposes of this Lease, it shall be conclusively presumed that any alteration,
addition or improvement located in the Premises at the expiration of the Lease
Term which Landlord did not approve or for which Landlord did not receive notice
in accordance with Article 9 may be required to be removed by Landlord. If
Landlord requires such removal, Tenant shall either (i) remove the alteration,
addition, or improvement, repair all damage to the Premises resulting from such
removal and restore the area where the removal occurred to the condition that
existed upon completion of the Tenant Building Standard Work in accordance with
all applicable laws, statutes, building codes and regulations in effect as of
the date of such repair and restoration or (ii) Tenant shall reimburse Landlord
for the cost of performing the removal, repair and restoration referenced in
clause (i) above within thirty (30) days after the date of Landlord's invoice
therefor. The foregoing obligation of Tenant shall survive the expiration or
earlier termination of the Lease.
29.5 Notice. Tenant shall, at least ninety (90) days before the last day
------
of the Lease Term hereof, give to Landlord a written notice of intention to
surrender the Premises on that date, but Tenant's failure to give such notice
shall not be construed as an extension of the Lease Term hereof or as consent of
Landlord to any holding over by Tenant.
29.6 Personal Property Lien Waiver. Upon Tenant's written request in
-----------------------------
connection with a loan agreement or equipment lease by and between Tenant and a
third party lender ("Lender") who obtains a security interest in personal
property or equipment owned by or leased to Tenant ("Equipment"), Landlord
agrees to execute a personal property lien waiver in favor of such Lender in
form and content reasonably acceptable to Landlord, waiving and relinquishing
any right, title, interest or lien Landlord may have in the Equipment. Such
personal property lien waiver (i) shall not be recorded and (ii) shall not
restrict Landlord's rights under Article 29.3 hereof to remove the Equipment
from the Premises if not removed prior to the expiration or termination of the
Lease. Subject to Tenant's consent, the personal property lien waiver shall
permit Lender to enter the Premises at any time during the Lease Term to remove
the Equipment subject to (a)prior notice to Landlord, (b) compliance with the
Project's rules and regulations, (c) the Lender's agreement to repair any damage
to the Premises or Project caused by such removal and (d) the Lender's agreement
to indemnify Landlord, its agents and employees for any personal injury or
property damage arising from the Lender's activities on the Project. Landlord
will agree pursuant to such personal property lien waiver to give Lender written
notice of any termination of the Lease at the same time such notice is given to
Tenant to the person and address designated by such Lender in written notice to
Landlord.
ARTICLE 30
MISCELLANEOUS
-------------
30.1 Mortgage Protection. Upon any default on the part of Landlord, Tenant
-------------------
shall give notice by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Premises who has provided
Tenant with notice of their interest together with an address for receiving
notice, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default (which in no event shall be less than ninety (90) days),
including time to obtain possession of the Premises by power of sale or judicial
foreclosure if such should prove necessary to effect a cure. Tenant agrees that
each lender to whom this Lease has been assigned by Landlord is an express third
party beneficiary hereof. Tenant shall not make any prepayment of monthly rent
more than one (1) month in advance without the prior written, consent of each
such lender. Tenant waives the collection of any security deposit from such
lender(s) or any purchaser at a foreclosure sale of such lender(s) deed of trust
unless the lender(s) or such purchaser shall have actually received and not re-
funded the security deposit. Tenant agrees to make all payments under the Lease
to the lender with the most senior encumbrance upon receiving a direction, in
writing, to pay said amounts to such lender. Tenant shall comply with such
written direction to pay without determining whether an event of default exists
under such lender's loan to Landlord.
30.2 Recording. Neither Landlord nor Tenant shall record this Lease or a
---------
short form memorandum thereof without the consent of the other.
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30.3 Financial Statements. At any time during the term of this Lease,
--------------------
but not more than twice in any calendar year, Tenant shall, upon ten (10) days'
prior written notice from Landlord in connection with a proposed sale or
financing of the Project, provide Landlord with a current financial statement
and financial statements of the two (2) years prior to the year of the current
financial statement. If such is the normal practice of Tenant, such statements
shall be prepared in accordance with generally accepted accounting principles
and shall be audited by an independent certified public accountant.
30.4 Severability: Entire Agreement. 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 any such other provisions shall remain
in full force and effect. This Lease and the Exhibits constitute the entire
agreement between the parties hereto with respect to the subject matter hereof,
and no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provision of this Lease may be amended or
supplemented except by an agreement in writing signed by the parties hereto or
their successor in interest. This Lease shall be governed by and construed in
accordance with the laws of the State of California.
30.5 Attorneys' Fees.
---------------
(a) If Tenant or Landlord shall bring any action for any relief
against the other, declaratory or otherwise, arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum for
attorneys' fees in such suit and such attorneys' fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is prosecuted to judgment.
(b) Should Landlord, without fault on Landlord's part, be made a
party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person holding under or using the Premises by
license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to indemnify, defend and hold Landlord harmless from any
judgment, claim or liability rendered against Landlord or the Premises or any
part thereof and from all costs and expenses, including reasonable attorneys'
fees incurred by Landlord in connection with such litigation.
(c) Reasonable attorneys' fees shall include fees for services
rendered prior to the commencement of any such action or litigation and, when
legal services are rendered by an attorney at law who is an employee of a party,
shall be determined as to amount, including overhead, by consideration of the
same factors, including but not limited by, the importance of the matter, time
applied, difficulty and results, as are considered when an attorney not in the
employ of a party is engaged to render such service.
30.6 Time of Essence. Each of Tenant's covenants herein is a condition
---------------
and time is of the essence with respect to the performance of every provision of
this Lease and the strict performance of each shall be a condition precedent to
Tenant's right to remain in possession of the Premises or to have this Lease
continue in effect.
30.7 Headings. The article headings contained in this Lease are for
--------
convenience only and do not in any way limit or amplify any term or provision
hereof. The terms "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular, the neuter shall include the masculine and
feminine genders and the obligations herein imposed upon Tenant shall be joint
and several as to each of the persons, firms or corporations of which Tenant may
be composed.
30.8 Reserved Area. Tenant hereby acknowledges and agrees that the
-------------
exterior walls of the Premises and the area between the furnished ceiling of the
Premises and the slab of the floor of the Building thereabove have not been
demised hereby and the use thereof together with the right to install, maintain,
use, repair and replace pipes, ducts, conduits and wires leading through, under
or above the Premises in locations which will not materially interfere with
Tenant's use of
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the Premises and serving other parts of the Project are hereby excepted and
reserved unto Landlord.
30.9 No Option. The submission of this Lease by Landlord, its agent or
---------
representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereof to Tenant.
30.10 Use of Project Name; Improvements. Tenant shall not be allowed to
---------------------------------
use the name, picture or representation of the Project, or words to that effect,
in connection with any business carried on in the Premises or otherwise (except
as Tenant's address) without the prior written consent of Landlord. In the event
that Landlord undertakes any additional improvements on the real property
including but not limited to new construction or renovation or additions to the
existing improvements, Landlord shall not be liable to Tenant for any noise,
dust, vibration or interference with access to the Premises or disruption in
Tenant's business caused thereby and rental hereunder shall under no
circumstances be abated.
30.11 Rules and Regulations. Tenant shall observe faithfully and comply
---------------------
strictly with the Rules and Regulations attached to this Lease as Exhibit "B"
and made a part hereof, and such other rules and regulations as Landlord may
from time to time reasonably adopt for the safety, care and cleanliness of the
Project, the facilities thereof, or the preservation of good order therein.
Landlord shall not be liable to Tenant for violation of any such Rules and
Regulations, or for the breach of any covenant or condition in any lease by any
other tenant in the Project. A waiver by Landlord of any Rule or Regulation for
any other tenant shall not constitute nor be deemed a waiver of the Rule or
Regulation for this Tenant.
30.12 Quiet Possession. Upon Tenant's paying the Basic Rental, Additional
----------------
Rent and other sums provided 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 of the provisions of this Lease.
30.13 Additional Rent. All amounts which Tenant is required to pay
---------------
hereunder (other than Basic Rental) and all damages, costs and expenses which
Landlord may incur by reason of any default by Tenant shall be deemed to be
"Additional Rent" hereunder, whether or not described or designated as such.
Upon Tenant's non payment of any Additional Rent, Landlord shall have all the
rights and remedies with respect thereto as Landlord has for the non-payment of
Basic Rental.
30.14 Intentionally Omitted.
---------------------
30.15 Successors and Assigns. Subject to the provisions of Article 15
----------------------
hereof, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
30.16 Notices. Any notice required or permitted to be given hereunder
-------
shall be in writing and may be given by personal service evidenced by a signed
receipt or sent by registered or certified mail, return receipt requested,
addressed to Tenant at the Premises or to Landlord at the address of the place
from time to time established for the payment of rent and which shall be
effective upon proof of delivery. Either party may by notice to the other
specify a different address for notice purposes except that, upon Tenant's
taking possession of the Premises, the Premises shall constitute Tenant's
address for notice purposes. A copy of all notices to be given to Landlord
hereunder shall be concurrently transmitted by Tenant to such party hereafter
designated by notice from Landlord to Tenant. Any notices sent by Landlord
regarding or relating to eviction procedures, including without limitation Three
Day Notices, may be sent by regular mail.
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30.17 Intentionally Omitted.
---------------------
30.18 Right of Landlord to Perform. All covenants and agreements to be
----------------------------
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of rent. If
Tenant shall fail to pay any sum of money, other than rent, required to be paid
by it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue beyond any applicable
period of notice set forth in this Lease, Landlord may, but shall not be
obligated so to do, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such other act on Tenant's part
to be made or performed as is in this Lease provided. All sums so paid by
Landlord and all reasonable incidental costs, together with interest thereon at
the rate of ten percent (10%) per annum from the date of such payment by
Landlord, shall be payable to Landlord on demand and Tenant covenants to pay any
such sums, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment thereof by
Tenant as in the case of default by Tenant in the payment of the rent.
30.19 Access, Changes in Project, Facilities, Name.
--------------------------------------------
(a) Every part of the Project except the inside surfaces of all
walls, windows and doors bounding the Premises (including exterior building
walls, core corridor walls and doors and any core corridor entrance), and any
space in or adjacent to the Premises used for shafts, stacks, pipes, conduits,
fan rooms, ducts, electric or other utilities, sinks or other building
facilities, and the use thereof, as well as access thereto through the Premises
for the purposes of operation, maintenance, decoration and repair, are reserved
to Landlord.
(b) Tenant shall permit Landlord to install, use and maintain
pipes, ducts and conduits within the walls, bearing columns and ceilings of the
Premises.
(c) Landlord reserves the right, without incurring any liability
to Tenant therefor, to make such changes in or to the Building and the fixtures
and equipment thereof, as well as in or to the street entrances, halls,
passages, elevators, stairways and other improvements thereof, as it may deem
necessary or desirable; provided, however, that Landlord shall not unreasonably
interfere with Tenant's access to the Premises and shall use reasonable efforts
to avoid any unreasonable interference with Tenant's business during such period
of construction.
(d) Landlord may adopt any name for the Project and Landlord
reserves the right to change the name or address of the Building at any time.
30.20 Corporate Authority. Tenant shall provide Landlord, concurrently
-------------------
with execution of this Lease with a copy of a resolution of the Board of
Directors of Tenant or other evidence reasonably satisfactory to Landlord
showing that the persons executing this Lease on behalf of Landlord are
authorized to do so and that this Lease is binding upon Tenant in accordance
with its terms. The copy of the resolution shall be duly certified by the
secretary or an assistant secretary of the corporation to be a true copy of a
resolution duly adopted by the Board of Directors of Tenant.
30.21 Identification of Tenant.
------------------------
(a) If more than one person executes this Lease in their
individual capacity as Tenant, (i) each of them shall be jointly and severally
liable for the keeping, observing and performing of all of the terms, covenants,
conditions and provisions of this Lease to be kept, observed and performed by
Tenant, (ii) the term "Tenant" as used in this Lease shall mean and include each
of them jointly and severally, and (iii) the act of or notice from, or notice or
refund to, or the signature of, any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
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(b) If Tenant is a partnership (or is comprised of two or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two or more
persons, individually and as co-partners of a partnership) pursuant to Article
15 hereof (any such partnership and such persons hereinafter referred to in this
Article 30.21 as "Partnership Tenant"), the following provisions of this Lease
shall apply to such Partnership Tenant:
(i) The liability of each of the parties comprising
Partnership Tenant shall be joint and several.
(ii) Each of the parties comprising the Partnership Tenant
hereby consents in advance to, and agrees to be bound by, any written instrument
which may hereafter be executed, changing, modifying or discharging this Lease,
in whole or in part, or surrendering all or any part of the Premises to the
Landlord, and by notices, demands, requests or other communication which may
hereafter be given, by Partnership Tenant or any of the parties comprising
Partnership Tenant.
(iii) Any bills, statements, notices, demands, requests or
other communications given or rendered to Partnership Tenant or to any of the
parties comprising Partnership Tenant shall be deemed given or rendered to
Partnership Tenant and to all such parties and shall be binding upon Partnership
Tenant and all such parties.
(iv) If Partnership Tenant admits new partners, all of such
new partners shall, by their admission to Partnership Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed.
(v) Partnership Tenant shall give prompt notice to Landlord
of the admission of any such new partners, and, upon demand of Landlord, shall
cause each such new partner to execute and deliver to Landlord an agreement in
form satisfactory to Landlord, wherein each such new partner shall assume
performance of all of the terms, covenants and conditions of this Lease on
Partnership Tenant's part to be observed and performed (but neither Landlord's
failure to request any such agreement nor the failure of any such new partner to
execute or deliver any such agreement to Landlord shall violate the provisions
of clause (iv) of this Article 30.21 or relieve any such new partner of his
obligations thereunder).
30.22 Building Codes. Any and all costs attributable to or related to the
--------------
applicable building codes of the City of E1 Segundo (or any other authority
having jurisdiction over the Project) arising from Tenant's non-Building
standard improvements or any alterations, additions or improvements made by
Tenant after the completion of the Tenant Building Standard Work shall be paid
by Tenant at its sole cost and expense.
30.23 Transportation and Energy Management. Tenant shall fully comply
------------------------------------
with all present and future programs intended to manage parking, transportation,
traffic, energy or any other programs affecting the Project.
30.24 Exhibits. The Exhibits attached hereto are incorporated herein by
--------
this reference as if fully set forth herein.
30.25 Waiver of Jury Trial. LANDLORD AND TENANT HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY WITH RESPECT
TO ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
LEASE OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF EITHER PARTIES ARISING OUT OF OR RELATED IN ANY MANNER WITH THE
PREMISES (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS
LEASE OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY
INDUCED OR OTHERWISE VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR
LANDLORD TO ENTER INTO AND TO ACCEPT THIS LEASE.
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ARTICLE 31
OPTION TO EXTEND
----------------
31.1 Grant of Option. Landlord hereby grants to Tenant one (1) option
---------------
(the "Option") to extend the initial Term of the Lease ("Initial Term") for an
additional five (5) years (the "Option Term") upon and subject to the terms and
conditions set forth in this Lease. Tenant shall have no right to extend the
Initial Term except as provided herein. The Option shall be personal to Pilot
Network Services, Inc. and shall not be transferable or assignable to any
assignee of the Lease. The Option shall be exercised, if at all, by Tenant's
delivery of written notice of exercise to Landlord no later than nine (9) months
nor earlier than twelve (12) months prior to the expiration date of the Initial
Term. The Basic Rental to be paid during the Option Term shall be the Prevailing
Market Rental, as hereinafter defined. As used herein, the term "Prevailing
Market Rental" shall mean the rental and all other monetary payments and
escalations that Landlord could obtain from a third party tenant comparable to
Tenant desiring to lease the Premises for the Option Term, taking into account
the age of the Project, the size of the Premises, the location and floor levels
of the Premises, the quality of construction of the Project, the services
provided under the terms of the Lease, the rental and brokers commissions then
being paid for the renewal of leases of space comparable to the Premises in the
City of E1 Segundo and all other factors that would be relevant to a third party
in determining the rental such party would be willing to pay to lease the
Premises for the Option Term; provided, however, that in no event shall the
determination of the Prevailing Market Rental be affected by the absence of a
tenant improvement allowance or free rent period for the Option Term and in no
event shall the Prevailing Market Rental be less than the Basic Rental payable
by Tenant to Landlord at the expiration of the Initial Term. If (i) Tenant is in
default under any of the terms, covenants, or conditions of this Lease or (ii)
Tenant does not occupy all of the Premises, either at the time Tenant exercises
the Option or at any time thereafter prior to the commencement date of the
Option Term (the "Option Commencement Date"), then in each case, Tenant's
exercise of the Option shall be of no force and effect and Tenant shall have no
rights hereunder to extend the Initial Term.
31.2 Determination of Prevailing Market Rental. On or before five (5)
-----------------------------------------
days after Tenant provides Landlord with notice of Tenant's exercise of the
Option, Landlord and Tenant shall commence negotiations to agree upon the
Prevailing Market Rental applicable thereto. If Landlord and Tenant are unable
to reach agreement on the Prevailing Market Rental within ten (10) days after
the date negotiations commence, then the Prevailing Market Rental shall be
determined as follows:
(a) If Landlord and Tenant are unable to agree on the Prevailing
Market Rental within said ten (10) day period, then, within five (5) days
thereafter, Landlord and Tenant shall each simultaneously submit to the other in
a sealed envelope its good faith estimate of the Prevailing Market Rental. If
the higher of such estimates is not more than one hundred five percent (105%) of
the lower of such estimates, then the Prevailing Market Rental shall be the
average of the two estimates; provided, however, in no event shall the
Prevailing Market Rental be less than the Basic Rental payable by Tenant to
Landlord at the expiration of the Initial Term.
(b) If the matter is not resolved by the exchange of estimates as
provided in subparagraph (a) above, then either Landlord or Tenant may, by
written notice to the other on or before five (5) days after the exchange of
such estimates, require that the disagreement be resolved by arbitration. Within
seven (7) days after such notice, the parties shall select as an arbitrator a
mutually acceptable MAI appraiser with experience in real estate activities,
including at least ten (10) years' experience in appraising office space in the
County of Los Angeles, California. If the parties cannot agree on an appraiser,
then, within a second period of seven (7) days, each party shall select an
independent MAI appraiser meeting the aforementioned criteria and, within a
third period of seven (7) days, the two appointed appraisers shall select a
third appraiser meeting the aforementioned criteria and the third appraiser
shall determine the Prevailing Market Rental pursuant to subparagraph (c) below.
If one party shall fail to make such appointment within said second seven (7)
day period, then the appraiser chosen by the other party shall be the sole
arbitrator.
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<PAGE>
(c) Once the arbitrator has been selected as provided for in
subparagraph (b) above, then, as soon as practicable but in any case within
fourteen (14) days thereafter, the arbitrator shall select one of the two
estimates of the Prevailing Market Rental submitted by Landlord and Tenant,
which estimate shall be the one that is closer to the Prevailing Market Rental
as determined by the arbitrator; provided, however, in no event shall the
Prevailing Market Rental be less than the Basic Rental payable by Tenant to
Landlord at the expiration of the Initial Term. The arbitrator's selection shall
be rendered in writing to both Landlord and Tenant and shall be final and
binding upon them and shall not be subject to appeal. The party whose estimate
is not chosen by the arbitrator shall pay the costs of the arbitrator, provided,
however, that any fees of any counsel engaged directly by Landlord or Tenant
shall be borne by the party retaining such counsel.
ARTICLE 32
SIGNAGE
-------
Tenant shall not place any sign upon the Premises, the Building or the
Project or conduct any auction thereon without Landlord's prior written consent,
which consent may be withheld by Landlord in its sole and absolute discretion.
Promptly following the Commencement Date, Landlord shall install Tenant's name
on the directory of the Building lobby in accordance with Landlord's sign
criteria. Tenant shall pay Landlord's standard charges for installation for
Tenant's directory sign.
ARTICLE 33
GENERATOR SPACE
---------------
33.1 Right to Use. During the Lease Term, Tenant shall have the right to
------------
use the area outlined on Exhibit "E" attached hereto in the parking structure
for the Building ("Generator Space") for Tenant's location of a back-up
generator for Tenant's computers ("Generator"). The size and placement of the
Generator and any related lines or equipment shall be subject to Landlord's
review and approval.
33.2 Installation. The installation of the Generator shall be treated as
------------
an alteration subject to all of the terms and conditions of Article 9 of this
Lease. Tenant shall, at Tenant's sole cost and expense, install, construct,
maintain, use, repair and remove Tenant's Generator in compliance with all laws,
statutes, permit requirements, building codes, ordinances and governmental rules
and regulations now in force or which may hereafter be enacted or promulgated.
Tenant's installation, construction, use, maintenance, repair and removal of the
Generator and the Generator Space shall not obstruct or interfere with the
rights of other tenants or occupants of the Project or injure or annoy them.
33.3 Landlord Approval Right. Any contractor or person selected by
-----------------------
Tenant to perform any work contemplated herein above and all plans and
specifications for such work shall first be reasonably approved by Landlord in
writing. In order to allow Landlord time to post a notice(s) of non-
responsibility, no such work by or on behalf of Tenant shall be allowed to
commence until ten (10) business days following receipt by Landlord of written
notice of the date Tenant proposes to commence the construction or installation
of the Generator.
33.4 Removal. Upon the expiration or earlier termination of this Lease,
-------
Tenant shall, at its sole cost and expense, promptly remove the Generator and
any related equipment or lines and repair any damage to the parking garage
and/or the Project caused by such removal and remediate any release of Hazardous
Materials released in connection with the operation or removal of the Generator.
Such repair work shall be undertaken in accordance with all applicable laws,
statutes, permit requirements, building rules, ordinances or governmental rules
or regulations in effect as of the date of such repair.
33.5 Indemnity. Tenant shall indemnify, defend and hold Landlord, its
---------
partners, members, officers, directors, employees, agents and contractors and
Landlord's property and all tenants, occupants, invitees and licensees of
Landlord harmless from and against all liabilities, claims, actions, causes of
action, losses, damages, injuries, liens, costs and expenses, including
attorneys' fees and costs of suit, arising out of or relating to the
installation, construction, presence,
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<PAGE>
use, maintenance, repair, or removal of the Generator and any release of
Hazardous Materials caused thereby, except to the extent caused by the gross
negligence or willful misconduct of Landlord. Such obligations of Tenant under
this Article shall survive the expiration of earlier termination of this Lease.
33.6 Assumption of Risk. Tenant acknowledges that Landlord has no
------------------
obligation to protect, secure, install, construct, maintain, repair or remove
the Generator or remediate any release of Hazardous Materials caused thereby,
and Tenant hereby assumes all risk of loss or damage to or from the Generator
from any cause, including, without limitation, any and all users of the parking
garage and any failure by Landlord to enforce parking rules and regulations.
Tenant hereby waives all claims against Landlord and its partners, officers,
directors, employees, agents and contactors with respect to such damage, except
to the extent caused by the gross negligence or willful misconduct of Landlord.
33.7 Rent for Generator Space. Commencing upon the date that Tenant
------------------------
commences installation of the Generator in the Generator Space, Tenant shall pay
rent for the Generator Space in an amount equal to the then prevailing market
rate for parking spaces in the Project's parking structure for each parking
space which is used for the Generator Space. Such amount shall be payable in
advance, without offset or deduction, on the first day of each calendar month in
the same manner as Basic Rental for the Premises. Tenant shall also reimburse
Landlord from time to time, as Additional Rent, for all electrical charges and
other utility charges incurred by Landlord for the Generator, as reasonably
estimated by Landlord, within ten (10) days after Landlord gives Tenant written
notice' of such estimate. If Tenant fails to timely pay any such rent or
Additional Rent, Landlord shall have all of the rights and remedies given
Landlord under this Lease for the nonpayment of Basic Rental and Additional
Rental.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date set forth above.
TENANT:
PILOT NETWORK SERVICES, INC.,
a California corporation
By: /s/ M. Marketta Silvera
----------------------------------
Its: CEO
----------------------------------
By: /s/ Robert G. Carrade
----------------------------------
Its: V.P. of Finance & Administration
----------------------------------
LANDLORD:
PACIFIC CORPORATE TOWERS LLC,
a Delaware limited liability company
By: GE Capital Investment Advisors, Inc.,
its authorized investment advisor
By: [SIGNATURE ILLEGIBLE]
-----------------------------
Its: V.P
-----------------------------
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<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be displayed, printed or
affixed on or to the Premises or to the outside or inside of the Building or so
as to be visible from outside the Premises or Building without Landlord's prior
written consent. Landlord shall have the right to remove any non-approved sign,
advertisement or notice, without notice to and at the expense of Tenant, and
Landlord shall not be liable in damages for such removal. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Tenant by Landlord or by a person selected by Landlord and in a
manner and style acceptable to Landlord.
2. Tenant shall not obtain for use on the Premises ice, drinking water,
waxing, cleaning, interior glass polishing, rubbish removal, towel or other
similar services, or accept barbering or bootblackening, or coffee cart
services, milk, soft drinks or other like services on the Premises, except from
persons authorized by Landlord and at the hours and under regulations fixed by
Landlord. No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without Landlord's prior written
consent, which shall not be unreasonably withheld.
3. The sidewalks, hall, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used for any purpose other than
for ingress and egress from Tenant's Premises.
4. Toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, ceilings or floor or in any way
deface the Premises.
6. In no event shall Tenant place a load upon any floor of the Premises
or portion of any such flooring exceeding the floor load per square foot of area
for which such floor is designed to carry and which is allowed by law, or any
machinery or equipment which shall cause excessive vibration to the Premises or
noticeable vibration to any other part of the Building. Prior to bringing any
heavy safes, vaults, large computers or similarly heavy equipment into the
Building, Tenant shall inform Landlord in writing of the dimensions and weights
thereof and shall obtain Landlord's consent thereto, which consent Landlord
shall have the right to deny. Such consent shall not constitute a representation
or warranty by Landlord that the safe, vault or other equipment complies, with
regard to distribution of weight and/or vibration, with the provisions of this
Rule 6 nor relieve Tenant from responsibility for the consequences of such
noncompliance, and any such safe, vault or other equipment which Landlord
determines to constitute a danger of damage to the Building or a nuisance to
other Tenants, either alone or in combination with other heavy and/or vibrating
objects and equipment, shall be promptly removed by Tenant upon Landlord's
written notice of such determination and demand for removal thereof.
7. Tenant shall not use or keep in the Premises or Project any kerosene,
gasoline or inflammable, explosive or combustible fluid or material, or use any
method of heating or air-conditioning other than that supplied by Landlord.
8. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
9. Tenant shall not install or use any blinds, shades, awnings or screens
in connection with any window or door of the Premises and shall not use any
drape or window
-1-
<PAGE>
covering facing any exterior glass surface other than the standard drapes,
blinds or other window covering established by Landlord.
10. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing drapes when the sun's rays fall
directly on windows of the Premises. Tenant shall not obstruct, alter, or in any
way impair the efficient operation of Landlord's heating, ventilating and air-
conditioning system. Tenant shall not tamper with or change the setting of any
thermostats or control valves.
11. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use of the
Premises. Tenant shall not, without Landlord's prior written consent, occupy or
permit any portion of the Premises to be occupied or used for the manufacture or
sale of liquor or tobacco in any form, or a barber or manicure shop, or as an
employment bureau. The Premises shall not be used for lodging or sleeping or for
any improper, objectionable or immoral purpose. No auction shall be conducted on
the Premises.
12. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises, or disturb or interfere with occupants of Building or
neighboring buildings or premises or those having business with it by the use of
any musical instrument, radio, phonographs or unusual noise, or in any other
way.
13. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises, and no cooking shall be done or permitted by any
tenant in the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for tenants, their employees and visitors shall be
permitted. No tenant shall cause or permit any unusual or objectionable odors to
be produced in or permeate from or throughout the Premises.
14. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills.
15. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanisms thereof unless Landlord is first notified thereof, gives
written approval, and is furnished a key therefor. Each tenant must, upon the
termination of his tenancy, give to Landlord all keys of stores, offices, or
toilets or toilet rooms, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys so furnished, such tenant shall
pay Landlord the cost of replacing the same or of changing the lock or locks
opened by such lost key if Landlord shall deem it necessary to make such change.
16. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tend to impair the reputation of the
Building or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from and discontinue such advertising.
17. Landlord reserves the right to control access to the Building by all
persons after Building Hours; provided, however, that subject to compliance with
Landlord's reasonable security requirements for access during non-Building
Hours, Tenant shall have access to the Premises and the parking facilities
twenty-four (24) hours per day seven (7) days per week. Each tenant shall be
responsible for all persons for whom he requests after hours access and shall be
liable to Landlord for all acts of such persons. Landlord shall have the right
from time to time to establish reasonable rules pertaining to freight elevator
usage, including the allocation and reservation of such usage for tenants'
initial move-in to their premises, and final departure therefrom.
18. Any person employed by any tenant to do janitorial work shall, while
in the Building and outside of the Premises, be subject to and under the control
and direction of the
-2-
<PAGE>
office of the Building (but not as an agent or servant of Landlord, and the
tenant shall be responsible for all acts of such persons).
19. All doors opening on to public corridors shall be kept closed, except
when being used for ingress and egress.
20. The requirements of tenants will be attended to only upon application
to the Office of the Building.
21. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
22. All office equipment of any electrical or mechanical nature shall be
placed by tenants in the Premises in settings approved by landlord, to absorb or
prevent any vibration, noise or annoyance.
23. No air conditioning unit or other similar apparatus shall be installed
or used by any tenant without the prior written consent of Landlord. Tenant
shall pay the cost of all electricity used for air conditioning in the Premises
if such electrical consumption exceeds normal office requirements, regardless of
whether additional apparatus is installed pursuant to the preceding sentence.
Notwithstanding the foregoing, Tenant may use free standing air conditioning
units in the Premises in an emergency when the Building's heating ventilation
and air conditioning system is not operating.
24. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
25. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be florescent and/or of a quality, type, design
and bulb color approved by Landlord. Tenant shall not permit the consumption in
the Premises of more than 2 1/2 watts per net usable square foot in the Premises
in respect of office lighting nor shall Tenant permit the consumption in the
Premises of more than 1 1/2 watts per net usable square foot of space in the
Premises in respect of the power outlets therein, at any one time. In the event
that such limits are exceeded, Landlord shall have the right to remove any
lighting fixture of any florescent tube or bulb therein as it deems necessary
and/or to charge Tenant for the cost of the additional electricity consumed.
26. Parking
(a) Garage hours shall be 5:00 a.m. to 8:00 p.m., Monday through
Friday, and 5:00 a.m. to 5:00 p.m. Saturday, state and federal holidays
excepted, as revised from time to time by Landlord. provided, however, that
subject to compliance with Landlord's reasonable security procedures, Tenant
shall have access to the parking facilities twenty-four (24) hours per day,
seven (7) days per week.
(b) Automobiles must be parked entirely with the stall lines on the
floor.
(c) All directional signs and arrows must be observed.
(d) The speed limit shall be 5 miles per hour.
(e) Parking is prohibited in areas not striped for parking.
(f) Parking cards or any other device or form of identification
supplied by Landlord (or its operator) shall remain the property of Landlord (or
its operator). Such parking identification device must be displayed as requested
and may not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable or
assignable and any device in the possession of an unauthorized holder will be
-3-
<PAGE>
void. There will be a replacement charge to the Tenant or person designated by
Tenant of $25.00 for loss of any parking card.
(g) The monthly rate for parking is payable one (1) month in advance
and must be paid by the third business day of each month. Failure to do so will
automatically cancel parking privileges and a charge at the prevailing daily
rate will be due. No deductions or allowances from the monthly rate will be made
for days parker does not use Parking Facilities.
(h) Tenant may validate visitor parking by such method or methods as
the Landlord may approve, at the validation rate from time to time generally
applicable to visitor parking.
(i) Landlord (and its operator) may refuse to permit any person who
violates the within rules to park in the garage, and any violation of the rules
shall subject the automobile to removal from the garage at the parker's expense.
In either of said events, Landlord (or its operator) shall refund a pro rata
portion of the current monthly parking rate and the sticker or any other form of
identification supplied by Landlord (or its operator) will be returned to
Landlord (or its operator).
(j) Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules and Regulations.
(k) Every parker is required to park and lock his own automobile. All
responsibility for any loss or damage to automobiles or any personal property
therein is assumed by the parker.
(1) Loss or theft of parking identification devices from automobiles
must be reported to the garage manager immediately, and a lost or stolen report
must be filed by the parker at that time.
(m) The Parking Facilities are for the sole purpose of parking one
automobile per space. Washing, waxing, cleaning or servicing of any vehicles by
the parker or his agents is prohibited.
(n) Landlord (and its operator) reserves the right to refuse the
issuance of monthly stickers or other parking identification devices to any
Tenant and/or its employees who refuse to comply with the above Rules and
Regulations and all posted and unposted City, State or Federal ordinances, laws
or agreements.
(o) Tenant agrees to acquaint all employees with these Rules and
Regulations.
-4-
<PAGE>
EXHIBIT "C"
WORK LETTER AGREEMENT
This Work Letter Agreement ("Letter") supplements the Standard Office Lease
(the "Lease") dated this 14th day of January, 1998 executed concurrently
herewith by and between Landlord and Tenant, covering certain premises described
in the Lease (the "Premises"). All terms not defined herein shall have the same
meaning as set forth in the Lease.
1.0 Plans and Drawings for Premises
--- -------------------------------
All plans, drawings and specifications required by this Paragraph shall be
prepared by the Landlord's architects and engineers and in accordance with the
schedule provided in Paragraph 5 below.
1.1 Space Plans
--- -----------
Landlord shall cause Landlord's architect to prepare and deliver to Tenant
for Tenant's approval, preliminary space plans sufficient to convey the
architectural design of the Premises (including special uses of the Premises to
be specified by Tenant), including preliminary partition layout and reflective
ceiling plans for Tenant's leasehold improvements ("Space Plans"). If Tenant
shall disapprove of any part of the Space Plans, Tenant shall advise Landlord of
such revisions, and reasons therefor, as are reasonably required by Tenant for
the purpose of obtaining Tenant's approval thereof. Landlord shall then submit
to Tenant for Tenant's approval, a redesign of the Space Plans, incorporating
the revisions requested by Tenant and such modifications thereof as are
suggested by Landlord, said modifications to be subsequently submitted to Tenant
for approval prior to Landlord's submission of the Space Plans. The cost for the
initial Space Plan and one revision thereto shall be deducted from the
Allowance. Any further Space Plan costs shall be at Tenant's sole cost and
expense.
1.2 Working Drawings
--- ----------------
Landlord's architect shall prepare from the approved Space Plans, complete
architectural plans, drawings and specifications and complete engineered
mechanical, structural and electrical Working Drawings for (i) all of the
Premises showing the demising plan, finish schedule of Landlord's building
standard items (i.e. carpeting and other floor coverings), and Tenant's design
work desired by Tenant therefor, and (ii) any internal or external
communications or special utility facilities which will require conduits or
other improvements within common areas (collectively "Final Working Drawings and
Specifications"; the work shown thereon being called the "Tenant Building
Standard Work"), all in such form and in such detail as may be reasonably
required by Landlord. The Final Working Drawings and Specifications shall be
prepared by Landlord's architect and engineer and the engineering work on the
mechanical and electrical plans shall be performed by Landlord's engineers.
Landlord's architect and engineer shall furnish all services necessary for the
preparation of the Final Working Drawings and Specifications and for securing
such approvals as, by reason of the nature of the Tenant Building Standard Work,
shall be required from any governmental authority having jurisdiction or which
are deemed necessary by Landlord to comply with governmental codes and
regulations. Landlord shall submit the Final Working Drawings and Specifications
for the approval of Tenant in the same manner as provided in Paragraph 1.1 above
for approval by Tenant of the Space Plans. Landlord shall use building standard
materials as determined by Landlord.
1.3 Requirements of Final Working Drawings and Specifications
--- ---------------------------------------------------------
The Final Working Drawings and Specifications shall: (i) be in conformance
with the Base Building shell and with the design, construction and equipment of
the Building and with Landlord's Building standards and specifications in effect
for the Project; (ii) comply with all applicable laws and ordinances and the
rules and regulations of all governmental authorities
-1-
<PAGE>
having jurisdiction; (iii) comply as Landlord deems necessary with all asbestos,
hazardous waste, American with Disabilities Act, OSHA, CAL-OSHA, life-safety,
and sprinkler rules, regulations, ordinances or laws; (iv) comply with all
applicable insurance regulations for a fire resistive Class A Buildings; and (v)
include locations and complete and exact dimensions.
1.4 Changes at Tenant's Expense.
--- ---------------------------
If Tenant makes any changes to the Final Working Drawings and
Specifications or if the Final Working Drawings and Specifications or any
amendment thereof or supplement thereto shall require changes in the Building
shell, the increased cost of the Tenant Building Standard Work caused by such
changes shall (to the extent such increase is in excess of the Allowance) be
charged against Tenant, including without limitation permits, consultants,
mitigation fees, surcharges, additional supervisory fees or administrative fees.
The cost thereof shall include all direct architectural and/or engineering fees
and expenses in connection therewith, as well as compensation from Tenant for
the costs of any delays which arise from such changes, such costs including but
not limited to, Final Working Drawings and Specifications triggering code work,
title work and the like.
2.0 Allowance for Work
--- ------------------
2.1 Landlord shall provide the Allowance (as defined in Paragraph 4.1) for
---
the construction of the Tenant Building Standard Work pursuant to mutually
approved Final Working Drawings and Specifications prepared by the Landlord's
architect. All items of Tenant Building Standard Work, whether or not the cost
thereof is covered by the Allowance shall become the property of Landlord upon
expiration or earlier termination of the Lease and shall remain on the Premises
at all times during the term of this Lease. Any and all improvements, code
compliance or similar work to the Premises necessary to comply with any
requirements or regulations applicable to handicapping requirements, the
Americans with Disabilities Act, ACM work, OSHA, CAL-OSHA, and life-safety,
shall be charged to the Allowance and paid from the Allowance.
2.2 At such time as Tenant and Landlord have approved the Final Working
---
Drawings and Specifications, Landlord shall request bids for the installation of
the Tenant Building Standard Work from three contractors selected by Landlord
from Landlord's list of approved general contractors for the Project. Landlord
may accept bids from any of the three contractors selected by Landlord. The bid
from the contractor selected by Landlord shall be used for purposes of preparing
the Work Cost Statement pursuant to Paragraph 2.3 hereof.
2.3 Prior to the commencement of any Tenant Building Standard Work,
---
Landlord shall submit to Tenant a written estimate of Work Cost (as hereinafter
defined) on all Tenant Building Standard Work, which written estimate shall be
based on the Final Working Drawings and Specifications. Thereupon Landlord's
contractor and Tenant shall either approve the estimate or disapprove specific
items and submit to Landlord a revision of the Final Working Drawings and
Specifications to reflect the deletion and/or substitution for such disapproved
items. Upon approval by Landlord and Tenant of such estimate (the approved
estimate to be hereinafter known as the "Work Cost Statement"), Landlord shall
have the right to purchase special installations requiring extended material
delivery lead items as set forth in the Final Working Drawings and
Specifications and to commence the construction of the items included in said
Work Cost Statement pursuant to Paragraph 3.1 hereof.
2.4 Until Tenant and Landlord have approved the Work Cost Statement and
---
the Working Drawings and the Final Working Drawings and Specifications are
signed by Landlord and Tenant, Landlord shall be under no obligation to perform
the installation of the Tenant Building Standard Work.
3.0 Construction
--- ------------
3.1 Following approval by Landlord and Tenant of the Work Cost Statement,
---
Landlord's contractor shall commence and diligently proceed with the
construction of all of the Tenant Building Standard Work, subject to delays
beyond the reasonable control of Landlord or
-2-
<PAGE>
its contractor or contractors. The Tenant Building Standard Work shall be
performed by Landlord's contractor in accordance with the Final Working
Drawings and Specifications and in a good and workmanlike manner, using new
materials of good quality and in compliance with all laws. Promptly upon the
commencement of the Tenant Building Standard Work, Landlord shall furnish Tenant
with a schedule setting forth the projected completion dates therefor and
showing the deadlines for any actions required to be taken by Tenant during such
construction, and Landlord may from time to time during the prosecution of the
Tenant Building Standard Work modify or amend such schedule due to delays
encountered by Landlord. Landlord shall make a reasonable effort to meet such
schedule as the same may be modified or amended.
3.2. Punchlist.
--- ---------
Landlord shall notify Tenant when the Tenant Building Standard Work has
been substantially completed. Within fifteen (15) days after such notice is
given, Landlord and Tenant shall jointly conduct an inspection of the Premises
and prepare a written list ("Punchlist") consisting of incomplete items or
defects in the Tenant Building Standard Work. Landlord shall correct, repair or
complete, as applicable, such Punchlist items as soon as reasonably possible.
Landlord shall have no obligation to correct, repair or complete any incomplete
items or defects in the Tenant Building Standard Work which are not included on
the Punchlist.
3.3. Fixturization.
--- -------------
Tenant shall have the right to enter the Premises not earlier than fourteen
(14) days prior to substantial completion of the Tenant Building Standard Work
for the sole purpose of installing Tenant's personal property and equipment so
long as such entry does not interfere with the orderly construction and
completion of the Tenant Building Standard Work ("Fixturization Period"). Tenant
shall notify Landlord of its desired times of entry during the Fixturization
Period and shall submit the scope of work to be performed and the names of
contractors who will perform such work. Tenant shall indemnify, defend and hold
Landlord harmless from and
<PAGE>
its contractor or contractors. The Tenant Building Standard Work shall be
performed by Landlord's contractor in accordance with the Final Working Drawings
and Specifications and in a good and workmanlike manner, using new materials of
good quality and in compliance with all laws. Promptly upon the commencement of
the Tenant Building Standard Work, Landlord shall furnish Tenant with a schedule
setting forth the projected completion dates therefor and showing the deadlines
for any actions required to be taken by Tenant during such construction, and
Landlord may from time to time during the prosecution of the Tenant Building
Standard Work modify or amend such schedule due to delays encountered by
Landlord. Landlord shall make a reasonable effort to meet such schedule as the
same may be modified or amended.
3.2. Punchlist.
--- ---------
Landlord shall notify Tenant when the Tenant Building Standard Work has
been substantially completed. Within fifteen (15) days after such notice is
given, Landlord and Tenant shall jointly conduct an inspection of the Premises
and prepare a written list ("Punchlist") consisting of incomplete items or
defects in the Tenant Building Standard Work. Landlord shall correct, repair or
complete, as applicable, such Punchlist items as soon as reasonably possible.
Landlord shall have no obligation to correct, repair or complete any incomplete
items or defects in the Tenant Building Standard Work which are not included on
the Punchlist.
3.3. Fixturization.
--- -------------
Tenant shall have the right to enter the Premises not earlier than fourteen
(14) days prior to substantial completion of the Tenant Building Standard Work
for the sole purpose of installing Tenant's personal property and equipment so
long as such entry does not interfere with the orderly construction and
completion of the Tenant Building Standard Work ("Fixturization Period"). Tenant
shall notify Landlord of its desired times of entry during the Fixturization
Period and shall submit the scope of work to be performed and the names of
contractors who will perform such work. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all suits, claims, actions, losses,
costs or expenses, including claims for workers compensation, of any nature
whatsoever together with reasonable attorneys' fees arising out or in connection
with the installation of Tenant's personal property, fixtures or equipment
during the Fixturization Period. Landlord and Tenant shall cause their
respective contractors to cooperate so that each party may complete its work in
the Premises without interfering with the other.
4.0 Allowance and Work Cost
--- -----------------------
4.1 Allowance
--- ---------
Landlord shall grant to Tenant an allowance ("Allowance") of One Hundred
Forty-two Thousand Nine Hundred Fifty Dollars ($142,950) to be applied toward
the "Work Cost" (as defined below). The Allowance is based upon an allowance of
Twenty-five Dollars ($25) per usable square foot and the assumption that the
Premises contain five thousand seven hundred eighteen (5,718) usable square
feet.
4.2 Work Cost
--- ---------
"Work Cost" means: (i) all design, architectural and engineering fees and
consultant fees incurred by Landlord in connection with the preparation of the
Space Plans, Working Drawings. and Final Working Drawings and Specifications;
(ii) governmental agency plan check, permit and other fees; (iii) sales and
other taxes; (iv) Title 24 fees; (v) inspection costs; (vi) the actual costs and
charges for material and labor, contractor's profit and general overhead
incurred by Landlord for the Tenant Building Standard Work done; (vii) all other
costs to be expended by Landlord in the construction of the Tenant Building
Standard Work, and (viii) costs of Landlord's construction manager.
4.3 Costs in Excess of Allowance
--- ----------------------------
If the Work Cost exceeds the Allowance (the amount by which the Work Cost
exceeds the Allowance shall be referred to herein as the "Excess Cost"), Tenant
shall pay fifty percent
-3-
<PAGE>
(50%) of such Excess Cost to Landlord within five (5) days of Landlord's
approval of the Work Cost estimate and the remaining fifty percent (50%) of the
Excess Cost within five (5) days of when Landlord notifies Tenant that the
Tenant Building Standard Work is fifty percent (50%) completed. Tenant's failure
to make any payment of the Excess Cost when due, or to make any payment with
respect to change orders that cause the Work Cost to exceed the Allowance, shall
be deemed a default under the Lease and the amount so delinquent shall be deemed
Additional Rent and Landlord may exercise all rights and remedies set forth in
Article 19 of the Lease; and in addition, Landlord may delay construction until
such payment is made and such delay shall be deemed a Tenant-caused delay
subject to the provisions of Paragraph 7 of this Exhibit C. If any portion of
the Allowance remains after completion of the Tenant Building Standard Work,
Landlord shall credit the remaining portion of the Allowance against the next
monthly installment of Basic Rental accruing under the Lease.
5.0 Intentionally Omitted
--- ---------------------
6.0 Intentionally Omitted
--- ---------------------
7.0 Delays
--- ------
It is agreed that notwithstanding the Scheduled Occupancy Date set forth in
Article 1.1 of the Lease, the Early Occupancy Period shall not commence until
Landlord has substantially completed all Tenant Building Standard Work to be
performed by Landlord pursuant to this Work Letter Agreement. Notwithstanding
the foregoing, if Landlord shall be delayed in substantially completing the
Tenant Building Standard Work as a result of any of the following (collectively,
"Tenant Delays"):
(i) Tenant's failure to complete any action item within the time
period set forth in the Lease or this Work Letter Agreement, or
(ii) Any change orders which actually increase the time period
required for construction of the Tenant Building Standard Work, or
(iii) Tenant's request for materials, finishes, or installations
other than Building standard materials, which Landlord notifies Tenant will
require a long lead delivery time or require special installation; or
(iv) Any delay of Tenant in making payment to Landlord for Tenant's
share of Work Cost, or
(v) Any other delay attributable to Tenant or by a party employed
by Tenant or under Tenant's control or due to failure of Tenant to perform or
act in order to facilitate Tenant's tenancy,
then as soon as possible following the commencement of the Early Occupancy
Period, Landlord shall provide to Tenant a reasonable particularized statement
of the number of days of Tenant Delays, and the Early Occupancy Period shall be
reduced and the commencement of the Lease Term shall be advanced by the number
of days of such Tenant Delays.
8.0 Indemnity and Insurance
--- -----------------------
8.1 Indemnity
--- ---------
To the extent Tenant constructs or installs any tenant improvements in the
Premises, Tenant agrees to save, indemnify and hold harmless Landlord against
any and all liability, claims, mechanics liens, judgments, or demands, including
demands arising from injuries to or death of persons (Tenant's employees,
employees of Tenant's contractor(s) and employees of all subcontractors and sub-
subcontractors of Tenant's contractor included) and damage to property, or any
other loss, loss of rent, damage, or expense, arising directly or indirectly out
of the obligations herein undertaken or out of the operations conducted by
Tenant and/or its contractor(s), subcontractors or sub-subcontractors including
those in part due to the negligence
-4-
<PAGE>
of Landlord, and will make good to and reimburse Landlord for any expenditures,
including actual attorneys' fees, which Landlord may incur by reason of such
matters and, if requested by Landlord will defend any such suits at the sole
cost and expense of Tenant.
8.2 Insurance
--- ---------
If Tenant constructs or installs any tenant improvements in the Premises,
the Tenant shall, at its sole expense, be responsible for the securing of
insurance by the Tenant's contractor(s) and for the maintenance of same by the
Tenant's contractor(s) until completion and final acceptance of the work.
Certificates of Insurance affording evidence of same shall be obtained from the
Tenant's contractor(s) by the Tenant and delivered to the Landlord prior to the
commencement of any work by the Tenant's contractor. The required insurance
coverage is as follows:
1. Worker's Compensation and Employers' Liability Insurance including
coverage under the U.S. Longshoremen's and Harborworkers' Act and affording 30
days written notice of cancellation to contractor. The Employers' Liability
minimum limits required are as follows:
Bodily Injury by accident $100.000 each accident
--------
Bodily Injury by disease $500.000 policy limit
--------
Bodily Injury by disease $100.000 each employee
--------
2. General Liability Insurance on an Occurrence basis for an amount of
$5,000,000 each occurrence and including the following coverage:
a) Premises and Operations coverage.
b) Owners and Contractors Protective coverage.
c) Products and Completed Operations coverage.
d) Blanket Contractual coverage, including both oral and written
contracts.
e) Personal Injury coverage.
f) Broad Form Property Damage coverage, including completed
operations.
g) An endorsement naming Landlord as additional insured.
h) An endorsement affording 30 days written notice to contractor
in event of cancellation or material reduction in coverage.
i) An endorsement providing that such insurance as is afforded
under policy of Tenant's contractor(s) is primary insurance as
respects the Landlord and that any other insurance maintained
by Landlord is excess and noncontributing with the insurance
required hereunder.
j) Insurance covering ACM, hazardous materials, life-safety
systems, sprinklers, OSHA, CAL-OSHA and the like.
No endorsement limiting or excluding a required coverage is permitted. CLAIMS-
------
MADE COVERAGE IS NOT ACCEPTABLE,
- -------------------------------
3. Business Auto Liability Insurance for an amount of $5,000,000
combined single limit for bodily injury and/or property damage liability
including:
a) Owned Autos,
b) Hired or Borrowed Autos,
c) Nonowned Autos, and
d) An endorsement affording 30 days written notice of cancellation
to Landlord in event of cancellation or material reduction in
coverage.
A certificate and endorsements affording evidence of the above requirements must
be delivered to Landlord before Tenant's contractor performs any work at or
prepares or delivers materials to the site of construction.
Tenant shall require its contractor(s) to require its subcontractors to provide
insurance where Tenant's contractor(s) would be required to carry insurance
under this insurance section and to be responsible for obtaining the appropriate
certificates or other evidence of insurance.
-5-
<PAGE>
Tenant's contractor(s) shall maintain all of the foregoing insurance coverage
in force until the work under this agreement is fully completed and accepted
except as to 2c, (Products and Completed Operation Coverage), which is to be
maintained for one (1) year following completion of the work and acceptance by
Landlord and Tenant.
All insurance, except Workers' Compensation, maintained by Tenant's contractor
and its subcontractors shall preclude subrogation claims by the insurer against
anyone insured thereunder.
The requirements for the foregoing insurance shall not derogate from the
provisions for indemnification of Landlord by Tenant under the "indemnity"
paragraph of this agreement.
If the Tenant fails to secure and maintain the required insurance from Tenant's
contractor(s), the Landlord shall have the right (without any obligation to do
so, however) to secure same in the name and for the account of the Tenant's
contractor(s) in which event the Tenant shall pay the cost thereof and shall
furnish upon demand, all information that may be required in connection
therewith. Further, such failure to secure and maintain the required insurance
shall constitute a default under the Lease and Landlord shall be entitled to
immediately have all tenant improvement work cease.
9.0 Miscellaneous
--- -------------
a) If Tenant constructs or installs any tenant improvements in the
Premises, Tenant and Tenant's contractors shall abide by all safety and
construction rules and regulations of Landlord, and all work and deliveries
shall be scheduled through Landlord. Entry by Tenant's contractors shall be
deemed to be under all the terms, covenants, provisions and conditions of said
Lease except the covenant to pay rent and additional rent. All Tenant's
materials, work, installations and decorations of any nature brought upon or
installed in the Premises before the Commencement Date of the Lease shall be at
Tenant's risk, and neither Landlord nor any party acting on Landlord's behalf
shall be responsible for any damage thereto or loss or destruction thereof.
Tenant shall award its contracts and conduct its activities hereunder in a
manner consistent with Landlord's contractor's labor agreement affecting the
Building.
(b) Tenant shall reimburse Landlord for any extra expenses incurred
by Landlord by reason of faulty work done by Tenant or its contractors, or by
reason of delays caused by such work, or by reason of cleanup which fails to
comply with Landlord's rules and regulations.
(c) Tenant's contractors shall not post any signs other than those
required by law in connection with the construction on any part of the Project
or Premises.
10.0 Incorporation.
---- -------------
This Work Letter Agreement is hereby incorporated into this Lease executed
between Landlord and Tenant concurrently herewith.
TENANT:
PILOT NETWORK SERVICES, INC.,
a California corporation
By: /s/ M. Marketta Silvera
----------------------------------
Its: CEO
----------------------------------
By: /s/ Robert G. Carrade
----------------------------------
Its: V.P. of Finance & Administration
----------------------------------
-6-
<PAGE>
LANDLORD:
PACIFIC CORPORATE TOWERS LLC,
a Delaware limited liability company
By: GE Capital Investment Advisors, Inc.,
Its authorized investment advisor
By: [SIGNATURE ILLEGIBLE]
------------------------------
Its: V.P
-----------------------------
<PAGE>
EXHIBIT "D"
NOTICE OF LEASE TERM DATES
TO: ___________________________
___________________________
___________________________
___________________________
RE: Standard Office Lease dated January 14, 1998 between PACIFIC
CORPORATE TOWERS LLC, a Delaware limited liability company
("Landlord") and PILOT NETWORK SERVICES, INC., a California
corporation ("Tenant") concerning Suite 450 on the fourth (4th)
floor of the office building located at 222 N. Sepulveda Blvd., E1
Segundo, California.
Dear Tenant:
In accordance with the Standard Office Lease (the "Lease"), we wish to
advise you and/or confirm as follows:
1. The Premises are Ready for Occupancy, and the Lease Term shall
commence on or has commenced on _________________ for a term of
___________ ending on _________________.
2. Rent commenced or will commence to accrue on ________________, in the
amount of __________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each
billing thereafter, with the exception of the final billing, shall be
for the full amount of the monthly installment as provided for in the
Lease.
4. Your rent checks should be made payable to _____________________ at
_________________________.
5. The exact number of rentable square feet within the Premises is
six thousand five hundred seventy-six (6,576) square feet.
-1-
<PAGE>
EXHIBIT "E"
SITE PLAN OF GENERATOR SPACE
[To Be Attached]
-1-
<PAGE>
FIRST AMENDMENT TO STANDARD OFFICE LEASE
----------------------------------------
This First Amendment to Standard Office Lease ("Amendment") is made as of
this _____day of February, 1998 ("Effective Date"), by and between PACIFIC
CORPORATE TOWERS LLC, a Delaware limited liability company ("Landlord"), and
PILOT NETWORK SERVICES, INC., a California corporation ("Tenant").
RECITALS
--------
A. Pursuant to that certain Standard Office lease dated January 14, 1998
(the "Lease") by and between Landlord and Tenant, Landlord currently leases to
Tenant Suite No. 450 (the "Premises") on the fourth floor of that certain
building commonly referred to as 222 N. Sepulveda Boulevard, El Segundo,
California situated in that certain project commonly known as Pacific Corporate
Towers.
B. Section 1.2 of the Lease provides that the rentable square footage of
the Premises shall be determined by P. Patrick Murray & Associates ("Murray")
and that upon such determination, the Basic Rental, Security Deposit, Tenant's
Proportionate Share and the Allowance shall be based upon such determination.
C. Murray has determined that the Premises consist of Six Thousand Seven
Hundred Sixty One (6,761) rentable square feet.
D. Landlord and Tenant desire to amend the Lease to confirm the
adjustment to the Basic Rental, Security Deposit, Tenant's Proportionate Share
and the Allowance based upon such determination by Murray.
E. Capitalized terms used in this Amendment shall have the meaning
ascribed to such terms in the Lease unless otherwise defined in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Rentable Square Footage. Landlord and Tenant hereby stipulate and
-----------------------
agree that the premises contain six thousand seven hundred sixty one (6,761)
rentable square feet, as determined by Murray.
2. Basic Rental. Notwithstanding Section 1.3 of the Lease, Tenant shall
------------
pay Basic Rental for the Premises as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lease Months Base Annual Rent Monthly installments
- --------------------------------------------------------------------------------
<S> <C> <C>
1-60 $133,867.80 $11,155.65
- --------------------------------------------------------------------------------
61-120 $146,037.60 $12,169.80
- --------------------------------------------------------------------------------
</TABLE>
Tenant has already deposited the sum of $10,850.40 with Landlord as a partial
payment of the Basic Rental for the first month of the term of the Lease. Upon
Tenant's execution of this Amendment, Tenant shall pay to Landlord the
additional sum of $305.25 constitution the remainder of the Basic Rental for the
first month of the term of the Lease.
3. Security Deposit. Notwithstanding Section 1.6 of the Lease, the
----------------
Security Deposit shall be $11,155.65. Tenant has already deposited the sum of
$10,850.40 with Landlord as a partial deposit of the
<PAGE>
Security Deposit. Upon Tenant's execution of this Amendment, Tenant shall
deposit with Landlord the additional sum of $305.25 constituting the remainder
of the Security Deposit.
4. Tenant's Proportionate Share. Notwithstanding the first sentence of
----------------------------
Section 1.5 of the Lease, Tenant's Proportionate Share shall be one and nineteen
one-hundredths percent (1.19%), subject to adjustment only in accordance with
the remainder of Section 3.1 of the Lease.
5. Allowance. The Allowance granted by Landlord pursuant to Section 2.1
---------
of the Work Letter Agreement attached as Exhibit "C" to the Lease shall be based
upon 5,879 usable square footage at $25.00 per usable square foot ($146,975.00).
6. Corporate Authority. Each individual executing this Amendment on
-------------------
behalf of Tenant represents and warrants that he or she is duly authorized to
execute and deliver this Amendment on behalf of the Tenant and that this
Amendment is binding upon said corporation in accordance with its terms.
7. Effect of Amendment. Except as modified herein, the terms and
-------------------
provisions of the Lease shall remain unmodified and continue in full force and
effect. In the event of any conflict between the terms and provisions of this
Amendment and the terms and provisions of the Lease, the terms and provisions of
this Amendment shall govern and control the intent and agreement of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
LANDLORD:
PACIFIC CORPORATE TOWERS LLC,
a Delaware limited liability company
By: GE Capital Investment Advisors, Inc.,
its authorized investment advisor
By: /s/ David J Bradley
-----------------------------------
Name: David J. Bradley
---------------------------------
Title: VP
--------------------------------
TENANT:
PILOT NETWORK SERVICES, INC.,
a California corporation
By: /s/ M. Marketta Silvera
------------------------------------
Name: M. Marketta Silvera
------------------------------------
Title: President & CEO
------------------------------------
By: /s/ Robert G. Carrade
------------------------------------
Name: Robert G. Carrade
------------------------------------
Title V.P. of Finance & Administration
------------------------------------
<PAGE>
EXHIBIT 10.11
LEASE AGREEMENT
BETWEEN
RFG CO., LTD.
A CORPORATION OF THE COUNTRY OF JAPAN
AND
PILOT NETWORK SERVICES, INC.
A California Corporation
DATED: October 25, 1995
PREPARED BY:
SCHUMANN, HANLON & PANEPINTO
30 MONTGOMERY STREET - 15TH FLOOR
JERSEY CITY, NEW JERSEY 07302
201-434-2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS .............................................. 1
ARTICLE 2 DEMISE AND TERM .......................................... 7
ARTICLE 3 RENT ..................................................... 8
ARTICLE 4 USE OF DEMISED PREMISES .................................. 9
ARTICLE 5 PREPARATION OF DEMISED PREMISES
AND COMMENCEMENT DATE .................................. 10
ARTICLE 6 TAX AND OPERATING EXPENSE PAYMENTS ....................... 10
ARTICLE 7 COMMON AREAS ............................................. 12
ARTICLE 8 SECURITY ................................................. 13
ARTICLE 9 SUBORDINATION ............................................ 14
ARTICLE 10 QUIET ENJOYMENT .......................................... 15
ARTICLE 11 ASSIGNMENT, SUBLETTING AND MORTGAGING .................... 15
ARTICLE 12 COMPLIANCE WITH LAWS ..................................... 19
ARTICLE 13 INSURANCE AND INDEMNITY .................................. 21
ARTICLE 14 RULES AND REGULATIONS .................................... 24
ARTICLE 15 ALTERATIONS .............................................. 24
ARTICLE 16 LANDLORD'S AND TENANT'S PROPERTY ......................... 26
ARTICLE 17 REPAIRS AND MAINTENANCE .................................. 27
ARTICLE 18 ELECTRIC ENERGY .......................................... 28
ARTICLE 19 HEAT, VENTILATION AND AIR-CONDITIONING ................... 34
ARTICLE 20 OTHER SERVICES: SERVICE INTERRUPTION ..................... 35
ARTICLE 21 ACCESS, CHANGES AND NAME ................................. 37
ARTICLE 22 MECHANICS' LIENS AND OTHER LIENS ......................... 38
ARTICLE 23 NON-LIABILITY AND INDEMNIFICATION ........................ 38
ARTICLE 24 DAMAGE OR DESTRUCTION .................................... 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 25 EMINENT DOMAIN ............................................ 42
ARTICLE 26 SURRENDER.................................................. 43
ARTICLE 27 CONDITIONS OF LIMITATION .................................. 44
ARTICLE 28 RE-ENTRY BY LANDLORD ...................................... 45
ARTICLE 29 DAMAGES.................................................... 46
ARTICLE 30 AFFIRMATIVE WAIVERS ....................................... 49
ARTICLE 31 NO WAIVERS................................................. 49
ARTICLE 32 CARING TENANT'S DEFAULTS .................................. 49
ARTICLE 33 BROKER..................................................... 50
ARTICLE 34 NOTICES ................................................... 50
ARTICLE 35 ESTOPPEL CERTIFICATES ..................................... 51
ARTICLE 36 ARBITRATION................................................ 52
ARTICLE 37 OPTION TO RENEW ........................................... 53
ARTICLE 38 BUILDING NAME ............................................. 53
ARTICLE 39 ENVIRONMENTAL LAWS ........................................ 54
ARTICLE 40 MISCELLANEOUS ............................................. 56
ARTICLE 41 PARKING.................................................... 62
</TABLE>
EXHIBIT A LAND
EXHIBIT B INTENTIONALLY OMITTED
EXHIBIT C RULES & REGULATIONS
EXHIBIT D FLOOR PLAN
EXHIBIT E CLEANING STANDARDS
<PAGE>
THIS LEASE dated October 25, 1995 made between RFG CO., LTD., a
corporation of the Country of Japan, having an office at 111 Pavonia Avenue,
Jersey City, New Jersey 07310 ("Landlord") and PILOT NETWORK SERVICES, INC., a
California Corporation, having an office at 1000 Marine Village Parkway, Suite
100, Alameda, California 94501 ("Tenant").
ARTICLE 1
---------
DEFINITIONS
-----------
1.01. As used in this Lease (including in all Exhibits and any Riders
attached hereto, all of which shall be deemed to be part of this Lease) the
following words and phrases shall have the meanings indicated:
A. Advance Rent: Six Thousand Six Hundred Thirty-Two & 17/100
($6,632.17) Dollars
B. Additional Charges: All amounts that become payable by the Tenant
to Landlord hereunder other than the Fixed Rent. The term "Additional Charge"
shall be interchangeable with the term "Additional Rent".
C. Architect: Deleted
D. Base Year: 1995
E. Broker: Newmark Partners, Inc.
1084 Route 22 West
P.O. Box 1217
Mountainside, New Jersey 07092
F. Building: "Newport Financial Center", 111 Pavonia Avenue, Jersey
City, New Jersey.
G. Business Days: All days except Saturdays after 1:00 P.M., Sundays,
days observed by the federal or state government as legal holidays and such
other days as shall be designated as holidays by the applicable operating
engineers union or building service employees union contract.
H. Business Hours: Generally customary daytime business hours but not
before 8:00 A.M. or after 6:00 P.M. and Saturdays 9:00 A.M. to 1:00 P.M.
I. Calendar Year: Any twelve-month period commencing on January 1.
J. Commencement Date: October 24, 1995 or the date on which the
Landlord notifies Tenant that Landlord has obtained the Prime Landlord's consent
to this Lease, whichever is later.
1
<PAGE>
K. Common Areas: All areas, spaces and improvements in the Building
and on the Land which Landlord makes available from time to time for the common
use and benefit of the tenants and occupants of the Building and which are not
exclusively available for use by a single tenant or occupant, including, without
limitation, parking areas, roads, walkways, landscaped and planted areas,
community rooms, if any, the managing agent's office, if any, and public rest
rooms, if any.
L. Demised Premises: 3,061 rentable square feet ("r.s.f.")., located
on the third (3rd) floor as shown on Exhibit D.
M. Expiration Date: The date that is the day before the second (2nd)
anniversary of the Commencement Date if the Commencement Date is the first day
of a month, or the second (2nd) anniversary of the last day of the month in
which the Commencement Date occurs if the Commencement Date is not the first day
of a month. However, if the Term is extended by Tenant's effective exercise of
Tenant's rights, if any, to extend the Term, the "Expiration Date" shall be
changed to the last day of the latest extended period as to which Tenant shall
have effectively exercised its right to extend the Term. For the a purposes of
this definition, the earlier termination of this Lease shall not affect the
"Expiration Date."
N. Fixed Rent: $26.00 per r.s.f. or Seventy-Nine Thousand Five Hundred
Eighty-Six & 00/100 ($79,586.00) Dollars per year for the period commencing on
the Commencement Date and ending on the Expiration Date, payable at the rate of
Six Thousand Six Hundred Thirty-Two & 17/100 ($6,632.17) Dollars per month as
hereinafter provided.
O. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
P. Land: The land described in Exhibit A, upon which the Building is
located.
Q. Legal Requirements: Laws and ordinances of all federal, state and
local governments, and rules, regulations, orders and directives of all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public, quasi-public authorities having jurisdiction over
the Land and Building now in force or which may be in force hereafter during the
Term of this Lease.
2
<PAGE>
R. Master Lease: Agreement of Lease, dated June 14, 1988, as amended
or may be amended, between Newport Office Center I Company, as Landlord ("Prime
Landlord"), and Recruit U.S.A., Inc., as Tenant, covering a portion of the first
(1st) floor, including the lobby area, the roof and the entire second (2nd)
through fifteenth (15th) floors in the Building which Master Lease was assigned
by Newport Office Properties Corp., the successor to Recruit U.S.A., Inc., by
Assignment to the Landlord, dated as of March 1, 1993.
S. Mortgage: A mortgage and/or a deed of trust.
T. Mortgagee: A holder of a mortgage or a beneficiary of a deed of
trust.
U. Office Component: A portion of the 2nd and 6th floors of the
Building and the entire 3rd, 4th, 5th, 7th, 12th, 14th and 15th floors,
representing a total of 272,273 rentable s.f. in the Building.
V. Operating Expenses: All costs and expenses, and taxes thereon, if
any, paid or incurred by Landlord in connection with the Office Component of
Building, the Building utility and service systems, the sidewalks, curbs, plazas
and other areas adjacent to the Building, and with respect to the services
provided tenants, including, without limitation: (i) salaries, wages and bonuses
paid to, and the cost of any hospitalization, medical, surgical, union and
general welfare benefits (including group life insurance), any pension,
retirement or life insurance plan or any other benefit or similar expense
relating to employees of Landlord engaged in the operation, cleaning, repairs,
safety, management, security or maintenance of the Land and/or the Building or
in providing services to tenants; (ii) social security, unemployment and other
payroll taxes, the cost of providing disability and worker's compensation
coverage imposed by any requirements of law, union contract or otherwise with
respect to said employees; (iii) the cost of casualty, rent, liability,
fidelity, plate glass and any other insurance; (iv) the cost of repairs,
replacements, maintenance and painting; (v) expenditures for improvements and
equipment which are made by reason of Legal Requirements or Insurance
Requirements; however, in the event such expenditures constitute "capital
expenditures" under generally accepted accounting principles consistently
applied, such capital expenditures shall be amortized over the useful life of
the improvement or equipment and included in Operating Expenses hereunder to the
extent that said useful life occurs during the then remaining balance of the
Lease together with interest at the prime rate declared by the Chemical Bank of
New York plus 2% per annum as of the date of the commencement of construction of
the improvement or the purchase or lease of equipment or as of the date of the
expenditure is made, whichever is earlier; (vi) the cost or rental of all
building and cleaning
3
<PAGE>
supplies, tools, materials and equipment; (vii) the cost of uniforms, work
clothes and dry cleaning; (viii) window cleaning, concierge, guard, watchman or
other security personnel, service or system, if any; (ix) management fees or if
no managing agent is employed by Landlord, a sum in lieu thereof which is not in
excess of then prevailing rates for management fees payable for first-class
office buildings; (x) charges of independent contractors performing work
included within this definition of Operating Expenses; (xi) telephone and
stationery; (xii) legal, accounting and other professional fees and
disbursements incurred in connection with the operation and management of the
Building and Land; (xiii) association fees and dues; (xiv) decorations; (xv)
depreciation of hand tools and other movable equipment used in the operation,
cleaning, repair, safety, management, security or maintenance of the Building;
(xvi) the cost of painting and/or decorating and/or other maintenance of the
public or common areas of the Building and Land; (xvii) the cost of all interior
and exterior gardening and landscaping of the Building and Land and all
temporary exhibitions located thereon; (xviii) the cost of maintenance, repair
and/or replacement of the curtain wall facade; (xix) all operating expenses,
project maintenance fees and charges required to be paid by Landlord to Prime
Landlord pursuant to the terms of the Master Lease; (xx) the cost of pest and
vermin extermination for the common areas of the Building and the Land; and
(xxi) Utility Costs (as hereinafter defined), provided, however, that Operating
Expenses shall exclude or have deducted from them, as the case may be:
(a) amounts actually received by Landlord through insurance
proceeds, condemnation awards, warranties and service
contracts, or otherwise, to the extent they are compensation
for sums previously included in Operating Expenses hereunder;
(b) brokerage commissions;
(c) Real Estate Taxes;
(d) the cost of electricity furnished to the Demised Premises or
any other space leased to tenants as reasonably estimated by
Landlord;
(e) financing and refinancing costs, rents payable under the
Master Lease or any Superior Lease, and mortgage interest and
mortgage payments due under any Mortgage;
(f) depreciation except as otherwise expressly herein provided;
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(g) cost and expenses incurred in connection with the enforcement of
leases and disputes with tenants in the Building, including
without limitation, court costs, attorney's fees and
disbursements;
(h) cost and expenses incurred in connection with leasing or re-
leasing space in the Building such as space planning,
architectural, engineering, attorneys' fees and advertising
and promotional expenses;
(i) expenses in connection with the operation, cleaning, repair,
safety, management, security, maintenance or other services of
any kind provided exclusively to any portion of the Building
which are leased or used for retail purposes and which do not
benefit the office tenants of the Building;
(j) the cost of installing, operating and maintaining a specialty
improvement, including, without limitation, an observatory,
broadcasting, cafeteria or dining facility or athletic,
luncheon or recreational club.
W. Permitted Use: General and executive offices subject to all
applicable laws, ordinances, rules and regulations of any governmental boards or
bodies having jurisdiction thereof.
X. Person: A natural person or persons, a partnership, a
corporation, or any other form of business or legal association or entity.
Y. Prime Landlord: Newport Office Center I Company
Z. Intentionally Deleted.
AA. Real Estate Taxes: The real estate taxes, assessments and special
assessments imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities, any alternative or
substitute charges, including any so-called "service charge" resulting from any
abatements or other special reductions included in Real Estate Taxes now or
hereafter during the term of this Lease, including, without limitation, service
charges payable pursuant to a certain agreement dated August 25, 1987 between
Mid Hudson Urban Renewal Company and the City of Jersey City. Any expenses
incurred by Landlord in contesting such taxes or assessments and/or the assessed
value of the Building and Land, which expenses shall be allocated to the period
of time to which such expenses relate. Tenant shall not be obligated or required
to
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pay any tax on the income or receipts of Landlord. If at any time during the
Term the methods of taxation prevailing on the date hereof shall be altered so
that in lieu of, or as an addition to or as a substitute for, the whole or any
part of such real estate taxes, assessments and special assessments now imposed
on real estate there shall be levied, assessed or imposed (a) a tax, assessment,
levy, imposition, license fee or charge wholly or partially as a capital levy or
otherwise on the rents received therefrom, or (b) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be deemed to be included within the term "Real Estate
Taxes" for the purposes hereof.
BB. Rent: The Fixed Rent, Additional Rent and Additional Charges.
CC. Rules and Regulations: The reasonable rules and regulations that
may be promulgated by Landlord from time to time, as same may be reasonably
changed by Landlord from time to time. The Rules and Regulations now in effect
are attached hereto as Exhibit C.
DD. Security Deposit: Thirteen Thousand Two Hundred Sixty-Four &
34/100 ($13,264.34)
EE. Successor Landlord: As defined in Section 9.03.
FF. Superior Lease: Any lease to which this Lease is, at the time
referred to, subject and subordinate.
GG. Superior Lessor: The lessor of a Superior Lease or its successor
in interest, at the time referred to.
HH. Superior Mortgage: Any Mortgage to which this Lease is, at the
time referred to, subject and subordinate.
II. Superior Mortgagee: The Mortgagee of a Superior Mortgage at
the time referred to.
JJ. Tenant's Fraction:
(i) "Tenant's Operating Fraction" for the Operating Expenses
attributable to the Office Component of the Building and Land shall be 1.124%.
If the size of the Demised Premises, the Office Component or the Building shall
be changed from the initial size thereof, due to any taking, any construction or
alteration work, any reallocation of the rentable square footage attributable to
either the Office Component or Data Component of the Building, or otherwise, the
Tenant's Operating Fraction shall be changed to the fraction the numerator
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of which shall be the rentable square footage of the Demised Premises and the
denominator of which shall be the rentable square footage of the Office
Component of the Building. The term "Data Component" shall mean the entire 8th,
9th, 10th and 11th floors, representing a total of 135,635 r.s.f, in the
Building;
(ii) "Tenant's Real Estate Fraction" for Tenant's proportionate share
of Real Estate Taxes for the Building and Land shall be .7504%. If the size of
the Demised Premises or the Building shall be changed from the initial size
thereof, due to any taking, any construction or alteration work or otherwise,
the Tenant's Real Estate Fraction shall be changed to the fraction the numerator
of which shall be the rentable square footage of the Demised Premises and the
denominator of which shall be the rentable square footage of the Building.
KK. Tenant's Property: As defined in Section 16.02.
LL. Intentionally Deleted.
MM. Term: The period commencing on the Commencement Date and ending
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
NN. Unavoidable Delays: A delay arising from or as a result of a
strike, lockout, or labor difficulty, explosion, sabotage, riot or civil
commotion, act of war, fire or other catastrophe, inability to satisfy Legal
Requirements, an act of the other party or any other cause beyond the reasonable
control of that party, provided that the party asserting such Unavoidable Delay
has exercised its best efforts to minimize such delay.
00. Utility Costs: Landlord's cost (incurred directly or through
independent contractors) for all electricity (to the extent Landlord is not
directly reimbursed therefor by individual tenants), steam, water, gas or other
fuel and utilities supplied to the Building or the Land, including in each case,
any surcharges, fuel adjustments and taxes payable by Landlord in connection
therewith.
ARTICLE 2
---------
DEMISE AND TERM
---------------
2.01. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Demised Premises, for the Term. Promptly following the
Commencement Date, at the option of the Landlord, the parties hereto shall enter
into an agreement in form and substance satisfactory to Landlord and Tenant
setting forth the Commencement Date.
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ARTICLE 3
---------
RENT
----
3.01. (a) Tenant shall pay the Fixed Rent in equal monthly
installments in advance on the first day of each and every calendar month during
the Term. If the Commencement Date occurs on a day other than the first day of a
calendar month, the Fixed Rent for the partial calendar month at the
commencement of the Term shall be prorated. Upon execution of the Lease, Tenant
shall pay the Advance Rent which shall be applied to the first month's Fixed
Rent following the Free Rent Period (as hereinafter defined).
(b) Notwithstanding the Fixed Rent described herein, Tenant
shall not be responsible for and shall not pay Fixed Rent for the period
commencing with the Commencement Date and ending two (2) months thereafter (the
"Free Rent Period(s)"). Following the Free Rent Period(s), Tenant shall pay
Fixed Rent as herein set forth. All Additional Charges shall however be due
notwithstanding the Free Rent Period(s) for Fixed Rent. In the event that Tenant
defaults under any of the terms of this Lease, then the entire Fixed Rent,
otherwise due for the Free Rent Period(s), shall be amortized over the Term of
the Lease at the prime rate of interest charged by the Chemical Bank of New York
plus 2% as of the Commencement Date and Tenant shall promptly pay in a lump sum
the pro rata amount of the Fixed Rent otherwise due for the Free Rent Periods
plus the aforesaid interest for the unexpired portion of the Term of the Lease.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord or Landlord's agent, at its office, or such other place, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not be required to accept the check of any other person, and
any check received by Landlord shall be deemed received subject to collection.
If any check is mailed by Tenant, Tenant shall post such check in sufficient
time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
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3.04. If Tenant is in arrears in payment of Rent, Tenant waives
Tenant's right, if any, to designate the items to which any payments made by
Tenant are to be credited, and Landlord may apply any payments made by Tenant to
such items as Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items to which any such payments
shall be credited. Notwithstanding the foregoing, in the event Tenant in good
faith disputes a liability asserted by Landlord, Tenant may designate the
item(s) to which its payments should be credited provided Tenant's designation
does not prejudice Landlord's position with respect to the dispute.
3.05. Any payment due Landlord under this Lease which is not paid
within five (5) Business Days of written notice of non-payment shall, from the
due date until such payment is received by Landlord, bear interest at the prime
rate of Chemical Bank of New York plus 6% per annum (the "Late Payment Rate"),
provided however, the aforesaid interest shall not be imposed unless Landlord
fails to receive an overdue payment within five (5) Business Days of Landlord's
written notice to Tenant thereof.
ARTICLE 4
---------
USE OF DEMISED PREMISES
-----------------------
4.01. Tenant shall use and occupy the Demised Premises for the
Permitted Use, and Tenant shall not use or permit or suffer the use of the
Demised Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit, other than a Certificate
of Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises or any part thereof, Tenant shall duly procure
and thereafter maintain such license or permit, and submit the same to Landlord
for inspection. Tenant shall at all times comply with the terms and conditions
of each such license or permit. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy the Demised Premises, or do or permit
anything to be done in the Demised Premises, in any manner which (a) violates
the Certificate of Occupancy for the Demised Premises or for the Building; (b)
causes or is liable to cause injury to the Building or any equipment, facilities
or systems therein; (c) constitutes a violation of the Legal Requirements or
Insurance Requirements; (d) impairs or tends to impair the character, reputation
or appearance of the Building as a first-class office building; (e) impairs the
proper and economic maintenance, operation and repair of the Building and/or its
equipment, facilities or systems; or (f) interferes with the Quiet Enjoyment
rights of the other tenants in the Building.
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ARTICLE 5
---------
PREPARATION OF DEMISED PREMISES
-------------------------------
AND COMMENCEMENT DATE
---------------------
5.01. Tenant has inspected the Demised Premises and accepts the same
"as is" in their presently existing condition, except for certain minor
alterations to the Demised Premises which shall be performed pursuant to plans
and specifications approved by Landlord. Landlord shall have no other obligation
to perform any work in order to prepare the Demised Premises for Tenant's
occupancy.
5.02. Tenant shall occupy the Demised Premises promptly on the
Commencement Date and possession thereof is delivered to Tenant by Landlord.
Except as expressly provided to the contrary in this Lease, with the exception
of latent defects, the taking of possession by Tenant of the Demised Premises
shall be conclusive evidence as against Tenant that the Demised Premises and the
Building were in good and satisfactory condition at the time such possession was
taken.
5.03. Landlord reserves the right, at any time and from time to time,
to increase, reduce or change the number, type, size, location, elevation,
nature and use of the Common Areas of the Building and any other buildings and
other improvements on the Land, including without limitation the right to move
and/or remove same, provided same shall not unreasonably block or interfere with
Tenant's means of ingress or egress to and from the Demised Premises; provided,
however, Landlord shall not cause a material adverse impact on the conduct of
Tenant's business, nor shall Landlord do anything inconsistent with maintaining
the Building as a first class office building.
ARTICLE 6
---------
TAX AND OPERATING EXPENSE PAYMENTS
----------------------------------
6.01. Tenant shall pay, as Additional Rent, to Landlord, as
hereinafter provided, Tenant's share of the Real Estate Taxes. Tenant's share of
the Real Estate Taxes shall be the Real Estate Taxes for the Building for the
period in question, less the Real Estate Taxes attributable to the Base Year,
multiplied by the Tenant's Real Estate Fraction [Section 1.01(JJ) (ii)], plus
the Real Estate Taxes in respect of the Land for the period in question, less
the Real Estate Taxes attributable to the Land for the Base Year, multiplied by
the Tenant's Real Estate Fraction. If any portion of the Building shall be
exempt from all or any part of the Real Estate Taxes, then for the period of
time when such exemption is in effect, the rentable space on such exempt portion
shall be excluded when making the above computations in respect of the part of
the Real Estate Taxes for which such portion shall be exempt. Landlord shall
estimate the annual amount of Tenant's proportionate share
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of the Real Estate Taxes (which estimate may be changed by Landlord at any time
and from time to time), and Tenant shall pay to Landlord 1/12th of the amount so
estimated on the first day of each month in advance. Tenant shall also pay to
Landlord on demand from time to time the amount which, together with said
monthly installments, will be sufficient in Landlord's estimation to pay
Tenant's proportionate share of any Real Estate Taxes thirty (30) days prior to
the date when such Real Estate Taxes shall first become due. When the amount of
any item comprising Real Estate Taxes is finally determined for a real estate
fiscal tax year, Landlord shall submit to Tenant a statement in reasonable
detail of the same, and the figures used for computing Tenant's proportionate
share of the same, and if Tenant's proportionate share so stated is more or less
than the amount theretofore paid by Tenant for such item based on Landlord's
estimate, Tenant shall pay to Landlord the deficiency, or Landlord shall refund
to Tenant the excess, within ten (10) Business Days after submission of such
statement. Any Real Estate Taxes for a real estate fiscal tax year, a part of
which is included within the Term and a part of which is not so included, shall
be apportioned on the basis of the number of days in the real estate fiscal tax
year included in the Term, and the real estate fiscal tax year for any
improvement assessment will be deemed to be the one-year period commencing on
the date when such assessment is due, except that if any improvement assessment
is payable in installments, the real estate fiscal tax year for each installment
will be deemed to be the one-year period commencing on the date when such
installment is due.
6.02. After the Base Year, Tenant shall pay, as Additional Rent, to
Landlord, as hereinafter provided, Tenant's share of the Operating Expenses.
Tenant's share of the Operating Expenses shall be the Operating Expenses for the
period in question, less the Operating Expenses paid by Landlord during the Base
year, multiplied by Tenant's Operating Fraction [Section 1.01(JJ) (i)].
Landlord shall estimate Tenant's annual proportionate share of the Operating
Expenses (which estimate may be reasonably changed by Landlord from time to
time), and Tenant shall pay to Landlord 1/12th of the amount so estimated on the
first day of each month in advance. If at any time Landlord changes its estimate
of Tenant's proportionate share of the Operating Expenses for the then current
Calendar Year or partial Calendar Year, Landlord shall give notice to Tenant of
such change and within ten (10) Business Days after such notice Landlord and
Tenant shall adjust for any overpayment or underpayment during the prior months
of the then current Calendar Year or partial Calendar Year. After the end of
each Calendar Year, including any partial Calendar Year at the beginning of the
Term, and after the end of the Term, Landlord shall submit to Tenant a statement
in reasonable detail stating Tenant's proportionate share of the Operating
Expenses for such Calendar Year, or partial Calendar Year in the event the Term
shall begin
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on a date other than a January 1st and/or end on a date other than a December
31st, as the case may be, and stating the Operating Expenses for the period in
question and the figures used for computing Tenant's proportionate share, and if
Tenant's proportionate share so stated for such period is more or less than the
amount paid for such period, Tenant shall pay to Landlord the deficiency, or
Landlord shall refund to Tenant the excess, within ten (10) Business Days after
submission of such statement of Tenant's proportionate share.
6.03. Each such statement given by Landlord pursuant to Section 6.01
or Section 6.02 shall be conclusive and binding upon Tenant unless within sixty
(60) days after the receipt of such statement Tenant shall notify Landlord that
it disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect. If such dispute is not
settled by agreement, either party may submit the dispute to arbitration as
provided in Article 36. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall, within ten (10) Business Days after
receipt of such statement, pay the Additional Charges in accordance with
Landlord's statement, without prejudice to Tenant's position. If the dispute
shall be determined in Tenant's favor, Landlord shall within ten (10) Business
Days pay to Tenant the amount of Tenant's overpayment resulting from compliance
with Landlord's statement. Tenant shall be permitted to audit Landlord's books
relating to Operating Expenses for the Office Component of the Building on one
(1) occasion per year during Business Hours on Business Days upon thirty (30)
days prior written notice to the Landlord.
ARTICLE 7
---------
COMMON AREAS
------------
7.01. Subject to the provisions of Section 5.05, Landlord will
operate, manage, equip, light, repair and maintain, or cause to be operated,
managed, equipped, lighted, repaired and maintained, the Common Areas for their
intended purposes. Landlord reserves the right, at any time and from time do
time, to construct within the Common Areas kiosks, fountains, aquariums,
planters, pools and sculptures, and to install vending machines, telephone
booths, benches and the like, provided same shall not unreasonably block or
interfere with Tenant's means of ingress or egress to and from the Demised
Premises; provided however, Landlord shall not cause a material adverse impact
on the conduct of Tenant's business, nor shall Landlord do anything inconsistent
with maintaining the Building as a first class office building.
7.02. Tenant, its subtenants and concessionaires, and their respective
officers, employees, agents, customers and invitees, shall have the non-
exclusive right to use the Common
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Areas, in common with Landlord and all others to whom Landlord has granted or
may hereafter grant such right, but subject to the Rules and Regulations.
Landlord reserves the right, at any time and from time to time, to close
temporarily all or any portions of the Common Areas when in Landlord's
reasonable judgment any such closing is necessary or desirable (a) to make
repairs or changes or to effect construction, (b) to prevent the acquisition of
public rights in such areas, (c) to discourage unauthorized parking, or (d) to
protect or preserve natural persons or property. Landlord may do such other acts
in and to the Common Areas as in its judgment may be desirable to improve or
maintain same. In connection with the foregoing, Landlord shall make reasonable
efforts to avoid a material adverse impact on the conduct of Tenant's business
and shall provide adequate ingress and egress to the Demised Premises.
ARTICLE 8
---------
SECURITY
--------
8.01. Upon execution of this Lease, Tenant shall deposit with Landlord
the Security Deposit for the full and faithful payment and performance by Tenant
of Tenant's obligations under this Lease. If Tenant defaults in the full and
prompt payment and performance of any of its obligations under this Lease,
including, without limitation, the payment of Rent, Landlord may use, apply or
retain the whole or any part of the Security Deposit so deposited to the extent
required for the payment of any Rent or any other sums as to which Tenant is in
default or for any sum which Landlord may expend or may be required to expend by
reason of Tenant's default in respect of any of Tenant's obligations under this
Lease, including, without limitation, any damages or deficiency in the reletting
of the Demised Premises, whether such damages or deficiency accrue before or
after summary proceedings or other re-entry by Landlord. If Landlord shall so
use, apply or retain the whole or any part of the Security Deposit, Tenant
shall, upon demand, immediately deposit with Landlord a sum equal to the amount
so used, applied and retained as the Security Deposit. If Tenant shall fully and
faithfully pay and perform all of Tenant's obligations under this Lease, the
Security Deposit or any balance thereof to which Tenant is entitled shall be
returned or paid over to Tenant, without interest, after the date on which this
Lease shall expire or sooner end or terminate, and after delivery to Landlord of
entire possession of the Demised Premises. In the event of any sale or leasing
of the Building and/or the Land, Landlord shall have the right to transfer the
Security Deposit to which Tenant is entitled to the vendee or lessee and
Landlord shall thereupon be released by Tenant from all liability for the return
or payment thereof and Tenant shall look solely to the new landlord for the
return or payment of the same. The provisions hereof shall apply to every
transfer or assignment made of the same to a new landlord. The Tenant shall not
assign or encumber
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or attempt to assign or encumber the monies deposited herein as security, and
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
ARTICLE 9
---------
SUBORDINATION
-------------
9.01. This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to all Mortgages affecting the Land and/or Building,
whether or not such Mortgages shall also cover other lands and/or buildings, to
each and every advance made or hereafter to be made under such Mortgages, to all
renewals, modifications, replacements and extensions of such Mortgages and
spreaders and consolidations of such Mortgages, to the Master Lease, all present
or future ground leases and grants of term of the Building, Land or parts
thereof. The provisions of this Section 9.01 shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, Prime Landlord or the Mortgagee of any such Mortgage
or any of their respective successors in interest may reasonably request to
evidence such subordination; and if Tenant fails to execute, acknowledge or
deliver any such instruments within ten (10) Business Days after request
therefor, Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any
such instruments for and on behalf of Tenant.
9.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord,
Prime Landlord and each Superior Mortgagee and each Superior Lessor whose name
and address shall previously have been furnished to Tenant, and (b) until a
reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice and following the time when such Superior
Mortgagee, Prime Landlord or Superior Lessor shall have become entitled under
such Superior Mortgage, Master Lease or Superior Lease, as the case may be, to
remedy the same (which reasonable period shall in no event be less than the
period to which Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such Superior Mortgagee, Prime
Landlord or Superior Lessor shall with due diligence give Tenant notice of
intention to, and commence and continue to, remedy such act or omission.
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9.03. If the Prime Landlord or any Superior Lessor or Superior
Mortgagee shall succeed to the rights of Landlord under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of such party so succeeding to Landlord's rights ("Successor
Landlord") and upon such Successor Landlord's written agreement to accept
Tenant's attornment, Tenant shall attorn to and recognize such Successor
Landlord as Tenant's Landlord under this Lease and shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease
except that the Successor Landlord shall not (a) be liable for any previous act
or omission of Landlord under this Lease; (b) be subject to any offset, not
expressly provided for in this Lease, which theretofore shall have accrued to
Tenant against Landlord; or (c) be bound by any previous modification of this
Lease or by any previous prepayment of more than one month's Fixed Rent or
Additional Rent, unless such modification or prepayment shall have been
expressly approved in writing by the Successor Landlord.
9.04. If the Prime Landlord or any then present or prospective
Superior Mortgagee shall require any modification(s) of this Lease, Tenant shall
promptly execute and deliver to Landlord such instruments effecting such
modification(s) as Landlord shall request, provided that such modification(s) do
not adversely affect in any material respect any of Tenant's rights under this
Lease, for example, and not by way of limitation, changes to the Term, Fixed
Rent, Additional Rent and location of the Demised Premises.
ARTICLE 10
----------
QUIET ENJOYMENT
---------------
10.01. So long as Tenant pays all of the Rent and performs all of
Tenant's other obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Demised Premises without hindrance, ejection or molestation
by Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Mortgages.
ARTICLE 11
----------
ASSIGNMENT, SUBLETTING AND MORTGAGING
-------------------------------------
11.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or
15
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advertise to do so, or allow the same to be used, occupied or utilized by anyone
other than Tenant, or (c) mortgage, pledge, encumber or otherwise hypothecate
this Lease in any manner whatsoever, without in each instance obtaining the
prior written consent of Landlord.
11.02. Any proposed assignee, sublessee or transferee, whether or not
Landlord's consent is required hereunder, shall in any event:
(a) have a net worth at least equal to Tenant as of the
date of this Lease; and
(b) demonstrate financial responsibility reasonably
necessary to fulfill its obligations hereunder; and
(c) occupy the Demised Premises for the Permitted Use and
only the Permitted Use, as described in this Lease; and
(d) in the reasonable opinion of Landlord, be a tenant whose
occupancy will be in keeping with the dignity and
character of a first class office building and the use
and occupancy of the Building and whose occupancy will
not be more objectionable or more hazardous than that of
Tenant herein or impose any additional burden upon
Landlord in the maintenance and operation of the Building
and shall, in the reasonable opinion of the Landlord, be
eligible, suitable and qualified as a tenant at Newport
Financial Center in accordance with the provisions of
this Lease.
In connection with any proposed assignment, sublease or transfer,
Tenant shall pay to the Landlord on demand (i) the reasonable costs (not
including attorney's fees) that may be incurred by the Landlord, including,
without limitation, the reasonable costs of making investigations as to the
acceptability of the proposed assignee or sublessee and (ii) the reasonable
attorney's fees of Landlord and Prime Landlord.
11.03. An assignment of this Lease as to which Landlord's consent
shall be required shall be deemed to include:(i) if Tenant is a corporation not
listed on a recognized security exchange, one or more sales or transfers of
stock, by operation of law or otherwise, or creation of new stock, by which an
aggregate of more than 50% of Tenant's stock shall be vested in a party or
parties who are non-stockholders as of the date
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hereof; and (ii) if Tenant is a sole owner, partnership or joint venture, the
transfer of any interest in the Tenant, whether by sale, exchange, merger,
consolidation or otherwise.
Subject to Section 11.02, Landlord shall grant its consent to
assignments of this Lease pursuant to transactions with a corporation into which
the Tenant may be merged or consolidated or to any corporation which shall be an
affiliate, subsidiary, parent or successor of Tenant, or of a corporation into
which or with which Tenant may be merged or consolidated, or to a partnership,
the majority interest in which shall be owned by stockholders of Tenant.
For the purposes of this Article, a "subsidiary" or "affiliate" or
"successor" of Tenant shall mean the following:
(a) an "affiliate" shall mean any corporation which, directly or
indirectly, controls or is controlled by or is under common control with Tenant.
For this purpose "control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such corporation, whether through the ownership of voting securities or by
contract or otherwise;
(b) a "subsidiary" shall mean any corporation, not less than 50% of
whose outstanding stock shall, at the time, be owned directly or indirectly by
Tenant; and
(c) a "successor" of Tenant shall mean:
(i) a corporation in which or with which Tenant, its corporate
successors or assigns, is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations, provided that
by operation of law or by effective provisions contained in the instruments of
merger or consolidation, the liabilities of the corporations participating in
such merger or consolidation are assumed by the corporation surviving such
merger or created by such consolidation, or
(ii) a corporation acquiring this Lease and the terms hereby
demised and a substantial portion of the property and assets of Tenant, its
corporate successors or assigns, or
(iii) a corporate successor to a successor corporation becoming
such either by the methods described in (i) or (ii) provided that in the
completion of such merger, consolidation, acquisition or assumption, the
successor shall have a net worth of no less than that of Tenant.
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11.04. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect Rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default collect
Rent from the subtenant or occupant. In either event, Landlord may apply the net
amount collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 11.01 or
Section 11.02, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.05. Any permitted assignment or transfer, whether made with
Landlord's consent or without Landlord's consent, shall be made only if, and
shall not be effective until, the assignee or transferee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee or transferee shall assume
Tenant's obligations under this Lease from and after the effective date of the
assignment or transfer and whereby the assignee or transferee shall agree that
all of the provisions in this Article 11 shall, notwithstanding such assignment
or transfer, continue to be binding upon it in respect to all future assignments
and transfers. Notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent by Landlord from an assignee, transferee, or any other party, the original
Tenant and any other person(s) who at any time was or were Tenant shall remain
fully liable for the payment of the Rent and for Tenant's other obligations
under this Lease.
11.06. The liability of the originally named Tenant and any other
Person(s) who at any time was or were Tenant for Tenant's obligations under this
Lease shall not be discharged, released or impaired by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
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11 07. The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
11.08. Without limiting any of the provisions of Article 27, if
pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted
having the same general purpose), Tenant is permitted to assign this Lease
notwithstanding the restrictions contained in this Lease, adequate assurance of
future performance by an assignee expressly permitted under such Code shall be
deemed to mean the deposit of cash security in an amount equal to the sum of one
(1) year's Fixed Rent plus an amount equal to the Additional Charges for the
Calendar Year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord for the balance of the Term,
without interest, as security for the full performance of all of Tenant's
obligations under this Lease, to be held and applied in the manner specified for
the Security Deposit in Section 8.01.
11.09. In the event of any assignment or sublease of the Demised
Premises which requires the payment of Fixed Rent, Additional Rent and other
charges in excess of the amounts payable to the Landlord as set forth in this
Lease, then the "net excess or profit" shall be paid to Landlord by Tenant as
Additional Rent and shall be due and payable at such times as shall be due and
payable by such assignee or subtenant to the Tenant. In the event the Tenant
fails to make payment of such excess or profit in violation of this Lease,
Landlord may collect such rent directly from the assignee or subtenant. The "net
excess or profit" shall mean the amount remaining after payment of Fixed Rent,
Additional Rent and other standard, customary, and reasonable charges,
marketing, brokerage and other professional fees and expenses reasonably
incurred by Tenant.
ARTICLE 12
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COMPLIANCE WITH LAWS
--------------------
12.01. Tenant shall comply with all Legal Requirements which shall, in
respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
cost, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 12 01.
However, Tenant need not comply with such law or requirement of any public
authority so
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long as Tenant shall be contesting the validity thereof, or the applicability
thereof to the Demised Premises, in accordance with Section 12.02.
12.02. Tenant may contest by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated by reason of non-compliance or otherwise by reason of such contest; (b)
before the commencement of such contest, Tenant shall furnish to Landlord either
(i) the bond of a surety company satisfactory to Landlord, which bond shall be,
as to its provisions and form, satisfactory to Landlord and shall be in an
amount at least equal to 125% of the cost of such compliance (as estimated by a
reputable contractor designated by Landlord) and shall indemnify Landlord
against the cost thereof and against all liability for damages, interest,
penalties and expenses (including reasonable attorney's fees and expenses),
resulting from or incurred in connection with such contest or non-compliance, or
(ii) other security in place of such bond satisfactory to Landlord; (c) such
non-compliance or contest shall not constitute or result in any violation of any
Superior Lease or Superior Mortgage, or if any such Superior Lease and/or
Superior Mortgage shall permit such non-compliance or contest on condition of
the taking of action or furnishing of security by Landlord, such action shall be
taken and such security shall be furnished at the expense of Tenant; and (d)
Tenant shall keep Landlord advised as to the status of such proceedings. Without
limiting the application of the above, Landlord shall be deemed subject to
prosecution for a crime if Landlord, or its managing agent, or any officer,
director, partner, shareholder or employee of Landlord or its managing agent, as
an individual, is charged with a crime of any kind or degree whatsoever, whether
by service of summons or otherwise, unless such charge is withdrawn before
Landlord or its managing agent, or such officer, director, partner, shareholder
or employee of Landlord or its managing agent (as the case may be) is required
to plead or answer thereto.
12.03. The Tenant shall have the right to use the Demised Premises for
the Permitted Use. The Landlord represents and warrants that Tenant's proposed
use is currently lawful under the Jersey City Zoning Ordinance and the Permitted
Use is lawful under current applicable governmental requirements or regulations
with respect to land use.
12.04. Landlord shall comply with all then existing Legal Requirements
and shall pay all the cost, expenses, fines, penalties and damages which may be
imposed upon Tenant for any violation by Landlord of the Legal Requirements
existing at the
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time of the completion of Tenant's Work. Landlord shall comply with all Legal
Requirements applicable to the Building (other than the Demised Premises) during
the Term.
ARTICLE 13
----------
INSURANCE AND INDEMNITY
-----------------------
13.01. Landlord shall maintain or cause to be maintained All-Risk
insurance in respect of the Building and other improvements on the Land normally
covered by such insurance (except for the property Tenant is required to cover
with insurance under Section 13.02 and similar property of other tenants and
occupants of the Building and except for buildings and other improvements which
are on land neither owned by nor leased to Landlord) for the benefit of
Landlord, Prime Landlord, any Superior Lessors, any Superior Mortgagees and any
other parties Landlord may at any time and from time to time designate, as their
interests may appear, but not for the benefit of Tenant, and shall maintain rent
insurance as required by Prime Landlord or any Superior Lessor or any Superior
Mortgagee. The All-Risk insurance will be in the amounts required by the Prime
Landlord, any Superior Lessor or any Superior Mortgagee but not less than the
amount sufficient to avoid the effect of the coinsurance provisions of the
applicable policy or policies. Landlord may also maintain any other forms and
types of insurance which Landlord shall deem reasonable in respect to the
Building and Land. Landlord shall have the right to provide any insurance
maintained or caused to be maintained by it under blanket policies.
13.02. Tenant shall maintain the following insurance: (a)
comprehensive general public liability insurance in respect of the Demised
Premises and the conduct and operation of business therein, with Landlord named
as an additional insured, and at Landlord's request with the Prime Landlord, any
Superior Lessors, and Superior Mortgagees as additional insured(s), with limits
of not less than $2,000,000 for bodily injury or death and $2,000,000 for
property damage, including water damage and sprinkler leakage legal liability,
(b) All-Risk insurance in respect to Tenant's stock in trade, fixtures,
furniture, furnishings, removable floor coverings, equipment, signs, and all
other property of Tenant in the Demised Premises, in any amounts required by
Prime Landlord or any Superior Lessor or any Superior Mortgagee but not less
than 80% of the full insurable value of the property covered and not less than
the amount sufficient to avoid the effect of the coinsurance provisions of the
applicable policy or policies; (c) workers' compensation insurance; (d) rental
insurance in an amount equal to not less than one (1) year's Fixed Rent and
Additional Rent, which shall be automatically renewable annually and (e) any
other insurance required for compliance with the Insurance Requirements. Tenant
shall deliver to Landlord and any additional insured(s)
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certificates for such fully paid-for policies at least 10 days before the
Commencement Date. Tenant shall procure and pay for renewals of such insurance
from time to time before the expiration thereof, and Tenant shall deliver to
Landlord and any additional insured(s) certificates therefor at least 30 days
before the expiration of any existing policy. All such policies shall be issued
by companies of recognized responsibility licensed to do business in New Jersey,
and all such policies shall contain a provision whereby the insurer shall
provide written notice to Landlord and any additional insured(s) at least twenty
(20) days prior to cancellation or modification of such policies.
13.03. Tenant shall not do, permit or suffer to be done any act,
matter, thing or failure to act in respect of the Demised Premises or use or
occupy the Demised Premises or conduct or operate Tenant's business in any
manner objectionable to any insurance company or companies whereby the fire
insurance or any other insurance then in effect in respect to the Land and
Building or any part thereof shall become void or suspended or whereby any
premiums in respect of insurance maintained by Landlord shall be higher than
those which would normally have been in effect for the occupancy contemplated
under the Permitted Use. Landlord shall give Tenant written notice in the event
Landlord becomes aware of Tenant's breach of the provisions of this Section
13.03. In case of a breach of the provisions of this Section 13.03, in addition
to all other rights and remedies of Landlord hereunder, Tenant shall (a)
indemnify Landlord, Prime Landlord, Superior Lessors and the Superior
Mortgagees, and hold Landlord, Prime Landlord, Superior Lessors and Superior
Mortgagees harmless from and against any loss which would have been covered by
insurance which shall have become void or suspended because of such breach by
Tenant and (b) pay to Landlord any and all increases of premiums on any
insurance, including, without limitation, rent insurance, resulting from any
such breach. Landlord represents that the Permitted Use complies with Landlord's
Insurance Requirements.
13.04. Subject to Section 13.03 and to the extent not covered by
Tenant's insurance, Tenant shall indemnify, defend and hold harmless Landlord,
Prime Landlord, Superior Mortgagee and all Superior Lessors and their respective
partners, joint venturers, directors, officers, agents, servants and employees
from and against any and all claims arising from or in connection with (a) the
conduct or management of the Demised Premises or of any business therein or any
work or thing whatsoever done, or any condition created (other than by Landlord)
in the Demised Premises during the Term or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Demised Premises, caused by Tenant, its agents, servants, representatives or
employees; (b) any act, omission or negligence of Tenant or any of its
subtenants or licensees or
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its or their partners, joint venturers, directors, officers, agents, employees
or contractors; (c) any accident, injury or damage whatever (unless caused
solely by Landlord's negligence) occurring in the Demised Premises, caused by
Tenant, its agents, servants, representatives or employees; and (d) any breach
or default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this Lease. Tenant's obligation to indemnify shall also
include all costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon, including without
limitation, all attorney's fees, expert fees and expenses. In case any action or
proceeding is brought against Landlord, Prime Landlord, Superior Mortgagee
and/or any Superior Lessor and/or its or their partners, joint venturers,
directors, officers, agents and/or employees by reason of such claim, Tenant
upon notice from Landlord, Prime Landlord, Superior Mortgagee and/or such
Superior Lessor, shall resist and defend such action or proceeding by counsel
reasonably satisfactory to Landlord.
13.05. Landlord, Prime Landlord, Superior Mortgagee or any Superior
Lessor, shall not be liable to or responsible for, and Tenant hereby releases
Landlord, Prime Landlord, Superior Mortgagee and Superior Lessor from all
liability and responsibility to Tenant and any person claiming by, through or
under Tenant, by way of subrogation, for any injury, loss or damage to any
person or property in the Demised Premises or to Tenant's business irrespective
of the cause of such injury, loss or damage. This release shall apply to the
extent that such injury, loss or damage to person or property is covered and
actually paid by insurance, regardless of whether such insurance is payable to
or protects Landlord, Tenant or both. Nothing herein shall be construed to
impose any other or greater liability upon Landlord than would have existed in
the absence of this provision. Further, Tenant shall require its insurers to
include in all of Tenant's insurance policies which could give rise to a right
of subrogation against Landlord, Prime Landlord, Superior Mortgagee and Superior
Lessor a clause or endorsement whereby the insurer waives any rights of
subrogation against Landlord, Prime Landlord, Superior Mortgagee and such
Superior Lessor or permits the insured, prior to any loss, to agree with a third
party to waive any claim it may have against said third party without
invalidating the coverage under the insurance policy. The release in favor of
Landlord, Prime Landlord Superior Mortgagee and Superior Lessors, contained
herein, is in addition to, and not in substitution for, or in diminution of the
hold harmless and indemnification provisions contained in this Article and in
Article 23.
13.06. Except as provided herein, Tenant shall not be liable or
responsible for and Landlord hereby releases Tenant from all liability and
responsibility to Landlord and any person claiming by, through or under Landlord
by way of subrogation for
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any injury, loss or damage to any person or property in the Demised Premises
irrespective of the cause of such injury, loss or damage. This release shall
apply to the extent that such injury, loss or damage to person or property is
covered by insurance, regardless of whether such insurance is payable to or
protects Landlord, Tenant or both. Nothing herein shall be construed to impose
any other or greater liability upon Tenant than would have existed in the
absence of this provision. Further, Landlord shall require its insurers to
include in all of Landlord's insurance policies which could give rise to a right
of subrogation against Tenant, a clause or endorsement whereby the insurer
waives any right of subrogation against Tenant or permits the insured, prior to
any loss, to agree with a third party to waive any claim against said third
party without invalidating the coverage under the insurance policy.
ARTICLE 14
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RULES AND REGULATIONS
---------------------
14.01. Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations (attached hereto as Exhibit C) and
such reasonable changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate to
Tenant, which, in Landlord's judgment, shall be necessary for the reputation,
safety, care or appearance of the Land and Building, or the preservation of good
order therein or the operation or maintenance of the Building or its equipment
and fixtures, or the Common Areas, and which do not unreasonably affect the
conduct of Tenant's business in the Demised Premises; provided, however, that in
case of any conflict or inconsistency between the provisions of this Lease and
any of the Rules and Regulations, the provisions of this Lease shall control.
Nothing contained in this Lease shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations against any other tenant
or any employees or agents of any other tenant, and Landlord shall not be liable
to Tenant for violation of the Rules and Regulations by any other tenant or its
employees, agents, invitees or licensees. Landlord shall give Tenant notice of
any change in the Rules and Regulations. Landlord shall not enforce the Rules
and Regulations against Tenant in an arbitrary or discriminatory manner.
ARTICLE 15
----------
ALTERATIONS
-----------
15.01. Tenant shall not make any alterations or additions to the
Demised Premises, or make any holes or cuts in the walls, ceilings, roofs or
floors thereof, or change the architectural treatment of the Demised Premises
without the Landlord's prior written consent, which consent shall not be
unreasonably withheld; provided, however, the Tenant may make
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non-structural alterations or improvements to the Demised Premises consistent
with the use of said Demised Premises as an office by giving prior written
notice to the Landlord. Tenant shall submit to Landlord plans and specifications
for such work at the time notice is given to Landlord or at any time requested
by Landlord. Except with respect to the work done by Landlord or by Tenant to
complete the Demised Premises pursuant to the Tenant Work Letter (Exhibit B),
and without respect to whether, in fact the alterations are constructed, Tenant
shall pay to Landlord upon demand the reasonable cost and expense of Landlord
for (a) reviewing the plans and specifications; (b) inspecting the alterations
to determine whether the same are being performed in accordance with the
approved plans and specifications and all Legal Requirements, including, without
limitation, the fees of any architect or engineer employed by Landlord for such
purpose. With respect to any alteration, estimated to cost more than Ten
Thousand (S10,000.00) Dollars, Tenant shall pay to Landlord, as an Additional
Charge, within five (5) days after demand, eight (8%) percent of the cost of
such alterations for indirect job costs, general conditions and coordination of
the work. Upon the completion of each alteration, Tenant shall deliver to the
Landlord a certificate signed by an officer of Tenant, in form and substance
reasonably satisfactory to Landlord, certifying the cost of the alteration.
Before proceeding with any alterations, Tenant shall fully and promptly comply
with and observe the Rules and Regulations then in force in respect of the
making of alterations. Any review or approval by Landlord of any plans and/or
specifications with respect to any alterations is solely for Landlord's benefit,
and without any representation or warranty whatsoever to Tenant in respect to
the adequacy, correctness or efficiency thereof or otherwise.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance with all applicable Legal Requirements and Insurance
Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the better of (a) the original installations of the Building, or
(b) the then standards for the Building established by Landlord. Alterations
shall be performed by Contractors subject to Landlord's reasonable approval.
Alterations shall be made in such manner as not to unreasonably interfere with
or delay and as not to impose any additional expense upon Landlord in the
construction, maintenance, repair or operation of the Building; and if any such
additional expense shall be incurred by Landlord as a result of Tenant's making
of any alterations, Tenant shall pay any such additional expense upon demand.
Throughout the making of alterations, Tenant shall carry, or cause to be
carried, workmen compensation insurance in statutory limits and general
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liability insurance, with completed operation endorsement, for any occurrence in
or about the Building, under which Landlord and its managing agent and any
Superior Lessor whose name and address shall previously have been furnished to
Tenant shall be named as parties insured, in such limits as Landlord may
reasonably require, with insurers reasonably satisfactory to Landlord. Tenant
shall furnish Landlord with reasonably satisfactory evidence that such insurance
is in effect at or before the commencement of alterations and on request at
reasonable intervals thereafter during the making of alterations.
ARTICLE 16
----------
LANDLORD'S AND TENANT'S PROPERTY
--------------------------------
16.01. All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the Term, whether or not by or at the expense of Tenant, shall be and remain a
part of the Demised Premises, shall be deemed to be the property of Landlord and
shall not be removed by Tenant, except as provided in Section 16.02. Further,
any carpeting or other personal property in the Demised Premises on the
Commencement Date, unless installed and paid for by Tenant, shall be and shall
remain Landlord's property and shall not be removed by Tenant unless otherwise
agreed by the parties hereto.
16.02. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of the Tenant and may be removed by Tenant at any time
during the Term; provided that if any of the Tenant's Property is removed,
Tenant shall repair or pay the cost of repairing any damage to the Demised
Premises, the Building or the exterior Common Areas, resulting from the
installation and/or removal thereof. Any equipment or other property for which
Landlord shall have granted any allowance or credit to Tenant shall not be
deemed to have been installed by or for the account of Tenant without expense to
Landlord, shall not be considered as the Tenant's Property and shall be deemed
the property of Landlord.
16.03. In the event at or before the Expiration Date or the date of
any earlier termination of this Lease, or within thirty (30) days after the
Expiration Date or an earlier termination date, Tenant removes from the Demised
Premises all of the Tenant's Property (except such items thereof as Landlord
shall have expressly permitted to remain, which property shall
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become the property of the Landlord if not removed), Tenant shall repair any
damage to the Demised Premises, the Building and the Common Areas resulting from
any installation and/or removal of the Tenant's Property. Any items of the
Tenant's Property which shall remain in the Demised Premises after the
Expiration Date or after a period of thirty (30) days following the Expiration
Date or an earlier termination date, may, at the option of the Landlord, be
deemed to have been abandoned, and in such case such items may be retained by
Landlord as its property or disposed of by Landlord, without accountability, in
such manner as Landlord shall determine at Tenant's reasonable expense.
ARTICLE 17
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REPAIRS AND MAINTENANCE
-----------------------
17.01. Tenant shall, throughout the Term, take good care of the
Demised Premises, the fixtures and appurtenances therein. Tenant, at its
expense, shall be responsible for all repairs, interior and exterior, structural
and non-structural, ordinary and extraordinary, in and to the Demised Premises,
the premises of other tenants, the Building (including the facilities and
systems thereof), and the Common Areas the need for which arises out of (a) the
performance of alterations, (b) the installation, use or operation of the
Tenant's Property in the Demised Premises, (c) the moving of the Tenant's
Property in or out of the Building, or (d) the act, omission, misuse or neglect
of Tenant or any of its subtenants or its or their employees, agents,
contractors or invitees. Tenant shall promptly replace all scratched, damaged or
broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make all repairs in or to the Demised Premises for which Tenant is responsible,
and any repairs required to be made by Tenant to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other Systems of the
Building shall be performed only by contractor(s) designated by Landlord. Any
other repairs in or to the Building, its facilities and Systems or the premises
of other Tenants for which Tenant is responsible shall be performed by Landlord
at Tenant's expense; but Landlord may, at its option, before commencing any such
work or at any time thereafter, require Tenant to furnish to Landlord such
security, in form (including, without limitation, a bond issued by a corporate
surety licensed to do business in New Jersey) and amount, as Landlord shall deem
necessary to assure the payment for such work by Tenant.
17.02. Landlord shall be responsible for all repairs and maintenance
in and to the Building (including the facilities and systems and structure
thereof), except for those repairs and maintenance for which Tenant is
responsible pursuant to any of
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the provisions of this Lease. Tenant shall give Landlord written notice of any
repairs it believes Landlord should make. In the event Landlord has not
commenced making the repairs within ten (10) Business Days subsequent to
Landlord's receipt of this notice, Tenant may elect to give Landlord written
notice of Tenant's intention to do the repair. In the event Landlord has not
commenced the repair within five (5) Business Days of Landlord's receipt of such
written notice, Tenant may do the repair and Landlord shall reimburse Tenant for
all reasonable costs in connection therewith. The foregoing notwithstanding,
Tenant shall at no time and in no event be entitled to make, or cause to be
made, any repairs or replacements to, or provide maintenance for, the
electrical, UPS and EPS systems (as hereinafter defined), and the heating,
ventilating and air-conditioning systems in the Building.
17.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's doing any repairs, maintenance, or changes which Landlord is required
or permitted by this Lease, or required by law, to make in or to any portion of
the Building.
ARTICLE 18
----------
ELECTRIC ENERGY
---------------
18.01. Electric current will be supplied to the Demised Premises at
the commencement of the Term in accordance with the provisions of subdivision A
of this Section 18.01. However, at any time and from time to time during the
Term of this Lease, provided it is then permissible under applicable law or
Public Service Regulation, Landlord shall have the option to have electric
current supplied to the Demised Premises in accordance with either of the
subdivisions of this Section not then applicable, including, without limitation,
reverting to the method under which electricity was originally or previously
supplied.
A. Checkmetering.
Electric current will be supplied by Landlord to the Demised Premises
to service Tenant's office equipment, and Tenant will pay Landlord or Landlord's
designated agent, as Additional Rent for such service, the amounts (hereinafter
called the "Electricity Additional Rent"), as determined by a meter or
checkmeter, purchase and installed by Landlord at Landlord's expense, for the
purpose of measuring such consumption, at charges, terms and rates set, from
time to time during the Term of this Lease by Landlord but not less than those
specified in the service classification in effect on June 12, 1988, pursuant
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to which the then owner of the Building purchased electric current from the
public utility corporation (the "Utility Company"), serving the part of the City
of Jersey City where the Building is located, together with Landlord's
administrative charges, calculated at the rate of 7% of the Electricity
Additional Rent as billed to the Tenant. In the event that a checkmeter is not
installed and fully and accurately operating on the Commencement Date, then the
Electricity Additional Rent for the period when the checkmeter is not so
functioning shall be based upon the average of the first three (3) months of
meter operation. Landlord at its option may, from time to time, increase the
Electricity Additional Rent based upon changes occurring subsequent to the
aforementioned date in the method, rates (including, without limitation, time of
day and seasonal rate differentials) or manner by which Landlord thereafter
purchases electricity for the Building. Such increases in the Electricity
Additional Rent shall be in the amount which bears the same proportion to the
Electricity Additional Rent, payable prior to such increase, as the increase in
the average cost per kilowatt hour payable in accordance with the rates and
other charges pursuant to which Landlord will purchase electricity after such
change bears to the average cost per kilowatt hour payable in accordance with
the rates and other charges prior to such change. The periods to be used for the
aforesaid computation shall be the billing periods ending in February and August
immediately preceding such change, or such other period or periods as Landlord,
in its sole discretion, may from time to time elect. "Average cost per kilowatt
hour" is defined as including energy charges, demand charges, time of day
charges, fuel adjustment charges (as determined for each month of said period
and not averages), rate adjustment charges, sales taxes and/or any other factors
used by the Utility Company in computing its charges to Landlord, applied to the
kilowatt hours of energy and the kilowatts of demand purchased by Landlord
during a given bill period. Where more than one meter measures the electric
service to Tenant, the electric service rendered through each meter may be
computed and billed separately in accordance with the provisions hereinabove set
forth. Bills for the Electricity Additional Rent (the "Bills") shall be rendered
to Tenant at such time as Landlord may elect and the amount, as computed from
the meter, shall be the Electricity Additional Rent.
B. Tenant's Proportionate Share of Electricity Service
---------------------------------------------------
(i) For the purpose of this subdivision B:
(a) The term "Electric Rate" shall mean the greater at the
time in question of the public utility rate schedule (including all surcharges,
demand charges, time of day charges, seasonal rate adjustment charges, taxes,
fuel adjustments, taxes regularly passed on to consumers by the Utility Company,
and other sums payable in respect thereof) for
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the supply of electric current (1) to Landlord for the entire Building, as if
Landlord were to purchase current solely for the Demised Premises; or (2) to
Tenant for the Demised Premises, as if Tenant were to purchase electric current
solely for the Demised Premises. Notwithstanding the foregoing provisions of
this Paragraph B, if the Utility Company rate schedule (with such inclusions)
applicable to Landlord for the purchase of electric current for the entire
Building shall be increased, and the percentage of the increase in such rate
schedule shall exceed the percentage of the increase, if any, in the Utility
Company rate schedule (with such inclusions) applicable to Landlord for the
purchase of electric current solely for the Demised Premises, then the
percentage of the increase in the cost to Landlord for the purchase of electric
current for the entire Building shall be used in determining the Electric Rate.
(b) The term "Base Electric Rate" shall mean the Electric
Rate in effect on the date the Lease is executed.
(ii) (a) Landlord shall furnish electric current to the Demised
Premises in such reasonable quantities as may be required by Tenant to service
its ordinary office equipment and air-conditioning equipment installed in the
Demised Premises as of the Commencement Date during Business Hours on Business
Days. Tenant shall pay to Landlord as the Electricity Additional Rent or Charge
for such electricity service the sum of $1.25 per annum, per rentable square
foot, based upon Tenant's representation of a maximum electricity demand of five
(5) watts per rentable square foot of the Demised Premises for space only within
the Demised Premises, together with Landlord's administrative charge, calculated
at the rate of 7% of the Electricity Additional Rent as billed to the Tenant. If
the Tenant shall require electric service on any days or hours other than those
set forth above (herein called "after-hours service"), Landlord shall furnish
the same upon advance notice from Tenant given prior to (i) 4:00 P.M. of any
Business Day, if service is requested to be provided during the next following
non-Business Day or (ii) 3:00 P.M. of any Business Day, if service is requested
to be provided during non-business Hours of that Business Day. if Landlord
furnishes such after-hours service, Tenant shall pay Landlord's then established
charges therefor as additional Rent and Charge upon demand.
(b) If Landlord shall have previously furnished electric
current in accordance with either subdivision A or C of this Section, or if
Tenant's use of electric current shall exceed the amount of demand or
consumption set forth herein, or if the Electric Rate shall increase over the
Base Electric Rate, the Electricity Additional Rent or Charge shall be
proportionately increased, in light of the then prevailing Electric Rate, to
reflect the election to utilize the method set forth in this subdivision B, the
increase in the amount of demand
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or consumption, or the increase in the Electric Rate, as the case may be, and if
the parties cannot agree thereon, the amount of such adjustment shall be
determined by a reputable electrical engineer, to be selected by Landlord, whose
fees shall be paid equally by both parties. Tenant shall have the right to
dispute the amount of the adjustment so determined provided Tenant submits a
survey and determination of such adjustment made at its sole expense, by a
reputable and independent electrical engineer, within thirty (30) days after
receipt of a copy of the determination of Landlord's engineer. If Landlord and
Tenant are unable to resolve the differences between them within thirty (30)
days after receipt by Landlord of a copy of the determination of Tenant's
engineer, the dispute shall be decided by arbitration. Pending the resolution of
such dispute by agreement or arbitration as aforesaid, Tenant shall pay the
amount of the adjustment as determined by Landlord's engineer, without prejudice
to Tenant's position. Tenant agrees that for the purposes of this Section
18.01B(ii) the amount of electrical consumption and demand estimated by Landlord
as Tenant's consumption of and demand for electrical current at the time
electric current is first furnished to Tenant under the provisions of this
subdivision B shall be deemed to be the minimum quantities of consumption and
demand used by Tenant, despite the fact that Tenant's actual consumption of and
demand for usage of electric current may be less than such amount. In no event
shall any adjustment made pursuant to this Section 18.01B (ii) (b) reduce the
Electricity Additional Rent or Charge.
(iii) Landlord may furnish to Tenant, from time to time during the
Term of this Lease, a written statement (an "Estimate Statement") setting forth
the Landlord's estimate of Electricity Additional Rent and any increase which
has occurred or which Landlord expects to occur in the Electricity Additional
Rent or Charge pursuant to the provisions of Section 18.01B (ii) (b) hereof for
the twelve-month period commencing on the first day of the month immediately
succeeding the month in which such Estimate Statement was sent to Tenant. Tenant
shall pay to Landlord, as Additional Rent, on the first day of each month
following receipt of the Estimate Statement and each month thereafter until its
receipt of a new Estimate Statement, an amount equal to one-twelfth (1/12th) of
the amount of such Estimate Statement on account of the Electricity Additional
Rent or Charge for the ensuing period.
(iv) If Landlord shall have furnished Tenant an Estimate Statement
pursuant to Section 18.01B(iii) above, then, as promptly as reasonably
practicable thereafter, Landlord shall furnish to Tenant a statement (the
"Electricity Statement") for the period beginning with the effective date of the
previous Estimate Statement given by Landlord to Tenant and ending with the last
day of the period during which such previous Estimate Statement remained in
effect. If the Electricity Statement shall
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show that the sums paid by Tenant under Section 18.01B exceeded the Electricity
Additional Rent or Charge which Tenant was actually obligated to pay for such
period, Landlord shall promptly either refund to Tenant the amount of such
excess or permit Tenant to credit the amount of such excess against subsequent
increases in the Electricity Additional Rent or Charge payable under this
Section; and if the Electricity Statement for such period shall show that the
sums so paid by Tenant were less than the Electricity Additional Rent or Charge
which Tenant was obligated to pay for such period, Tenant shall pay the amount
of such deficiency within ten (10) days after receipt of said Electricity
Statement. Landlord may, but is not obligated to, give Tenant an Electricity
Statement together with an Estimate Statement.
(v) Each such Electricity Statement given by Landlord pursuant to
Section 18.01B(iv) above shall be conclusive and binding upon Tenant, unless
within thirty (30) days after the receipt of such Electricity Statement, Tenant
shall notify Landlord that it disputes the correctness of the Electricity
Statement, specifying the particular respects in which the Electricity Statement
is claimed to be incorrect. If such dispute shall not have been settled by
agreement, either party may submit the dispute to arbitration within ninety (90)
days after receipt of such Electricity Statement. Pending the resolution of such
dispute by agreement or arbitration as aforesaid, Tenant shall pay the increase
in the Electricity Additional Rent or Charge in accordance with the Electricity
Statement, without prejudice to Tenant's position, as herein provided. If the
dispute shall be resolved in Tenant's favor, Landlord shall forthwith pay to
Tenant the amount of Tenant's overpayment of the Electricity Additional Rent,
resulting from compliance with the Electricity Statement.
C. Direct Supply.
-------------
Tenant shall obtain electric energy directly from the Utility Company
furnishing electric service to the Building. The costs of such service shall be
paid by Tenant directly to such Utility Company, but a default by Tenant in the
timely payment of any bill or charge of such Company shall be deemed a default
by Tenant under this Lease.
18.02. Landlord shall have full and unrestricted access to all air-
conditioning and heating equipment, and to all other utility installations
servicing the Building and the Demised Premises. Landlord reserves the right
temporarily to reasonably interrupt, curtail, stop or suspend electrical, air-
conditioning, heating service, and all other utility, or other services, because
of Landlord's inability to obtain, or difficulty or delay in obtaining, labor or
materials necessary therefor, or in order to comply with governmental
restrictions in
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connection therewith, or in order for the Landlord to perform any preventive
maintenance in connection with the Building or any Building system, or for any
cause beyond Landlord's reasonable control. No diminution or abatement of Fixed
Rent, Additional Rent, or other compensation shall be or will be claimed by
Tenant, nor shall this Lease or any of the obligations of Tenant hereunder be
affected or reduced by reason of such interruptions, stoppages or curtailments,
the causes of which are hereinabove enumerated, nor shall the same give rise to
a claim in Tenant's favor that such failure constitutes actual or constructive,
total or partial eviction from the Demised Premises, unless such interruptions,
stoppages or curtailments have been due to the intentional or willful misconduct
of Landlord. Landlord shall use its best efforts to restore the Demised Premises
in the event of any such interruption, curtailment, stoppage or suspension in a
timely fashion.
18.03. Landlord shall not be liable or responsible to Tenant in any
way for any loss, damage or expense which Tenant may sustain or incur as a
result of any (i) interruption, curtailment or failure (whether or not
temporary) or (ii) defect in the supply, character, quantity, availability or
suitability of electricity (including UPS and EPS power as such terms may
hereinafter be defined in Article 19) furnished to the Demised Premises by
reason of any requirement, act or omission of the Utility Company or any other
company servicing the Building with electricity or for the performance of any
maintenance or repair required hereunder or for any other reason except if and
to the extent the same is caused by or results from the intentional or willful
misconduct of Landlord.
18.04. If either the quantity or character of electrical service is
changed by the Utility Company or other company supplying electricity to the
Building or is no longer available or suitable for Tenant's requirements, no
such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution in the payment of Fixed Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
18.05. In the event that Tenant does not pay the Electricity
Additional Rent owing by Tenant pursuant to this Article within ten (10)
Business Days after the request for same by Landlord, Landlord may, without
further notice and in addition to any other remedies Landlord may have,
discontinue the service of electricity to the Demised Premises without releasing
Tenant from any liability under this Lease and without Landlord incurring any
liability for any damage or loss sustained by Tenant as the result of such
discontinuance. If any tax is
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imposed upon Landlord's receipts from the sale or resale of electric current to
Tenant by any Federal state or municipal authority, Tenant agrees that, unless
prohibited by law, Tenant's proportionate share of such tax shall be passed on
to, and included in the bill of, and paid by Tenant to Landlord as Additional
Rent.
18.06. Tenant will make no electrical installations, alterations,
additions or changes to electrical equipment or appliances without the prior
written consent of Landlord in each instance. Tenant will at all times comply
with the rules, regulations, terms and conditions applicable to service,
equipment, wiring and requirements of the Utility Company supplying electricity
to the Building. Tenant covenants and agrees that at all times its use of
electric current will not exceed the capacity of existing feeders to the
Building or the risers or wiring installation and Tenant will not use any
electrical equipment which, in Landlord's sole judgment, will overload such
installations or interfere with the use thereof by other tenants of the
Building. In the event that, in Landlord's sole judgment, Tenant's electrical
requirements necessitate installation of an additional riser, risers or other
proper and necessary equipment, the same shall be installed by Landlord at
Tenant's sole expense and shall be chargeable and collectible as Additional Rent
and paid within ten (10) days after the rendition of a bill to Tenant therefor.
ARTICLE 19
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HEAT, VENTILATION AND AIR-CONDITIONING
--------------------------------------
19.01. Landlord, at its expense, (but included in Operating Expenses
pursuant to Article 6), shall maintain and operate the base Building heating,
ventilating and air-conditioning systems (hereinafter called the "Systems"), and
shall furnish heat, ventilating and air-conditioning (hereinafter collectively
called "HVAC services"), in the Demised Premises through the Systems, during
Business Hours on Business Days throughout the year. If Tenant shall require
base Building HVAC services at any time other than during Business Hours (herein
referred to as "after hours") Landlord may, if reasonably possible, furnish such
after hours HVAC service upon reasonable advance notice from Tenant, and Tenant
shall pay to Landlord within five (5) days after demand, as Additional Rent, the
sum of $150 00 per hour per quadrant of the Building for such after hours HVAC
service. The term "quadrant" of the Building shall mean a contiguous one-quarter
of the rentable square footage of an entire floor of the Building as designated
by the Landlord.
19.02. Landlord shall supply to the Demised Premises Uninterruptible
Power Supply ("UPS") and Emergency Power Supply ("EPS") for data processing and
data transmission. Tenant shall pay to the Landlord, as and for Additional Rent,
the sum of Three
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Hundred Fifty-Eight & 00/100 ($358.00) Dollars per KVA per annum for each of the
ten (10) KVAs reserved for Tenant's use for UPS and EPS. Additional Rent for UPS
and EPS may be collectively referred to herein as "Access Charges." Access
Charges shall be pro-rated monthly and shall be paid by Tenant at the same time
and manner as Fixed Rent is paid pursuant to Section 3.01.
19.03. Landlord shall furnish necessary passenger elevator service
during Business Hours and shall have a passenger elevator subject to call at all
other times. If Landlord shall at any time have elected to furnish operator
service for any automatic elevators, Landlord shall have the right to
discontinue furnishing such service. If Tenant shall require the use of the
Building's freight elevators, Landlord shall provide a freight elevator for the
reasonable use of Tenant without charge, provided Tenant gives Landlord
reasonable notice of the time and use of such elevators to be made by Tenant and
such use takes place during Business Hours on Business Days. Except as set forth
in the preceding sentence, Tenant shall pay Landlord's usual and reasonable
charges for the use thereof during non-business hours or non-business days, as
Additional Rent, within ten (10) Business Days after demand, including without
limitation, any expense for operator service for such elevator which Landlord
may deem necessary in connection with Tenant's use of such elevator. Landlord
shall have the right to change the operation or manner of operating any of the
elevators in the Building and shall have the right to discontinue, temporarily
or permanently, the use of any one or more cars in any of the banks of elevators
provided reasonable elevator service is provided to the Demised Premises.
ARTICLE 20
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OTHER SERVICES: SERVICE INTERRUPTION
------------------------------------
20.01. Landlord shall keep the outside ground level clean and free of
debris and trash and shall use its best efforts to keep the Building area free
of loiterers.
20.02. Landlord shall furnish adequate hot and cold water to the
Demised Premises, for drinking, lavatory and cleaning purposes and Tenant shall
pay, as and for Additional Rent, for said water the sum of $100.00 per month. If
Tenant uses water for any other purpose, Landlord may install and maintain, at
Tenant's expense, meters to measure Tenant's consumption of cold water and/or
hot water for such other purpose. Tenant shall reimburse Landlord for the
quantities of cold water and hot water shown on such meters on demand; provided
however, Landlord shall not charge Tenant more than the cost to Landlord for
such water and Landlord shall not cut off the flow of such water.
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20.03. Except as otherwise specifically provided herein, the Landlord
shall not be liable for full or partial interruption of any of the above
services or utilities described in this Article or Article 19 from conditions
beyond Landlord's control, but Landlord shall take immediate action to restore
the services and utilities. The Rent shall not abate, in whole or in part,
during any such interruption or partial interruption of any of the above
services or utilities from conditions beyond the Landlord's control, but
Landlord shall take immediate action to restore the services and utilities.
20.04. (a) Provided Tenant shall keep the Demised Premises in good
order, Landlord, at its expense, but included in Operating Expenses, shall cause
the Demised Premises, but excluding any portions of the Demised Premises used
for the storage, preparation, service or consumption of food or beverages, to be
cleaned, substantially in accordance with the standards set forth in Exhibit E
attached hereto. Tenant shall pay to Landlord as Additional Rent on demand
Landlord's charges for (A) cleaning work in the Demised Premises or the Building
required because of (i) misuse or neglect on the part of Tenant or its agents,
employees, contractors, licensees or invitees (ii) use of portions of the
Demised Premises for the storage, preparation, service, or consumption of food
or beverages, reproduction, data processing or computer operations, private
lavatories or toilets or other special purposes requiring greater or more
difficult cleaning work than office areas, (iii) interior glass surfaces, (iv)
non-Building Standard materials or finishes installed by Tenant or at its
request, (v) increases in frequency or scope in any of the items set forth in
Exhibit E as shall have been requested by Tenant, and (B) removal from the
- ---------
Demised Premises and the Building of (i) so much refuse and rubbish of Tenant as
shall exceed that normally accumulated in the daily routine of ordinary business
office occupancy and (ii) all of the refuse and rubbish of Tenant's machines and
of any eating facilities requiring special handling and (C) additional cleaning
work in the Demised Premises or the Building required because of the use of the
Demised Premises by Tenant after hours. Landlord and its cleaning contractor and
their employees shall have access to the Premises at all times except during
Business Hours on Business Days and, to the extent that it will not unreasonably
interfere with the operation of Tenant's business, during Business Hours.
Landlord and its cleaning contractor and their employees shall have the use of
Tenant's light, power and water in the Demised Premises, without charge
therefor, as may be reasonably required for the purpose of cleaning the Demised
Premises. If Tenant is permitted hereunder to and does have a separate area for
the storage, preparation, service or consumption of food or beverages in the
Demise Premises, Tenant, at its sole cost and expense, shall cause all portions
of the Demised Premises so used to be cleaned daily in manner reasonably
satisfactory to Landlord.
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(b) The cleaning services required to be furnished by Landlord
pursuant to this Section may be furnished by a contractor or contractors
employed by Landlord and Tenant agrees that Landlord shall not be deemed in
default of any of its obligations under this Section unless such default shall
continue for an unreasonable period of time after notice from Tenant to Landlord
setting forth the specific nature of such default.
ARTICLE 21
----------
ACCESS, CHANGES AND NAME
------------------------
21.01. Except for the space within the inside surfaces of all walls,
hung ceiling, floors, windows and doors bounding the Demised Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities and the use thereof, as well
as access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved to Landlord. Landlord also
reserves the right to install, erect, use and maintain pipes, ducts and conduits
in and through the Demised Premises, provided such are properly enclosed.
21.02. Upon reasonable advance notice Landlord and its agents shall
have the right to enter and/or pass through the Demised Premises at any time or
times, upon reasonable advance notice (except in the event of an emergency) (a)
to examine the Demised Premises and to show them to the Prime Landlord, actual
and prospective Superior Lessors, Superior Mortgagees, or prospective purchasers
of the Building, and (b) to make such repairs, alterations, additions and
improvements in or to the Demised Premises and/or in or to the Building or its
facilities and equipment as Landlord is required to make. Landlord shall be
allowed to take all materials into and upon the Demised Premises that may be
required in connection therewith, without any liability to Tenant and without
any reduction of Tenant's obligations hereunder. During the period of eighteen
(18) months prior to the Expiration Date or the date when Tenant has given
Landlord notice of Tenant's intention to terminate this Lease pursuant to the
provisions herein, Landlord and its agents may exhibit the Demised Premises to
prospective tenants. Landlord shall give notice to the Tenant reasonable under
the circumstances and make reasonable efforts to avoid a material adverse impact
on the conduct of Tenant's business.
21.03. If, during the last month of the Term, Tenant has removed all
or substantially all of the Tenant's Property from the Demised Premises,
Landlord may, without notice to Tenant, immediately enter the Demised Premises
and later,
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renovate and decorate the same, without liability to Tenant and without reducing
or otherwise affecting Tenant's obligations hereunder.
21.04. Landlord reserves the right, at any time and from time to time,
to make such changes, alterations, additions and improvements in or to the
Building and the fixtures and equipment thereof as Landlord shall deem necessary
or desirable, provided however, Landlord shall not cause a material adverse
impact on the conduct of Tenant's business, nor shall Landlord do anything
inconsistent with maintaining the Building as a first class office building.
ARTICLE 22
----------
MECHANICS' LIENS AND OTHER LIENS
--------------------------------
22.01. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to subject
Landlord's interest or estate to any liability under any mechanic's or other
lien law. If any mechanic's or other lien or any notice of intention to file a
lien is filed against the Land, or any part thereof, or the Demised Premises, or
any part thereof, for any work, labor, service or materials claimed to have been
performed or furnished for or on behalf of Tenant or anyone holding any part of
the Demised Premises through or under Tenant, Tenant shall cause the same to be
canceled and discharged of record by payment, bond or order of a court of
competent jurisdiction within fifteen (15) days after notice by Landlord to
Tenant.
ARTICLE 23
----------
NON-LIABILITY AND INDEMNIFICATION
---------------------------------
23.01. None of Landlord, Prime Landlord, Superior Mortgagee, Superior
Lessor, their respective partners, joint venturers, directors, officers, agents,
servants or employees shall be liable to Tenant for any loss, injury or damage
to Tenant or to any other Person, or to its or their property, irrespective of
the cause of such injury, damage or loss, unless caused by or resulting from the
intentional or willful misconduct of Landlord, its agents, servants or employees
in the operation or maintenance of the Land or Building to the extent caused by
such intentional or willful misconduct. Further, Landlord, Prime Landlord,
Superior Mortgagee, Superior Lessor or their respective partners, joint
venturers, directors, officers, agents, servants or employees shall not be
liable to Tenant (a) for any such damage caused by other tenants or Persons in,
upon or about the Land or Building, or caused by operations in construction of
any private work, performed by someone other than Landlord, or by public or
quasi-public work; or (b) even in the event of intentional or willful
misconduct, for consequential damages
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arising out of any loss of use of the Demised Premises or any equipment or
facilities therein by Tenant or any Person claiming through, against or under
Tenant.
23.02. Tenant shall indemnify, defend and hold harmless Landlord,
Prime Landlord, Superior Mortgagees, all Superior Lessors and its and their
respective partners, joint venturers, directors, officers, agents, servants and
employees from and against any and all claims arising from or in connection with
(a) the conduct or management of the Demised Premises or of any business
therein, or any work or thing whatsoever done, or any condition created (other
than by Landlord) in the Demised Premises during the Term or during the period
of time, if any, prior to the Commencement Date that Tenant may have been given
access to the Demised Premises, caused by Tenant, its agents, servants,
representatives or employees; (b) any act, omission or negligence of Tenant or
any of its subtenants or licensees or its or their partners, joint venturers,
directors, officers, agents, employees or contractors; (c) any accident, injury
or damage whatever (unless caused solely by Landlord's negligence) occurring in
the Demised Premises caused by Tenant, its agents, servants, representatives or
employees; and (d) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease. Tenant's
obligation to indemnify shall also include all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all attorney's fees, expert fees
and expenses. In the event any action or proceeding is brought against Landlord,
Prime Landlord, Superior Mortgagee and/or any Superior Lessor and/or its or
their partners, joint venturers, directors, officers, agents and/or employees by
reason of any such claim, Tenant, upon notice shall resist and defend such
action or proceeding, by counsel reasonably satisfactory to Landlord.
23.03. Notwithstanding any provision to the contrary, Tenant shall
look solely to the estate and property of Landlord in and to the Land and
Building (or the proceeds received by Landlord on a sale of such estate and
property but not the proceeds of any financing or refinancing thereof) in the
event of any claim against Landlord arising out of or in connection with this
Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised
Premises or the Common Areas, and Tenant agrees that the liability of the
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas
shall be limited to such estate and property of Landlord (or sale proceeds). No
other properties or assets of Landlord or any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be subject to levy,
execution or other enforcement procedures for the satisfaction of any judgment
(or other judicial process) or for the satisfaction of any other
39
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remedy of Tenant arising out of, or in connection with, this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas and if Tenant shall acquire a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
acknowledging and delivering to Landlord an instrument to that effect prepared
by Landlord's attorneys. Tenant hereby waives the right of specific performance
and any other remedy allowed in equity if specific performance or such other
remedy could result in any liability of Landlord for the payment of money to
Tenant or to any third party.
ARTICLE 24
----------
DAMAGE OR DESTRUCTION
---------------------
24.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as provided in this Article 24), Landlord shall repair the
damage and restore and rebuild the Building and/or the Demised Premises (except
for the Tenant's Property) with reasonable dispatch after notice to it of the
damage or destruction and the collection of the insurance proceeds attributable
to such damage.
24.02. Subject to the provisions of Section 24.05, if all or part of
the Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised Premises,
for the period from the date of the damage or destruction to (a) the date the
damage to the Demised Premises shall be substantially repaired, or (b) if the
Building and not the Demised Premises is so damaged or destroyed, the date on
which the Demised Premises shall be made tenantable; provided however, should
Tenant reoccupy a portion of the Demised Premises during the period the repair
or restoration work is taking place and prior to the date that the Demised
Premises are substantially repaired or made tenantable, the Rent allocable to
such reoccupied portion based upon the proportion which the area of the
reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
24.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other casualty, or (b) the Building shall be so
damaged or destroyed by fire or other casualty (whether or not the Demised
Premises are damaged or destroyed) that its repair or restoration requires the
expenditure, as estimated by a reputable contractor or architect designated by
Landlord, of more than twenty (20%) percent (or ten
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(10%) percent if such casualty occurs during the last two (2) years of the Term)
of the full insurable value of the Building immediately prior to the casualty,
or (c) the Building shall be damaged or destroyed by fire or other casualty
(whether or not the Demised Premises are damaged or destroyed) and either the
loss shall not be covered by Landlord's insurance or the net insurance proceeds
(after deducting all expenses in connection with obtaining such proceeds) shall,
in the estimation of a reputable contractor or architect designated by Landlord,
be insufficient to pay for the repair or restoration work, then, in any such
case Landlord may terminate this Lease by giving Tenant notice to such effect
within ninety (90) days after the date of the fire or other casualty and the
Lease shall terminate sixty (60) days thereafter.
24.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 24.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as to not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Business Hours on Business Days.
Landlord shall not be required to restore fixtures, improvements or other
property of Tenant. The word "restore" as used in this Article shall include
repairs.
24.05. Notwithstanding any of the foregoing provisions of this Article
24, if by reason of some act or omission on the part of Tenant or any of its
subtenants or its or their partners, directors, officers, servants, employees,
agents or contractors, either (a) Landlord, Prime Landlord or any Superior
Lessor or any Superior Mortgagee shall be unable to collect all of the insurance
proceeds (including without limitation, rent insurance proceeds) applicable to
damage or destruction of the Demised Premises or the Building by fire or other
casualty, or (b) the Demised Premises or the Building shall be damaged or
destroyed or rendered completely or partially untenantable on account of fire or
other casualty, then without prejudice to any other remedies Which may be
available against Tenant, there shall be no abatement or reduction of Rent.
Further, nothing contained in this Article 24 shall relieve Tenant from any
liability that may exist as a result of any damage or destruction by fire or
other casualty. The provisions of this section shall be subject to the terms of
Section 13.06.
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24.06. Landlord will not carry insurance of any kind on the Tenant's
Property, and, except as provided by law or by reason of Landlord's breach of
any of its obligations hereunder, shall not be obligated to repair any damage or
to replace the Tenant's Property.
24.07. The provisions of this Article 24 shall be deemed an express
agreement governing any case of damage or destruction of the Demised Premises
and/or Building by fire or other casualty, and any law providing for such
contingency in the absence of an express agreement, now or hereafter in force,
shall have no application in such case.
ARTICLE 25
----------
EMINENT DOMAIN
--------------
25.01. If the whole of the Demised Premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent domain
or expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If 25% or less of the rentable square footage
of the Demised Premises shall be so taken or conveyed, this Lease shall
terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority. If more than 25% of the rentable
square footage of the Demised Premises shall be so taken or conveyed, this Lease
shall terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority, but either party shall have the
right to terminate this Lease upon notice given to the other party within thirty
(30) days after such taking of possession. If more than 25% of the rentable
square footage of the Building shall be so taken or conveyed, Landlord, may, by
notice to Tenant, terminate this Lease as of the day possession shall be taken.
If this Lease shall continue in effect as to any portion of the Demised Premises
not so taken or conveyed, the Rent shall be computed as of the day possession
shall be taken on the basis of the remaining rentable square footage of the
Demised Premises. Except as specifically provided herein, in the event of any
such taking or conveyance there shall be no reduction in Rent. If this Lease
shall continue in effect, Landlord shall, at its expense, but shall be obligated
only to the extent of the net award or other compensation (after deducting all
expenses in connection with obtaining the award or other compensation),
available to Landlord for the improvements taken or conveyed (excluding any
award or other compensation for land or for the unexpired portion of the term of
any Superior Lease), make all necessary alterations so as to constitute the
remaining Building a complete architectural and tenantable unit, except for the
Tenant's Property, and Tenant shall make all alterations or replacements to the
Tenant's Property and decorations in the Demised Premises. Landlord shall give
notice
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of any and all condemnation proceedings and eminent domain negotiations so that
Tenant may protect its own rights. All awards and compensation for any taking or
conveyance, whether for the whole or a part of the Land or Building, the Demised
Premises or otherwise, shall be the property of Landlord, and Tenant hereby
assigns to Landlord all of Tenant's right, title and interest in and to any and
all such awards and compensation, including, without limitation, any award or
compensation for the value of the unexpired portion of the Term. Tenant shall be
entitled to claim, prove and receive in the condemnation proceeding such award
or compensation as may be allowed for the Tenant's non-depreciated leasehold
improvements and for loss of business, goodwill, and depreciation or injury to
and cost of removal of the Tenant's Property.
25.02. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation for the taking of the Tenant's
Property and for moving expenses, and Landlord shall be entitled to receive that
portion which represents reimbursement for the cost of restoration of the
Demised Premises. This Lease shall be and remain unaffected by such taking and
Tenant shall continue to be responsible for all of its obligations hereunder
insofar as such obligations are not affected by such taking and shall continue
to pay the Rent in full when due. If the period of temporary use or occupancy
shall extend beyond the Expiration Date, that part of the award or payment which
represents compensation for the use and occupancy of the Demised Premises
(or a part thereof) shall be divided between Landlord and Tenant so that Tenant
shall receive (except as otherwise provided below) so much thereof as represents
compensation for the period up to and including the Expiration Date and Landlord
shall receive so much thereof as represents compensation for the period after
the Expiration Date.
ARTICLE 26
----------
SURRENDER
---------
26.01. On the Expiration Date, or upon any earlier termination of this
Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall
quit and surrender the Demised Premises to Landlord "broom-clean" and in good
order, condition and repair, except for ordinary wear and tear and such damage
or destruction as Landlord is required to repair or restore under this Lease.
Tenant shall also remove all of Tenant's Property therefrom except as otherwise
expressly provided in this Lease. Further, at Landlord's election, Tenant shall
remove, if required by Landlord, all underfloor cabling, wiring, power
distribution units and conduits, installed for Tenant's use.
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26.02. If Tenant remains in possession of the Demised Premises after
the expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises as a tenant from month to month at the sufferance of Landlord subject
to all of the provisions of this Lease, except that the monthly Fixed Rent shall
be twice the monthly Fixed Rent and Additional Rent in effect during the last
month of the Term.
26.03. No act or thing done by Landlord or its agents shall be deemed
an acceptance of or a surrender of the Demised Premises, and no agreement to
accept such surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 27
----------
CONDITIONS OF LIMITATION
------------------------
27.01. This Lease is subject to the limitation that whenever Tenant or
any Guarantor (a) shall make an assignment for the benefit of creditors, or (b)
shall commence a voluntary case or have entered against it an order for relief
under any chapter of the Federal Bankruptcy Code (Title 11 of the United States
Code) or any similar order or decree under any federal or state law, now in
existence or hereafter enacted having the same general purpose, and such order
or decree shall have not been stayed or vacated within 30 days after entry, or
(c) shall cause, suffer, permit or consent to the appointment of a receiver,
trustee, administrator, conservator, sequestrator, liquidator or similar
official in any federal, state or foreign judicial or nonjudicial proceeding, to
hold, administer and/or liquidate all or substantially all of its assets, and
such appointment shall not have been revoked, terminated, stayed or vacated and
such official discharged of his duties within 30 days of his appointment, then
Landlord, at any time after the occurrence of any such event, may give Tenant a
notice of intention to end the Term at the expiration of five (5) days from the
date of service of such notice of intention, and upon the expiration of said
five (5) day period, whether or not the Term shall theretofore have commenced,
this Lease shall terminate with the same effect as if that day were the
Expiration Date of this Lease, but Tenant shall remain liable for damages as
provided in Article 29.
27.02. This Lease is subject to the further limitations that: (a) if
Tenant shall default in the payment of any Rent, and such default shall continue
for ten (10) days after notice thereof, or (b) if Tenant shall, whether by
action or inaction, be in default of any of its obligations under this Lease
(other than a default in the payment of Rent) and such default shall continue
and not be remedied within thirty (30) days after Landlord shall have given to
Tenant a notice specifying the same, or, in the case of default which cannot
with due diligence be cured within a period of thirty (30) days and the
continuance of which for the period required for cure will
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not subject Landlord, Prime Landlord, Superior Mortgagor or Superior Lessor to
prosecution for a crime (as more particularly described in the last sentence of
Section 12.02.) or termination of any Superior Lease or foreclosure of any
Superior Mortgage, if Tenant shall not, (i) within said thirty (30) day period
advise Landlord of Tenant's intention to take all steps necessary to remedy such
default, (ii) duly commence within said thirty (30) day period and thereafter
diligently prosecute to completion all steps necessary to remedy the default,
and (iii) to complete such remedy within a reasonable time after the date of
said notice by Landlord, or (c) if any event shall occur or any contingency
shall arise whereby this Lease would, by operation of law or otherwise, devolve
upon or pass to any person, firm or corporation other than Tenant, except as
expressly permitted by Article 11, or (d) if Tenant shall abandon the Demised
Premises, then in any of said cases Landlord may give to Tenant a notice of
intention to end the Term at the expiration of five (5) days from the date of
the service of such notice of intention, and upon the expiration of said five
(5) days, whether or not the Term shall theretofore have commenced, this Lease
shall terminate with the same effect as if that day were the Expiration Date of
this Lease, but Tenant shall remain liable for damages as provided in Article
29.
ARTICLE 28
----------
RE-ENTRY BY LANDLORD
--------------------
28.01. If Tenant shall default in the payment of any Rent, and such
default shall continue for ten (10) Business Days after notice thereof, or if
this Lease shall terminate as provided in Article 27, Landlord or Landlord's
agent and employees may immediately or at any time thereafter re-enter the
Demised Premises, or any part thereof, either by summary dispossess proceedings
or by any suitable action or proceeding at law, or otherwise, without being
liable to indictment, prosecution or damages therefor, and may repossess the
same, and may remove any Person therefrom, to the end that Landlord may have,
hold and enjoy the Demised Premises. The word "re-enter" as used herein, is not
restricted to its technical legal meaning. If this Lease is terminated under the
provisions of Article 27, or if Landlord shall re-enter the Demised Premises
under the provisions of this Article 28, or in the event of the termination of
this Lease, or of re-entry, by or under any summary dispossess or other
proceedings or action or any provision of law by reason of default hereunder on
the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up
to the time of such termination of this Lease, or of such recovery of possession
of the Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 29.
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28.02. In the event of a breach or threatened breach by a party of any
of its obligations under this Lease, the other party shall also have the right
of injunction.
28.03. If this Lease shall terminate under the provisions of Article
27, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article 28, or in the event of the termination of this Lease, or re-entry,
by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Landlord
shall be entitled to retain all monies, if any, paid by Tenant to Landlord
whether as Advance Rent, Security Deposit (and interest thereon, if any) or
otherwise, but such monies shall be credited by Landlord against any Rent due
from Tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Article 29 or pursuant to
law.
ARTICLE 29
----------
DAMAGES
-------
29.01. If this Lease is terminated under the provisions of Article 27,
or if Landlord shall re-enter the Demised Premises under the provisions of
Article 28, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay as
Additional Charges to Landlord as a condition precedent to the dismissal of any
summary dispossess or other proceeding or action for damages, at the election of
Landlord, either:
(a) A sum which at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be,
represents the then present value of the aggregate amount of the Rent
which would have been payable by Tenant (conclusively presuming the
average monthly Additional Rent to be the same as were the average
monthly Additional Rent payable for the year, or if less than 365 days
have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry) for the period
commencing with such earlier termination of this Lease or the date of
any such re-entry, as the case may be, and ending with the Expiration
Date; or
(b) Sums equal to the Fixed Rent and the Additional Charges which
would have been payable by Tenant had this Lease not so terminated, or
had Landlord not so re-entered the Demised Premises, payable upon the
due dates therefor specified herein following such
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termination or such re-entry and until the Expiration Date, provided,
however, that if Landlord shall relet the Demised Premises during said
period, Landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from
such reletting the expenses incurred or paid by Landlord in
terminating this Lease or in reentering the Demised Premises and in
securing possession thereof, as well as the expense of reletting,
including, without limitation, altering and preparing the Demised
Premises for new tenants, brokers' commissions, legal fees, and all
other expenses properly chargeable against the Demised Premises and
the rental therefrom, it being understood that any such reletting may
be for a period shorter or longer than the period ending on the
Expiration Date; but in no event shall Tenant be entitled to receive
any excess of such net rents over the sums payable by Tenant to
Landlord hereunder, nor shall Tenant be entitled in any suit for the
collection of damages pursuant to this subdivision (b) to a credit in
respect of any rents from reletting, except to the extent that such
net rents are actually received by Landlord. If the Demised Premises
or any part thereof should be relet in combination with other space,
then proper apportionment on a square foot basis shall be made of the
rent received from such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord
before presentation of proof of such damages to any court, commission or
tribunal, the amount of rent reserved upon such reletting shall, prima facia, be
the fair and reasonable rental value for the Demised Premises, or part thereof,
to relet during the term of the reletting. Landlord shall not be liable in any
way whatsoever for its failure or refusal to relet the Demised Premises or any
part thereof, or if the Demised Premises or any part thereof are relet, for its
failure to collect the rent under such reletting, and no such failure or refusal
To relet or failure to collect the rent shall release or affect Tenant's
liability for damages or otherwise under this Lease. Landlord shall be under no
obligation in reletting the Demised Premises to give priority to the leasing
thereof over other vacant space in the Building.
29.02. Suit or suits for the recovery of any such damages, or any
installments thereof, may be brought by Landlord at any time and from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term would have expired if it
had not been so terminated under the provisions of Article 27 or
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under any provision of law, or had Landlord not re-entered the Demised Premises.
Nothing herein contained shall be construed to limit or preclude recovery by
Landlord against Tenant of any sums or damages to which, in addition to the
damages particularly provided above, Landlord may lawfully be entitled by reason
of any default hereunder on the part of Tenant. Nothing herein contained shall
be construed to limit or prejudice the right of Landlord to prove and/or obtain
as damages by reason of the termination of this Lease or re-entry on the Demised
Premises for the default of Tenant under this Lease an amount equal to the
maximum amount permitted by any statute or rule of law in effect at the time
when the governing proceedings have been initiated, whether or not such amount
is greater than, equal to, or less than any of the sums referred to in Section
29.01.
29.03. In addition, if this Lease is terminated under the provisions
of Article 27, or if Landlord shall re-enter the Demised Premises under the
provisions of Article 28, Tenant covenants that: (a) the Demised Premises then
shall be in the same condition as that in which Tenant has agreed to surrender
the same to Landlord at the Expiration Date; (b) Tenant shall have performed
prior to any such termination any obligation of Tenant contained in this Lease
for the making of any alteration or for restoring or rebuilding the Demised
Premises or the Building, or any part thereof; and (c) for the breach of any
covenant of Tenant set forth above in this Section 29.03, Landlord shall be
entitled immediately without notice or other action by Landlord, to recover, and
Tenant shall pay as and for liquidated damages therefor, the cost of performing
such covenant (as estimated by an independent contractor selected by Landlord).
29.04. In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under this Article 29, if any Rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) days after notice therefor, the
same shall bear interest at the Late Payment Rate pursuant to Section 3.05 from
the due date thereof until paid, and the amount(s) of such interest shall be
Additional Charges hereunder.
29.05. In addition to any remedies which Landlord may have under this
Lease, if there shall be a default hereunder by Tenant which shall not have been
remedied within the applicable grace period, Landlord shall not be obligated to
furnish to Tenant or the Demised Premises any HVAC services, or any building
services; and the discontinuance of any one or more of such services shall be
without liability by Landlord to Tenant and shall not reduce, diminish or
otherwise affect any of Tenant's covenants and obligations under this Lease.
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ARTICLE 30
----------
AFFIRMATIVE WAIVERS
-------------------
30.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or them might have under or by reason of any present or future
law, to redeem the Demised Premises or to have a continuance of this Lease after
being dispossessed or ejected from the Demised Premises by process of Law or
under the terms of this Lease or after the termination of this Lease as provided
in this Lease.
30.02. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including without limitation, any
claim of injury or damage, and any emergency and other statutory remedy with
respect thereto. Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the Demised
Premises.
ARTICLE 31
----------
NO WAIVERS
----------
31.01. The failure of the Landlord to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 32
----------
CURING TENANT'S DEFAULTS
------------------------
32.01. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of ten (10) days from the
date Landlord gives Tenant notice of the default. Bills for any expenses
incurred by Landlord in connection with any such performance by it for the
account of Tenant, and bills for all costs, expenses and disbursements of every
kind and nature whatsoever, including reasonable attorney's fees and expenses,
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involved in collecting or endeavoring to enforce any rights against Tenant or
Tenant's obligations hereunder, under or in connection with this Lease or
pursuant to law, including any such cost, expense and disbursement involved in
instituting and prosecuting Summary Dispossess proceedings or in recovering
possession of the Demised Premises after default by Tenant or upon the
expiration of the Term or sooner termination of this Lease, and interest on all
sums advanced by Landlord under this Article at the interest rate provided in
Section 3.05 may be sent by Landlord to Tenant monthly, or immediately at
Landlord's option and such amounts shall be due and payable in accordance with
the terms of such bills.
ARTICLE 33
----------
BROKER
------
33.01. Parties represent that no broker except the Broker was
instrumental in bringing about or consummating this Lease and that the parties
have had no conversations or negotiations with any broker except the Broker
concerning the leasing of the Demised Premises. Parties agree to indemnify and
hold harmless each other against and from any claims for any brokerage
commissions and all costs, expenses and liabilities in connection therewith,
including, without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by each other with any broker other than the
Broker. Landlord shall pay any brokerage commissions due the Broker for the
leasing of the Demised Premises as defined in Section 1.01(L) pursuant to a
separate agreement between Landlord and the Broker.
ARTICLE 34
----------
NOTICES
-------
34.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered, or delivered by any nationally
recognized over-night delivery service, or sent by United States registered or
certified mail, return receipt requested, addressed to the other party at the
following addresses:
As to Tenant: Pilot Network Services, Inc.
1000 Marine Village Parkway, Suite 100
Alameda, California 94501
Attn: M. Marketta Silvera
Chief Financial Officer
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With a copy to: Venture Law Group
2800 Sandhill Road
Menlo Park, CA 94025
Attn: Craig Johnson, Esq.
As to Landlord: International Career Information, Inc.
111 Pavonia Avenue
Jersey City, New Jersey 07310
Attn: Koshi Okamoto
Senior Vice President
With a copy to: Eugene T. Paolino, Esq.
Schumann, Hanlon & Panepinto
30 Montgomery Street - 15th Floor
Jersey City, New Jersey 07302
Any such notices shall be deemed to have been given, rendered or made
on the date received if delivered by hand or the second day after the day so
mailed unless mailed outside the State of New Jersey, in which case it shall be
deemed to have been given, rendered or made on the third Business Day after the
day so mailed. Either party may, by notice as aforesaid, designate a different
address or addresses for notices, statements, demands, consents, approvals or
other communications intended for it.
ARTICLE 35
----------
ESTOPPEL CERTIFICATES
---------------------
35.01. Each party shall, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice,
execute and deliver to the requesting party a statement certifying that this
Lease is not modified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge and stating
whether or not, to the best knowledge of the party giving the statement, any
event has occurred which with the giving of notice or passage of time, or both,
would constitute such a default of the requesting party, and, if so, specifying
each such event; and such statement delivered pursuant hereto shall be deemed a
representation and warranty to be relied upon by the party requesting the
certificate and by others with whom such party may be dealing, regardless of
independent investigation. Tenant also shall include in any such statement such
other information concerning this Lease as Landlord may reasonably request.
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ARTICLE 36
----------
ARBITRATION
-----------
36.01. Landlord may at any time request arbitration, and Tenant may at
any time when not in default in the payment of any Rent request arbitration, of
any matter in dispute but only where arbitration is expressly provided for in
this Lease. Such dispute shall be submitted to the arbitration of three (3)
disinterested persons, one of whom shall be chosen by each of the parties
hereto, and the third by the two arbitrators so chosen; and the award and
finding of said arbitrators, or of any two of them, shall be final and
conclusive on any questions or matters so submitted to them. In case an
arbitration is not otherwise arranged, either party desiring such submission to
arbitration shall notify the other party in writing of the matter which it
desires to submit to arbitration, designating its arbitrator in such notice.
Within twenty (20) days thereafter, the party thus notified shall name its
arbitrator, and notify the other party of such selection. The arbitrators thus
selected shall immediately proceed to select the third arbitrator as aforesaid,
and with him to consider and determine all matters submitted. In case the party
notified of the desired submission to arbitration shall fail, upon due
notification, to name an arbitrator, the arbitrator selected by the other party
shall have the right to proceed alone and determine the matters thus submitted,
and his award shall be final and conclusive upon the parties hereto. In the
event that the two arbitrators first selected shall be unable to agree upon the
third arbitrator within twenty (20) days after the selection of the second
arbitrator, either party hereto, upon giving ten (10) days' notice in writing to
the other party, or to the arbitrator selected by such other party, may apply to
the Superior Court of New Jersey for the appointment of a third arbitrator, and
any arbitrator appointed by such court upon such application shall have the same
powers and duties as if appointed by the two arbitrators first selected as
hereinbefore provided. The award in such arbitration may be enforced on
application of either party by the order or judgment of a court of competent
jurisdiction.
36.02. If any delay in complying with any requirement of this Lease by
Landlord might subject Tenant to any fine or penalty, or to prosecution for a
crime, or materially interfere with Tenant's use and enjoyment of the Demised
Premises or its access thereto, of if it would constitute a default by Tenant
under any permitted mortgage, or of any of the foregoing, Tenant shall have the
right to remedy such default and in such event the sole question to be
determined by the arbitrators shall be whether Landlord is liable for Tenant's
costs and expenses of curing such default.
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36.03. Each party to the arbitration shall pay the costs or fees of
the arbitrator selected by it and all further costs and fees, including court
costs in connection with the arbitration, shall be shared equally by the two
parties to the arbitration. Each party shall bear the cost of its own attorneys
and experts and the additional expenses of presenting its own proofs.
ARTICLE 37
----------
OPTION TO RENEW
---------------
37.01. Tenant shall have an option to renew this Lease, for one (1)
time only, for a further period of five (5) years (the "Renewal Period"),
provided Tenant is not in default under any terms of this Lease, upon the giving
of written notice to the Landlord at least four (4) months prior to the
Expiration Date. Except for this Article 37 and, further, except for the amount
of Fixed Rent as set forth in Section 1.01(N), all other terms and conditions of
this Lease shall continue during the Renewal Period. Fixed Rent during the
Renewal Period shall be at fair market rental for first class office buildings
in the New York - New Jersey metropolitan area and the "Gold Coast" area of the
New Jersey Waterfront. In no event, however, shall Fixed Rent for Tenant, as
determined by agreement between the parties or by an appraiser, as hereinafter
provided, be less than $26.00 per rentable square foot. Should the parties be
unable to agree as to the fair market rental within sixty (60) days of Tenant's
notice to the Landlord exercising the option contained in this Article, then the
Fixed Rent for the Renewal Period shall be determined by an independent
appraiser selected by the Landlord in its sole discretion.
ARTICLE 38
----------
BUILDING NAME
-------------
38.01. The Building may be designated and known by any name or address
Landlord may choose from time to time in Landlord's sole discretion. Tenant
agrees not to refer to the Building by any name or address other than as
designated by Landlord. The Building may be named after any person, firm, or
otherwise, whether or not such name is, or resembles, the name of a tenant of
the Building. In no event shall Tenant use, in connection with its business or
otherwise, any photographic or other type of representation of the Building. In
the event the Building is named after any person, firm or otherwise, Tenant, in
connection with its business or otherwise, shall not refer to the Building by
such name but shall only use the street address of the Building.
38.02. Tenant shall have the right, subject to Landlord's prior
written consent, to have its name included in the Building directory.
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ARTICLE 39
----------
ENVIRONMENTAL LAWS
------------------
39.01. Tenant acknowledges the existence of federal, state and local
environmental laws, rules and regulations including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) 42
U.S.C. 9601-9657, the Resource Conservation and Recovery Act (RCRA) 42 U.S.C.
6901-6987, the State of New Jersey Industrial Site Recovery Act of 1983 (ISRA)
N.J.S.A. 13:1K-6 to 18 and the Spill and Compensation and Control Act N.J.S.A.
58:10-23.11 et seq., all of which, together with any successor legislation, are
collectively referred to hereinafter as the "Environmental Laws". Tenant agrees,
from and after the date hereof, to act in compliance with the Environmental Laws
and that it shall not perform any acts in violation of the Environmental Laws.
Tenant represents to the Landlord that Tenant's Standard Industrial
Classification (SIC) Number, as used on its Federal Tax Return, will not, under
the applicable rules and regulations existing as of the date hereof, subject the
Demised Premises, the Building or the Land to ISRA applicability. Tenant
represents to Landlord and covenants that Tenant will not change to an operation
with a different SIC Number without Landlord's and Prime Landlord's prior
written consent. Any such proposed change shall be sent in writing to Landlord
sixty (60) days prior do the proposed change. Landlord or Prime Landlord may
deny consent, if, inter alia, the different SIC Number would subject the Demised
----------
Premises, the Building or the Land to ISRA applicability.
39.02. Upon the occurrence of any event requiring Tenant's compliance
with ISRA, or if Landlord by reason of any act or omission or failure to act or
not act on the part of Tenant, shall be required to comply with ISRA, Tenant
shall make all necessary filings with the New Jersey Department of Environmental
Protection ("DEPE") and any other relevant federal, state, county or municipal
legal authority and, at its own expense, shall cause all necessary tests and
studies to be performed. Landlord shall complete such documents and otherwise
cooperate (provided such cooperation does not subject Landlord to any fee, cost,
expense or liability or require performance by Landlord of Tenant's obligation
hereunder) as may be reasonably requested by Tenant or required by the ISRA
requirements of the DEPE. In the event an environmental clean-up is required,
the Landlord shall have an unrestricted right to inspect, as often as it deems
necessary in its sole discretion, during and after such clean-up.
39.03. Tenant hereby agrees to execute such documents and provide such
information as Landlord reasonably requires to assure compliance with ISRA or to
comply with the Environmental Laws, and rules or regulations of any other
relevant federal, state, county or municipal legal authority. Tenant shall bear
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all costs and expenses incurred by Landlord associated with any required ISRA
compliance resulting from Tenant's use of the Demised Premises or any acts
and/or omissions which Tenant, its agents, employees, invitees or independent
contractors initiate, including, without limitation, state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ISRA compliance shall include applications for determinations of
non applicability from the appropriate legal authority. Tenant agrees to
indemnify and hold Landlord and Prime Landlord harmless from and against any
fines, suits, proceedings, claims and actions and any other cost, expense or
liability of any kind arising under the Environmental Laws, rules or regulations
resulting from Tenant's failure to comply with this Article 39 or Tenant's
failure to provide all information, make all submissions and take all actions
required by any legal authority, including reasonable attorney's fees.
39.04. Tenant shall immediately provide Landlord with copies of all
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to Tenant's compliance hereunder or any other environmental
enforcement requirements under any Environmental Laws as they are issued or
received by Tenant. More specifically, but not limiting the foregoing, Tenant
shall promptly provide Landlord with: (i) all documentation and correspondence
provided to DEPE pursuant to the Worker and Community Right to Know Act,
N.J.S.A. 34:5A-1 et seq. and the regulations promulgated thereunder; (ii) all
reports and notices made by Tenant pursuant to the Hazardous Substance
Discharge-reports and Notices Act, N.J.S.A. 13:1K-15 et seq. and the New Jersey
Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq., and the
regulations promulgated thereunder; and (iii) any notices, correspondence and
submissions made by Tenant to DEPE, the United States Environmental Protection
Agency, the United States Occupational Safety and Health Administration, or any
other legal authority which requires submission of any information concerning
environmental matters of hazardous wastes or substances, and any notices,
correspondence, documents and directives received by Tenant from any of said
authorities.
39.05. In addition to any other remedies of Landlord pursuant to this
Lease, Tenant's failure to abide by the terms of this Article 39 shall survive
the Expiration Date or earlier termination of the Term of this Lease. Tenant's
failure to abide by the terms of this Article shall be restrainable by
injunction.
39.06. Tenant shall indemnify, defend and hold Landlord, Prime
Landlord, Superior Lessors and Superior Mortgagees harmless from and against all
claims, liabilities, losses, damages and costs, foreseen or unforeseen,
including without limitation, reasonable attorney's fees, engineering and
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other professional and expert fees and costs, which Landlord may incur by reason
of Tenant's action or non-action with regard to Tenant's obligations under this
Article.
39.07. At expiration or earlier termination of this Lease, Landlord
may require and Tenant shall obtain a statement from the DEPE of compliance with
ISRA, its amendments or rules and regulations promulgated thereunder, or a
Letter of Non-Applicability, as the case may be.
ARTICLE 40
----------
MISCELLANEOUS
-------------
40.01. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement(s) which may be made between the parties
concurrently with the execution and delivery of this Lease. All understandings
and agreements heretofore had between the parties are merged in this Lease and
any other written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation. Neither party has relied upon any statement or
representation not embodied in this Lease or in any other written agreement(s)
made concurrently herewith.
40.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease in whole or
in part, unless such agreement is in writing, refers expressly to this Lease and
is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
40.03. If Tenant shall at any time request Landlord to sublet or let
the Demised Premises for Tenant's account, Landlord or its agent is authorized
to receive keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord from any
liability for loss or damage to any of the Tenant's Property in connection with
such subletting or letting.
40.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights in any
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successor or assignee of Tenant and (b) the provisions of this Section 40.04
shall not be construed as modifying the conditions of limitation contained in
Article 27.
40.05. Except for Tenant's obligations to pay Rent, the time for
Landlord or Tenant, as the case may be, to perform any of is respective
obligations hereunder shall be extended if and to the extent that the
performance thereof shall be prevented due to any Unavoidable Delays. Except as
expressly provided to the contrary, the obligations of Tenant hereunder shall
not be affected, impaired or excused, nor shall Landlord have any liability
whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed
in fulfilling, any of its obligations under this Lease due to any of the matters
set forth in the first sentence of this Section 40.05, or (b) because of any
failure or defect in the supply, quality or character of electricity, water or
any other utility or service furnished to the Demised Premises for any reason
beyond the Landlord's reasonable control.
40.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration or earlier
termination of this Lease.
40.07. Tenant shall not exercise its rights under Article 15 or any
other provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing, labor disruption or dispute or
any interference with the business of Landlord or any tenant or occupant of the
Building.
40.08. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Demised Premises for which Landlord might be liable,
(b) any fire or other casualty in the Demised Premises, (c) any damage to or
defect in the Demised Premises, including the fixtures and equipment thereof,
for the repair of which Landlord might be responsible, and (d) any damage to or
defect in any part of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in, on or passing through
the Demised Premises or any part thereof.
40.09. This Lease shall be governed by and construed in accordance
with the laws of the State of New Jersey. If any provision of this Lease shall
be invalid or unenforceable, the remainder of this Lease shall not be affected
and shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. Each covenant, agreement,
obligation or other provision of this Lease on Tenant's part to be performed,
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision of this Lease. All terms and
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words used in this Lease, regardless of the number or gender in which they are
used, shall be deemed to include any other number and any other gender as the
context may require.
40.10. If deemed necessary by Landlord, no person will be allowed
access to the Building without a security pass which shall be issued by Landlord
upon written request of Tenant. Tenant shall be fully liable for the acts of all
persons for whom a security pass is requested. All security passes shall be
returned to Landlord in the event the persons to whom they were issued are no
longer employed by Tenant or are otherwise not entitled to access to the
Building. In no event shall Landlord be liable for its refusal to allow access
to the Building to any person who does not have a security pass.
40.11. As part of its security program for the Building, Landlord may
restrict entry to the elevator lobby of the Building by use of an electronically
controlled lock activated by a "card-key" which is electronically programmed
with a special access code to permit entry. Landlord will issue card-keys to
Tenant, provided that Tenant shall pay to Landlord a charge for each card issued
at the rates established from time to time by Landlord for all tenants of the
Building. Tenant may obtain a replacement of any lost or stolen card-key,
provided that Tenant shall pay to Landlord its then established charges for the
issuance of replacement cards and for reprogramming of the security card access
system to permit the use of the replacement cards issued. Landlord shall have no
liability to Tenant, its employees, invitees or any other person for any
injuries, damages, losses, costs or expenses, including, without limitation,
theft of property, suffered or incurred by anyone by reason of the non-operation
or malfunction of said card-key entry system.
40.12. Whenever in this Lease Tenant is required to obtain Landlord's
consent or approval, Tenant understands that Landlord may be required to first
obtain the consent or approval of Prime Landlord pursuant to the Master Lease.
If Prime Landlord should delay any such consent or approval, Landlord may
similarly delay any consent or approval to Tenant. If Prime Landlord should
refuse such consent or approval, Landlord shall be released from any obligation
to grant its consent or approval, whether or not Prime Landlord's refusal, in
Tenant's opinion, is arbitrary or unreasonable. Tenant agrees that Landlord
shall not have any duty or responsibility with respect to obtaining such consent
or approval of Prime Landlord when the same is required under the terms of the
Master Lease, other than the mere transmissions by Landlord to Prime Landlord of
Tenant's request for such consent or approval.
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40.13. With respect to any provisions of this Lease which provide, in
effect, the Landlord shall not unreasonably withhold or unreasonably delay any
consent or approval, Tenant in no event shall be entitled to make, nor shall
Tenant make, any claim and Tenant hereby waives any claim, for money damages;
nor shall Tenant claim any money damages by way of set-off, counterclaim or
defense, based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed any consent or approval; but
Tenant's sole remedy shall be an action or proceeding to enforce any such
provision, or for specific performance, injunction or declaratory judgment.
Landlord shall not be deemed to have unreasonably withheld or delayed its
consent or approval if the same or similar consent or approval is required to be
obtained from Prime Landlord pursuant to the terms of the Master Lease and Prime
Landlord withholds or delays its consent or approval.
40.14. To the extent that Landlord, its agents, employees or licensees
have access to the Demised Premises pursuant to the provisions of this Lease or
otherwise, Landlord agrees to indemnify, defend and save harmless Tenant from
and against all bodily harm and personal injury, loss, claim and damage to or of
any person or property of whatever nature arising from any act, omission, fault,
misconduct or negligence of Landlord, or Landlord's contractors, licensees,
agents, servants or employees, unless caused by the Tenant's negligence or
willful misconduct. This indemnity and hold harmless clause shall include
indemnity against all costs, expense and liabilities paid or incurred in or in
connection with any such claim or proceeding brought thereon and the defense
thereof, and shall include reasonable attorney's fees.
40.15. Landlord shall provide Tenant with periodic notice on not less
than two (2) occasions per year if any additional space on the third (3rd) floor
of the Building shall become vacant and available for lease. Landlord shall have
no other obligation to lease such premises to Tenant except to provide such
periodic notice.
40.16. If the Master Lease terminates for any reason whatsoever prior
to the date on which this Lease is scheduled to expire, this Lease shall
thereupon terminate. Landlord shall not be liable to Tenant by reason of any
such termination and thereafter shall have no further obligations of any kind
whatsoever.
40.17. This Lease is subject to the Master Lease, and Tenant accepts
this Lease subject to the Master Lease, as amended and supplemented and any
amendments and supplements to the Master Lease hereafter made between Prime
Landlord and Landlord. Landlord warrants and represents that (i) subject to
Section 1.01(J) the Lease is permitted under the terms of the Master
59
<PAGE>
Lease; (ii) the leasing of the Demised Premises does not constitute a breach of
the Master Lease; (iii) to the best of Landlord's knowledge, there are no
present breaches of the Master Lease and (iv) the Master Lease is currently in
full force and effect.
40.18. (a) If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified, if a foreign corporation, corporation
and is authorized to do business in the State of New Jersey (a copy of evidence
thereof shall be supplied by Tenant to Landlord upon request); and that each
person executing this Lease on behalf of Tenant is an officer of Tenant and is
duly authorized to execute, acknowledge and deliver this Lease to Landlord (a
copy of resolution to such effect shall be supplied by Tenant to Landlord upon
request).
(b) If Tenant is a partnership (or is comprised of two (2) or
more persons, individually, or as joint venturers or as copartners of a
partnership), or if Tenant's interest in this Lease shall be assigned to a
partnership (or to two (2) or more persons, individually, or as joint venturers
or as co-partners of a partnership) (any such partnership and such persons are
referred to in this Article as the "Partnership Tenant"), the following shall
apply: (i) the liability of each of the parties comprising the Partnership
Tenant shall be joint and several (ii) each of the parties comprising the
Partnership Tenant hereby consents in advance to, and agrees to be bound by, any
modifications, termination, discharge or surrender of this Lease which may
hereafter be made, and by any notices which may hereafter be given, by the
Partnership Tenant or by any of the parties comprising the Partnership Tenant,
(iii) any notices given or rendered to the Partnership Tenant or to any of the
parties comprising the Partnership Tenant shall be deemed given or rendered to
the Partnership Tenant and to all such parties and shall be binding upon the
Partnership Tenant and all parties, (iv) if the Partnership Tenant shall admit
new partners, all such new partners shall, by their admission to the Partnership
Tenant, be deemed to have assumed performance of all of the terms of this Lease
on Tenant's part to be performed and (v) the Partnership Tenant shall give
prompt notice to Landlord of the admission of any such new partners, and upon
demand of Landlord, shall cause each such new partner to execute and deliver to
Landlord and agreement in form satisfactory to Landlord, wherein each such new
partner shall assume performance of all of the terms of this Lease on Tenant's
part to be performed (but neither Landlord's failure to request any such
agreement nor the failure of any such new partner to execute or deliver any such
agreement to Landlord shall vitiate the provisions of this Section).
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40.19. All Exhibits to this Lease are hereby incorporated into this
Lease, and references to "this Lease" shall include all Exhibits.
40.20. Tenant shall not place a load upon any floor that exceeds the
floor load per square foot that such floor was designed to carry or which is
allowed by any laws.
40.21. Tenant acknowledges that there may be noise, dust, vibrations
and other effects from construction work occurring near or about the Building
and that Tenant shall have no claims against Landlord for any disruption caused
by same or interruption or interference with Tenant's business resulting from
same and that Landlord shall have no liability otherwise to Tenant therefor.
40.22. In the event Tenant is in arrears in the payment of Rent,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by or refunds payable to Tenant are to be credited and Landlord
may apply any payments made by Tenant to any items Landlord sees fit,
irrespective of and notwithstanding any designation or requests by Tenant as to
the items against which any such payments shall be credited.
40.23. In the event Landlord incurs legal, investigative and/or other
professional fees and expenses in connection with any request to Landlord by
Tenant for any action, other than that specifically required of the Landlord
pursuant to the provisions of the Lease, then, in that event, the reasonable
cost of such legal, investigative and/or other professional fees and expenses,
incurred by the Landlord, shall be paid on demand by Tenant to the Landlord.
40.24. The person signing this Lease on behalf of Tenant personally
represents and warrants to Landlord that (i) all action necessary to be taken
and all consents necessary to be obtained to fully authorize the execution,
delivery and performance of this Lease by Tenant has been duly taken or
obtained, as the case may be and (ii) he or she is a duly authorized officer of
Tenant who has full power and authority to execute and deliver this Lease on
behalf of Tenant and bind Tenant to all of the terms and conditions hereof.
40.25. Telephone installation and service shall be the sole
responsibility of Tenant at Tenant's sole cost and expense unless agreed
otherwise in writing between Landlord and Tenant. Tenant shall make all
arrangements for telephone service with the company supplying said service,
including the deposit requirement
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for the furnishing of service. Landlord shall not be responsible for any delays
occasioned by failure of the telephone company to furnish service.
40.26. If at any time Tenant believes that Landlord has not acted
reasonably in the granting or withholding of any approval or consent, as to
which consent the Landlord has expressly agreed to act reasonably, or absent
such agreement, a court of competent jurisdiction, arbitrator or arbitration
panel would require Landlord to act reasonably, then Tenant's sole remedy shall
be to seek injunctive relief or specific performance, and no action for monetary
or punitive damages shall in any event or under any circumstances be maintained
by Tenant against Landlord.
40.27. Except as otherwise provided herein, Landlord shall only be
deemed to be in default under the terms of this Lease if Landlord shall violate,
neglect, or fail to observe, keep or perform any covenant or agreement which is
not observed, kept or performed by Landlord within forty-five (45) days after
receipt by Landlord of written notice by Tenant of such breach which notice
shall specifically set forth the nature of the breach. Landlord shall not be
considered in default so long as Landlord commences to cure the breach in a
diligent and prudent manner and is allowed such additional time as is reasonably
necessary to correct the breach.
40.28. In the event Tenant is, for any reason, entitled to protection
by virtue of Sovereign Immunity, Tenant hereby unconditionally waives such
Sovereign Immunity with respect to the performance of the terms and conditions
under this Lease.
40.29. This Lease may be executed in one or more counterparts, each
of which shall be original, and all of which shall constitute one and the same
instrument.
ARTICLE 41
----------
PARKING
-------
41.01. Landlord agrees that Tenant shall have the right to use three
(3) unassigned spaces in the parking facilities furnished by the Prime Landlord
to the Landlord at the rate of $135.00 per space per month, subject to periodic
adjustments upon thirty (30) days prior written notice to the Tenant, during the
term of the Lease. Such right shall be exercised within sixty (60) days of the
execution of the within Lease and shall be effective immediately upon receipt of
such notice. Tenant's right to use the parking facilities shall terminate on the
Expiration Date or earlier termination of the Lease.
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41.02. Tenant shall not be entitled to assign or sublicense its
parking rights under this Lease.
41.03. Tenant shall indemnify, defend, and hold Landlord harmless
from and against any and all claims, lawsuits, damages or actions for property
loss or personal injuries to third parties, arising out of, or in connection
with, Tenant's use of the parking facilities.
41.04. Tenant shall be responsible for any and all loss or damage to
Tenant's property, by fire or other casualty, ordinary wear and tear, or from
any other cause or circumstance that may occur. Landlord shall not be liable for
any damage or injury from any cause which may be sustained by Tenant or any
other person.
41.05. Tenant, Tenant's employees or Tenant's visitors shall use the
parking spaces solely for the parking of personal motor vehicles.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
LANDLORD:
ATTEST: RFG CO., LTD.
BY: International Career
Information, Inc., as Agent
[SIGNATURE ILLEGIBLE] BY: /s/ Koshi Okamoto
- ---------------------------- ----------------------------
Name: KOSHI OKAMOTO
Title: Senior Vice President
TENANT:
ATTEST: PILOT NETWORK SERVICES, INC.
/s/ Robert G. Carrade BY: /s/ M.Marretta Silvera
- ------------------------ -----------------------------
Name: Robert G. Carrade Name: M. MARRETTA SILVERA
Title: Director of Finance Title: CHIEF EXECUTIVE OFFICER
63
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STATE OF NEW JERSEY )
) SS.:
COUNTY OF HUDSON )
BE IT REMEMBERED, that on October , 1995 before me, the subscriber,
a Notary Public of the State of New Jersey personally appeared ________________
who, being by me duly sworn on his oath, deposed and made proof to my
satisfaction, that he is the _______________________ of International Career
Information, Inc., a Delaware corporation, the entity that executed the within
instrument as agent for RFG Co., Ltd.; that deponent knows that Koshi Okamoto is
the Senior Vice President of said corporation.
The execution as well as the making of this instrument has been duly
authorized by a proper resolution of the Board of Directors of the said
corporation; that the deponent well knows the corporate seal of said
corporation; that the seal affixed to the said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said Koshi Okamoto as and for the voluntary act and deed of said corporation
in the presence of the deponent who thereupon subscribed his name thereto as
attesting witness.
[SIGNATURE ILLEGIBLE]
----------------------------------
Sworn to and subscribed
before me on the date
aforesaid
/s/ EDWARD F. NELSON
- ----------------------------------
Notary Public
[Notarial Seal]
64
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STATE OF )
) ss.:
COUNTY OF )
BE IT REMEMBERED, that on October , 1995 before me, the subscriber,
a Notary Public of the State of New Jersey personally appeared ________________
who, being by me duly sworn on his oath, deposed and made proof to my
satisfaction, that he is the _________________ of Pilot Network Services, Inc.,
a _______________________ corporation, the entity that executed the within
instrument; that deponent knows that ____________________ is the ______________
of said corporation.
The execution as well as the making of this instrument has been duly
authorized by a proper resolution of the Board of Directors of the said
corporation; that the deponent well knows the corporate seal of said
corporation; that the seal affixed to the said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said ___________________ as and for the voluntary act and deed of said
corporation in the presence of the deponent who thereupon subscribed his name
thereto as attesting witness.
______________________________________
Name:
Sworn to and subscribed
before me on the date
aforesaid
___________________________
Notary Public
[Notarial Seal]
65
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EXHIBIT A
DESCRIPTION OF THE REAL PROPERTY
BEGINNING at a point at the southwesterly corner of the herein described,
having coordinates in the New Jersey Plane Coordinate System of N 690,094.82
feet and E 2,175,100.78 feet, said point further described as being the
following courses from the intersection of the easterly line of Tract 1-B (also
known as Washington Boulevard) of Newport City with the southwesterly most line
of lands of Newport City as shown on certain maps entitled "Final Subdivision
Plan for Newport City, Jersey City, Hudson County, New Jersey," filed December
12, 1985 as Maps 3195 and 3196 and as amended by Maps 3206 and 3207 filed May
20, 1986;
a. Along said easterly line of Tract 1-B, N 08 degrees 21 minutes 01
seconds E, 406.64 feet to a point of curvature, thence;
b. Along the same, northerly along a curve to the right having a radius
of 740.00 feet, an arc distance of 221.32 feet to a point of rectangular,
thence;
c. Still along the same, N 25 degrees 29 minutes 13 seconds E, 128.99
feet to a point at the intersection of the same with the southerly line of the
herein described as produced westerly, thence;
d. Along said line, S 83 degrees 42 minutes 51 seconds E, 102.94 feet to
the aforesaid point of beginning and running, thence;
1. N 6 degrees 17 minutes 09 seconds E, 131.67 feet,
thence;
2. S 83 degrees 42 minutes 51 seconds E, 419.50 feet,
thence;
3. S 6 degrees 17 minutes 09 seconds W, 131.67 feet to a point in an
existing marine bulkhead, thence;
4. Along said bulkhead, N 83 degrees 42 minutes 51 seconds W, 419.50
feet to the point of BEGINNING.
HEREIN DESCRIBED CONTAINING 55,234 SQUARE FEET OR 1.2680 ACRES. DESCRIPTION
IN ACCORDANCE WITH A CERTAIN PLAN ENTITLED "SUBDIVISION PORTION OF TRACT 2,
NEWPORT CITY CENTER - 1, TAX MAP LOT - B10A IN BLOCK-16, CITY OF JERSEY CITY,
HUDSON COUNTY, NEW JERSEY," DRAWING NO. 85-269-19, DATED JULY 3, 1983, REV. JULY
8, 1986, PREPARED BY BOSWELL ENGINEERING, RIDGEFIELD PARK, NEW JERSEY.
<PAGE>
EXHIBIT B
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any tenant or used for any purpose other than for ingress or egress from the
Building and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Landlord.
There shall not be used in any space, or in the public hall of the Building,
either by any tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building; and no tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the Building and tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, and/or vibrations, or unreasonably interfere in any way with other
tenants or those having business therein, nor shall any animals or birds be kept
in or about the demised premises or the Building. Smoking or carrying lighted
cigars or cigarettes in the elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside of the
demised premises if the same is visible from the outside of the demised premises
without the prior written consent of Landlord, except that the name of tenant or
any subtenant may appear on the entrance door of the demised premises. In the
event of the violation of the foregoing by tenant, Landlord may remove same
without any liability, and may charge the expense incurred by such removal to
tenant(s)
<PAGE>
violating this rule. Interior signs on doors and a directory tablet, if any,
shall be subject to the prior written approval of Landlord.
6. Except as provided in Article 15, no tenant shall mark, paint, drill
into, or in any way deface any part of the demised premises or the Building of
which they form a part. No boring, cutting or stringing of wire shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or mechanisms thereof. Each tenant must, upon the termination of his
tenancy, restore the Landlord all keys of stores, offices and toilet rooms, and
passes to the Building, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys so furnished, such tenant shall
pay to Landlord the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the demised premises
only on the freight elevators and through the service entrances and corridors,
and only during Business Hours, and in a manner approved by Landlord. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations of the Lease of which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
10. Landlord reserves the right to exclude from the Building at all hours
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests same in
writing. Each tenant shall be responsible for all persons for whom he requests
such passes and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Building, or its desirability as a first class office building, and upon written
notice from Landlord, tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance (other than chemicals used in ordinary office use in
quantities customary therefor), or cause or permit any odors of cooking or other
<PAGE>
processes, or any unusual or other objectionable odors to permeate in or emanate
from the Premises.
13. Tenant agrees to abide by all reasonable rules and regulations issued
by the Landlord with respect to services for heating, ventilating and air-
conditioning, and if required, to keep all windows in the demised premises
closed at all times.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the Building without Landlord's prior
written consent which shall not be unreasonably withheld. If such safe,
machinery, equipment, bulky matter or fixtures requires special handling, all
work in connection therewith shall comply with all laws and regulations
applicable thereto and shall be done during such hours as Landlord may
designate.
15. No tenant shall use, or permit the use of, fire exits for ingress to
or egress from the demised premises. No tenant shall invite to the demised
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, elevators and other facilities of the Building by the
ground floor tenants. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the Retail Premises, or the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. Landlord reserves the right to control and operate the public portions
of the Building, the public facilities, as well as facilities furnished for the
common use of tenants, in such manner as Landlord deems best for the benefit of
tenants generally and consistent with a first-class office building with retail
tenants.
16. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of such
tenants, shall be paid by such tenant as provided in the Lease.
17. No window or other air-conditioning units shall be installed by any
tenant, and only such window coverings as are supplied or permitted by Landlord
shall be used in the demised premises. Tenant shall be permitted to install
opaque window panels.
18. All entrance doors in the demised premises shall be left locked when
the demised premises are not in use. Entrance doors shall not be left open at
any time.
19. No bicycles, mopeds or vehicles of any kind shall be kept in or about
the Building or permitted therein.
<PAGE>
20. The exterior windows and doors that reflect or admit light and air
into any premises or the halls, passageways or other public places in the
Building, shall not be covered or obstructed by any tenant, nor shall any
articles be placed on the windowsills.
21. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them.
<PAGE>
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT E
CLEANING STANDARDS
Office Areas - Nightly (excluding Saturdays, Sundays and Holidays)
- ----------------------
Vacuum all carpeted areas and sweep hard floors.
Empty and damp wipe ashtrays.
Empty wastepaper baskets.
Remove wastepaper and waste materials to a designated area on the premises.
Dust and wipe clean furniture, fixtures, desk equipment, telephones and window
sills with specially treated cloths.
Dust baseboards, chair rails, trim, louvres, pictures, charts, doors, etc.,
within reach.
Disinfect water fountains and coolers
Office Areas - Periodic
- -----------------------
Dust pictures, frames, charts, graphs, and similar wall hangings not reached in
nightly cleaning, monthly.
Dust vertical surfaces such as partitions, ventilating louvres, etc. not reached
in nightly cleaning, monthly.
Damp-mop hard floors, monthly.
Common Lavatories - Nightly
- ---------------------------
Sweep and wash flooring with approved germicidal detergent solution, using spray
tank method.
Wash and polish mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges.
Wash both sides of toilet seats, wash basins, bowls and urinals with approved
germicidal detergent solution.
Dust partitions, tile walls, dispensers, doors and receptacles.
Empty and clear towel and sanitary disposal receptacles.
Remove wastepaper and refuse to a designated area in the premises.
Fill toilet tissue, soap and towel dispensers.
<PAGE>
Common Lavatories - Periodic Cleaning
- --------------------------------------
Machine scrub flooring with approved germicidal detergent solution as necessary.
Wash partitions, tile walls and enamel surfaces with approved germicidal
detergent solution once a month.
Dust exterior of lighting fixtures once a month.
High dust once a month.
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (the "First Amendment"), dated November
19, 1997, made by and between RFG CO., LTD. ("Landlord"), a corporation of the
Country of Japan, having an office at Newport Financial Center, 111 Pavonia
Avenue, Jersey City, New Jersey 07310 and PILOT NETWORK SERVICES, INC.
("Tenant"), a corporation of the State of California having an office at 100
Marina Village Parkway, Alameda, California 94501.
WITNESSETH:
-----------
WHEREAS, on October 25, 1995, Landlord and Tenant entered into a lease
agreement (the "Lease") for certain demised premises (the "Demised Premises"),
consisting of 3,061 rentable square feet ("rsf") on the third (3rd) floor of
Newport Financial Center, 111 Pavonia Avenue, Jersey City, New Jersey (the
"Building"); and
WHEREAS, Tenant desires to (i) exercise its Option to Renew the Lease
pursuant to Article 37 thereof for a renewal period, commencing November 1, 1997
and expiring October 31, 2002; (ii) on April 1, 2002, add to the present Demised
Premises 2,582 rsf located on the third (3rd) floor of the Building so that the
total Demised Premises leased to Tenant shall be 5,643 rsf; (iii) make such
other amendments, modifications and changes to the Lease as the parties shall
agree herein; and
WHEREAS, Landlord is agreeable to such extension pursuant to the
provisions of this First Amendment.
1
<PAGE>
NOW, THEREFORE IN CONSIDERATION of the mutual promises and covenants
hereinafter contained, the adequacy and sufficiency of which are herein
acknowledged, the parties hereto agree as follows:
1. Effective on November 1, 1997, the following subsections of
Article 1 of the Lease are deleted in their entirety and are hereby amended,
supplemented and modified to read as follows:
1.01(B) Base Year: 1998
1.01(J) Commencement Date: November 1, 1997.
1.01(L) Demised Premises: 3,061 rentable square feet ("rsf") located
on the third (3rd) floor of the Building as shown on Exhibit D. As of
April 1, 2002, the term "Demised Premises" shall also include certain
additional premises, consisting of 2,582 rsf, located on the third
(3rd) floor of the Building; thereafter, the Demised Premises shall
consist of 5,643 rsf on the third floor of the building.
1.01(M) Expiration Date: October 31, 2002
1.01(N) Fixed Rent:
(i) $30.00 per rsf or Ninety-One Thousand Eight Hundred Third &
00/100 ($91,830.00) Dollars per year for the period commencing
on the Commencement Date and ending on June 30, 1998, payable
at the rate of Seven Thousand Six Hundred Fifty-Two & 20/100
($7,652.20) Dollars per month, as hereinafter provided; and
(ii) $32.00 per rsf or Ninety-Seven Thousand Nine Hundred Fifty-Two
& 00/l00 ($97,952.00) Dollars per year for the period
commencing on July 1, 1998 and ending on the March 31, 2002,
payable at the rate of Eight Thousand One Hundred Sixty-Two &
67/100 ($8,162.67) Dollars per month, as hereinafter provided;
and
(iii) $32.00 per rsf or One Hundred Eighty Thousand Five Hundred
Seventy-Six & 00/100 ($180,576.00) Dollars per year for the
period commencing on April 1, 2002, and ending on the
Expiration Date, payable at the rate of Fifteen Thousand Forty-
Eight & 00/100 ($15,048.00) Dollars per month, as hereinafter
provided.
2
<PAGE>
1.0l(JJ) Tenant's Fraction:
(i) "Tenant's Operating Fraction" for the Operating Expenses
attributable to the Office Component of the Building and Land shall be
1.124%. Commencing on April 1, 2002, Tenant's Operating Fraction for
the Operating Expenses attributable to the Office Component of the
Building and Land shall be 2.073%. If the size of the Demised
Premises, the Office Component or the Building shall be changed from
the initial size thereof, due to any taking, any construction or
alteration work, any reallocation of the rentable square footage
attributable to either the Office Component or Data Component of the
Building, or otherwise, the Tenant's Operating Fraction shall be
changed to the fraction the numerator of which shall be the rentable
square footage of the Demised Premises and the denominator of which
shall be the rentable square footage of the Office Component of the
Building. The term "Data Component" shall mean the entire 8th, 9th,
10th and 11th floors, representing a total of 135,635 r.s.f, in the
Building;
(ii) "Tenant's Real Estate Fraction" for Tenant's
proportionate share of Real Estate Taxes for the Building and Land
shall be .7504%. Commencing on April 1, 2002, Tenant's Real Estate
Fraction for Tenant's proportionate Share of Real Estate Taxes for the
Building and Land shall be 1.383%. If the size of the Demised Premises
or the Building shall be changed from the initial size thereof, due to
any taking, any construction or alteration work or otherwise, the
Tenant's Real Estate Fraction shall be changed to the fraction the
numerator of which shall be the rentable square footage of the Demised
Premises and the denominator of which shall be the rentable square
footage of the Building.
2. Effective on November 1, 1997, Section 19.02 of the Lease is
deleted in its entirety and is hereby amended, supplemented and modified to read
as follows:
19.02. Landlord shall supply to the Demised Premises Uninterruptible
Power Supply ("UPS") and Emergency Power Supply ("EPS") for data
processing and data transmission. Tenant shall pay to the Landlord, as
and for Additional Rent, the sum of Three Hundred Fifty-Eight & 00/100
($358.00) Dollars per KVA per annum for each of the ten (10) KVAs
reserved for Tenant's use for UPS and EPS. In the event Tenant desires
to increase the amount of UPS and EPS power reserved for Tenant's use
so that such total amount reserved is greater than ten (10) KVAs, then
Tenant shall notify Landlord in writing of the amount of any
additional UPS and EPS reserved power it requests and the effective
date for such increase. Within twenty (20) days after the date of
Tenant's written notice, Landlord shall advise Tenant whether such
additional UPS and EPS reserved power is available on the date which
Tenant has requested. If it is available, Landlord shall with
reasonable promptness provide such additional amount of UPS and EPS
reserved power to Tenant on the
3
<PAGE>
date which Tenant has requested. Thereupon, Tenant shall pay to
Landlord as and for Additional Rent the sum of $400.00 per KVA per
annum for any amount of additional UPS and EPS power reserved to
Tenant in excess of the ten (10) KVAs initially reserved by Tenant.
Additional Rent for UPS and EPS may be collectively referred to herein
as "Access Charges." Access Charges shall be pro-rated monthly and
shall be paid by Tenant at the same time and manner as Fixed Rent is
paid pursuant to Section 3.01.
3. Effective on November 1, 1997, Article 37 of the Lease is hereby
deleted in its entirety and is hereby amended, supplemented and modified to read
as follows:
ARTICLE 37
OPTION TO RENEW
---------------
37.01. Tenant shall have an Option to Renew this Lease for one (1)
time only for a further period, commencing November 1, 2002 and ending
June 13, 2009 (the "Renewal Period") provided Tenant is not in default
under any terms of this Lease, upon the giving of written notice to
Landlord at least four (4) months prior to the Expiration Date. Except
as specifically provided in this Article 37, all other terms and
conditions of this Lease shall continue during the Renewal Period.
Fixed Rent during the Renewal Period shall be:
(i) $32.00 per rsf or One Hundred Eighty Thousand Five Hundred
Seventy-Six & 00/100 ($180,576.00) Dollars per year for the
period commencing on November 1, 2002 and ending on June 30,
2004, payable at the rate of Fifteen Thousand Forty-Eight &
00/100 ($15,048.00) Dollars per month, as hereinabove provided in
Article 3; and
(ii) $38.00 per rsf or Two Hundred Fourteen Thousand Four Hundred
Thirty Four & 00/100 ($214,434.00) Dollars per year for the
period commencing on July 1, 2004 and ending on June 13, 2009,
payable at the rate of Seventeen Thousand Eight Hundred Sixty-
Nine & 50/100 ($17,869.50) Dollars per month, as hereinabove
provided in Article 3.
Access Charges during the Renewal Period for all UPS and EPS reserved
power for Tenant's use as described in Section 19.02 shall be
calculated at the rate of $400.00 per KVA per annum and payable in the
manner set forth in Section 3.01 and Section 19.02. The Base Year for
Additional Rent for Operating Expenses and Real Estate Taxes shall be
1998.
4
<PAGE>
37.02. Within sixty (60) days after the commencement of the Renewal
Period (i.e. November 1, 2002) Landlord shall repaint and re-carpet
the Demised Premises pursuant to Building standards.
4. All the terms, conditions and covenants of the Lease, not
specifically modified, altered or amended herein, including all Exhibits
thereto, shall remain unchanged and in full force and effect as contained in the
Lease.
5. Except as amended, supplemented and modified by this First
Amendment, the Lease and all covenants, agreements, terms, provisions,
conditions and exhibits thereto are hereby in all respects ratified and
confirmed. The provisions of this First Amendment shall be effective upon
execution hereof for the date set forth herein. Capitalized terms used, but not
defined in this First Amendment, shall have their respective meanings as set
forth in the Lease.
IN WITNESS WHEREOF, the parties hereto have set their hand and seal on
the date first above written.
ATTEST: LANDLORD:
RFG CO., LTD.
BY: INTERNATIONAL CAREER
INFORMATION, INC., AS AGENT
/s/ Bruce Levinthal BY: /s/ Koshi Okamoto
- ---------------------------------- -------------------------------
BRUCE LEVINTHAL KOSHI OKAMOTO
CHIEF FINANCIAL OFFICER SENIOR VICE PRESIDENT
ATTEST: TENANT:
PILOT NETWORK SERVICES, INC.
/s/ Robert G. Carrade BY: /s/ M. Marketta Silvera
- ---------------------------------- -------------------------------
NAME: Robert G. Carrade NAME: M. Marketta Silvera
TITLE: Vice President of Finance TITLE: President & CEO
5
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF HUDSON )
BE IT REMEMBERED, that on 19 November 1997 before me, the subscriber,
a Notary Public of the State of New Jersey personally appeared Bruce Levinthal,
being by me duly sworn on his oath, deposed and made proof to my satisfaction,
that he is the Chief Financial Officer of International Career Information,
Inc., a Delaware corporation, the entity, that executed the within instrument as
agent for RFG Co., Ltd.; that deponent knows that Koshi Okamoto is the Senior
Vice President of said corporation.
The execution as well as the making of this instrument has been duly
authorized by a proper resolution of the Board of Directors of the said
corporation; that the deponent well knows the corporate seal of said
corporation; that the seal affixed to the said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said Koshi Okamoto as and for the voluntary act and deed of said corporation
in the presence of the deponent who thereupon subscribed his name thereto as
attesting witness.
/s/ Bruce Levinthal
----------------------------------------
BRUCE LEVINTHAL
CHIEF FINANCIAL OFFICER
SWORN TO AND SUBSCRIBED
BEFORE ME ON THE DATE
AFORESAID
/s/ Edward F. Nelson
- -------------------------------
NOTARY PUBLIC
[NOTARIAL SEAL]
6
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ALAMEDA: )
BE IT REMEMBERED, that on Nov. 14th, 1997 before me, the subscriber, a
Notary Public of the State of California personally appeared M. Marketta who,
being by me duly sworn on her oath, deposed and made proof to my satisfaction,
that she is the Silvera of Pilot Network Services, Inc., a California
corporation, the entity that executed, the within instrument; that deponent
knows that she is the President/CEO of said corporation.
The execution as well as the making of this instrument has been duly
authorized by a proper resolution of the Board of Directors of the said
corporation; that the deponent well knows the corporate seal of said
corporation; that the seal affixed to the said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said Patricia S. Harstad as and for the voluntary act and deed of said
corporation in the presence of the deponent who thereupon subscribed his name
thereto as attesting witness.
/s/ M. Marketta Silvera
------------------------------------
NAME:
SWORN TO AND SUBSCRIBED
BEFORE ME ON THE DATE
AFORESAID
/s/ Patricia S. Harstad
- ---------------------------------
NOTARY PUBLIC
[NOTARIAL SEAL]
7
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT OF LEASE
Between
NEWPORT OFFICE CENTER I CO.,
as Landlord
and
RECRUIT U.S.A., INC.,
as Tenant
Premises:
A portion of the 1st floor (including the
lobby area), the roof and the entire
2nd through 15th floors in the building
known as Newport Office Center I, at
Newport, Jersey City, New Jersey
Dated: June 14, 1988
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1 - Definitions................................... 1
Article 2 - Demise; Premises; Delivery of Premises;
Term; Rent.................................. 10
Article 3 - Use and Occupancy............................. 13
Article 4 - Condition of the Premises; Condition of
Building.................................... 17
Article 5 - Alterations; Installations; Tenant's
Property and Tenant's Work.................. 23
Article 6 - Floor Load.................................... 30
Article 7 - Repairs and Maintenance....................... 30
Article 8 - Window Cleaning............................... 32
Article 9 - Requirements of Law........................... 33
Article 10 - Subordination................................. 37
Article 11 - Rules and Regulations......................... 40
Article 12 - Insurance..................................... 41
Article 13 - Destruction of the Premises;
Property Loss or Damage..................... 45
Article 14 - Eminent Domain................................ 48
Article 15 - Assignment and Subletting..................... 52
Article 16 - Access to Premises............................ 62
Article 17 - Non-Liability of Landlord, Lessors and
Mortgagees; Tenant's Indemnification........ 65
Article 18 - Conditions of Limitation...................... 67
Article 19 - Re-Entry by Landlord; Remedies................ 70
Article 20 - Curing Defaults............................... 73
Article 21 - No Representations by Landlord;
Landlord's Approval......................... 74
Article 22 - End of Term; Holdover......................... 75
Article 23 - Quiet Enjoyment............................... 77
Article 24 - No Waiver..................................... 77
Article 25 - Waiver of Trial by Jury;
No Counterclaims............................ 78
Article 26 - Inability to Perform.......................... 79
Article 27 - Bills and Notices............................. 79
Article 28 - Additional Payments........................... 80
Article 29 - Services; Tenant's Management of the
Building.................................... 85
Article 30 - Electricity................................... 88
Article 31 - Status of Tenant; Tenant's Agreements
and Covenants............................... 90
Article 32 - Captions...................................... 92
Article 33 - Construction of Lease......................... 92
Article 34 - Parties Bound................................. 93
Article 35 - Brokers....................................... 93
Article 36 - Adjacent Excavation; Shoring;
Darkening of Windows........................ 94
Article 37 - Miscellaneous................................. 94
Article 38 - Arbitration................................... 96
Article 39 - Signage; Building Name........................ 97
Article 40 - Parking....................................... 99
Article 41 - Renewal Options............................... 104
Article 42 - Tenant's Purchase Option...................... 112
Article 43 - Tenant's Roof and Underground
Installations............................... 117
Article 44 - Security Deposit (Letter of Credit)........... 119
Article 45 - Landlord's Representations
and Warranties.............................. 121
Exhibit 1 - Floor Plans of Premises
Exhibit 2 - Description of the Real Property
Exhibit 3 - Newport Project Site Plan
Exhibit 4 - Base Building Work
Exhibit 5 - Remaining Base Building Work Schedule
Exhibit 6 - Mortgages and Superior Leases
Exhibit 7 - Rules and Regulations
Exhibit 8 - Location of Interim and Permanent Parking Facilities
Exhibit 9 - Schedule of Building Plans and Specifications
</TABLE>
<PAGE>
AGREEMENT OF LEASE ("this Lease") made this 14th day of June, 1988,
between NEWPORT OFFICE CENTER I CO., a New Jersey general partnership, having an
office at 2 Sixth Street, Jersey City, New Jersey 07302 ("Landlord") and RECRUIT
U.S.A., INC., a Delaware corporation, having an office at 65 East 55th Street,
New York, New York 10022 ("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.01. For the purposes of this Lease, the following terms
shall have the meanings ascribed to them below:
(a) "Additional Rent" shall mean all sums other than Fixed Rent due
and payable by Tenant to Landlord under this Lease, including,
without limitation "Operating Expenses", "Real Estate Taxes",
"Tenant's Project Maintenance Fee" and the "Parking Fee" (as such
terms are hereinafter defined).
(b) "Applicable Rental Rates" shall mean the following amounts for and
during the initial Term:
(i) an amount equal to $ per rentable square foot per
annum for the "Premises" [(as such term is hereinafter defined)
except, however, for purposes of this subsection 1.01(b), the term
"Premises" shall not include the portion of the first (1st) floor,
the lobby and the roof included in the Premises as defined in
subsection 1.01(bb) hereof] for and during the period commencing
on the Rent Commencement Date and expiring on the day immediately
preceding the fifth (5th) anniversary of the Rent Commencement
Date;
(ii) an amount equal to $ per rentable square foot per
annum for the Premises for and during the period commencing on the
fifth (5th) anniversary of the Rent Commencement Date and expiring
on the day immediately preceding the tenth (10th) anniversary of
the Rent Commencement Date;
(iii) an amount equal to $ per rentable square foot per
annum for the Premises for and during the period commencing on the
tenth (10th) anniversary of the Rent Commencement Date and
expiring on the day immediately preceding the fifteenth (15th)
anniversary of the Rent Commencement Date; and
<PAGE>
(iv) an amount equal to $ per rentable square foot per
annum for the Premises for and during the period commencing on the
fifteenth (15th) anniversary of the Rent Commencement Date and
expiring on the Expiration Date.
The Applicable Rental Rates for the Premises during any "Renewal
Term" (as such term is hereinafter defined) are as provided in
Article 41 hereof.
(c) "Base Building Facilities" shall mean the installations and
facilities described in Section 4.02 hereof.
(d) "Base Building Work" shall mean the construction and installations
described on Exhibit 4 annexed hereto and made a part hereof,
which Base Building Work Landlord shall cause to be performed in
accordance with the terms and provisions of this Lease, and all or
a portion of which Base Building Work shall be performed by or on
behalf of Mid Hudson Urban Renewal Co., the ground sub-lessor of
the Building (as such term is hereinafter defined).
(e) "Brokers" shall mean Cushman & Wakefield, Inc. and Joseph Hilton &
Associates, Incorporated.
(f) "Building" shall mean the building known as Newport Office Center
I, located at Newport, in Jersey City, Hudson County, State of New
Jersey.
(g) "Business Days" shall mean all days except (i) Saturdays, Sundays
and (ii) any days which shall be either (x) observed by both the
federal and state governments as legal holidays, or (y) designated
as a holiday by applicable Building service union employee service
contract or by any applicable operating engineers contract.
(h) "Business Hours" shall mean the hours between 8:00 A.M. and 6:00
P.M.
(i) "City" shall mean the City of Jersey City, and all departments,
subdivisions, bureaus, agencies or offices thereof.
(j) "Commencement Date" shall be as set forth and defined in Section
2.03 hereof.
(k) "Completion Date" shall be as set forth and defined in Section
4.02 hereof.
(l) "Expiration Date" shall be as set forth and defined in Section
2.03 hereof.
(m) "Fixed Rent" shall mean: (i) an annual rental rate of for the
period commencing on the Rent Commencement Date and ending on the
day
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(n) "Force Majeure" shall mean and include strikes, labor troubles,
accidents or any events, circumstances, or causes whatsoever
beyond Landlord's reasonable control, including, without
limitation, delays caused by restrictions, regulations or
controls, mechanical breakdowns, shortages of or inability to
obtain labor, fuel, steam, water, electricity or materials, acts
of God, inability to obtain governmental approvals or consents,
enemy action, nuclear emergency, epidemics, landslides, lightning,
earthquakes, civil commotion, fires, floods or any other
casualties, events or circumstances.
(o) "Guaranty" shall mean that certain unconditional guaranty of
payment and performance executed by Recruit Co., Ltd. as
"Guarantor" in favor of Landlord guarantying the unconditional
performance by Tenant of all of Tenant's obligations hereunder,
including, but not limited to, the payment of Fixed Rent and
Additional Rent.
(p) "holder" or "mortgagee" shall mean the holder of, or mortgagee
under a Mortgage, or its successor-in-interest at the time.
(q) "Insurance Bodies" shall mean the New Jersey Board of Underwriters
and/or the New Jersey Fire Insurance Rating Organizatic and/or any
other similar body performing the same or similar functions and
having jurisdiction or cognizance over the Building, the Premises
and/or the Real Property.
(r) "Interest Rate" shall mean a rate per annum ??????????????? annum
above the then "Base Rate" on interest as established and publicly
announced by Manufacturers Hanover Trust Company in New York, New
York, or its successor, from time to time, as its "Base Rate" but
in no event will the Interest Rate
(s) "Landlord" shall mean only the tenant under the ground lease(s) of
the Building and/or the Real Property so that in the event of any
transfer or transfers of title to the Building or of Landlord's
interest in such ground lease(s), the transferor shall be and
hereby is relieved and freed of all obligations of Landlord under
this Lease accruing after such transfer(s), and it shall be
deemed, without further agreement, that such transferee has
assumed and agreed to perform and observe all obligations of
Landlord herein during the period it is the holder of Landlord's
interest under this Lease.
(t) "Landlord's Delay" shall mean (i) any actual and material delay
(A) in the "substantial completion" (as such term is hereinafter
defined) in a timely fashion, of any item of Remaining Base
Building Work, and/or (B) in the performance or completion of
Tenant's Initial Work (provided Tenant has given Landlord notice
of the existence of such delay within a reasonable time after
Tenant became aware or should have become aware of such delay)
actually resulting from Landlord's failure to have substantially
completed in a timely fashion, any item of Remaining Base Building
Work such that Tenant is materially delayed in the performance of
Tenant's Initial Work, or (ii) any act or omission of any nature
of Landlord, its agents or employees which shall actually and
materially delay the performance or completion of Tenant's Initial
Work; provided, however, that no such delay shall be deemed to be
-------- -------
a Landlord's Delay to the extent that Tenant, or any "Third Party
Tenant" (as such term is hereinafter defined), shall have caused
or materially contributed thereto, and further provided that no
such delay shall be deemed to be a Landlord's Delay unless Tenant
has given Landlord notice of the existence of such delay within a
reasonable time after Tenant became aware or should have become
aware of such delay. Further, if a delay in substantially
completing Tenant's Initial Work or if any substantial portion of
such delay is the result of Force Majeure and such delay would not
have occurred but for a Landlord's Delay, such delay shall be
added as part of the Landlord's Delay described above. In
determining that the delay in the performance or completion of
Tenant's Initial Work actually resulted from a Landlord's Delay,
Tenant must be able to demonstrate by reasonable evidence that
Tenant would have been able to perform a certain item of Tenant's
Initial Work or was then actually performing a certain item of
Tenant's Initial Work and Tenant's Initial Work was materially
delayed as a result of such Landlord's Delay. Nothing contained
herein
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shall require Tenant to take any action which would be solely for
the purpose of demonstrating its preparedness to perform for
purposes of this subsection 1.01(t).
(u) "Legal Authorities" shall mean all Federal, "State" (as such term
is hereinafter defined) City, town, county, borough and village
governments and all departments, subdivisions, bureaus, agencies
or offices thereof, and of any other governmental, public or
quasi-public authorities having jurisdiction over the Building,
the Premises and/or the Real Property.
(v) "lessor" shall mean the lessor or landlord of a "Superior Lease"
(as such term is hereinafter defined) or its successor-in-interest
at the time.
(w) "Letter of Credit" shall mean the security instrument more
particularly described in Article 44 hereof.
(x) "Mortgage" shall mean each and every trust indenture and mortgage
which now or hereafter affects all or any part of the Real
Property, the Building and/or any Superior Lease and the leasehold
estate and interest created thereby, whether such trust indenture
or mortgage shall cover other land, buildings, improvements and/or
other leases, and to all renewals, extensions, supplements,
modifications, consolidations and replacements thereof and/or
thereto, substitutions therefor and/or advances made thereunder.
(y) "Operating Expenses" shall be as set forth and defined in Section
28.02 hereof.
(z) "Permitted Uses" shall mean any and all of the uses permitted by
Article 3 hereof.
(aa) "Preliminary Base Building Work" shall mean that portion or
portions of the Base Building Work, which has been completed to
such an extent that Tenant may enter the Premises in order to
perform Tenant's Initial Work. Landlord shall perform or cause to
be performed the Preliminary Base Building Work in accordance with
the terms and provisions of this Lease.
(bb) "Premises" shall mean and consist of a portion of the 1st floor
consisting of approximately seven hundred and eighty (780) square
feet and the lobby (which two areas shall be called the "First
Floor Premises"), the roof and the entire 2nd, 3rd, 4th, 5th, 6th,
7th, 8th, 9th, 10th, 11th, 12th, 14th and 15th floors of the
Building, except, however, for the Building's curtain wall facade.
The 1st floor area of the Premises containing approximately seven
hundred eighty (780) square feet is substantially as
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shown by hatching on the floor plan annexed hereto as Exhibit 1-A
and made a part hereof. The lobby area of the Building is as
indicated by the words "Front Lobby", "Low Rise Lobby", "High Rise
Lobby" and "Rear Lobby", respectively, on the floor plan annexed
hereto as Exhibit 1-A. For purposes of this Lease, the first floor
of the Building is sometimes also referred to as the ground floor.
The 2nd to and including the 15th floor areas of the Premises are
substantially as shown on the plans and specifications described
on Exhibit 9 annexed hereto. The parties hereby acknowledge that
the Building does not include a floor numbered "13" and that floor
"14" would otherwise be numbered "13" and floor "15" would
otherwise be numbered "14".
(cc) "Project" shall mean the project known as Newport, Jersey City,
New Jersey, as more particularly shown on Exhibit 3 annexed hereto
and made a part hereof.
(dd) "Real Estate Taxes" shall be as set forth and defined in Section
28.03 hereof.
(ee) "Real Property" shall mean the Building, together with the plot
and parcel of land upon which the Building is situated, as
bounded, described and shown on Exhibit 2 annexed hereto and made
a part hereof.
(ff) "Remaining Base Building Work" shall mean that portion or portions
of Base Building Work not comprised of Preliminary Base Building
Work. Landlord shall perform or cause to be performed the
Remaining Base Building Work in accordance with the terms and
provisions of this Lease.
(gg) "Rent" shall mean and be deemed to include Fixed Rent, Additional
Rent and any and all increases thereto or thereof.
(hh) "Rent Commencement Date" shall be as set forth and defined in
Section 2.03 hereof.
(ii) "Retail Premises" shall mean that portion of the Building
described in subsection 7.0l(a)(v) hereof.
(jj) "State" shall mean the State of New Jersey and all departments,
subdivisions, bureaus, agencies or offices thereof.
(kk) "Structural Elements" shall be those portions of the Building
described in Article 5 hereof.
(ll) "Superior Lease" shall mean each and every ground, overriding or
underlying lease covering the Real Property and/or the Building
heretofore or hereafter existing.
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(mm) "Tenant" shall mean Tenant herein named or any permitted assignee
or other successor in interest (immediate or remote) of Tenant
herein named, which at the time in question is the owner of
Tenant's estate and interest granted by this Lease, but the
foregoing provisions of this subsection shall not be construed to
permit any assignment of this Lease or to relieve Tenant herein
named or any assignee or other successor in interest (whether
immediate or remote) of Tenant herein named from the full and
prompt payment, performance and observance of the covenants,
obligations and conditions to be paid, performed and observed by
Tenant under this Lease.
(nn) "Tenant's Delay" shall mean any (i) inability or failure on the
part of Landlord to give possession of the Premises to Tenant as
provided in this Lease as a result of any action, inaction or
failure on the part of Tenant, any Third Party Tenant or their
agents, employees or contractors, or (ii) actual and material
delay in the performance or completion of any Remaining Base
Building Work as a result of any act or omission of any nature of
Tenant, its agents or employees, which shall actually and
materially delay the performance or completion of any Remaining
Base Building Work, including, without limitation, delays which
prevent actual performance of the Remaining Base Building Work,
delays due to postponement of any Remaining Base Building Work at
the request of Tenant or due to the prior or simultaneous
performance of Tenant's Initial Work with the performance of such
Remaining Base Building Work, or delays in the performance of the
Remaining Base Building Work resulting from any interference by
Tenant, any Third Party Tenant, or their agents, employees or
contractors, which shall actually and materially delay the
performance of the Remaining Base Building Work; provided,
--------
however, that no such delay shall be deemed to be a Tenant Delay
-------
to the extent that Landlord shall have caused or materially
contributed thereto, and further provided that no such delay shall
be deemed to be a Tenant's Delay unless Landlord has given Tenant
notice of the existence of such delay within a reasonable time
after Landlord became aware or should have become aware of such
delay. Further, if a delay in Landlord's delivery of possession
of the Premises to Tenant, or in substantially completing any
Remaining Base Building Work or if any substantial portion of such
delay is the result of Force Majeure and such delay would not have
occurred but for a Tenant's Delay, such delay shall be added as
part of the Tenant's Delay described above. In determining that
the delay in Landlord's delivery of possession of the Premises to
Tenant or in the performance or completion of any Remaining Base
Building Work actually resulted from a
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Tenant's Delay, Landlord must be able to demonstrate by reasonable
evidence that Landlord would have been able to so deliver to
Tenant possession of the Premises or to perform a certain item of
Remaining Base Building Work or was then actually performing a
certain item of Remaining Base Building Work and the Remaining
Base Building Work was materially delayed as a result of such
Tenant's Delay. Nothing contained herein shall require Landlord to
take any action which would be solely for the purpose of
demonstrating its preparedness to deliver to Tenant possession of
the Premises or to perform any item of Remaining Base Building
Work.
(oo) "Tenant's Expense Payment" shall mean the payment described in
Section 28.01 hereof.
(pp) "Tenant's Initial Work" shall mean all work at and within the
Premises to be performed by or on behalf of Tenant in connection
with Tenant's initial occupancy and leasing of the Premises.
(qq) "Tenant's Project Maintenance Fee" shall be as set forth and
defined in Article 28 hereof.
(rr) "Tenant's Proportionate Share" shall mean ninety-five and five
hundred thirty-two one-thousandths (95.532%) percent.
(ss) "Term" or "Term of this Lease" shall mean the initial Term of this
Lease described in Section 2.02 hereof and any period subsequent
to the initial Term of this Lease granted to and properly extended
by Tenant pursuant to a validly exercised option or renewal right,
if any.
(tt) "Third Party Tenant" shall mean any other third party tenant,
subtenant, under-subtenant or other occupant who or which shall
use and/or occupy a portion or portions of the Premises pursuant
to any leasing or occupancy agreement with Tenant.
Section 1.02. The following terms, wherever used in this Lease (unless
expressly set forth to the contrary), shall have the respective meanings
specified in the Sections of this Lease set forth opposite such terms:
Term Section
- ---- -------
Additional Rent 1.01(a)
Alterations 5.01
Alteration Acts 5.06(a)
Alteration Documents 5.06(a)
Applicable Rental Rate 1.01(b)
acquisition 14.05
Base Building Facilities l.01(c)
Base Building Work 1.01(d)
Brokers 1.01(e)
Building 1.01(f)
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Business Days 1.01(g)
Business Hours 1.01(h)
Condemnation 1.01(i)
Commencement date 14.05
Completion Date 1.01(j)
Date of Taking 1.01(k)
Deficiency 14.01
DEP 19.03(a)
ECRA 9.04(b)
Effective Date 9.04(a)
Environmental Laws 28.04(f)
Expense Payment Date 9.04(a)
Expense Statement 28.01(c)
Expiration Date 28.01(c)
Fixed Rent 1.01(1)
Force Majeure 1.01(m)
Guaranty 1.01(0)
Guarantor 1.01(0)
holder 1.01(n)
Index 1.01(p)
Intended Uses 28.04(f)
Insurance Bodies 3.01(a)
Interest Rate 1.01(q)
Landlord's Contribution 1.01(r)
Landlord 4.04(a)
Preamble and
1.01(s)
Landlord's Project Maintenance Fee 28.04(b)
Landlord's Delay 1.01(t)
Leasehold Mortgage 15.12
Leasehold Mortgagee 15.12
Legal Authorities 1.01(u)
lessor 1.01(v)
Letter of Credit 1.01(w)
Mortgage 1.01(x)
Non-disturbance Agreement 10.01(d)
office(s) 33.01(a)
Operating Expenses 1.01(y)
Parties 17.02(a)
Partnership Tenant 15.06(c)
Per Square Foot
Maintenance Fee 28.04(d)
Permitted Uses 1.01(z)
person 33.01(c)
Preceding Date 28.04(f)
Preliminary Base Building Work 1.0l(aa)
Premises 1.01(bb)
Project 1.01(cc)
Project Maintenance Fee 28.04(b)
Real Estate Taxes l.01(dd)
Real Property l.01(ee)
reenter/reentry 33.01(b)
Remaining Base Building Work 1.0l(ff)
Rent 1.01(gg)
Rent Commencement Date 1.0l(hh)
Retail Premises 7.01(ii)
Rules and Regulations 11.01
Special Installation Work 5.03(c)
State l.01(jj)
Structural Elements 1.01(kk
Successor landlord 10.04(a)
Superior Lease 1.01(ll)
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Taking 14.01
Tenant l.01(mm)
Tenant's Delay l.01(nn)
Tenant's Estimated Expense Payment 28.01(b)
Tenant's Expense Payment l.01(oo)
Tenant's Initial Work 1.01(pp)
Tenant's Project Maintenance Fee 1.01(qq)
Tenant's Property 5.03(a)
Tenant's Proportionate Share 1.01(rr)
Tenant's Roof Installations 43.01
Tenant's Work 5.03(a)
Term 1.01(ss)
Third Party Tenant l.01(tt)
ARTICLE 2
DEMISE; PREMISES; DELIVERY OF PREMISES; TERM; RENT
--------------------------------------------------
Section 2.01. Landlord hereby leases to Tenant, and Tenant hereby
hires from Landlord, the Premises in the Building, for the Term hereinafter
stated, for the rents herein reserved at the Applicable Rental Rates and upon
subject to the terms of this Lease.
Section 2.02. The Premises are leased for a Term which shall commence
on the Commencement Date and shall expire on the Expiration Date unless the Term
shall sooner terminate pursuant to any of the terms of this Lease or pursuant to
law.
Section 2.03.
(a) (i) The Commencement Date shall be the date upon which this
Lease shall be duly executed and delivered to Landlord and Tenant. Landlord
shall deliver to Tenant, together with a fully executed original of this Lease,
a certification from Landlord's engineer or architect stating that (A) the
Preliminary Base Building Work shall have been completed to such an extent that
Tenant shall be able to enter the Premises for the performance of Tenant's
Initial Work and (B) access to all facilities and services comprising the
Preliminary Base Building Work have been made available to Tenant, subject,
however, to Landlord's rights to utilize such facilities and services, together
with Tenant's use of the same, in order for Landlord to perform the Remaining
Base Building Work as hereinafter provided.
(ii) Tenant will provide Landlord, on the Commencement Date,
with an acknowledgment in writing that Tenant has inspected, or caused the
Premises to be inspected, prior to the Commencement Date and that the
Preliminary Base Building Work has been completed to such an extent that Tenant
is able to enter the Premises for the performance of Tenant's Initial Work, but
subject, however, to Landlord's obligation to complete the work set forth on
Exhibit 5 annexed hereto and made a part hereof.
(b)
(c) Promptly following the occurrence of the Commencement Date,
Landlord and Tenant shall execute and
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acknowledge an agreement, in form and substance reasonably satisfactory to both
Landlord and Tenant, setting forth, among other things, the Commencement Date
and Expiration Date; provided however, that Tenant's failure to so execute and
-------- -------
acknowledge such instrument shall not affect the validity of either of the
Commencement Date or the Expiration Date, as so determined.
(d) From and after the Commencement Date, Tenant or any of its
employees, agents or contractors may enter the Premises for the purpose of
inspecting or verifying the performance of any Preliminary Base Building Work,
performing Tenant's Initial Work, making preparations for the performance of
Tenant's Initial Work, inspecting or measuring the Premises, or performing any
decorating, furnishing or moving into the Premises.
(e) The Rent Commencement Date shall mean that date which is the
of the Commencement Date, which date may, however, be subject to postponement
subject to the terms and provisions of subsection 4.02(g) hereof.
Section 2.04.
(a) Tenant expressly waives any right to rescind this Lease or extend
the Term hereof pursuant to any applicable statute or ordinance of any Legal
Authority which would otherwise grant to Tenant any such right of rescission or
extension, and further waives the right to recover any damages which may result
from the inability of Landlord to deliver the Premises to Tenant on the
Commencement Date.
(b) (i) Landlord shall not be subject to any liability for failure
to give possession on the date on which the Preliminary Base Building Work shall
have been completed and the validity of this Lease shall not be impaired under
such circumstances.
(ii) Notwithstanding the foregoing provisions of this subsection
2.04(b) or any other provisions of this Lease, Landlord hereby agrees that the
Term of this Lease shall be extended for that period of time which shall be
equal to the number of days in the period from the date when completion of the
preliminary Base Building Work occurred to the date on which Landlord shall
actually give possession of the Premises to Tenant, unless Tenant, any Third
Party Tenant or their agents, employees or contractors have caused a Tenant's
Delay to exist which has resulted in the failure of Landlord to deliver
possession of the Premises, as aforesaid.
Section 2.05.
(a) (i) Tenant shall pay to Landlord promptly without notice or
demand, in lawful money of the United States of America, by check subject to
collection and drawn on a New York City or New Jersey bank or trust company
which is a member of the New York Clearinghouse Association, at the office of
Landlord or at such other place as Landlord may, at any time and from time to
time, by notice to Tenant designate, (A) Fixed Rent, in equal monthly
installments, in advance on the first day of each calendar month during the Term
from and after the Rent Commencement Date, and (B) Additional Rent, at the times
and in the manner set forth in this Lease.
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(ii) If Tenant shall fail to pay any installments of Fixed Rent
or any payment of Additional Rent within ten (10) days after such installment or
payment shall have become due, Tenant shall pay interest thereon to Landlord at
the Interest Rate, from the date when such installment or payment should have
been paid or tendered, as the case may be, to and including the date of payment
thereof, and such interest shall constitute Additional Rent.
(iii)
(b) There shall be no abatement of, deduction from a or counterclaim
or set-off against, Fixed Rent or Additional Rent, except as otherwise
specifically provided by this Lease.
(c) No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct amount of Fixed Rent or Additional Rent shall be
deemed to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance or pursue any other
remedy in this Lease or eat law provided.
(d) Any apportionments or prorations of Rent to be made under this
Lease shall be computed on the basis of a three hundred sixty (360) day year.
(e) (i) If any of the Rent payable under the terms, covenants and
provisions of this Lease shall be or become uncollectible, reduced or required
to be refunded because of any act or law enacted by any Legal Authority,
Landlord and Tenant shall enter into such agreement(s) and take such other steps
as Landlord may reasonably request and as may be legally permissible to permit
Landlord to collect the maximum rents which, at any time and from time to time,
during the continuance of such legal rent restriction may be legally permissible
(but not in excess of the amounts reserved theretofore under this Lease).
(ii) Upon the termination of such legal rent restriction, (A)
the Fixed Rent and/or Additional Rent shall become and thereafter be payable in
accordance with the amounts reserved herein for the periods following such
termination, and (B) Tenant shall pay to Landlord promptly upon being billed, to
the maximum extent legally permissible, an amount equal to (1) the Fixed Rent
and/or Additional Rent which would have been paid pursuant to this Lease but for
such legal rent restriction, less (2) the rents paid by Tenant during the period
----
such legal rent restriction was in effect.
(f) Additional Rent shall be deemed to be Rent and Tenant's failure to
pay Additional Rent shall be considered a failure to pay Fixed Rent hereunder
and Landlord shall be entitled to all rights and remedies provided herein or by
law in connection therewith.
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Section 2.06.
(a) If the Rent Commencement Date or Expiration Date shall occur on a
date other than the first day of a calendar month, Rent for the month in which
the Rent Commencement Date or Expiration Date occurs shall be pro-rated on a per
diem basis and Tenant shall pay to Landlord, on the Rent Commencement Date or
the first day of the month in which the Expiration Date occurs, an amount equal
to the same proportion of the monthly installment of Rent payable for such
month, as the number of days from and including the Rent Commencement Date bears
to the total number of days in said calendar month or from and including the
first day of the month in which the Expiration Date occurs until the Expiration
Date, bears to the total number of days in such calendar month.
(b) Such payment shall constitute payment of Rent for the period from
the Commencement Date to and including the last day of such calendar month or
from the first day of the month in which the Expiration Date occurs to and
including the Expiration Date.
Section 2.07. The parties hereto mutually acknowledge and agree that
any dispute between Landlord and Tenant as to (a) whether any work required to
be performed pursuant to this Article 2 or Article 4 hereof shall have been
substantially completed, (b) the existence of and whether, or to what extent
Tenant is responsible for any Tenant Delay, or (c) the existence of and whether,
or to what extent Landlord is responsible for a Landlord's Delay and any effect
on the Rent Commencement Date as a result thereof, shall be resolved by
arbitration pursuant to Article 38 hereof.
ARTICLE 3
USE AND OCCUPANCY
-----------------
Section 3.01.
(a) (i) Tenant may use and occupy the Premises for the Permitted
Uses and for no other purpose. The Permitted Uses shall consist of and include
only (A) the "Intended Uses" (as such term is hereinafter defined), and (B) all
other uses permitted by this Article 3 and the Certificate of Occupancy for the
Building in effect from time to time.
(ii) The Intended Uses for the Premises shall consist of (A) as
to the First Floor Premises, an electrical equipment room and a lobby area,
which electrical equipment room shall be utilized by Tenant for the installation
of electrical equipment required in connection with Tenant's use and occupancy
of the balance of the Premises utilized for office use, and (B) as to the
remainder of the Premises, excluding the roof, of corporate executive and
general office uses, data processing and such uses ancillary or related thereto
which shall be consistent with uses permitted by landlords in other first-class
office buildings located in the New York metropolitan area or the so-called
"Gold Coast" area of the City.
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(b) Tenant shall not use or occupy or suffer or permit the use or
occupancy of, any part of the Premises in any manner which will (i) prevent the
reasonable rendition to any tenant in the "Retail Premises" (as such term is
hereinafter defined) of any service customarily provided to retail tenants in
first-class office buildings located in the New York metropolitan area or the
so-called "Gold Coast" area of the City, (ii) prevent the reasonable use or
enjoyment of the Retail Premises, (iii) materially adversely affect the
appearance, character or reputation of the Building as a first-class office
building with retail stores, (iv) materially adversely affect the proper and
economic maintenance, operation and repair of, and/or which would, or be likely
to, cause injury to the Building and/or its equipment facilities or systems, or
(v) materially adversely affect Landlord's ability to obtain from reputable
insurance companies authorized to do business in the State, all risk property
insurance or liability, elevator, boiler or other insurance at standard rates
required to be furnished by Landlord under the terms of any Mortgage covering
the Building.
(c) The foregoing statement as to the nature of the business which may
be conducted by Tenant in the Premises shall not constitute a representation or
guaranty by Landlord that such business may be conducted in the Premises or is
lawful or permissible under any Certificate of Occupancy issued for the
Premises, or the Building, or is otherwise permitted by law.
Section 3.02. Tenant shall not use or permit the use of the Premises,
or any part thereof, (a) for the business of photographic, multilith or
multigraph reproductions or offset printing, except, however in connection with
or for Tenant's own requirements, (b) for manufacturing of any kind, (c) as a
restaurant or bar or for the sale of confectionery, soda, beverages, sandwiches,
ice cream or baked goods or for the preparation, dispensing or consumption of
food or beverages in any manner whatsoever, except, however, in connection with
or for Tenant's own requirements, and as expressly provided in Section 3.04
hereof, (d) as a news or cigar stand, (e) as an employment or travel agency,
except, however in connection with or for Tenant's own requirements, (f) as or
for any counselling services, schools, and/or training programs, accept,
however, in connection with or for Tenant's own requirements, (g) as a labor
union office, (h) as a physician's, dentist's, medical or psychiatric office,
medical dental laboratory, health or health related facilities, except, however,
in connection with or for Tenant's own requirements, (i) as a dance or music
studio, or health club or sports or exercise facility (except, however, in
connection with or for Tenant's own requirements, and which health club, sports
or exercise facilities shall in no event offer membership or use privileges to
the general public) (j) as a barber shop or beauty salon, except, however, for
or in Connection with Tenant's own requirements, (k) for the direct sale, at
retail or otherwise, of any goods or products of any sort or kind which would be
inconsistent with the Intended Uses and/or would result in the presence at the
Premises of the general public on any basis other than pursuant to prior
appointment with Tenant or any Third Party Tenants, (1) by any governmental
body, agency, authority or instrumentality, or by any foreign or domestic
governmental or quasi-governmental
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entity entitled, directly or indirectly, to diplomatic or sovereign immunity or
not subject to the service of process in, and the jurisdiction of the courts of
the State, (m) for the sale of traveler's checks and/or foreign exchange, (n)
for the conduct of an auction, (o) for gambling activities, or (p) for the
conduct of obscene, pornographic, similar or any other similarly disreputable
activities in the sole judgment of Landlord. Further Tenant agrees that the
Premises shall not be used for purposes similar to a telephone company switching
station or facility or a building whose purpose is primarily to house or locate
therein such equipment.
Section 3.03.
(a) (i) Tenant shall not use or occupy or permit the use or
occupancy of, the Premises in violation of the Certificate of Occupancy issued
for the Premises and/or for the Building. In the event that any department of
the City, the State or any other Legal Authority shall contend and/or declare
by notice, violation, order or in any other manner whatsoever, at any time or
from time to time during the Term, from and after the date hereof, that the
Premises are being used for a purpose which is a violation of any such
Certificate of Occupancy, Tenant shall, upon thirty (30) days' written notice
from Landlord or from the relevant Legal Authority, but not less than the period
set forth in such notice from the Legal Authority, if any, immediately
discontinue or cause the discontinuance of such use of the Premises.
(ii) Subject to the terms and provisions of Subsection 3.03(b)
below, failure by Tenant to discontinue or cause the discontinuance of such use
after such notice shall be a default by Tenant hereunder and Landlord shall have
the right to exercise any and all rights, privileges and remedies given to
Landlord by and pursuant to the provisions of this Lease.
(b) Notwithstanding the foregoing, Tenant may, at its sole cost and
expense (and, if necessary, in the name of, but without cost, liability or
expense to, Landlord), contest appropriate proceedings prosecuted diligently and
in good faith, the contention or declaration by any Legal Authority that the
Premises are used for a purpose which is in violation of the Certificate of
Occupancy for the Premises or the Building, and Landlord shall cooperate with
Tenant in such proceedings at Tenant's expense; provided, however, that: (i)
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Landlord shall not be subject to any civil penalty, criminal penalty or
prosecution for a crime, nor shall the Premises, or part thereof, be subject to
being condemned or vacated, by reason of such violation or otherwise by reason
of such contest; (ii) Tenant shall defend, indemnify and hold harmless Landlord
from and against any and all liability, loss and damage that Landlord shall
suffer by reason of such violation or contest, including, without limitation,
reasonable attorneys' fees and disbursements, court costs and other expenses
incurred by Landlord; (iii) such violation or contest shall not constitute or
result in any violation of any Superior Lease or Mortgage existing as of the
date of this Lease or of any Superior Lease or Mortgage executed after the date
hereof, provided that the terms of any future Superior Lease or Mortgage with
respect to the foregoing provisions of this subsection
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3.03(b) shall not impose any additional obligations upon Tenant other than those
obligations which are set forth in any such existing Superior Lease and Mortgage
with respect to such provisions; and (iv) Tenant shall keep Landlord regularly
advised as to the status of such proceedings.
Section 3.04.
(a) Tenant may elect to use a part or parts of the Premises (i) for
the operation of a kitchen and a dining room and/or cafeteria for Tenant or any
Third Party Tenant or the officers, employees, guests and invitees of Tenant or
any Third Party Tenant and/or as may otherwise be required by Tenant in
connection with its use of the Premises (but in no event for the sale or
consumption of food and/or beverages to or by the general public), and (ii) for
the installation and operation of food and beverage vending machines.
(b) Each use of the Premises set forth in SUBSECTION (3) above upon
the condition that (i) Tenant will provide (except to the extent already
installed by Landlord as part of the Base Building Work), operate and maintain,
at its sole cost and expense, proper ventilating equipment for the discharge of
any noxious or objectionable fumes, vapors and odors from such parts of the
Premises (except to the extent that they may, with the consent of Landlord,
which consent shall not be unreasonably withheld or delayed, be discharged or
eliminated by means of flues or other similar devices which may be installed by
Landlord or Tenant in the Building, at Tenant's sole cost and expense in
locations reasonably acceptable to Landlord) in such a manner that will not
enter the air conditioning or ventilating systems of the Building or otherwise
unreasonably annoy any other tenant or occupant of the Building, (ii) such parts
of the Premises as shall be so used by Tenant shall, at Tenant's sole cost and
expense, be at all times maintained by Tenant in a clean and sanitary condition
and free of refuse (including use of extermination services whenever required),
(iii) Tenant shall, at its sole cost and expense, keep all ventilating hoods
over ranges and cooking equipment, and all duct work to the main vertical
risers, if any, free of grease and lint accumulations in a manner and under
conditions reasonably satisfactory to Landlord, and will keep the exhaust system
operated in connection with the kitchen (whether such system is physically
located within the Premises or elsewhere in the Building) and all plumbing and
sanitary systems and installations serving such parts of the Premises to the
points they connect with the main vertical risers and stacks of the Building in
a good state of repair and operating condition, and shall install and maintain
cleanable grease traps which shall be cleaned by Tenant, at Tenant's sole cost
and expense, at such intervals as shall constitute the manufacturer's optimum
cycle for such cleaning, and (iv) Tenant shall comply with all laws and
requirements of Legal Authorities, including any health statutes or codes, and
obtain and maintain throughout the Term any and all licenses and permits
regarding such use.
(c) Tenant shall, at all reasonable times after notice to
Landlord, have the right to enter the Building's spaces and systems and
installations not contained in the Premises, to the extent reasonably necessary
to perform all obligations pursuant to this Section 3.04.
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Section 3.05.
(a) Notwithstanding the foregoing provisions of this Article 3,
Landlord hereby agrees that, provided Tenant cooperates with Landlord and Tenant
shall then have substantially completed or caused the substantial completion of
all of Tenant's Initial Work (i) substantially in accordance with plans and
specifications approved by Landlord, (ii) in compliance with all laws and
requirements of Legal Authorities and (iii) to such extent and in such manner as
shall be required by the Legal Authority, in question, to obtain a Certificate
of Occupancy for the Building, Landlord shall use its best efforts, provided,
that any costs actually incurred by Landlord in connection therewith shall be
shared equally by Landlord and Tenant (other than any costs incurred in
connection with the Base Building Work, which costs shall be borne solely by
Landlord), to obtain a Certificate of Occupancy for the Building which shall
enable Tenant to use and occupy the Premises for the Intended Uses set forth
above, for such other reasonably related uses as are reasonably requested by
Tenant and which are reasonably requested from applicable Legal Authority.
(b) Further, Landlord agrees that Landlord will, from time to time
during the Term, at Tenant's sole cost and expense and without any fee, cost,
expense or liability to Landlord, apply for a modification of the then existing
Certificate of Occupancy for the Building to permit such additional uses of the
Premises as may be reasonably desired by Tenant; provided, however, that such
additional uses will not materially adversely affect the reputation of the
Building as a first-class office building with retail stores, nor violate the
provisions of this Article 3 or any "Environmental Laws" as such term is
hereinafter deferred in Section 9.04 hereof or any other environmental related
covenants set forth in this Lease.
ARTICLE 4
CONDITION OF THE PREMISES; CONDITION OF BUILDING
------------------------------------------------
Section 4.01.
(a) Upon Landlord's completion of the Preliminary Base Building Work
and Tenant's entering into possession of or all of any part of the Premises for
any purpose including the performance of Tenant's Initial Work, Tenant shall be
deemed to have accepted the Preliminary Base Building Work and all or such
portion of the Premises in its "as is" condition, except, however, for latent
defects (which shall be the obligation of Landlord to repair, as hereinafter
provided), and for the completion of the Remaining Base Building Work which
Landlord shall cause to be performed as hereinafter provided.
(b) Tenant further agrees that Landlord shall have no obligation to
perform or cause to be performed any work, supply any materials, incur any
expenses or make any installations, in order to prepare the Premises for
Tenant's occupancy, except for the Remaining Base Building Work and as to
Landlord's obligation under Section 4.04 hereof to pay the "Landlord's
Contribution" (as such term is hereinafter defined) to Tenant.
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Section 4.02.
(a) Landlord agrees that upon the Commencement Date, Landlord will
proceed with due diligence and at Landlord's own cost and expense, to cause the
completion of the construction of a11 Remaining Base Building Work subject,
however, to Force Majeure and Tenant's Delays.
(b) (i) Landlord hereby agrees to "substantially complete" (as such
term is hereinafter defined) the Remaining Base Building Work in accordance with
the Remaining Base Building Work Schedule annexed hereto as Exhibit 5 and made a
part hereof, on or before the completion dates set forth thereon. Landlord
acknowledges that the dates for completion set forth on Exhibit 5 shall be
subject to extension only for Tenant's Delays.
(ii) As used in this subsection 4.02(b) hereof, an item of
Remaining Base Building Work shall be deemed to have been substantially
completed when the same has been completed, except for completion of
construction, facilities, mechanical adjustment, the non-completion or
inaccessibility of which shall not materially interfere with the performance of
Tenant's Initial Work and/or Tenant's use and occupancy of the Premises and/or
the Building for Permitted Uses.
(iii) Notwithstanding anything to the contrary set forth in this
Article 4 or elsewhere in this Lease, the date of substantial completion of any
item of Remaining Base Building Work shall be deemed to occur:
(A) one (1) day earlier than the actual date, for each day
of Tenant's Delay; and
(B) one (1) day later than the actual date, for each day of
Landlord's Delay.
(c) (i) Landlord and Tenant mutually acknowledge and agree that
Landlord's completion of certain portions of the Remaining Base Building Work
may be performed concurrently with the performance by Tenant of Tenant's Initial
Work.
(ii) Accordingly, Tenant, Landlord and their respective agents,
employees and contractors, shall cooperate and avoid any interference (at
Landlord's reasonable direction) with the other respective contractors,
laborers, material suppliers and other parties performing such completion of the
Remaining Base Building Work and Tenant's Initial Work, respectively, in order
to ensure the timely and efficient completion of such Base Building Work and
Tenant's Initial Work, and the avoidance of any unnecessary Tenant's Delays and
Landlord's Delays.
(iii) (A) Landlord and Tenant and their respective agents,
employees and contractors shall co-operate and avoid interference (at Landlord's
reasonable direction) with each other during the performance and completion of
the Remaining Base Building Work and Tenant's Initial Work in the use of the
Building's elevators.
(B) At such time as all Building elevators shall become
operational, as provided in the elevator delivery
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schedule set forth on Exhibit 5 annexed hereto and made a part hereof, Landlord
hereby agrees that Tenant shall have the exclusive use of two (2) high rise and
two (2) low rise elevators and the non-exclusive use, with Landlord and
Landlord's contractors, of the freight elevator, subject, however, to the
provisions of subsection (A) above, during the performance of Tenant's Initial
Work at the Premises.
(c) All of such elevators made exclusively available to Tenant
hereunder may be operated by Tenant's employees or agents, at Tenant's
discretion, provided, however, that all union rules are complied with. Any union
disputes arising out of the use of such elevators will be settled or ________
by Landlord at no expense or cost to Landlord, and Tenant shall comply forthwith
with the terms and provisions of any such settlement or resolution so arranged
by Landlord. During the performance of Tenant's Initial Work, Tenant shall have
control over the use of the freight elevator and shall comply with all union
obligations as provided in the preceding sentence, and shall make available to
Landlord, at Landlord's request the use of such freight elevator in order to
permit Landlord to expeditiously complete the Remaining Base Building Work.
(d) (i) Landlord shall provide Tenant with written notice of
Landlord's substantial completion of the Remaining Base Building Work as soon as
possible after the same shall have been substantially completed (the "Completion
Date").
(ii) Landlord, shall, as promptly as practicable after the
occurrence of the Completion Date, cause all Remaining Base Building Work to be
fully completed, and shall provide Tenant with a certificate of Landlord's
engineer or architect stating that all such Remaining Base Building Work has
been so completed.
(e) On the Completion Date, Landlord shall be deemed to have performed
all of its obligations hereunder with regard to installation of all Base
Building Work in the Building subject, however to Landlord's obligation, as
provided in subsection 4.02(d)(ii) above, to complete all Remaining Base
Building Work, and except, however, for latent defects (which shall be the
obligation of Landlord to repair, as hereinafter provided), and such items, the
non-completion of which shall not materially interfere with the normal use and
occupancy of the Premises and the Building for the Permitted Uses, unless within
ninety (90) days after the Completion Date or within the applicable warranty or
guaranty period for a particular item of Base Building Work, as the case may be,
whichever is longer, Tenant shall give written notice to Landlord specifying the
respects in which Landlord has not performed any of its obligations hereunder
with regard to the Base Building Work or the respects to which such item of Base
Building Work shall be defective; provided, however, that with respect to any
system in the Building which is only operated seasonally, Tenant may give such
written notice within sixty (60) days after the first time in which such system
is used in the appropriate season in the normal course of the operation of the
Building.
(f) (i) On the Completion Date, the Building shall be as to
appearance, type of construction and standards of
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workmanship and materials, in conformity with first-class office buildings
located in the New York metropolitan area or the so-called "Gold Coast" area of
the City, and the Building, as constructed, shall conform to the plans and
specifications listed on Exhibit 9 annexed hereto and made a part hereof; but
otherwise as to construction, workmanship, materials and equipment, such as in
Landlord's sole judgment shall be desirable except, however, that unless
otherwise expressly consented to by Tenant (which consent shall not be
unreasonably withheld or delayed), (A) the areas, floor elevations and other
characteristics of the Premises, as indicated on the floor plans attached hereto
shall be substantially as shown on said floor plans, as shall also the number
locations and other characteristics as indicated thereon of toilets, elevators
and stairs insofar as they serve Tenant or the Premises, and (B) the sanitary,
water, electrical, and other systems of the Building included as part of the
Base Building Work shall be in good and workmanlike condition.
(ii) As part of Base Building Work, Landlord shall deliver to
Tenant, on the Completion Date, the following Building standard or base
installations and facilities which Landlord hereby states will be in good
working order and condition on the Completion Date (collectively, the "Base
Building Facilities"):
1. two Mammoth air conditioning units per floor;
2. chillers and related equipment;
3. electrical wiring in Building core;
4. plumbing fixtures and equipment in the core bathrooms;
and
5. nine (9) elevators (eight (8) passenger and one (1)
freight).
In addition, Landlord shall deliver to Tenant on the Completion Date,
any warranties and guarantees which Landlord shall have received from various
manufacturers, contractors and suppliers regarding the Base Building Facilities.
(g) (i) Notwithstanding anything to the contrary set forth in this
Article 4 or elsewhere in this Lease, Landlord hereby agrees that if a
Landlord's Delay which results from the performance of any Remaining Base
Building Work shall cause a material delay in the performance of any Tenant's
Initial Work, such Landlord's Delay shall be deemed to postpone the occurrence
of the Rent Commencement Date for each day of such Landlord's Delay.
(ii) Additionally, Landlord hereby agrees that if Landlord shall
have been unable or shall have failed to substantially complete (A) the work
described on Exhibit 5 annexed hereto on the dates set forth therein, or (B) the
Remaining Base Building Work, other than that which is set forth on Exhibit 5,
on or before the Rent Commencement Date and such inability or failure on the
part of Landlord to have
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substantially completed such Remaining Base Building Work shall not have been
caused by Tenant's Delays, then such liability or failure shall be deemed to
postpone the occurrence of the Rent Commencement Date for each day after the
Rent Commencement Date that Landlord has failed or been unable to substantially
complete the Remaining Base Building Work as aforesaid.
Section 4.03.
(a) (i) Tenant hereby agrees to promptly advise Landlord in writing
of any latent defects discovered by Tenant in any Base Building Work performed
by or on behalf of Landlord.
(ii) Tenant shall advise Landlord in writing of any such latent
defect(s) within thirty (30) days after the same have been, or should have been,
with the exercise of due diligence, discovered by Tenant. Tenant shall have no
obligation to inspect premises occupied by Third Party Tenants to discover such
latent defects.
(b) Landlord shall, with due diligence and dispatch and as promptly as
is reasonably practicable, repair or cause the repair of such latent defect(s)
so discovered by Tenant except, however, that such repair shall be performed
only during Business Hours of Business Days and with contractors selected by
Landlord, and in no event shall Landlord be liable or obligated to incur any
overtime charges or expenses regarding the performance of the repair work;
provided, however, that if such defect unreasonably interferes with Tenant's use
- -------- -------
and occupancy of the Premises for the Intended Uses, Landlord hereby agrees to
perform or cause the performance of such repair at times other than during
Business Hours of Business Days utilizing, if necessary, overtime services of
Landlord's contractors.
(c) In no event shall Landlord be liable or responsible for the repair
of any latent defect in any portion of Preliminary Base Building Work or
Remaining Base Building Work, which shall be discovered by Tenant or any Third
Party Tenant at any time after the occurrence of the fifth (5th) anniversary of
the Commencement Date.
Section 4.04.
(a) Landlord shall contribute toward the actual cost of the Tenant's
Initial Work approved by Landlord (provided that such approval is required
pursuant to Section 5.01 hereof) the amount of $ , which has been
calculated by multiplying the amount of $ per rentable square foot times
the amount of rentable square feet contained in the Premises (the "Landlord's
Contribution").
(b) If the actual cost of Tenant's Initial Work shall be in excess of
the amount of Landlord's Contribution, then the entire amount of such excess
cost shall be paid solely by Tenant and Landlord shall be under no obligation to
pay any such excess.
(c) Landlord shall pay Landlord's Contribution to Tenant only if:
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(i) this Lease shall then be in full force and effect and
Tenant shall not then be in default in the observance or performance,
of any of the terms and provisions of this Lease which are of a
monetary nature, and in connection with which default Landlord shall
have commenced legal action against Tenant;
(ii) Tenant shall have actually spent or incurred a cost equal
to the full amount of the Landlord's Contribution for the performance
of Tenant's Initial Work hereunder; and
(iii) Tenant shall have submitted to Landlord:
(A) paid invoices covering all such Tenant's Initial Work so
performed and cancelled checks and/or receipted bills
evidencing the expenditure of monies equal to the full
amount of the Landlord's Contribution for such Initial
Tenant's Work; and
(B) a written certificate from Tenant's architect stating that:
(1) Tenant's Initial Work described on such invoices has
been substantially completed substantially in accordance
with the plans and specifications approved by Landlord (to
the extent such approval is required by the provisions of
Article 5 hereof); (2) such portion of Tenant's Initial
Work has been paid for in full by Tenant; and (3) all
contractors, subcontractors and materialmen have delivered
to Tenant waivers of lien with respect to such Tenant's
Initial Work so performed, copies of which shall have been
delivered to Landlord, or, that all contractors,
subcontractors and materialmen have delivered to Tenant,
prior to the commencement of such Tenant's Initial Work,
agreements whereby the contractors, subcontractors or
materialmen agree that they shall not file a notice of
intention with respect thereto.
(d) In the event that Tenant shall have complied with all of the
aforesaid conditions precedent to Landlord's disbursement to Tenant of all of
Landlord's Contribution, and Landlord shall thereafter fail to disburse
Landlord's Contribution to Tenant:
(i) within thirty (30) days after the date on which Landlord
should have disbursed such Landlord's Contribution to Tenant, as
aforesaid, the amount of such Landlord's Contribution shall accrue
interest thereon at the Interest Rate, from the date the same
should have been paid until the same has been paid (which interest
shall be paid together with Landlord's Contribution); and
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(ii) within ninety (90) days after the date on which Landlord
should have disbursed such Landlord's Contribution to Tenant, as
aforesaid, Tenant shall have the right to offset against payments
to Landlord of Fixed Rent then due and owing or to be due and
owing, the amount of such Landlord's Contribution (together with
any interest as provided in subsection 4.04(a)(i) above) which
should have been so disbursed to Tenant.
ARTICLE 5
ALTERATIONS; INSTALLATIONS; TENANT'S
------------------------------------
PROPERTY AND TENANT'S WORK
--------------------------
Section 5.01.
(a) Tenant shall not make or perform or permit the making or
performance of, any alterations, installations, improvements, additions or other
physical changes in or to the premises in connection with Tenant's Initial Work
or otherwise (collectively the "Alterations") which (i) affect the Structural
Elements" of the Building (as hereinafter defined), (ii) affect the character,
exterior appearance or the structural integrity of the Building or (iii) require
the consent of any holders of any Mortgage or lessor under any Superior Lease,
without first providing Landlord with written notice of the performance of such
Alterations and detailed plans and specifications for such Alterations (to the
extent required by this Article 5), and then obtaining Landlord's prior written
consent to each such Alteration in each instance, which consent shall not be
unreasonably withheld or delayed; provided, however, that the provisions of any
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future Superior Lease or Mortgage with respect to the necessity of consent and
standards therefor to any Alterations shall not be materially more onerous than
those which are set forth in any Superior Lease and Mortgage existing on the
date hereof, as same may be modified by a non-disturbance or similar agreement
delivered to Tenant in connection with the execution of this Lease. For purposes
of this Section 5.01 and 5.02, the term "Structural Elements" shall mean only
the following Building elements:
(A) foundation;
(B) concrete floor slabs, including steel rod structural
supports;
(C) concrete ceiling slabs, including steel rod structural
supports;
(D) structural Building column supports;
(E) Building roof; and
(F) curtain wall facade.
Landlord hereby agrees to use its best efforts to consider promptly any request
for its consent to an Alteration as required hereinabove and to respond thereto
within a reasonable time after Landlord has received such request.
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(b) Tenant may, upon ten (10) days prior written notice to Landlord
and without obtaining Landlord's prior written consent, make or perform all
other Alterations which do not (i) affect the Structural Elements of the
Building, (ii) affect the exterior appearance or structural integrity of the
Building nor (iii) require the consent of any holders of any Mortgage or lessor
under any Superior Lease; provided, however, that the provisions of any future
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Superior Lease or Mortgage with respect to the necessity of consent to any
Alterations and standards therefor shall not be materially more onerous than
those which are set forth in any Superior Lease and Mortgage existing on the
date hereof, as same may be modified by a non-disturbance or similar agreement
delivered to Tenant in connection with the execution of this Lease.
(c) All Alterations shall (i) not materially adversely affect any
service required to be furnished by Landlord to any tenant of the Retail
Premises, (ii) not materially reduce the value of the Building, without regard
to the use of the proposed Alteration, (iii) be performed in compliance with the
provisions of this Article 5, (iv) be done or performed at Tenant's sole cost
and expense and (v) be done or performed without any fee, cost, expense or
liability to Landlord. Unless Landlord is requested by Tenant to perform
services in connection with an Alteration and subject to the provisions of
Section 5.02(c) below, Landlord shall not be entitled to any supervisory fee in
connection with the performance of Tenant's Alterations.
(d) Landlord acknowledges and agrees that, notwithstanding the
provisions of Section 5.01(a), Tenant may install louvers on the south, west and
east sides of the second floor of the Premises, subject, however, to (i)
Landlord's approval of detailed plans and specifications and (ii) Landlord's
approval with respect to the aesthetics of such louvers, it being understood and
agreed that so long as the louvers do not detract from the overall appearance of
the Building as a first class office building with retail tenants, such louvers
shall be deemed to be in conformance with Landlord's aesthetic standards.
(e) In the event of a dispute as to whether an Alteration requires
the consent of Landlord pursuant to this Section 5.01, (i) upon the written
request of either Landlord or Tenant, the dispute shall be submitted to the
American Arbitration Association (the "Association") for disposition pursuant to
the "Expedited Procedures" of the Association; (ii) the decision of the
Association shall be final, and all actions necessary to implement the decision
of the Association shall be undertaken as soon as possible, but in no event
later than the (10) business days after the rendering of such decision; (iii)
judgment upon the dispute may be entered in any court having jurisdiction
thereof; and (iv) all fees payable to the Association for services rendered in
connection with the resolution of the dispute shall be paid for by the party
suffering the adverse decision of the Association. For purposes of this Section
5.01, the phrase "Expedited Procedures" of the Association shall mean those
procedures set forth in paragraphs 54 through 58 of that certain booklet
published by the Association and titled "Commercial Arbitration Rules", as
amended and in effect January 1, 1988.
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Section 5.02.
(a) Except as expressly provided to the contrary in Subsection 5.01(a)
above, prior to making any Alteration, Tenant shall, (i) at Tenant's sole cost
and expense, obtain all permits, approvals and certificates required by any
Legal Authorities or Insurance Bodies, provided that Landlord agrees cooperate
in obtaining the same at Tenant's sole cost and expense and at no fee, cost,
expense or liability to Landlord, and (ii) furnish to Landlord duplicate
original policies or original certificates of insurance of worker's compensation
(covering all persons to be employed by Tenant, and Tenant's contractors and
subcontractors in connection with such Alteration), comprehensive public
liability (including property damage coverage, completed operations/product
liability) insurance and builder's risk insurance including, if reasonably
available, coverage against "all risks of physical loss", the foregoing in such
form, with such companies, for such periods and in such amounts as Landlord may
reasonably require, naming Landlord, Landlord's employees and agents, and any
mortgagees or lessors having an interest in the Real Property, as additional
insureds.
(b) At least ten (10) days prior to making any Alterations not
affecting the Structural Elements costing in excess of $100,000, which sum shall
be increased by $25,000 on each anniversary of the Commencement Date during the
Term, Tenant shall submit to Landlord, for Landlord's review and advice (but in
no event for Landlord's approval), plans and specifications. At least ten (10)
days prior to making any Alteration affecting one or more of the Structural
Elements, Tenant shall submit to Landlord, for Landlord's prior written
approval, detailed plans and specifications (including layout, architectural,
mechanical, and structural drawings).
(c) (i) With respect to Tenant's performance of Alterations
pertaining to the Structural Elements, Tenant shall pay to Landlord, within
thirty (30) days after rendition of a bill therefor, together with reasonable
supporting documentation, as Additional Rent, Landlord's reasonable out-of-
pocket costs and expenses (including, without limitation, the reasonable costs
and fees of any independent architect, independent engineer or other independent
or outside consultant engaged by Landlord or any lessor or mortgagee having an
interest in the Real Property for such purpose) for (A) reviewing said plans and
specifications, and (B) inspecting the Alterations to determine whether the same
are being performed in accordance with all laws and requirements of Legal
Authorities and Insurance Bodies, and the provisions of any existing or future
Superior Lease or Mortgage. Landlord hereby agrees that the provisions of any
future Superior Lease or Mortgage regarding the performance of Alterations will
not impose any additional obligations upon Tenant other than those which are set
forth in any Superior Lease and Mortgage existing on the date hereof, as same
may be modified by a non-disturbance or similar agreement delivered to Tenant in
connection with the execution of this Lease.
(ii) Notwithstanding the foregoing provisions of this subsection
5.02(c), Landlord hereby agrees that for the period of the Term during which
Tenant has incurred expenditures of up to but not in excess of Thirty Million
and 00/100
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($30,000,000.00) for Alterations pertaining to the Structural Elements (the
"Expenditure Period"), Tenant shall be required to reimburse or pay to Landlord
only one-half (1/2) of the aforesaid costs and expenses incurred by Landlord,
pursuant to subsection 5.02(c)(i), with respect to the review of plans and
specifications for, and inspection of, Tenant's performance of such Alterations.
From and after the Expenditure Period, Tenant shall be obligated to fully
reimburse Landlord for all such costs and expenses described in subsection
5.02(c)(i) above.
(d) Landlord's review and/or approval, as the case may be, of any
plans or specifications shall not relieve Tenant of responsibility for the legal
sufficiency, fitness and technical competence thereof, and shall not be deemed
to constitute any representation or warranty of Landlord as to such legal
sufficiency or technical competence thereof.
(e) Upon completion of such Alteration, Tenant, at Tenant's sole cost
and expense, shall obtain certificates of final approval of such Alteration
required by any Legal Authority and shall furnish Landlord with copies thereof
together with copies of final "as built" plans (in the event Landlord, in its
reasonable discretion, determines that the Alterations are sufficiently
substantial and material so as to warrant the preparation of "as built" plans,
but in no event shall Landlord require as built" plans with respect to Tenant's
Initial Work more often than upon the completion of all work with respect to a
particular floor of the Premises);
(f) All materials and equipment to be incorporated in the Premises as
a result of all Alterations shall be new (or of equal value) and first quality,
and no such materials or equipment shall be subject to any lien, encumbrance,
chattel mortgage, title retention or security agreement.
(g) Tenant shall furnish Landlord with evidence reasonably
satisfactory to Landlord, such as an architect's cost certificate, receipted
bills and/or cancelled checks, which shall give evidence of Tenant's
expenditures regarding Tenant's performance of any Alteration performed by or on
behalf of Tenant during the Term, so that Landlord will be able to monitor the
compliance by, and the obligations of Tenant under the provisions of subsections
5.02(b) and (c) hereof.
Section 5.03.
(a) All personal property, furniture, furnishings, equipment and
movable fixtures and partitions supplied by or installed by or on behalf of
Tenant at Tenant's sole cost and expense and without any cost or expense by, or
contribution from Landlord (collectively, "Tenant's Property"), all Alterations
in and to the Premises which may be made by or on behalf of Tenant, at Tenant's
sole cost and expense, and without any cost or expense by, or contribution from
Landlord (Tenant's Property and Alterations are collectively called "Tenant's
Work"), prior to and during the Term, shall remain the property of Tenant and
Tenant may, upon the Expiration Date or earlier termination of the Term, remove
Tenant's Work from the Premises; provided, however, that Tenant shall repair any
-------- -------
damage to the Premises and the Building caused by such
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removal, in a good and workmanlike manner, and restore the premises and the
Building to building standard condition suitable for general multi-tenanted
office use and occupancy (reasonable wear and tear excepted).
(b) Any of such Tenant's Work not so removed by Tenant at or prior to
the Expiration Date or earlier termination of the Term, shall become the
property of Landlord and shall remain upon and be surrendered with the Premises
as part thereof at the end of the Term.
(c) (i) Notwithstanding the foregoing provisions, upon notice to
Tenant no later than thirty (30) days prior to the Expiration Date or earlier
termination of the Term of this Lease, Landlord may require Tenant to remove all
or part of any Tenant's Work consisting of specialized or custom installations
not suitable for general multi-tenanted office use and occupancy, such as
computer or data processing installations, cafeteria, employee dining or lunch
rooms, vault areas, trading floors and the like (collectively, the "Special
Installation Work"). In such event, Tenant shall remove all such Special
Installation Work from the Premises prior to the Expiration Date or earlier
termination of the Term of this Lease, at Tenant's sole cost and expense, in
compliance with subsection 5.03(a) hereof.
(ii) Additionally, Tenant hereby agrees that prior to the
Expiration Date or earlier termination of the Term of this Lease, Tenant shall
restore or install, as the case may be in the Premises and Building, all Base
Building Facilities or installations or facilities which are equal in quality or
of better quality than the Base Building Facilities (subject to reasonable wear
and tear), all in good working order and condition so as to enable Landlord to
operate the Building as a first class building suitable for multi-tenant general
office use and occupancy.
(d) The covenants and agreements set forth in this Section 5.03 shall
survive the Expiration Date or earlier termination of the Term of this Lease.
Section 5.04.
(a) Tenant shall, at its sole cost and expense, and with diligence and
dispatch, procure the cancellation or discharge of all notices of violation
arising from or otherwise connected with Alterations, Tenant's Work or any
other work, labor, services or materials performed by or on behalf of or
supplied to Tenant, or any person claiming through or under Tenant, which shall
be issued by any Legal Authority and shall cause any mechanic's lien filed
against the Premises, the Building or the Real Property, for work claimed to
have been performed by or on behalf of, or materials claimed to have been
furnished to, Tenant, to be released by payment, bonding or otherwise as
required by law, within thirty (30) days after notice thereof from Landlord.
(b) Tenant shall defend, indemnify and save harmless Landlord from and
against any and all mechanic's and other liens and encumbrances filed in
connection with Alterations, Tenant's Work or any other work, labor, services or
materials performed by or on behalf of or supplied to Tenant, or any
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person claiming through or under Tenant, including, without limitation, security
interests in any materials, fixtures or articles so installed in and
constituting part of the Premises and against all costs, expenses and
liabilities incurred in connection with any such lien or encumbrance or any
action or proceeding brought thereon.
Section 5.05.
(a) Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of, any contractor,
mechanic or laborer in the Premises, whether in connection with any Tenant's
Work or Alteration or otherwise, if, in Landlord's sole judgment, exercised in
good faith, such employment will or is likely to cause any union labor conflict
with other union labor engaged by Landlord, Tenant or others at the Project. In
the event of any such labor conflict or notice from Landlord of the likelihood,
in Landlord's good faith judgment, of a labor conflict, Tenant, promptly
following notice from Landlord, shall cause all contractors, mechanics or
laborers causing or likely to cause such conflict, to immediately cease work and
leave the Building.
(b) If the moving of any safe, machinery, equipment, freight, bulky
matter or fixtures requires special handling, Tenant shall employ persons
holding a Master Rigger's license to do said work, and that all work performed
in connection therewith shall comply with all applicable laws and regulations of
any Legal Authority, including the City and State. Tenant shall indemnify
Landlord for, and hold Landlord harmless from and against any and all damages
sustained by persons or property and for any damages or monies paid by Landlord
in settlement of any claims or judgments, as well as for all reasonable expenses
and attorneys' fees and court costs incurred by Landlord in connection therewith
and all costs incurred in repairing any damage to the Building or appurtenances.
(c) The agreements set forth in this Section 5.05 shall survive the
Expiration Date or earlier termination of the Term of this Lease.
Section 5.06.
(a) Upon Tenant's written request and at Tenant's sole cost and
expense, and without any fee, cost, expense or liability to Landlord, Landlord
shall (i) promptly execute such reports, certificates, instruments, applications
and other documents relating to Alterations permitted or consented to under this
Article 5 (collectively, the "Alterations Documents"), and (ii) take such other
acts relating to such Alterations (collectively, the "Alterations Acts") which
can be legally executed or taken only by Landlord.
(b) In the event that an Alterations Document or an Alterations Act, as
the case may be, must be executed or taken by a lessor under a Superior Lease or
a holder of a Mortgage, as the case may be, then at Tenant's sole cost and
expense, Landlord shall utilize best efforts to obtain the cooperation of such
third party; provided, however, that Landlord incurs no fee, cost, expense or
-------- -------
liability in connection therewith nor
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is obligated to bring any action with respect thereto; Tenant shall, however,
have the right to bring an action in connection with the foregoing, in Tenant's
name or that of Landlord, provided that the bringing of such action shall not
expose Landlord to criminal or civil liability, and as to which action Landlord
agrees to provide its reasonable cooperation.
Section 5.07.
(a) Any and all space in and/or adjacent to the Premises used for
stairways, shafts, stacks, pipes, conduits, ducts, electric or other utilities,
sinks or other Building facilities, if and to the extent the same shall
exclusively service the ground floor portion of the Building not leased to
Tenant (other than internal stairways, pneumatic tube systems, conveyor systems
and independent air-conditioning systems which are installed by or on behalf of
Tenant or at Tenant's sole expense), the roof of the Building as provided in
Article 43 hereof and the Building's curtain wall facade and the use thereof, as
well as access thereto through the Premises (at and for such times as shall not
unreasonably interfere with Tenant's use ________ or occupancy of or the conduct
of its business at the Premises) for the purposes of such use and the operation,
improvement, replacement, addition, repair, maintenance or decoration thereof,
are expressly reserved to Landlord, and, subject to the provisions of Section
5.01 hereof, Landlord shall have the right to withhold its consent to any
Alteration requested to be made by Tenant which shall affect any of the same.
(b) Tenant further understands and agrees that if any such space in or
adjacent to the Premises or facilities service both the Premises and the ground
floor portion of the Building not leased to Tenant, Landlord as well as Tenant
shall have use thereof, subject, however, to the restrictions set forth herein
and necessary access thereto through the Premises, as provided herein.
Section 5.08. (a) In the event that Tenant shall perform any
Alteration which affects any of the Base Building Work and/or the Base Building
facilities, as to which Work and Facilities Landlord has provided Tenant with:
(i) any manufacturers' warranties and/or guarantees as provided in Article 4; or
(ii) its own warranty as to workmanship regarding such Work or Facilities, as
provided in Article 4 hereof, Tenant hereby agrees that, regardless of whether
Landlord has approved such Alteration and/or the plans and specifications
therefor, if such Alteration (x) violates the terms of any such manufacturers'
warranty and/or guaranty, as the case may be, such warranty or guarantee shall
no longer be valid and Tenant shall have no right to enforce the provisions
thereof against the guarantor or warrantor, as the case may be, which has issued
such warranty or guaranty, or (y) changes or modifies, in any material respect,
the Work or Facilities for which Landlord has provided its own warranty as to
workmanship, provided, however, that Landlord has not consented to such
modification or change, then to the extent such workmanship has caused the
defect or problem complained of by Tenant, such warranty from Landlord shall no
longer be valid and Tenant shall have no right to enforce the provisions thereof
against Landlord.
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(b) The parties hereto mutually acknowledge and agree that any
dispute between Landlord and Tenant as to any of the provisions of this Section
5.08 shall be resolved by arbitration pursuant to Article 38 hereof.
ARTICLE 6
FLOOR LOAD
----------
Section 6.01.
(a) Tenant shall not place a load upon any floor of the Premises
that (i) exceeds the floor load per square foot which such floor was designed to
carry, or (ii) which is not allowed by applicable laws and requirements of Legal
Authorities, or (iii) will exceed the overall floor load capacity for which the
Building has been designed and is capable of carrying.
(b) Business machines, computer equipment and mechanical equipment
in the Premises, shall, to the extent commercially feasible, be placed and
maintained by Tenant, at Tenant's sole cost and expense, and in such manner as
shall be sufficient, in Landlord's reasonable judgment, to absorb and prevent
unreasonable (i) vibration, (ii) noise, (iii) annoyance and (iv) inconvenience
to the tenants of the Retail Premises.
ARTICLE 7
REPAIRS AND MAINTENANCE
-----------------------
Section 7.01.
(a) (i) Tenant shall, at its sole cost and expense, with
reasonable dispatch, take good care of and maintain in good order and condition,
the Premises and the Building, except for the Retail Premises, and fixtures and
improvements therein, including, without limitation, the Tenant's Property.
(ii) Tenant shall be responsible for all repairs and
replacements interior and exterior, structural and non-structural, ordinary and
extraordinary foreseen or unforeseen, in and to the Premises.
(iii) Tenant shall also be responsible for the cost of all
repairs and replacements to the Building, its roof, facade and other structural
portions of the Building, including, but not limited to, all Structural
Elements, and all non-structural portions of the Building, including all
facilities and systems in the Building, whether or not such repairs and/or
replacements are interior and exterior, ordinary and extraordinary, foreseen or
unforeseen.
(iv) Further, Tenant shall make all structural and non-
structural repairs to the Premises, its fixtures and appurtenances as and when
needed to preserve them in good working order and condition. Notwithstanding the
foregoing, Landlord shall, at the sole cost and expense of Tenant, maintain,
repair and perform all Alterations affecting the curtain wall facade of the
Building.
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(v) Notwithstanding anything to the contrary contained in this
subsection 7.01(a), Landlord hereby agrees that the cost of any structural
repairs and/or replacements to the Building shall be (A) borne solely by
Landlord to the extent that such repairs and/or replacements pertain solely to
the ground floor portion of the Building which is leasable by Landlord to retail
tenants or other occupants (the "Retail Premises") or (B) borne by Landlord to
the extent that the existence of the Retail Premises shall have increased the
cost to Tenant of making or causing to be made such structural repairs and/or
replacements.
(b) Tenant shall promptly replace all scratched, damaged or broken
doors and glass in and about the Premises and/or Building, except for the Retail
Premises, including, without limitation, entrance doors to the Building and
shall be responsible for all repairs, maintenance and replacement of wall and
floor coverings in the Premises and/or the Building, except for the Retail
Premises and for all the repair and maintenance of all sanitary and electrical
fixtures and equipment therein.
(c) Tenant shall be responsible for all replacements to the lamps,
tubes, ballasts and starters in the lighting fixtures installed in the Premises
and/or the Building, except for the Retail Premises.
(d) If Tenant fails, after thirty (30) days' notice, to proceed
with due diligence to make repairs required by this Lease or by any Legal
Authority to be made by Tenant, or to make such repairs within a shorter period
of time if permitted or required by any Legal Authority, the same may be made by
Landlord, at Tenant's sole cost and expense, and all expenses thereof incurred
by Landlord shall be paid by Tenant to Landlord, as Additional Rent, within ten
(10) days of the rendition of bills and invoices therefor.
(e) Except as may be specifically provided in Article 13 of this
Lease, there shall be no allowance to Tenant for a diminution of rental value
and no liability on the part of Landlord to Tenant by reason of inconvenience,
annoyance or injury to business arising from Landlord, Tenant or others making,
or failing to make, any repairs, alterations, additions or improvements in or to
any portion of the Building or the Premises, or in or to fixtures, appurtenances
or equipment thereof.
Section 7.02.
(a) If the Premises and/or the Building, except for the Retail
Premises shall be or shall become infested with vermin, Tenant shall, at
Tenant's sole cost and expense, cause the same to be exterminated, at any time
and from time to time during the Term, to the reasonable satisfaction of
Landlord, and shall employ such exterminators and such exterminating company or
companies as shall be reasonably satisfactory to Landlord.
(b) If the Retail Premises shall be or shall become infested with
vermin, Landlord shall, at the Landlord's sole cost and expense, cause the same
to be exterminated.
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(c) The water, wash and electrical closets, mechanical rooms, fire
stairs and other plumbing fixtures shall not be used for any purposes other than
those for which they were designed or constructed, and no sweepings, rubbish,
rags, acids or other substances shall be deposited therein.
Section 7.03. Any repairs made or performed by or on behalf of Tenant
or any person claiming through or under Tenant pursuant to this Article 7, shall
be of quality or class at least equal to the original work or construction in
the Premises and/or the Building, as the case may be, and shall be made in
conformity with, and subject to, the provisions of Article 5 hereof.
Section 7.04. Notwithstanding the provisions of this Article 7,
Landlord shall, at Tenant's cost and expense to the extent provided in Article
28 herein, take good care of and maintain, repair and replace in a manner
consistent with that of a first-class office building located in the New York
metropolitan area or the so-called "Gold Coast" area of the City:
(a) the plazas, sidewalks and curbs within the Real Property
including, without limitation, remove snow and ice therefrom;
(b) the public or common areas of the Real Property;
(c) all exterior gardening and landscaping; and
(d) the curtain wall facade of the Building.
ARTICLE 8
WINDOW CLEANING
---------------
Section 8.01.
(a) Tenant shall not require, permit, suffer or allow the cleaning of
any window in the Premises from the outside unless equipment and safety devices
required by any applicable law or statute of any Legal Authority are provided
and used.
(b) Tenant shall indemnify Landlord and hold Landlord harmless from
and against any and all liability as a result of Tenant's violation of the terms
of Section 8.01(a) above.
(c) The covenants and agreements set forth in this Section 8.01 shall
survive the Expiration Date or earlier termination of the Term of this Lease.
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ARTICLE 9
REQUIREMENTS OF LAW
-------------------
Section 9.01.
(a) Tenant shall, at Tenant's sole cost and expense, comply with all
present and future laws, orders and regulations of any Legal Authority, and with
all present and future directions of all public officers acting by or on behalf
of any Legal Authority, and all present and future rules, orders, regulations
and requirements of any Insurance Body which shall impose any violation, order
or duty upon Landlord or Tenant with respect to the Premises and/or the
Building, arising from, with respect to or as a result of (i) the use or
occupancy, or abatement of any nuisance in, on or about the Premises and/or the
Building, except, however, for the Retail Premises, the compliance of which
laws, orders, regulations and requirements of any Legal Authority or Insurance
Body regarding such Retail Premises shall, in such event, be the responsibility
of Landlord, (ii) Tenant's use of the Premises and the Building and the manner
of conduct by Tenant of its business at the Premises and the Building or
operation of its installations, equipment or other property therein, (iii) any
repair to, or alteration of or performance of any Tenant's Work at or within the
Premises performed by or on behalf of Tenant, (iv) any cause or condition
created by or at the instance of Tenant, or (v) a breach of any covenant,
agreement, term, provision or condition of this Lease on the part of Tenant to
be observed or performed.
(b) If Tenant shall have received notice from any Legal Authority
with respect to any of the foregoing, Tenant shall give Landlord prompt written
notice of any such lack of compliance with any of the foregoing, notwithstanding
that such compliance requires work which is structural or non-structural,
ordinary or extraordinary, foreseen or unforeseen.
(c) Tenant shall pay all of the costs, expenses, fines, penalties and
damages which may be imposed upon Landlord, any mortgagee and lessor by reason
of or arising out of Tenant's failure to fully and promptly comply with and
observe the provisions of this Section.
(d) Without limiting the generality of the foregoing, it is
specifically agreed that Tenant shall comply with all laws and requirements of
any Legal Authority that require the installation, modification or maintenance
of any gas, smoke or fire detector or alarm or any sprinkler or other system to
extinguish fires.
Section 9.02.
(a) Tenant shall not do or permit to be done any act or thing upon
the Premises which will invalidate or be in conflict with any insurance policies
covering the Building and fixtures and property therein and shall not do, or
permit anything to be done in or upon the Premises, or bring or keep anything
therein, except as now or hereafter permitted by the City's Fire Department,
Board of Fire Underwriters or any other Insurance Body or Legal Authority having
jurisdiction, and then only in such quantity and manner of storage as not to
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increase the rate for fire insurance applicable to the Building. Further,
Tenant agrees that Tenant shall not use the Premises in a manner which shall
increase the rate of fire insurance on the Building or on property located
therein, over that in similar type first-class office/commercial buildings
located in the New York metropolitan area or in the so-called "Gold Coast" area
of the City.
(b) If by reason of Tenant's failure to comply with the provisions of
this Article 9, the fire insurance rate shall, from and after the date of this
Lease, be higher than would otherwise be the case, Landlord's sole remedy under
this Lease for such increased fire insurance rate shall be to require Tenant to
reimburse Landlord for that part of all fire insurance premiums thereafter paid
by Landlord which shall have been charged because of such failure by Tenant.
Tenant shall make such reimbursement to Landlord, as Additional Rent, within ten
(10) days following notice from Landlord of any such outlay.
Section 9.03.
(a) If the Building's "sprinkler system" or any of its appliances
shall be damaged or injured, or shall not be in proper working order, Tenant
shall forthwith restore the same to good working condition at Tenant's sole cost
and expense.
(b) If any Insurance Body or any bureau, department or official of
the State or City governments or any other Legal Authority shall require or
recommend that any changes, modifications, alterations or additional sprinkler
heads or other equipment be made or supplied by reason of Tenant's business, or
the location of the partitions, trade fixtures, Tenant's Work, Tenant's
Property, or other contents of the Premises, Tenant shall, at Tenant's sole cost
and expense, promptly make and supply such changes, modifications, alterations,
additional sprinkler heads or other such equipment.
Section 9.04.
(a) Tenant acknowledges the existence of federal, state and local
environmental laws, rules and regulations (collectively, the "Environmental
Laws"), including, without limitation, the Environmental Clean Up Responsibility
Act of 1983 ("ECRA") and the Spill and Compensation and Control Act. Tenant
agrees, from and after the date hereof, to act in compliance with all such
Environmental Laws. Tenant shall not perform any acts in violation of
Environmental Laws. Tenant represents to Landlord that Tenant's Standard
Industrial Classification (SIC) Number as used on its Federal Tax Return will
not, under the applicable rules and regulations existing as of the date hereof,
subject the Premises or the Real Property to ECRA applicability. Tenant
represents to Landlord and covenants that Tenant will not change to an operation
with a different SIC Number without Landlord's prior written consent. Any such
proposed change shall be sent in writing to Landlord sixty (60) days prior to
the proposed change. Landlord may deny consent if, inter alia, the different SIC
----- ----
Number would subject the Premises or the Real Property to ECRA applicability.
Notwithstanding anything to the contrary set forth herein, in the event that
Tenant's SIC Number or the SIC
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Number of any subtenant or other party holding by, through or under Tenant shall
subject the Premises or the Real Property to ECRA applicability, the same shall
not constitute a violation hereunder and shall be permitted without the consent
of Landlord if the criteria of the so-called "office exemption" established
under Section 7:26B-1.8(a)(2) of the New Jersey Annotated Statutes shall be
satisfied.
(b) Upon the occurrence of any event requiring Tenant's compliance
with ECRA, or if Landlord by reason of any act or omission or failure to act or
not act on the part of Tenant, shall be required to comply with ECRA, Tenant
shall make all necessary filings with the New Jersey Department of Environmental
Protection ("DEP") and any other relevant Legal Authority and, at its own
expense, shall cause all necessary tests and studies to be performed. Landlord
shall complete such documents and otherwise cooperate (provided such cooperation
does not subject Landlord to any fee, cost, expense or liability or require
performance by Landlord of Tenant's obligations hereunder) as may be reasonably
requested by Tenant or required by the ECRA requirements of the DEP. In the
event that the DEP or any other Legal Authority or such other relevant Legal
Authority shall require a clean-up of the Premises or the Real Property or other
remedial action in order to comply with any Environmental Law, or in the event
of the imposition of any fine or penalty arising out of an environmental
violation affecting the Premises, then, if and only if such cleanup or other
remedial actions shall have been caused by activities or occurrences during the
Term caused by Tenant, its agents, employees, invitees or independent
contractors, _____________ such obligations, remedial actions, fines and
penalties actually resulting from the conduct of Landlord, its employees,
agents, invitee or independent contractor whether before, during or after the
Term hereof arising out of performance of Landlord's obligations under this
Lease or otherwise, Tenant shall assume responsibility, at its sole cost and
expense, for such clean-up obligations, remedial actions, fines and penalties
not expressly excluded above.
(c) Tenant hereby agrees to execute such documents and provide such
information as Landlord reasonably deems necessary and to make such applications
as Landlord reasonably requires to assure compliance with ECRA or to comply with
any Environmental Laws, rules or regulations of any relevant Legal Authority.
Tenant shall bear all costs and expenses incurred by Landlord associated with
any required ECRA compliance resulting from Tenant's use of the Premises or any
acts and/or omissions which Tenant, its agents, employees, invitees or
independent contractors initiate, including, without limitation, State agency
fees, engineering fees, clean-up costs, filing fees and suretyship expenses. As
used in this Lease, ECRA compliance shall include applications for
determinations of nonapplicability by the appropriate Legal Authority. Tenant
agrees to indemnify and hold Landlord harmless from and against any fines,
suits, proceedings, claims and actions and any other cost, expense or liability
of any kind arising under Environmental Laws, rules or regulations resulting
from Tenant's use of the Premises or any acts and/or omissions which Tenant, its
agents, employees, invitees or independent contractors initiate, Tenant's
failure to comply with this Section 9.04 or Tenant's failure to provide all
information, make all submissions and take all actions required by any Legal
Authority.
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(d) Tenant shall immediately provide Landlord and Landlord shall
immediately provide Tenant with copies of all correspondence, reports, notices,
orders, findings, declarations and other materials pertinent to Tenant's
compliance or Landlord's compliance hereunder or any other environmental
enforcement Legal Authority's requirements under any Environmental Laws as they
are issued or received by each party respectively. More specifically, but not
limiting the foregoing, each party shall promptly provide the other with: (i)
all documentation and correspondence provided to DEP pursuant to the Worker and
Community Right to Know Act, N.J.S.A. 34:5A-1 et seq. and the regulations
promulgated thereunder; (ii) all reports and notices made by Tenant or Landlord
pursuant to the Hazardous Substance Discharge-Reports and Notices Act, N.J.S.A.
13:1K-15 et seq. and the New Jersey Spill Compensation & Control Act, N.J.S.A.
58:10-23.11 et seq., and the regulations promulgated thereunder; and (iii) any
notices, correspondence and submissions made by Landlord or Tenant to DEP, the
United States Environmental Protection Agency, the United States Occupational
Safety and Health Administration, or any other Legal Authority which requires
submission of any information concerning environmental matters of hazardous
wastes or substances, and any notices, correspondence, documents and directives
received by Tenant or Landlord from any of said Authorities.
(e) In addition to any other remedies of Landlord pursuant to this
Article 9 and this Lease, Tenant's failure to abide by the terms of this Section
9.04 shall be restrainable by injunction. The provisions of this Section 9.04
shall survive the Expiration Date or earlier termination of the Term of this
Lease.
Section 9.05. Any work or installations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant pursuant to this
Article 9 shall be made in conformity with, and subject to, the terms and
provisions of Article 5 hereof.
Section 9.06. Landlord hereby represents to Tenant that Landlord has
not, as of the date hereof, received any notice or communication from the City
stating that the Building does not comply with applicable City building code
requirements, rules and regulations.
Section 9.07. Landlord hereby agrees that, to the extent that the
health, safety, use, occupancy or enjoyment of the Premises by Tenant or any
Third Party Tenant is materially adversely affected, Landlord hereby agrees to
comply with all Environmental Laws affecting the Real Property, excluding,
however, to the Premises, these matters arising during the Term, but excepting
therefrom only the acts and/or omissions which Tenant, the Third Party Tenants
and their agents, employees, licensees and contractors initiate in that portion
of the Real Property consisting of the Premises. Landlord agrees to take all
other action promptly and at its sole cost and expense which may be required to
preserve the use of the Premises by Tenant in conformity with the Lease, and to
indemnify and hold harmless Tenant and any Third Party Tenant from any loss,
damage, cost or expense resulting from any violation of Environmental Laws at
the Retail Premises.
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ARTICLE 10
SUBORDINATION
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Section 10.01.
(a) This Lease is subject and subordinate to each and every
Superior Lease and to each and every Mortgage. A list of all Mortgages and
Superior Leases existing as of the date of this Lease is annexed hereto as
Exhibit 6 and made a part hereof. Tenant acknowledges that it has reviewed each
Superior Lease and Mortgage and is familiar with the terms, provisions and
conditions thereof.
(b) The provisions of subsection 10.01(a) hereof shall be self-
operative and no further instrument of subordination shall be required,
provided, however, that Landlord shall have complied with the terms and
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provisions of subsection 10.01(d) hereof. In confirmation of such
subordination, however, Tenant shall promptly execute, acknowledge and deliver,
any certificate that Landlord, the lessor under any such Superior Lease or the
holder of any such Mortgage may, at any time and from time to time, reasonably
request.
(c) The holder of any Mortgage may elect that this Lease shall have
priority over its Mortgage, and upon notification to Tenant by such party, this
Lease shall be deemed to have priority over such Mortgage, regardless of the
date of this Lease.
(d) (i) Notwithstanding the foregoing, Landlord agrees to obtain
on Tenant's behalf, as hereinafter provided, from holders and lessors of all
presently existing and all future Mortgages and Superior Leases, a
nondisturbance and attornment agreement in recordable form (the "Non-Disturbance
Agreement").
(ii) Each Non-Disturbance Agreement shall, if required by the
holder or lessor in question, be on the form approved by such holder or lessor,
and shall contain such holder's or lessor's agreement with Tenant, in substance,
that to the extent necessary or required by such Superior Lease or Mortgage,
such lessor or holder thereof, as the case may be consents to this Lease, and
that so long as Tenant shall not be in default in the performance or observance
of Tenant's obligations to be performed or observed hereunder beyond the
expiration of any applicable notice and grace periods provided for the cure of
such default, and Landlord would not at the time be entitled, if it so elects,
to give notice pursuant to Article 19 hereof of Landlord's intention to end the
Term of this Lease, (A) this Lease and the Term and estate hereby granted shall
not be terminated, and Tenant's possession of the Premises shall not be
interfered with, in any foreclosure or other action or proceeding instituted
under or in connection with such Mortgage or Superior Lease or by reason of any
sale pursuant to any such action or proceeding, and (B) further, that upon said
holder or lessor succeeding to the rights and interests of Landlord hereunder,
such "successor landlord" (as such term is hereinafter defined), in its capacity
as Landlord hereunder, shall recognize Tenant and all of Tenant's rights and
privileges hereunder, and shall be obligated to perform Landlord's obligations
under this Lease,
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arising after the date of such succession, subject, however, to the Tenant's
compliance with the terms and provisions of Section 10.04 hereof, and the
Tenant's agreement, as set forth in Section 10.04, as to the obligations and
liability to Tenant of any such successor landlord.
(e) (i) Landlord shall obtain and deliver to Tenant for Tenant's
signature on the Commencement Date, from the lessors of all presently existing
Superior Leases, the Non-Disturbance Agreement described in subsection 10.01(d)
above.
(ii) Landlord shall have a period of thirty (30) days from the
Commencement Date to obtain and deliver to Tenant for Tenant's signature, from
the holder of the existing Mortgage, the Non-Disturbance Agreement described in
subsection 10.01(d) above.
(iii) In the event that Landlord shall fail to comply with the
aforesaid terms and provisions of subsection 10.01(e), Tenant shall have the
right to terminate this Lease upon not less than fifteen (15) days written
notice to Landlord, in which event this Lease shall terminate as of the
termination date selected by Tenant, as if such date of termination were the
Expiration Date hereof, unless Landlord delivers such Nondisturbance and
Attornment Agreement required hereunder prior to the expiration of said fifteen
(15) day period. Upon the termination of this Lease as provided above, Landlord
and Tenant shall have no further rights or obligations hereunder. Further, at
the time of Lease termination, Landlord shall return the Letter of Credit and
shall agree that the Guarantor shall be released from all obligations accruing
from and after such termination date.
(iv) Tenant shall cooperate with Landlord's efforts to obtain
such Nondisturbance and Attornment Agreements from all lessors or holders of
Superior Leases and Mortgages, including the furnishing of such financial and
other information as such lessors and holders may reasonably request. Landlord
shall request such lessors or holders to maintain the confidentiality of such
information.
Section 10.02.
(a) Except as expressly provided herein, Tenant shall not do, or
permit to be done, or omit to do anything, that Tenant is obligated to do under
the terms of this Lease, so as to cause Landlord to be in default under any
Superior Lease or Mortgage, provided, however, that Tenant's financial or other
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obligations under this Lease are not increased, or Tenant's rights under this
Lease are not impaired.
(b) If, in connection with any financing of the Real Property, or
any part thereof or interest therein, any lending institution shall request
reasonable modifications of this Lease that do not either increase the financial
or other obligations or adversely affect the rights of Tenant under this Lease
or diminish the obligations of Landlord hereunder to the detriment of Tenant,
Tenant covenants to promptly consent to such modifications and shall promptly
execute any lease amendments requested by Landlord and such lending institution
effecting such modifications.
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Section 10.03. In the event of any act or omission of Landlord which
would give Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or to claim a partial or total eviction, Tenant
shall not exercise such right until it has given written notice of such act or
omission to each holder and lessor whose name and address shall previously have
been furnished to Tenant in writing (including the holder(s) and lessor(s) shown
on Exhibit 6), and until a reasonable period for remedying such act or omission
shall have elapsed following the giving of such notice and following the time
when such holder or lessor shall have become entitled under such Mortgage or
Superior Lease to remedy the same (which reasonable period shall in no event be
less than the period to which Landlord would be entitled under this Lease or
otherwise, after similar notice to effect such remedy); provided, however, that
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such holder or lessor shall within ten (10) days following the expiration of any
applicable notice and grace period to remedy such act or omission as is
available to Landlord hereunder, give Tenant written notice of intention to, and
commence within a reasonable time thereafter, and with due diligence continue to
remedy such act or omission.
Section 10.04.
(a) If the lessor or holder or any designee or other person claiming
by, through or under a lessor or holder shall succeed to the rights of Landlord
under this Lease, whether through possession or foreclosure action or delivery
of a new lease or deed, then at the request of such party so succeeding to
Landlord's rights (a "successor landlord") and upon such successor landlord's
written agreement to accept Tenant's attornment, Tenant shall be deemed to have
attorned to and recognized such successor landlord as Tenant's landlord under
this Lease.
(b) The foregoing provision shall be self-operative upon demand, and
no further instrument shall be required to give effect to said provisions;
provided, however, that Tenant shall promptly execute and deliver any instrument
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that such successor landlord may reasonably request to evidence such attornment.
(c) Upon such attornment, this Lease shall continue in full force and
effect as, or as if it were, a direct lease between the successor landlord and
Tenant upon all of the terms, conditions and covenants as are set forth in this
Lease which shall be applicable after such attornment except that the successor
landlord shall not be:
(i) liable for any previous act or omission of Landlord (or its
predecessors in interest) under this Lease to which such successor landlord did
not previously consent; or
(ii) subject to any credits, claims, counterclaims, demands,
defenses or offsets, not expressly provided for in this Lease and asserted with
reasonable promptness, which Tenant may have or shall have theretofore accrued
to Tenant against Landlord; or
(iii) bound by any previous modification of this Lease, not
expressly provided for in this Lease, or by any
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previous prepayment to Landlord (or its predecessors in interest) of more than
one (1) month's installment of Fixed Rent and/or Additional Rent, unless such
modification or prepayment shall have been expressly approved in writing by the
successor landlord; or
(iv) obligated to perform any alteration of the Premises not
expressly required under this Lease; or
(v) responsible for any monies owing by Landlord to the credit
of Tenant; or
(vi) bound by any covenant to undertake or complete any
construction of the Premises or any portion thereof; or
(vii) bound by any obligation to make any payment to Tenant, or
grant or be subject to any credits, except for services, repairs, maintenance
and restoration provided for under this Lease to be performed after the date of
attornment and which landlords of like properties would ordinarily be expected
to perform at the landlord's expense, it being expressly understood, however,
that the successor landlord shall not be bound by an obligation to make payment
to Tenant with respect to construction performed by or on behalf of Tenant at
the Premises; or
(viii) required to remove any person occupying the Premises, or any
part thereof.
ARTICLE 11
RULES AND REGULATIONS
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Section 11.01. Tenant and Tenant's servants, employees and agents
shall observe and comply with the rules and regulations annexed hereto and made
a part hereof as Exhibit 7 (such rules and regulations are collectively called
"Rules and Regulations"); provided, however, that in case of any conflict or
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inconsistency between the provisions of this Lease and any of the Rules and
Regulations the provisions of this Lease shall control.
Section 11.02. Subject to the provisions of Article 39 hereof, no
sign, advertisement, object, notice or lettering shall be exhibited, inscribed,
painted or affixed by Tenant, in or on the windows or exterior doors, of the
Building or Premises or on any part of the outside of the Premises or the
Building, including, without limitation, the Building roof or at any point
inside the Premises where the same might be visible outside of the Premises,
without the prior written consent of Landlord in each instance, which consent
shall not be unreasonably withheld or delayed, provided such signage, lettering,
advertisement, object or notice shall be in conformity with the overall design
and appearance with the Project. Signs and lettering on all exterior doors
shall be of a size and color reasonably acceptable to Landlord.
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Section 11.03.
(a) Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations against any
other tenant, and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors,
contractors, invitees or licensees.
(b) Landlord agrees that it shall not enforce the Rules and
Regulations in a manner which discriminates against Tenant or anyone claiming
through or under Tenant.
(c) Landlord shall consult from time to time with Tenant at Tenant's
written request with respect to the Rules and Regulations for the Building and,
to the extent Landlord has the right to do so pursuant to other tenants' leases,
shall make such reasonable changes in the Rules and Regulations for the Building
as Tenant may reasonably request.
ARTICLE 12
INSURANCE
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Section 12.01. Tenant shall obtain and keep in full force and effect
during the Term:
(a) a policy of comprehensive general public liability and property
damage (1973 occurrence form) insurance with a broad form liability endorsement
including a contractual liability endorsement and personal injury liability
coverage, protecting and naming Tenant, Landlord, Landlord's employees, managing
agent and agents, and any mortgagees or lessors having an interest in the Real
Property (including any parties required to be named as insured under those
instruments set forth in Exhibit 6), as additional insureds, against claims for
personal injury, death and/or property damage occurring in or about the Premises
or the Building, and under which the insurer agrees to indemnify and hold
Landlord harmless from and against, among other things, all cost, expense and/or
liability arising out of or based upon any and all claims, accidents, injuries
and damages, including, but not limited to, those mentioned in Article 36
hereof, and which policy shall contain a provision that no act or omission of
Tenant shall affect or limit the obligation of the insurance company to pay the
amount of any loss sustained, and the minimum limits of liability under such
policy shall be a combined single limit with respect to each occurrence in an
amount of not less than Ten Million ($10,000,000.00) Dollars for injury (or
death) and damage to property (or in any increased amount reasonably required by
Landlord);
(b) insurance against loss or damage by fire and such other risks and
hazards (including, during the period of construction of Tenant's Initial Work,
casualty insurance in the so-called "Builder's Risk Completed Value Non-
Reporting Form", burglary, theft, breakage of glass within the Premises and
Building, except for the Retail Premises and, if the Premises are located at or
below grade, broad form flood insurance) as are insurable under then available
standard forms of "all risk" insurance policies, to Tenant's Property,
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Tenant's Work and all of Tenant's improvements and betterments for the full
replacement cost value thereof (including an "agreed amount" endorsement),
protecting and naming Tenant, Landlord, Landlord's employees, managing agent
and agents, and any mortgagees or lessors having an interest in the Real
Property as additional insureds;
(c) steam boiler, pressure vessels, air conditioning, elevator
collision or machinery insurance, if there is a boiler or pressure object or
similar equipment in the Premises, protecting and naming Landlord, Landlord's
employees, managing agent and agents and any lessors and mortgagees having an
interest in the Real Property, as additional insureds, with limits of not less
than Five Million ($5,000,000.00) Dollars; and
(d) rental insurance in an amount equal to not less than one (1)
year's Fixed Rent and Additional Rent, which shall be automatically renewable
annually.
Section 12.02. Landlord, at Tenant's sole cost and expense, shall
obtain and keep in full force and effect during the Term:
(a) insurance on the Building and other improvements to the Real
Property, including, without limitation, infrastructure and landscaping, against
loss or damage by fire and such other risks or hazards as are insurable, from
time to time, under standard forms of "all risk" insurance policies with
extended coverage, to include, in particular, casualty insurance during the
period of the completion of any construction by Landlord of any Base Building
Work in the so-called "Builder's Risk Completed Value Non-Reporting Form", broad
form flood insurance to the extent available, in an amount equal to the full
replacement cost value thereof, from time to time (including an "agreed amount"
endorsement), but in no event less than Sixty Million Dollars ($60,000,000.00),
with a deductible not in excess of One Hundred Thousand Dollars ($100,000.00);
and
(b) comprehensive general public liability (primary and excess
coverages) and property damage insurance with a broad form contractual liability
endorsement against claims for personal injury, death and/or property damage
occurring in or about the Building with a combined single limit of Ten Million
Dollars ($10,000,000.00) with a deductible of no more than One Hundred Thousand
Dollars ($100,000.00);
(c) elevator collision insurance in the amount of $100,000.00; and
(d) scheduled plate glass insurance.
Landlord may, from time to time throughout the Term, increase the
amount, extent or modify the deductibles of insurance described in this Section
12.02 with the consent of Tenant, such consent not to be withheld or delayed if
such increase is commercially reasonable for a first class office building with
ground floor retail tenants in the New York-New Jersey metropolitan area, or if
required by a holder of a Mortgage or lessor under a Superior Lease. Landlord
shall, from time to time throughout the Term, increase the amount or extent of
insurance described in this Section 12.02 if reasonably required by Tenant.
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Notwithstanding anything to the contrary contained herein, Tenant may,
at its option following written notice to Landlord, obtain and pay directly for
the insurance coverage which Landlord is otherwise obligated hereunder to
maintain at Tenant's sole cost and expense, in which event Tenant shall furnish
Landlord with evidence of payment for the policies together with duplicate
original copies of such policies or certificates evidencing such insurance,
whereupon Tenant shall be relieved of its obligation to reimburse Landlord for
the cost of such insurance coverage. If Tenant shall so elect to directly
purchase such insurance coverage, Tenant shall provide to Landlord, not less
frequently than annually, a schedule setting forth in reasonable detail the
types, amounts (including the amounts of any deductibles, if any) and insurance
carriers with whom Tenant has, or from whom Tenant intends to provide such
insurance coverage, which coverage shall be subject to Landlord's approval,
which approval shall not be unreasonably withheld or delayed.
Section 12.03.
(a) On the Commencement Date and thereafter, at least thirty (30)
days prior to the expiration of any such policies, Tenant agrees to deliver to
Landlord evidence of payment for the policies together with policies or
certificates evidencing such insurance.
(b) All such policies shall contain endorsements stating that (i)
such insurance may not be modified or cancelled or allowed to lapse except upon
thirty (30) days' prior written notice to Landlord or Tenant, as the case may
be, given by the party carrying such insurance by certified mail, return receipt
requested, containing the policy number and the names of the insured and the
certificate holder, and (ii) Tenant shall be solely responsible for payment of
all premiums under such policies and that neither Landlord, Landlord's
employees, managing agent and agents nor any mortgagee or lessor having an
interest in the Real Property shall have any obligation for the payment thereof
notwithstanding that Landlord, Landlord's employees, managing agent and agents,
such lessor or mortgagee are or may be named as additional insureds.
(c) Tenant's failure to provide and keep in force the aforementioned
insurance shall be a material default hereunder, entitling Landlord to exercise
any or all of the remedies provided in this Lease in the event of Tenant's
default.
(d) All insurance required to be carried by Tenant pursuant to the
terms of this Lease shall be effected under valid and enforceable policies
issued by reputable and independent companies of recognized responsibility
licensed to do business in the State, and rated in Best's Insurance Reports, or
any successor thereto (or if there be none, an organization having a national
reputation) as having a general policy-holder rating of 1'A" or better or the
then equivalent of such rating and having a policy holder surplus of at least
One Hundred Million and 00/100 ($100,000,000.00) Dollars.
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Section 12.04.
(a) Landlord and Tenant shall each use reasonable efforts to procure
an appropriate clause in, or endorsement to, each of its insurance policies
(insuring the Building and Real Property, in the case of Landlord, and insuring
Tenant's Property, Tenant's Work and Tenant's improvements and betterments, in
the case of Tenant), pursuant to which each insurance company waives subrogation
or consent to a waiver of right of recovery by the insured prior to any loss.
The waiver of subrogation or permission for waiver of the right of recovery in
favor of Tenant shall also extend to all other persons or entities occupying or
using the Premises in accordance with the terms of this Lease.
(b) If the payment of an additional premium is required for the
inclusion of such waiver of subrogation provisions or consent to a waiver of
right of recovery, each party shall advise the other of the amount of any such
additional premium by written notice and the other party shall pay the same or
shall be deemed to have agreed that the party obtaining the insurance coverage
in question shall be free of any further obligations under the provisions hereof
relating to obtaining such waiver or consent.
(c) If such waiver of subrogation shall be unobtainable or
unenforceable, each party shall instead have included in each of its insurance
policies (i) an express agreement that such policy shall not be invalidated if
the assured waives the right of recovery against any party responsible for a
casualty covered by the policy before the casualty, or (ii) any other form of
permission for the release of the other party.
(d) If such waiver, agreement or permission shall not be, or shall
cease to be, obtainable from either party's then current insurance company, the
insured party shall so notify the other party promptly after learning thereof,
and shall use its best efforts to obtain the same from another insurance company
described in Section 12.03 hereof.
(e) Landlord will not carry insurance of any kind on Tenant's
Property, Tenant's Work or any of Tenant's betterments and improvements and
shall not be obligated to repair any damage to or replace Tenant's Property,
Tenant's Work or Tenant's betterments and improvements; provided, however, that
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if Tenant shall fail to maintain such insurance, Landlord shall have the right
to obtain insurance on Tenant's Property, Tenant's Work and any of Tenant's
betterments and improvements and the cost thereof shall be payable by Tenant to
Landlord as Additional Rent on demand.
Section 12.05.
(a) Each party hereby releases the other (its servants, agents,
employees and invitees) with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damage or destruction with respect to its property by fire or other casualty
i.e., in the case of Landlord, as to the Building, and, in the case of Tenant,
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as to Tenant's Property, Tenant's Work and any of Tenant's other improvements
and betterments (including rental value or business interruption, as the case
may be) occurring during the Term of this Lease.
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(b) Nothing contained in this Section 12.05 shall be deemed to
relieve Landlord or Tenant of any duty imposed elsewhere in this Lease to
repair, restore or rebuild or to nullify any abatement of rents provided for
elsewhere in this Lease.
Section 12.06.
(a) The proceeds of policies providing "all risk" property insurance
of Tenant's Property, Tenant's Work and any of Tenant's other improvements and
betterments shall be payable to Landlord, Tenant and each lessor and mortgagee
as their respective interests may appear.
(b) Tenant shall cooperate with Landlord in connection with the
collection of any insurance monies that may be due in the event of loss and
Tenant shall execute and deliver to Landlord such proofs of loss and other
instruments which may be required to recover any such insurance monies.
Section 12.07. Landlord may, at any time and from time to time during
the Term, require that the amount of the insurance to be maintained by Tenant
under this Article 12 be increased, so that the amount thereof adequately
protects Landlord's interest; provided, however, that the owners of properties
which are comparable to the Building have similarly increased the amount of
insurance required to be obtained by tenants under leases for such properties,
but in no event greater than the replacement cost of the Building (exclusive of
footings and foundation).
Section 12.08. Notwithstanding the foregoing provisions of this
Article 12, Landlord hereby agrees that Tenant shall have the right to provide
the insurance which is required hereunder as part of the so-called "blanket
insurance policies" which insure other properties of Tenant, provided, however
that such "blanket insurance" policies provide for an adequate reserve, in
Landlord's reasonable opinion, to cover any casualty, damage or injury at the
Building or Premises for which Tenant is required to obtain insurance coverage
hereunder.
ARTICLE 13
DESTRUCTION OF THE PREMISES; PROPERTY LOSS OR DAMAGE
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Section 13.01.
(a) If the Building or the Premises shall be partially or totally
damaged or destroyed by fire or other cause, then, whether or not the damage or
destruction shall have resulted from the fault or neglect of Tenant, or its
subtenants or licensees, or its or their respective employees, agents or
visitors (and if this Lease shall not have been terminated as in this Article 13
hereinafter provided), Landlord shall proceed, with reasonable diligence after
having obtained knowledge of the same, to repair the damage and restore and
rebuild the Building and/or the Premises to substantially the same condition as
that in which same were in immediately prior to the damage or destruction,
subject, however, to Force Majeure; provided, however, that if the net insurance
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proceeds available to Landlord for restoration, less the actual cost, fees and
expenses incurred in connection with
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the adjustment of the loss are insufficient (for any reason other than (i)
Landlord's failure to maintain the coverage required hereunder; or (ii) the
holder of any Mortgage shall not make such insurance proceeds available for such
restoration) to complete and pay for all such repairs and restoration, as
estimated by a reputable contractor, registered architect or licensed
professional engineer designated by Landlord, Landlord may elect to terminate
this Lease by giving Tenant notice to such effect within ten (10) days after
Landlord has determined that such insurance proceeds are insufficient, unless,
within fifteen (15) days after Landlord has delivered to Tenant such notice of
termination, Tenant shall have deposited with Landlord the amount of the
deficiency in the insurance proceeds necessary to restore and rebuild the
Building and/or the Premises, in which event Landlord shall proceed to so
restore and rebuild as provided hereinabove. In the event that Landlord elects
to terminate this Lease as aforesaid, this Lease shall terminate on the date set
forth in such notice as if such date were the Expiration Date set forth herein,
which termination date shall in no event be less than sixty (60) days after the
giving of Landlord's termination notice to Tenant, Tenant shall transfer,
promptly vacate and surrender the Premises to Landlord, and the Fixed Rent and
Additional Rent shall be apportioned appropriately and shall be paid up to and
including the date of such damage or destruction. Notwithstanding the foregoing,
if the net insurance proceeds available to Landlord are insufficient to complete
and pay for all such repairs and restoration required hereunder as a result of
the holder of any Mortgage not making available for restoration all or any
portion of such insurance proceeds, then in such event Landlord shall
nonetheless proceed to so restore and rebuild as provided above (but in no event
shall Landlord be required to repair or replace any of Tenant's Property,
Tenant's Work or Tenant's betterments or improvements) if and only if the
remaining Term hereof shall have not less than ten (10) years remaining therein.
If the remaining Term hereof shall have less than ten (10) years remaining
therein, Landlord shall have no such obligation to repair or restore and
Landlord shall have the right to cancel and terminate this Lease in accordance
with the terms of the second preceding sentence provided, however, that if
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Tenant shall then have unexercised Renewal Option(s) such that the then
remaining Term, together with such renewal term(s), would total not less than
ten (10) years and Tenant shall, within sixty (60) days following Landlord's
notice of Landlord's cancellation of this Lease, give Landlord notice of
Tenant's exercise of such Renewal Option(s) as shall extend the remaining Term
to not less than ten (10) years, in which event Landlord's notice of
cancellation shall be deemed rescinded, and Landlord shall proceed to restore
and repair as hereinabove provided.
In connection with Tenant's exercise of any renewal option(s) pursuant to this
Article 13, (i) Landlord and Tenant expressly agree that such renewal option(s)
may be exercised at the times set forth in this Article 13, and not at the
time(s) set forth in Article 41, and (ii) the determination of the FMV (as
defined in Article 41 hereof) of the Premises for such renewal term(s) shall be
agreed between Landlord and Tenant within thirty (30) days following notice of
Tenant's exercise of such renewal option, and if Landlord and Tenant shall fail
to so agree on the FMV within such period, the determination of the FMV shall be
submitted to arbitration pursuant to Article 41,
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it being expressly understood and agreed that Tenant shall have no right to
revoke its exercise of such renewal option following the decision of such
arbitrator.
(b) Tenant shall repair, replace and restore Tenant's Property,
Tenant's Work and any Tenant improvements and betterments, including any plate
glass in the Premises promptly and with due diligence (the "Tenant's Restoration
Work"). Any such repair work by Tenant shall be deemed Alterations and shall be
performed in accordance with Article 5 hereof.
(c) The proceeds of policies providing coverage for Tenant's Property,
Tenant's Work and any Tenant improvements and betterments of less than $100,000
shall be paid to Tenant and proceeds in a greater amount shall be paid to
Landlord, or, at the election of Tenant, to a bank or trust company reasonably
acceptable to Landlord and Tenant having resources in excess of $100,000,000
which shall hold, apply and make available the proceeds of such insurance as
hereinafter provided; provided, however, such trust arrangement satisfies the
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requirements of the Mortgages and Superior Leases. Concurrently with the
collection of any insurance proceeds attributable to the damage of Tenant's
Property, Tenant's Work and Tenant improvements and betterments, Tenant shall
pay to Landlord or such insurance trustee, if permitted, (i) the amount of any
deductible under the policy insuring Tenant's Property, Tenant's Work and any
Tenant improvements and betterments, and (ii) the amount, if any, by which the
cost of repairing and restoring Tenant Property, Tenant's Work and any Tenant
improvements and betterments as estimated by a reputable contractor designated
by Landlord exceeds the available insurance proceeds therefor. Provided this
Lease shall then be in full force and effect and Tenant shall not then be in
default in the observance or performance of any of the terms and provisions of
this Lease which are of a monetary nature and in connection with which default
Landlord shall have commenced legal action against Tenant, Landlord or the
insurance trustee as the case may be shall disburse such insurance proceeds to
Tenant from time to time (but in no event more frequently than once per month)
only if Tenant shall have submitted to Landlord or the insurance trustee as the
case may be with each request for disbursement:
(i) paid invoices covering Tenant's Restoration Work so
performed and cancelled checks and/or receipted bills evidencing the
expenditure of monies equal to the full amount requested;
(ii) a written certificate from Tenant's architect stating that:
(1) Tenant's Restoration Work described on such invoices has been
substantially completed substantially in accordance with the plans and
specifications approved by Landlord, to the extent such approvals are
necessary pursuant to Article 5 hereof; (2) such portion of Tenant's
Restoration Work has been paid for in full by Tenant; and (3) all
contractors, subcontractors and materialmen have delivered to Tenant
waivers of lien with respect to such Tenant's Restoration Work so
performed, copies of which shall have been delivered to Landlord, or, that
all contractors, subcontractors and materialmen have delivered to Tenant,
prior to the commencement of such Tenant's Restoration Work, agreements
whereby the contractors, subcontractors or materialmen agree that they
shall not file a notice of intention with respect thereto; and
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(iii) such other evidence as Landlord may reasonably require,
that such Tenant's Restoration Work described on such invoices has been
properly completed.
(d) The amounts due in accordance with subsections 13.0l(c)(i)and
(ii) first appearing above shall be payable by Tenant to Landlord upon demand
after collection of insurance proceeds as Additional Rent.
Section 13.02. Tenant shall not be entitled to terminate this Lease
due to, and no damages, compensation or claims shall be payable by Landlord in
connection with, any inconvenience, loss of business or annoyance arising from
any repair or restoration of any portion of the Premises or the Building
pursuant to this Article 13.
Section 13.03.
(a) The provisions of this Article 13 shall be considered an express
agreement governing any case of damage or destruction of the Premises by fire or
other casualty, and any law of the State providing for such a contingency in the
absence of an express agreement, and any other applicable law, ordinance or
regulation of like import, now or hereafter in force, shall have no application
in such case.
(b) Tenant hereby waives the benefit of N.J.S.A. Title 46, Chapter 8,
Sections 6 and 7.
Section 13.04.
(a) Tenant shall give notice to Landlord in case of fire or accident
in the Premises and/or in the Building, promptly after becoming aware of same.
(b) Landlord shall use all commercially reasonable efforts to make
any repair or restoration to the Premises promptly and in such manner as to not
unreasonably interfere with Tenant's use and occupancy of the Premises, but
Landlord shall not be required to do such repair or restoration work except
during Business Hours of Business Days unless requested by Tenant, in which
event Tenant shall pay, as Additional Rent, the additional cost of same in
excess of insurance proceeds made available to Landlord.
ARTICLE 14
EMINENT DOMAIN
--------------
Section 14.01. If the whole of the Real Property, the Building and/or
the Premises shall be acquired or condemned for any public or quasi-public use
or purpose (each such event is called a "Taking") this Lease and the Term shall
end as of the date of the vesting of title (the "Date of Taking") with the same
effect as if the Date of Taking were the Expiration Date, and the Fixed Rent and
Additional Rent payable hereunder shall be prorated and adjusted as of the Date
of Taking.
Section 14.02.
(a) If only a part of the Building or the Real Property shall be
subject to a Taking, then, except as hereinafter provided in this Article 14,
this Lease and the
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Term shall continue in full force and effect. If a part of the Premises shall
be subject to a Taking, and this Lease and the Term shall not be terminated
pursuant hereto, Landlord, at Landlord's expense, shall restore that part of the
Premises not subject to a Taking, so as to constitute tenantable Premises;
provided, however, that if the net available condemnation proceeds, less the
- -------- -------
actual cost, fees and expenses incurred in connection with the collection of
such proceeds, are insufficient to complete and pay for all such restoration, as
estimated by a reputable contractor, registered architect or licensed
professional engineer designated by Landlord, Landlord may elect to terminate
this Lease by giving Tenant notice to such effect within ten (10) days after
Landlord has determined that such condemnation proceeds are insufficient,
unless, within fifteen (15) days after Landlord has delivered to Tenant such
notice of termination, Tenant shall have deposited with Landlord the amount of
the deficiency in the condemnation proceeds necessary to restore the Building
and/or the Premises, in which event Landlord shall proceed to so restore as
provided hereinabove. In the event that Landlord elects to terminate this Lease
as aforesaid, this Lease shall terminate on the date set forth in such notice as
if such date were the Expiration Date set forth herein, which termination date
shall in no event be less than thirty (30) days after the giving of Landlord's
termination notice to Tenant, Tenant shall transfer, promptly vacate and
surrender the Premises to Landlord, and the Fixed Rent and Additional Rent shall
be apportioned appropriately and shall be paid up to and including the date of
such Taking. Notwithstanding the foregoing, in no event shall Landlord be
required to repair, restore or replace any of Tenant's Property, Tenant's Work
or Tenant's betterments or improvements.
(b) If a part of the Premises is included in the part of the Real
Property subject to a Taking, from and after the Date of Taking, the Fixed Rent
and Tenant's Proportionate Share shall be reduced in the proportion which the
area of the part of the Premises so subject to such Taking bears to the total
area of the Premises immediately prior to such Taking.
Section 14.03.
(a) If more than fifty percent (50%) of the Building shall be subject
to a Taking, Landlord, at Landlord's sole option, may give to Tenant, within
sixty (60) days next following the date upon which Landlord shall have received
notice of the Date of Taking, not less than thirty (30) days' notice of
Landlord's termination of this Lease.
(b) If the part of the Real Property subject to a Taking shall
contain more than fifty percent (50%) of the total area of the Premises
immediately prior to such Taking, or if, by reason of such Taking, in the
reasonable good faith judgment of Tenant, Tenant may not continue feasible
operation of its business at the remaining portion of the Premises, or no longer
has reasonable means of access to the Premises, or if more than fifty percent
(50%) of the parking spaces available to Tenant hereunder such that there shall
thereafter be less than one (1) parking space per one thousand (1,000) square
feet of rentable space in the Premises after such Taking and said spaces remain
unavailable for more than six. (6) months, Tenant may give to Landlord, within
sixty (60) days next following the date upon which Tenant shall have received
notice of the Date of Taking, not less than thirty
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(30) days' notice of Tenant's termination of this Lease.
(c) If any such notice of termination given by Landlord or Tenant, as
the case may be, this Lease and the Term shall come to an end and expire upon
the date set forth in said notice, which termination date shall, in no event, be
less than thirty (30) days after the giving of such notice, with the same effect
as if said date were the Expiration Date.
(d) In the event of any termination of this Lease pursuant to this
Section 14.03, the Fixed Rent and Additional shall be prorated and adjusted
appropriately as of the Date of Taking and any prepaid portion of Fixed Rent or
Additional Rent for any period after the Date of Taking shall be refunded by
Landlord to Tenant.
Section 14.04.
(a) In the event of any Taking of all or any part of the Real
property, subject to the provisions of Section 14.06 hereof, Landlord shall be
entitled to receive the entire award for any such Taking. Tenant hereby agrees
that Tenant shall have no claim against Landlord or the condemning authority for
the value of any unexpired portion of the Term, and Tenant hereby expressly
waives any right to such claim and assigns to Landlord all of its right, title
and interest in and to any such award.
(b) Nothing contained in this Section 14.04 or Section 14.06 shall be
deemed to prevent Tenant from making a claim in any condemnation proceeding for
moving expenses or the then unamortized value of Tenant's Work in excess of the
amount of Landlord's Contribution, on the condition that any such award to
Tenant shall in no event reduce, affect or impair the amount of the award
otherwise payable to Landlord.
Section 14.05. The terms "Taking", "condemnation" and "acquisition"
as used herein shall include any agreement in lieu of, or in anticipation of the
exercise of the power of eminent domain between the lessor under a Superior
Lease or Landlord and any Legal Authority authorized to exercise such power of
eminent domain.
Section 14.06.
(a) If any portion of the Real Property shall be subject to a Taking
which results in a termination of this Lease, as provided in this Article, the
rights of Landlord and Tenant in and to the net award or awards (i.e., after
deducting reasonable fees and expenses of collection and the amount of the award
payable to the lessor of a Superior Lease, provided such Superior Lease was in
existence on the date the Taking or condemnation was initiated), shall be as
follows and in the following order of priority:
(i) there shall first be paid to the holder of any Mortgage to
which this Lease is or shall be subordinate, the unpaid balance of principal and
interest due on such Mortgage, provided such Mortgage was in existence on the
date the Taking or condemnation was initiated;
(ii) Landlord shall then be entitled to (A) the principal amount
of a mortgage, which Landlord could
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reasonably have obtained in an arms-length transaction as of the date
immediately prior to the Taking, assuming for such purpose that no Taking is
forthcoming (the "Maximum Mortgage Amount", which Maximum Mortgage Amount shall
be calculated as provided in subsection 14.06(c) herein), less (B) the amount
paid to the holder of any Mortgage pursuant to subsection 14.04(a)(i) above; and
(iii) the balance, if any, of said award shall be divided between
Landlord and Tenant in the same proportion that the value of the unexpired
portion of Landlord's interest under the "Ground Lease" (as such term is defined
herein) which is subject to the Taking, as reduced by amounts payable as
provided in subsections (i) and (ii) above, including, without limitation,
Landlord's entire interest as lessor under this Lease (the "Landlord's Leasehold
Estate"), bears to the value of the unexpired portion of Tenant's interest as
lessee under this Lease (the "Tenant's Leasehold Estate").
(b) If the value of Landlord's Leasehold Estate and/or the value of
Tenant's Leasehold Estate shall be determined in the proceeding pursuant to
which all or a portion of the Real Property shall have been taken, the values so
determined shall be conclusive upon Landlord and Tenant. If such values shall
not have been separately determined, such value shall be fixed by agreement
between Landlord and Tenant within forty-five (45) days after the date of the
final determination of the amount of the award, together with the amount, if
any, payable to Landlord pursuant to subsection (a) above. If such amounts are
not fixed by agreement between Landlord and Tenant within said forty-five (45)
day period, the amounts payable to Landlord and Tenant pursuant to subsections
14.06(a)(ii) and (iii) shall be determined by arbitration in the manner set
forth in Section 42.04, except that the matters to be submitted and resolved
shall be those in question under this Section 14.06.
(c) For purposes of this Section 14.06:
(i) "Maximum Mortgage Amount" shall be deemed to be equal to
eighty (80%) percent of the value of Landlord's Leasehold Estate, such value to
be determined by capitalizing the "Net Operating Income" (as such term is
hereinafter defined), with respect Landlord's Leasehold Estate for the twelve
month period prior to the date of the Taking at the then prevailing "cap rate"
generally utilized by institutional lenders with respect to first class office
properties in the "Gold Coast" area;
(ii) "Net Operating Income" for any period shall mean an amount
which shall be determined by subtracting "Operating Expenses" for such period
from "Gross Operating Income" (as such terms are hereinafter defined) for such
period;
(iii) "Operating Expenses" for any period shall mean all costs
and expenses incurred by Landlord for the operation, management, leasing and
maintenance with respect to Landlord's Leasehold Estate including, without
limitation, all costs and expenses for which Landlord is responsible under this
Lease and the Ground Lease and all costs and expenses incurred by Landlord with
respect to the Retail Premises, but excluding any capital expenses incurred by
Landlord in
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connection with Landlord's Leasehold Estate; and
(iv) "Gross Operating Income" for any period shall mean all
income, rentals, revenues and consideration of whatever form or nature, received
by or paid to or for the account or benefit of Landlord, derived from any
operations with respect to Landlord's Leasehold Estate for such period,
including, without limitation, rent and additional rent under this Lease and the
leases affecting the Retail Premises excluding, however, any additional rent
which represents reimbursement or direct payment of operating expenses by the
tenants under such leases.
Section 14.07.
(a) In the event of a Taking of the temporary use or occupancy of all
or any part of the Premises during the Term of this Lease, Tenant shall be
entitled, except as hereinafter set forth, to receive that portion of the award
for such Taking which represents compensation for the use and occupancy of the
Premises and, if so awarded, for the Taking of Tenant's Property and for moving
expenses.
(b) This Lease shall be and remain unaffected by such temporary
Taking and Tenant shall continue to be responsible for all of its obligations
hereunder insofar as such obligations are not affected by such temporary Taking
and shall continue to pay in full the Fixed Rent and Additional Rent when due.
(c) If the period of temporary Taking shall extend beyond the
Expiration Date, that part of the award which represents compensation for the
use or occupancy of the Premises, or a part thereof, shall be divided between
Landlord and Tenant so that Tenant shall receive so much thereof as represents
the period prior to and including the Expiration Date and Landlord shall receive
so much thereof as represents the period subsequent to the Expiration Date.
(d) All moneys received by Tenant as, or as part of, an award for a
temporary Taking for a period beyond the date to which the Fixed Rent and
Additional Rent hereunder have been paid by Tenant shall be received, held and
applied by Tenant as a trust fund for payment of the Fixed Rent and Additional
Rent due hereunder.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
-------------------------
Section 15.01.
(a) Subject to the terms and conditions of this Article 15, Tenant,
for itself, its heirs, distributees, executors, administrators, legal
representatives, officers, directors, shareholders, successors and assigns,
expressly covenants that it shall not assign, mortgage, pledge, encumber or
otherwise transfer this Lease, nor sublet, nor underlet, nor suffer, nor permit
the Premises, or any part thereof, to be used or occupied by others (whether for
desk space, mailing privileges or otherwise), without the prior written consent
of Landlord in each instance.
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(b) If this Lease shall be assigned, or if the Premises, or any part
thereof, shall be sublet or underlet or occupied by anybody other than Tenant,
or if this Lease or the Premises or Tenant's Property and Tenant's Work shall be
encumbered (whether by operation of law or otherwise) with or without Landlord's
consent, then Landlord may, after default by Tenant, collect rent from the
assignee, subtenant or occupant, and apply the net amount collected to the Fixed
Rent and Additional Rent herein reserved, but no assignment, subletting,
occupancy or collection shall be deemed a waiver of the provisions hereof, the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained and Tenant shall remain fully liable for the performance and
due observance of all obligations of Tenant under this Lease, except as
expressly provided in Section 15.04 hereof.
(c) The consent by Landlord to an assignment or subletting shall not
in any way be construed to relieve Tenant from obtaining the express consent in
writing of Landlord to any further assignment or subletting (it being agreed
that any renewal of any sublease to the same subtenant and for the same use
shall not require Landlord's express consent thereto). In no event shall any
permitted subtenant assign or encumber its sublease or further sublet all or any
portion of its sublet space, or otherwise suffer or permit the sublet space or
any part thereof, to be used or occupied by others, without Tenant's first
complying with the provisions of this Article 15.
Section 15.02. If Tenant shall, at any time or from time to time
during the Term, desire to assign this Lease or sublet all or part of the
Premises, Tenant shall give notice thereof (the "Tenant's Notice") to Landlord,
which Tenant's Notice shall be accompanied by (i) a statement setting forth, in
reasonable detail, the identity of the proposed assignee or subtenant, the
nature of its business and its proposed use of the Premises, and (ii) in the
case of an assignment described in subsection 15.04(b) hereof, current financial
information with respect to the proposed assignee (including its most recent
financial report) sufficient to permit Landlord to make a reasoned judgment with
respect to such party's financial condition.
Section 15.03. (a) Provided that Tenant is not then in default of
any monetary or material obligation under this Lease, beyond any applicable
grace period herein provided for the curing of such default, as of the time of
Landlord's consent to the proposed assignment or sublease, Landlord's consent
(which must be in writing) to the proposed assignment or sublease shall not be
unreasonably withheld or delayed; provided, however, and upon condition that:
-------- -------
(i) In Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business or activity, and the Premises, or the
relevant part thereof, will be used in a manner, which (A) is in keeping
with the then standards of the Building as a first class office building,
(B) is limited to the Permitted Uses of the Premises as set forth in this
Lease, and (C) does not violate the restrictions set forth in Article 3
hereof;
(ii) The proposed assignee or subtenant is a
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reputable person or entity of good character, whose occupancy in the
Building would not be detrimental to the character, peace or security of
the Building or the Project;
(iii) Except for any proposed assignment or subletting to a
"Japanese Company" (as hereinafter defined), the proposed assignee or
subtenant is not a person or entity (or affiliate of a person or entity)
with whom Landlord or Landlord's agent is then "actively negotiating to
rent reasonably comparable space in the Building or the Project" (as such
term is hereinafter defined) it being understood and agreed that Landlord
shall be deemed to be actively negotiating to rent reasonably comparable
space in the Building or the Project to a person or entity if (A) during
the first four (4) years of the Term, Landlord (or its designee) shall have
received a written proposal and shall be actively conducting meetings or
discussions with such person or entity (or its or their designee) during
the six (6) month period immediately preceding the giving of a Tenant's
Notice with respect to such party, or (B) from and after the first four (4)
years of the Term, Landlord (or its designee) shall have proceeded with
such ongoing negotiations to the point where a proposed lease agreement has
been actually furnished to such person or entity (or its or their designee)
during such six (6) month period immediately preceding the giving of such
Tenant's Notice and such negotiations shall be continuing;
(iv) Except for any subletting to a Japanese Company during the
first four (4) years of the Term, any subletting of premises in excess of
one (1) floor of the Building shall be at a net annual rental rate per
rentable square foot of space which is greater than the net annual rental
rate per rentable square foot of reasonably comparable space at which other
office premises at the Project are then being offered for lease by Landlord
for a reasonably comparable term (it being understood that the foregoing
shall not be applicable to proposed subleases of a full floor, or a portion
of a full floor of the Building);
(v) the proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity and shall be
subject to the service of process in, and the jurisdiction of the courts
of, the State; and
(vi) The proposed use shall not be inconsistent with any
Environmental Laws or environmental related covenants set forth in this
Lease.
(b) Landlord shall, within five (5) Business Days of request
therefor, deliver to Tenant a schedule of net annual rental rates then being
asked for reasonably comparable office space for a reasonably comparable term
elsewhere in the Building or the Project. Landlord shall grant or deny its
consent (together with specific reasons for such denial) to a proposed
assignment or sublease within ten (10) Business Days from the later of (i)
Tenant's request for such consent, and (ii) Tenant's delivery to Landlord of
such information reasonably requested by Landlord in connection with its review
of the standards set forth in Section 15.03(a) above. In the event Landlord
fails, within such period of ten (10) Business Days, to either (i) grant or
deny its consent, together with
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specific reasons for any such denial, or (ii) request additional information in
accordance with Section 15.03(a) above, then Landlord's approval of such
proposed assignment or sublease shall be deemed to have been given.
Section 15.04.
(a) Each sublease made pursuant to Section 15.03 hereof shall be
subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease.
(b) Notwithstanding any such sublease or assignment and/or acceptance
of Rent by Landlord from any subtenant or assignee, Tenant shall and will remain
fully liable for the payment of the Fixed Rent and Additional Rent due and to
become due hereunder and for the performance of all the covenants, agreements,
terms, provisions and conditions contained in this Lease on Tenant's part to be
observed and performed and all acts and omissions of any licensee or subtenant
or assignee or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease, and any such violation shall
be deemed to be a violation by Tenant, provided, however, that Tenant herein
-------- -------
named shall be released and relieved of and from all liabilities and obligations
under this Lease if and only if (i) Landlord shall give its consent to such
assignment pursuant to Section 15.03 hereof, (ii) the assignee shall deliver to
Landlord an agreement as described in Section 15.08 hereof, (iii) the holder of
any Mortgage(s) shall give its (their) consent to such release of Tenant
herefrom, and (iv) either (X) Guarantor shall confirm to Landlord in writing
that the Guaranty remains in full force and effect notwithstanding such
assignment and release of Tenant herein named, or (Y) the assignee shall have a
net worth (calculated in accordance with generally accepted accounting
principles consistently applied) equal to not less than eight (8) times the
aggregate of all remaining Fixed Rent obligations of Tenant for the balance of
the Term of this Lease.
Section 15.05. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed
that:
(a) No sublease or subletting shall be for a term ending later than
one (1) day prior to the Expiration Date of this Lease;
(b) No sublease shall be delivered, and no subtenant shall take
possession of the Premises, or any part thereof, until an executed counterpart
of such sublease has been delivered to Landlord;
(c) Each sublease shall be subject and subordinate to this Lease and
to the matters to which this Lease is or shall be subordinate, and each
subtenant by entering into a Sublease is deemed to have agreed that in the event
of termination, re-entry or dispossession by Landlord under this Lease, Landlord
may, at its option, take over all of the right, title and interest of Tenant, as
sublandlord, under such sublease, and such subtenant shall, at Landlord's
option, attorn to Landlord pursuant to the then executory provisions of such
sublease, except that Landlord shall not be: (i) liable for any previous act or
omission of Tenant under such sublease; (ii) subject to any credit, demand,
claim, counter-
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claim, offset or defense, not expressly provided in such sublease, which
theretofore accrued to such subtenant against Tenant; (iii) bound by any
previous modification of such sub-lease, or by any previous prepayment of more
than one (1) month's Fixed Rent or Additional Rent; (iv) bound by any covenant
or obligation of Tenant to perform, undertake or complete any work in the
subleased space of the Building or to prepare it for occupancy beyond Landlord's
obligations there-for under this Lease; (v) required to account for any security
deposit of the subtenant other than any security deposit actually delivered to
Landlord by Tenant; (vi) bound by any obligation to make any payment to such
subtenant or grant any credits, except for services, repairs, maintenance and
restoration provided for under the sublease to be performed after the date of
such attornment; (vii) responsible for any monies owing by Landlord to the
credit of Tenant; and (viii) required to remove any person occupying the
Premises or any part thereof;
(d) Each subtenant shall execute and deliver to Landlord any
instruments Landlord may reasonably request to evidence and confirm the
aforedescribed attornment. Each subtenant or licensee of Tenant shall be deemed
automatically upon, and as a condition of, occupying or using the Premises or
any part thereof, to have given a waiver of the type described in and to the
extent and upon the conditions set forth in this Article 15. The provisions of
this Section 15.05 shall be self-operative and no further instrument shall be
required to give effect to this provision.
(e) (i) Notwithstanding anything to the contrary contained in this
Article 15, Landlord hereby agrees to and upon request of Tenant shall, confirm
in writing to each "Full Floor Subtenant" (as such term is hereinafter defined),
that with respect to each subtenant under any sublease which shall demise a
portion of the Premises consisting of not less than one (1) full floor of the
Building (each a "Full Floor Subtenant") and which shall contain the provisions
set forth in subsection 15.05(e)(ii) below, if this Lease shall be cancelled or
terminated prior to the Expiration Date hereof due to Tenant's default, Landlord
shall not cancel the sublease of such Full Floor Subtenant nor shall Landlord
otherwise name such Full Floor Subtenant in any action against Tenant, or
otherwise disturb such Full Floor Subtenant's quiet and peaceful possession of
the subleased premises if and on condition that: (i) such Full Floor Subtenant
shall not be in default under its sublease, beyond any applicable grace periods
provided therein for the curing of such default, and (ii) the Guarantor
hereunder shall confirm in writing to Landlord that the Guaranty shall continue
in full force and effect with respect to all of the obligations of such Full
Floor Subtenant to be performed or observed under such sublease (as same may be
modified pursuant hereto).
(ii) If this Lease shall be cancelled or terminated as aforesaid,
then, with respect to any Full Floor Subtenant, Landlord shall take over all of
the right, title and interest of Tenant, as sublandlord, under such sublease,
except that all of the limitations described in subsections (i) through (viii)
of subsection 15.05(c) hereof shall apply to Landlord. In addition, it shall be
expressly understood and agreed (and the non-disturbance agreement with respect
to any Full Floor Subtenant shall so provide) that notwithstanding anything to
the contrary contained in such sublease, Landlord shall have no obligation to
provide any maintenance, repairs or other services to such Full Floor
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Subtenant which shall be in excess of or in addition to the standard office
services provided by Landlord or its affiliates to tenants at other commercial
office buildings in the Project, and the Full Floor Subtenant shall pay to
Landlord, as Additional Rent during each year of the term of such sublease, to
the extent not otherwise required to be paid under such sublease (x) the cost of
all Real Estate Taxes and expenses of maintenance, repairs, providing services
and general operation and management of the Building, the Premises and the Real
Property, including all Operating Expenses and (y) any and all other charges
payable by Tenant to Landlord pursuant to the terms of this Lease, all such
amounts to be multiplied by a fraction, the numerator of which shall be the
number of rentable square feet in such subleased premises, and the denominator
of which shall be the number of rentable square feet in the Premises.
(iii) Any such Full Floor Subtenant shall execute and deliver to
Landlord any instruments (including, but not limited to, a new agreement of
lease) as Landlord may reasonably request to evidence the aforedescribed
attornment. Tenant shall reimburse Landlord as Additional Rent upon demand, for
all costs and expenses reasonably and actually incurred by Landlord in
connection with the preparation and review of Landlord's agreements not to
disturb Full Floor Subtenants and other correspondence and notices in connection
therewith, including, without limitation, reasonable legal costs actually
incurred in connection with each such agreement.
(iv) Landlord's obligation to execute and deliver a non-
disturbance and attornment agreement in favor of any Full Floor Subtenant shall
be further conditioned upon the following: (a) the fixed rent payable by such
Full Floor Subtenant per rentable square fact of its sublease shall be at an
annual rate not less than the Applicable Rental Rate hereunder and (b) either
(1) such Full Floor Subtenant shall, in Landlord's reasonable judgment, be
financially capable of meeting the obligations imposed under the sublease as the
same mature, or (2) such Full Floor Subtenant shall, either upon execution of
the sublease or as a condition to Landlord's obligations to recognize such
subtenant under the non-disturbance agreement, post a reasonable security
deposit to assure performance of its obligation under the sublease.
Section 15.06.
(a) If Tenant is a corporation, the provisions of subsection 15.01(a)
hereof shall apply to a transfer (by one or more transfers) of a majority of the
stock of Tenant which results in a change of control of Tenant as if such
transfer of stock of Tenant were an assignment of this Lease; but said
provisions shall not apply to Tenant if and so long as Tenant's shares are
publicly traded on a recognized national or international securities exchange,
or to transactions with a corporation into or with which Tenant is merged or
consolidated or to which substantially all of Tenant's assets are transferred;
provided, however, that in connection with any such merger, consolidation or
- -------- -------
transfer of assets:
(i) the successor to Tenant is a reputable entity of good
character and has a net worth computed in accordance with generally accept
accounting principles
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consistently applied, at least equal to the greater of (A) the net worth of
Tenant herein named immediately prior to such merger, consolidation or transfer,
or (B) the net worth of Tenant herein named on the date of this Lease;
(ii) proof reasonably satisfactory to Landlord of such net worth
prior to the effective date of any such transaction shall have been delivered to
Landlord at least thirty (30) days prior to the effective date of any such
transaction;
(iii) a duplicate original instrument of assignment in form and
substance reasonably satisfactory to Landlord, duly executed by Tenant, shall
have been delivered to Landlord at least thirty (30) days prior to the effective
date of any such transaction; and
(iv) an instrument in form and substance satisfactory to
Landlord, duly executed by the assignee in which such assignee assumes (as of
the commencement date of such assignment instrument) observance and performance
of, and agrees to be personally bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be performed and observed, shall
have been delivered to Landlord at least thirty (30) days prior to the effective
date of any such transaction.
(b) If Tenant is a partnership or joint venture, the provisions of
Section 15.01(a) hereof shall apply to a transfer (by one or more transfers) of
the equity and/or profit and loss interest and/or the interest in the
distributions of profits and losses of such partnership or joint venture which
results in a change of control of such partnership or joint venture as if such
transfer of an interest in the equity and/or profit or loss interest, and/or the
interest in the distributions of profits or losses or such partnership or joint
venture which results in a change of control of such partnership as joint
venture were an assignment of this Lease.
(c) If Tenant is a partnership or joint venture, or is comprised of
two (2) or more persons individually and/or as co-partners of a partnership or
joint venture, or if Tenant's interest in this Lease shall be assigned to a
partnership or joint venture, or to two (2) or more persons, individually and/or
as co-partners of a partnership or joint venture, pursuant to this Article 15
(any such partnership and such persons are collectively called a "Partnership
Tenant"), the following provisions of this Section shall apply to such
Partnership Tenant:
(i) the liability of each of the parties comprising Partnership
Tenant shall be joint and several;
(ii) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by, any written instrument which
may hereafter be executed, changing, modifying or discharging this Lease, in
whole or in part, or surrendering all or any part of the Premises to Landlord or
renewing or extending this Lease and by any notices, demands, requests or other
communications which may hereafter be given, by Partnership Tenant or by any of
the parties comprising Partnership Tenant; and
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(iii) if a Partnership Tenant shall admit new partners, all of
such new partners shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed;
(d) The limitations set forth in this Section 15.06 shall be deemed
to apply to subtenant(s), assignee(s) and guarantor(s) of this Lease, if any,
and any transfer by any such entity in violation of this Section 15.06 shall be
deemed to be a transfer in violation of Section 15.01 hereof.
Section 15.07. Tenant may, without Landlord's consent, permit any
corporations or other business entities or persons which control, are controlled
by, or are under common control with Tenant (individually and collectively, a
"related entity") to sublet all or part of the Premises for any Permitted Use,
subject however to compliance with Tenant's obligations under this Lease. Such
sublease shall not be deemed to vest in any such related entity any right or
interest in this Lease or the Premises nor shall it relieve, release, impair or
discharge any of Tenant's obligations hereunder.
Section 15.08. Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 15.01 hereof or without Landlord's
consent to the extent permitted under this Lease, shall be made only if, and
shall not be effective until, the assignee shall execute, acknowledge and
deliver to Landlord an agreement in form and substance reasonably satisfactory
to Landlord whereby the assignee shall assume the obligations of this Lease on
the part of Tenant to be performed or observed and whereby the assignee shall
agree that the provisions of Section 15.01 hereof shall, notwithstanding such
assignment or transfer, continue to be binding upon it in respect of all future
assignments and transfers.
Section 15.09. The joint and several liability of Tenant and any
immediate or remote successor-in-interest of Tenant and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord, or any grantee or assignee of Landlord by way of
mortgage or otherwise, extending the time, or modifying any of the obligations,
of this Lease, or by any waiver or failure of Landlord, or any grantee or
assignee of Landlord by way of mortgage or otherwise, to enforce any of the
obligations of this Lease.
Section 15.10. The listing of any name other than that of Tenant,
whether on the doors of the Premises or the Building directory, or otherwise,
shall not, in and of itself, operate to vest any right or interest in this Lease
or in the Premises, nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Premises or to
the use or occupancy thereof by others.
Section 15.11. For purposes of this Article 15, (i) the term
"control" shall mean, in the case of a corporation, ownership, directly or
indirectly, of at least fifty (50%) percent of all the voting stock, and in the
case of a joint venture or partnership or similar entity, ownership, directly or
indirectly, of at least fifty (50%) percent of all of the legal and equitable
interest therein; and (ii) the term
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"Japanese Company" shall mean any corporation, partnership or other business
entity which is organized and validly existing pursuant to the laws of the
nation of Japan, or any corporation, partnership or other business entity which
is controlled by or under common control with any such company.
Section 15.12. Tenant shall have the right, upon prior written notice
to Landlord but without Landlord's consent therefor, to mortgage all or any part
of Tenant's interest in this Lease to an institutional mortgagee (such leasehold
mortgage or any replacement thereof hereinafter called the "Leasehold
Mortgage"), including Tenant's Work, without any restriction except as set forth
in this Section 15.12 and Tenant may assign this lease as security for such
Leasehold Mortgage. With respect to the Leasehold Mortgage, Landlord agrees to
give a copy of any notice of any default under this Lease given to Tenant to the
holder of the Leasehold Mortgage (such holder, the "Leasehold Mortgagee") who
shall notify Landlord in writing of its interest in this Lease. From and after
the time Landlord is notified of the name and address of the Leasehold Mortgagee
and has provided Landlord with a true and corrected copy of such recorded
Leasehold Mortgage, the following provisions shall apply until the time, if any,
when the Leasehold Mortgagee shall notify Landlord in writing that said
Leasehold Mortgage has been satisfied in full:
(a) Except pursuant to the terms and provisions of this Lease, there
shall be no voluntary cancellation, surrender, acceptance of surrender or
material modification of this Lease without the prior consent in writing of any
such Leasehold Mortgagee and no such cancellation, surrender or modification
shall be effective without such consent.
(b) Upon serving upon Tenant any notice of default pursuant to the
terms of this Lease Landlord shall, at the same time and in the same manner,
serve a copy of such notice upon the Leasehold Mortgagee, and no notice by
Landlord to Tenant hereunder shall be deemed to have been duly given unless and
until a copy thereof has been so served. Such Leasehold Mortgagee shall
thereupon have the same period (plus the additional period hereinafter
provided), after service of such notice upon it, for remedying the default or
causing the same to be remedied, as is given Tenant after service of such notice
upon it.
(c) If Tenant shall be in default hereunder, the Leasehold Mortgagee
shall have the right to remedy such default, or cause the same to be remedied,
and Landlord shall accept such performance by or at the direction of such
Leasehold Mortgagee as if the same had been done by Tenant.
(d) For the purposes of this Section, no default on the part of Tenant
in the performance of work required to be performed or acts to be done, or
conditions to be remedied, shall be deemed to exist, if steps shall, in good
faith, have been commenced promptly by Tenant or by or at the direction of the
Leasehold Mortgagee to rectify the same and shall be prosecuted to completion
with diligence and continuity, provided that such completion occurs within
ninety (90) days of the date such work or acts were required to be performed or
done.
(e) In case of a default by Tenant other than in the payment of money
hereunder, Landlord will take no action to
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effect a termination of the Term of this Lease by the service of any notice
provided for in Article 18 hereof, or otherwise, without first giving to the
Leasehold Mortgagee reasonable time within which either to (i) obtain possession
of the Premises (including possession by a receiver) and cure such default in
the case of a default which is unsusceptible of being cured by the Leasehold
Mortgagee when the Leasehold Mortgagee has obtained possession, or (ii)
institute foreclosure proceedings and complete such foreclosure, or otherwise
acquire Tenant's interest in this Lease, with diligence and continuity and
thereafter cure such default in the case of a default which is not so
susceptible of being cured by the Leasehold Mortgagee provided (A) the Leasehold
Mortgagee assumes by a written instrument the obligations of Tenant under this
Lease, (B) the Leasehold Mortgagee or the Tenant pays all Fixed Rent and
Additional Rent and any other monetary obligations of Tenant under this Lease,
(C) the Premises are not endangered and (D) Landlord's interest under any
Superior Lease or Mortgage is not in danger of being foreclosed. Notwithstanding
the foregoing, the Leasehold Mortgagee shall not be required to continue such
possession or continue such foreclosure proceedings if the default which would
have been the reason for serving such a notice shall be cured, and provided that
nothing herein shall preclude Landlord from exercising any rights or remedies
under this Lease with respect to any other default by Tenant during any period
of such forbearance; and any default not susceptible of being cured by the
Leasehold Mortgagee shall, upon completion of foreclosure proceedings or
acquisition of Tenant's interest in the Lease, be and shall be deemed to have
been waived by Landlord.
(f) If this Lease shall terminate by reason of a default of Tenant,
Landlord, within thirty (30) days following the termination of this Lease based
on a default of Tenant, shall serve upon the Leasehold Mortgagee written notice
of such termination, together with a statement of any and all sums which are due
at the time to Landlord under this Lease but for such termination, and of all
other defaults, if any, then known to Landlord. Such Leasehold Mortgagee shall
thereupon have the option to obtain a new lease in accordance with and upon the
following terms and conditions:
In the case of a termination of this Lease based upon a default of
Tenant, then upon written request of the Leasehold Mortgagee, made within thirty
(30) days after the service by Landlord of the aforementioned notice, Landlord
shall enter into a new lease of the Premises with the Leasehold Mortgagee or
with its designee. Such new lease shall be effective as of the date of such
termination, shall be for the remainder of the Term of this Lease, and shall be
at the existing Fixed Rent and Additional Rent, and upon all the agreements,
terms, covenants and conditions hereof. The tenant named in such new lease
shall, at the time of the execution and delivery of such new lease, pay any and
all sums which would at such time be due under this Lease, but for its
termination as aforesaid, and pay all expenses, including reasonable counsel
fees, court costs and disbursements incurred by Landlord in connection with such
default and termination, the recovery of possession of the Premises, and the
preparation, execution and delivery of such new lease, and shall thereafter
diligently remedy any existing default under this Lease, provided, however, that
nothing herein contained shall require any Leasehold Mortgagee or its
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designee, as a condition to the exercise of its rights hereunder to obtain a new
lease or cure any default of Tenant not reasonably susceptible of being cured by
such Leasehold Mortgagee.
(g) So long as any Leasehold Mortgage is in existence, unless the
Leasehold Mortgagee shall otherwise expressly consent in writing, Landlord's
ground leasehold interest under the "Ground Lease" (as such term is hereinafter
defined) and the leasehold estate of Tenant herein created by this lease shall
not merge but shall retain separate and distinct, notwithstanding the
acquisition of said ground leasehold interest and said leasehold estate by
Landlord or by Tenant or by a third party, by purchase or otherwise.
(h) Landlord shall give the Leasehold Mortgagee prompt notice of any
legal proceedings between Landlord and Tenant relating to this Lease.
(i) Tenant shall pay any and all mortgage interest and amortization
under the Leasehold Mortgage at its own expense.
ARTICLE 16
ACCESS TO PREMISES
------------------
Section 16.01. Tenant shall permit Landlord, Landlord's agents and
any agents or employees of any public utility servicing the Building to erect,
use, maintain and replace ducts, pipes and conduits in and through the Premises;
provided, however, that (a) the usable area of the Premises utilized for office
- -------- -------
purposes shall not be reduced thereby and the balance of the Premises shall not
be materially reduced thereby, and (b) any interruption of or interference with
Tenant's business at the Premises, which shall result from any of the foregoing
activities shall be kept to a minimum with Landlord providing, at its sole cost
and expense, any additional security personnel required for such activities.
Section 16.02. Landlord and Landlord's agents shall have the right to
enter the Premises at all reasonable times upon reasonable advance notice
(except in an emergency, in which case. no notice shall be required) and as
hereinafter provided in this Article 16, (a) for any of the purposes specified
in this Article 16, (b) to examine the same, (c) to exhibit them to prospective
purchasers, lessors or mortgagees of the Building or space therein, (d) to make
such repairs, alterations, improvements or additions as Landlord may be
permitted to perform in the Premises or to any other portion of the Building,
pursuant to, and in accordance with, any of the terms and provisions of this
Lease, following Tenant's default in the performance thereof, (e) to comply with
laws, regulations or other requirements of any Legal Authorities and Insurance
Bodies, (f) to take all material into and upon the Premises that reasonably may
be required therefor, and (g) to read any utility meters therein. Any such
entry by Landlord or Landlord's agents shall not constitute an eviction or
constructive eviction of Tenant, in whole or in part, and the Fixed Rent and
Additional Rent shall in no wise abate while said exhibition, repairs,
alterations, improvements or additions are being made (except, however, that any
such repair, alteration or improvement work shall be performed by
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or on behalf of Landlord in accordance with the provisions of Section 16.06
hereof), by reason of loss or interruption of business of Tenant, or otherwise.
Section 16.03. During the two (2) years prior to the Expiration Date,
Landlord may exhibit the Premises to prospective tenants thereof upon the terms
set forth in Section 16.02 hereof.
Section 16.04. Subject to the provisions of Section 16.02 hereof, if
Tenant shall not be personally present to open and permit an entry into the
Premises, at any time and from time to time, when for any reason an entry
therein shall be necessary or permissible pursuant to the terms and pro-visions
of this Lease, Landlord and Landlord's agents may enter the public portions of
the Premises which are accessible without a key, and, in an emergency in which
(a) Tenant cannot be reached to open or permit entry to the Premises, or (b)
waiting for Tenant to open the Premises would result in material harm, Landlord
and Landlord's agents may forcibly enter the same, without rendering Landlord or
such agents, liable therefor (if during such entry Landlord and Landlord's
agents shall accord reasonable care to Tenant's property), and. without in any
manner affecting the obligations and covenants of this Lease.
Section 16.05.
(a) Tenant understands and agrees that any and all space in or
adjacent to the Premises used for shafts, stacks, stairways, chutes, pipes,
conduits, ducts, fan rooms, telephone rooms, heating, air cooling, plumbing and
other mechanical facilities, service closets, sinks and other Building
facilities, if and to the extent the same shall exclusively service the ground
floor portion of the Building not leased to Tenant, as well as the Building's
curtain wall facade are reserved to Landlord and persons authorized by Landlord,
and are not part of the Premises and Landlord and all persons authorized by
Landlord shall have the use thereof, as well as access thereto, through the
Premises, subject to the terms and conditions set forth in Section 16.01 hereof.
Tenant further understands and agrees that if any such space in or adjacent to
the Premises and other mechanical facilities, service closets, sinks and other
Building facilities service both the Premises and the ground floor portion of
the Building not leased to Tenant, Landlord as well as Tenant shall have use
thereof and access thereto, through the Premises, subject to the terms and
conditions set forth in Section 16.01 hereof. Tenant further acknowledges and
agrees that Tenant's access and use of the loading dock within the Building
shall be non-exclusive and that Landlord, for itself and all tenants of the
Retail Premises shall have access to and the right to use such loading dock,
subject to Tenant's reasonable security requirements, and provided that Landlord
shall reimburse Tenant for any additional costs and expenses of securing the
loading dock which would not otherwise be incurred by Tenant but for the use of
the loading dock by Landlord and/or the tenants of the Retail Premises. Tenant
further acknowledges and agrees that Landlord and all persons authorized by
Landlord shall have the use and access to the roof, in accordance with the
provisions of Article 43 herein.
(b) Landlord shall provide to Tenant, upon reasonable advance notice
from Tenant, reasonable access to
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all such spaces in the Building, as described in subsection 16.05(a), required
in connection with any work or other activity which Tenant desires or is
required to perform or undertake at the Premises, pursuant to this Lease.
Section 16.06. In the performance of any work in the Premises
referred to in this Article 16, Landlord shall use all reasonable efforts to
avoid or otherwise minimize interruption of or interference with Tenant's use of
the Premises, subject, however, to Force Majeure.
Section 16.07.
(a) Tenant shall permit any representative of fire, police, building,
sanitation or other department or instrumentality of any Legal Authority, entry
to the Premises.
(b) Tenant shall indemnify and hold Landlord harmless from and against
any liabilities, fees, costs and expenses arising or resulting from Tenant's
failure to provide the foregoing persons or entities with access to the
Premises, as aforesaid.
Section 16.08. Neither this Lease nor any use by Tenant of the
Premises shall give Tenant any easement or other right in, or to the use of, any
other portion of the Project, other than as expressly set forth in this Lease.
Section 16.09.
(a) Tenant shall share the use of the lobby area with Landlord in
order for Landlord to have access to the elevators and to exercise any rights of
access or entry as provided in this Lease.
(b) Landlord agrees and covenants that there shall be no retail
traffic permitted through the lobby area of the Building Premises including, but
not limited to, tenants of the Retail Premises or their employees or customers.
Without limiting the generality of the foregoing, there shall be no access from
the Retail Premises, except as may be required by Legal Authorities in the event
of emergency, as shown by the notation "Retail Secondary Access" on Exhibit 1-A
annexed hereto and made a part hereof. Landlord further agrees and covenants
that there shall be no delivery through the lobby area of any supplies,
inventory, merchandise or materials of any nature to the Retail Premises, but
that all such deliveries shall be made by way of private corridors having no
access to such lobby area.
(c) A portion of the Retail Premises may open out into the lobby area
as shown by the notation "Retail Access" on Exhibit 1-A annexed hereto and the
tenants at the Retail Premises and their employees and customers shall have non-
exclusive access with Tenant to the portion of the lobby indicated by cross-
hatching on Exhibit 1-A.
Section 16.10. Landlord shall make available to Tenant, without charge
therefor, an area to be selected by Landlord for Tenant's non-exclusive use with
Landlord for the purpose of housing gas meters for the Building and to satisfy
the requirements of the public utility with respect thereto. Landlord, at its
sole cost and expense, shall be responsible for causing gas service to be
brought to the Building.
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ARTICLE 17
NON-LIABILITY OF LANDLORD, LESSORS AND MORTGAGEES;
-------------------------------------------------
TENANT'S INDEMNIFICATION
------------------------
Section 17.01.
(a) The obligations of Landlord under this Lease shall not be binding
upon Landlord named herein after the sale, conveyance, assignment or transfer by
such Landlord (or upon any subsequent landlord after the sale, conveyance,
assignment or transfer by such subsequent landlord) of all its interest as
tenant under the ground leases of the Building and/or the Real Property, as the
case may be.
(b) In the event of any such sale, conveyance, assignment or transfer,
Landlord shall be and hereby is entirely freed and relieved of all existing and
future covenants, obligations and liabilities of Landlord hereunder (to the
extent of the interest transferred), and it shall be deemed and construed
without further agreement between the parties or their successors in interest or
the parties and the transferees of said property that such purchaser, grantee,
assignee or other transferee has assumed and agreed to carry out, undertake and
perform any and all covenants, obligations and liabilities of Landlord hereunder
(to the extent of the interest transferred).
Section 17.02.
(a) Neither the shareholders, principals, directors, officers, agents,
servants or employees of Landlord, if Landlord is a corporation, nor the
partners comprising Landlord (nor any of the shareholders, principals,
directors, officers, agents, servants or employees of such partners), if
Landlord is a partnership or joint venture, whether disclosed or undisclosed
(collectively, the "Parties"), shall be liable for the performance of Landlord's
obligations under this Lease. Tenant shall look solely to Landlord to enforce
Landlord's obligations hereunder and shall not seek any damages against any of
the Parties.
(b) The liability of Landlord for Landlord's obligations under this
Lease shall not exceed and shall be limited to, Landlord's estate and interest
as tenant under the ground leases of the Building and the Real Property as well
as the proceeds from any Taking and any insurance proceeds from a casualty, and
Tenant shall not look to any other property or assets of Landlord or the
property or assets of any of the Parties in seeking either to enforce Landlord's
obligations under this Lease or to satisfy or collect on a judgment for
Landlord's failure to perform such obligations. No other property or assets of
Landlord and/or the Parties shall be subject to levy, lien, execution,
attachment or other enforcement procedure.
Section 17.03.
(a) Neither Landlord, any lessor or any mortgagee, nor any of the
Parties of Landlord, any lessor or any mortgagee (in any case, whether disclosed
or undisclosed), shall be liable to Tenant for any loss, injury or damage to
Tenant or to any other person, or to its or their property, or
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for any interruption to tenants or any other persons or business irrespective of
the cause of such injury, damage or loss, including, but not limited to, injury,
damage or loss resulting from or connected with: (i) fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any part of
the Building or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature; (ii) any latent defect in the Premises or in the
Building (except, however, for those latent defects in the Base Building Work of
which Tenant has given Landlord notice and for which Landlord is obligated or
responsible to make repairs, as aforesaid); or (iii) any security system
implemented or installed by Landlord for or at Building, nor shall the aforesaid
entities and Parties be liable for any damage to property of Tenant or of others
entrusted to employees of Landlord nor for loss of or damage to any such
property by theft or otherwise except if and to the extent the same is caused by
or results from the negligence of Landlord, or any of the Parties in the
operation or maintenance of the Premises or the Building.
(b) Further, neither Landlord, any lessor, or any mortgagee, nor any
of the Parties shall be liable for any such damage caused by other tenants or
persons in, upon or about the Building, or caused by operations in construction
of any private, public or quasipublic work; or even if negligent, for
consequential damages arising out of any loss of use of the Premises or any
equipment or facilities therein by Tenant or any person claiming by, through or
under Tenant.
(c) Nothing in this Section 17.03 shall affect any right of Landlord
to the indemnity from Tenant to which Landlord may be entitled under this
Article 17 in order to recoup for payments made to compensate for losses of
third parties.
Section 17.04.
(a) Tenant shall indemnify and hold harmless Landlord and all lessors
and mortgagees and its and their respective Parties from and against any and all
claims arising from or in connection with the conduct or management of the
Premises or of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in or about the Premises during
the Term of this Lease or during the period of time, if any, prior to the
Commencement Date that Tenant may have been given access to the Premises; any
act, omission or negligence of Tenant or any of its subtenants or licensees or
its or their partners, directors, officers, agents, servants, employees or
contractors; any accident, injury or damage whatever (unless caused solely by
Landlord's negligence) occurring in, at or upon the Premises; and any breach or
default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this Lease; together with all costs, expenses and liabilities
incurred in connection with each such claim or action or proceeding brought
thereon, including, without limitation, reasonable attorneys' fees, court costs
and expenses.
(b) In case any action or proceeding shall be brought against Landlord
and/or any lessor or mortgagee and/or its or their respective Parties by reason
of any such claim, Tenant, upon notice from Landlord or such lessor or
mortgagee,
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shall resist and defend such action or proceeding (by counsel reasonably
satisfactory to Landlord or such lessor or mortgagee).
Section 17.05. For purposes of this Article 17, any Building employee
to whom any property shall be entrusted by or on behalf of Tenant shall be
deemed to be acting as Tenant's agent with respect to such property and neither
Landlord nor any of the Parties shall be liable for any damage to the property
of Tenant or of others entrusted to Building employees, nor for the loss of or
damage to any property of Tenant by theft or otherwise except, however, if
caused solely by Landlord's negligence.
ARTICLE 18
CONDITIONS OF LIMITATION
------------------------
Section 18.0l. This Lease and the Term and estate hereby granted are
subject to the limitations that:
(a) if, Tenant shall default in the payment when due of any
installment of Fixed Rent and the Parking Fee or in the payment when due of any
Additional Rent, and such default shall continue for a period of ten (10) days
after notice by Landlord to Tenant of such default, provided, however, that
-------- -------
Landlord shall not be required to give such notice to Tenant of the occurrence
of such a default described in this subsection 18.01(a) more than two (2) times
in any calendar year during the Term; or
(b) if, Tenant shall, whether by action or inaction default in the
observance or performance of any term, covenant or condition of this Lease on
Tenant's part to be observed or performed (other than the covenants for the
payment of Fixed Rent, the Parking Fee and Additional Rent) and Tenant shall
fail to remedy such default within thirty (30) days after notice by Landlord to
Tenant of such default, or any shorter period if required or permitted by any
Legal Authority, or if such default is of such a nature that it cannot be
completely remedied within said thirty (30) days or shorter period and the
continuance of which for the period required for cure will not (i) subject
Landlord or any lessor or any mortgagee to prosecution for a crime or any other
fine or charge, (ii) subject the Premises, or any part thereof, or the Building
or Real Property, or any part thereof, to being condemned or vacated, (iii)
subject the Building or Real Property, or any part thereof, to any lien or
encumbrance, or (iv) result in the termination of any Superior Lease or
foreclosure of any Mortgage, if Tenant shall not (x) within said thirty (30)
days or shorter period advise Landlord of Tenant's intention to take all steps
necessary to remedy such default, (y) duly commence within said thirty (30) days
or shorter period, and thereafter diligently prosecute to completion all steps
necessary to remedy the default, and (z) complete such remedy within a
reasonable time after the date of said notice of Landlord; or
(c) if, the Premises shall become deserted or abandoned for a period
in excess of thirty (30) consecutive days (following Tenant's occupancy for the
conduct of its business thereat); or
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(d) if, Tenant's interest in this Lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, except as may be expressly
permitted under Article 15 hereof; or
(e) if, Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt insolvent, or shall file any
petition or answer seeking any reorganization arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present or
any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law, or shall make an assignment for the
benefit of creditors, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or of all or
substantially all of Tenant's property; or
(f) if, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law, such proceeding shall not have been dismissed or stayed, or if, within
thirty (30) days after the appointment of any trustee, receiver or liquidator of
Tenant, or of all or substantially all of Tenant's property, without the consent
or acquiescence of Tenant, such appointment shall not have been vacated or
otherwise discharged or stayed, or if any lien, execution or attachment shall be
filed or issued against Tenant or any of Tenant's property pursuant to which the
Premises shall be taken or occupied by someone other than Tenant; or
(g) if, the Guaranty shall not be in full force and effect at any time
during the Term, or if Guarantor shall default in the due observance or
performance of any of the terms of the Guaranty, or if Guarantor shall repudiate
the Guaranty, or if the Guaranty shall terminate, or be terminated, for any
reason,
then, upon the occurrence, at any time prior to or during the Term, of
----
any one or more of such events, Landlord may, at any time thereafter, at
Landlord's sole option, give to Tenant a ten (10) days' notice of cancellation
of this Lease and, in such event, this Lease and the Term shall come to an end
and expire (whether or not the Term shall have commenced) upon the expiration of
said ten (10) day period with the same force and effect as if the date of
expiration of said ten (10) days were the Expiration Date stated herein and
Tenant shall then quit and surrender the Premises to Landlord, but Tenant shall
remain liable for damages as provided in Article 19 hereof.
Section 18.02.
(a) If, at any time (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant", as used in subsections
18.01(f) and (g) hereof shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Tenant's obligations under this Lease.
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(b) Any monies received by Landlord from or on behalf of Tenant
during the pendency of any proceeding of the types referred to in said
subsections 18.01(e) and (f) shall be deemed paid as compensation for the use
and occupation of the Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of Rent or a waiver on the part of
Landlord of any rights under Section 18.01 hereof.
Section 18.03.
(a) If, Tenant shall have assigned its interest in this Lease, and
this Lease shall thereafter be disaffirmed or rejected in any proceeding under
the United States Bankruptcy Code or under the provisions of any Federal, state
or foreign law of like import, or in the event of termination of this Lease by
reason of any such proceeding, then, unless the ___________ has been released
pursuant to this provision of Section 15.04 the assignor or any of its
predecessors in interest under this Lease, upon request of Landlord given within
thirty (30) days after such disaffirmance, rejection or termination (and actual
notice thereof to Landlord in the event of a disaffirmance or rejection or in
the event of termination other than by act of Landlord) shall (i) pay to
Landlord all Fixed Rent and Additional Rent then due and payable to Landlord
under this Lease to and including the date of such disaffirmance, rejection or
termination and (ii) enter into a new lease as lessee with Landlord of the
Premises for a term commencing on the effective date of such disaffirmance,
rejection or termination, and ending on the Expiration Date, unless sooner
terminated as in such lease.
(b) Such new lease shall be for the same Fixed Rent and Additional
Rent and upon the executory terms, covenants and conditions as are contained in
this Lease, except that (i) the rights of the lessee under the new lease, shall
be subject to any possessory rights of the assignee in question under this Lease
and any rights of persons claiming by, through or under such assignee, or by
virtue of any statute or any order of any court, (ii) such new lease shall
require all defaults existing under this Lease to be cured by the lessee with
reasonable diligence, and (iii) such new lease shall require the lessee to pay
all Fixed Rent and Additional Rent which, had this Lease not been disaffirmed,
rejected or terminated would have become due after the effective date of such
disaffirmance, rejection or termination with respect to any prior period.
(c) If the lessee shall fail or refuse to enter into the new lease
within five (5) days after Landlord's request to do so, then in addition to all
other rights and remedies by reason of such default, under this Lease either at
law or in equity, Landlord shall have the same rights and remedies against the
lessee as if the lessee had entered into such new lease and such new lease had
thereafter been terminated at the beginning of its term by reason of the default
of the lessee thereunder.
Section 18.04.
(a) If, pursuant to the Bankruptcy Code, Tenant is permitted to assign
this Lease in disregard of the restrictions contained in Article 15 hereof (or
if this Lease shall be assumed by a trustee), the trustee or assignee shall cure
any default under this Lease and shall provide adequate assurance of future
performance by the trustee or assignee
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including the source of payment of rent and performance of other obligations
under this Lease (for which adequate assurance shall mean the deposit of cash
security with Landlord in an amount equal to the sum of (i) one (1) year's Fixed
Rent then reserved hereunder plus (ii) an amount equal to all Additional Rent
payable hereunder for the calendar year preceding the year in which such
assignment is intended to become effective), which deposit shall be held by
Landlord, without interest, for the balance of the Term as security for the full
and faithful performance of all of the obligations under this Lease on the part
of Tenant yet to be performed.
(b) Any such assignee of this Lease shall have a net worth, exclusive
of good will, computed in accordance with generally accepted accounting
principles consistently applied, equal to at least eight (8) times the aggregate
of (i) the annual Fixed Rent reserved hereunder plus (ii) all Additional Rent
for the preceding calendar year as aforesaid and the use of the Premises shall
in no way diminish the reputation of the Building as a first-class
office/commercial building or impose any additional burden upon the Building or
increase the services to be provided by Landlord.
(c) If all defaults are not cured and such adequate assurance is not
provided within sixty (60) days after there has been an order for relief under
the Bankruptcy Code, then this Lease shall be deemed rejected, Tenant or any
other person in possession shall vacate the Premises, and Landlord shall be
entitled to retain any Rent or security deposit previously received from Tenant
and shall have no further liability to Tenant or any person claiming through
Tenant or any trustee.
ARTICLE 19
RE-ENTRY BY LANDLORD; REMEDIES
------------------------------
Section 19.01.
(a) If this Lease and the Term shall terminate and come to an end as
provided in Article 18 hereof:
(i) Landlord and its agents may immediately, or at any time
thereafter, re-enter the Premises or any part thereof, without notice, either by
summary proceedings, or by any other applicable action or proceeding, or by any
other lawful means (without being liable to indictment, prosecution or damages
therefor), and may repossess the Premises and dispossess Tenant and any other
persons from the Premises and remove any and all of their property and effects
from the Premises;
(ii) Landlord, at its option, may relet the whole or any part or
parts of the Premises, at any time or from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine;
(iii) Landlord shall have no obligation to relet the Premises or
any part thereof and shall in no event be
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liable for refusal or failure to relet the Premises or any part thereof, or, in
the event of any such reletting, for refusal or failure to collect any rent due
upon any such reletting, and no such refusal or failure shall operate to relieve
Tenant of any liability under this Lease or otherwise to affect any such
liability;
(iv) Landlord, at its option, may make such repairs,
replacements, alterations, additions, improvements, decorations and other
physical changes in and to the Premises as Landlord, in its discretion,
considers advisable or necessary in connection with any such reletting or
proposed reletting, without relieving Tenant of any liability under this Lease
or otherwise affecting any such liability; and
(v) Notwithstanding the foregoing provisions of this Section
19.01, Tenant shall have the right to remove Tenant's Work from the Premises in
accordance with the provisions of subsection 5.03(a).
(b) (i) Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does further hereby
waive any and all rights which Tenant and all such persons might otherwise have
under any present or future law to (A) the service of any notice of intention to
re-enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law, except as otherwise
expressly provided in this Lease, (B) redeem the Premises, or re-enter or
repossess the Premises, and/or (C) restore the operation of this Lease, after
(1) Tenant shall have been dispossessed by a judgment or by warrant of any court
or judge, (2) any re-entry by Landlord, or (3) any expiration or termination of
this Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease.
(ii) The words "re-enter", "re-entry" and "re-entered" as used
in this Article 19 shall not be deemed to be restricted to their technical legal
meanings, and the right to invoke the remedies hereinbefore set forth are
cumulative and shall not preclude Landlord from invoking any other remedy
allowed at law or in equity.
Section 19.02. In the event of any breach or threatened breach by
Tenant or any person claiming by, through or under Tenant, of any of the terms
of this Lease (whether or not the Term shall have commenced), Landlord shall be
entitled to enjoin such breach or threatened breach and shall have the right to
invoke any other remedy allowed at law or in equity, by statute or otherwise, as
if re-entry, summary proceedings or other specific remedies were not provided
for in this Lease.
Section 19.03.
(a) If this Lease and the Term shall expire and come to an end as
provided in Article 18 hereof, or by or under any summary proceeding or any
other action or proceeding by Landlord against Tenant or any person claiming by,
through or under Tenant, or if Landlord shall re-enter the Premises as provided
in this Article 19, or by or under any summary proceeding or any other action or
proceeding, then, in any of said events:
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(i) Tenant shall pay to Landlord all Rent and other charges
payable under this Lease by Tenant to Landlord to the date upon which this Lease
and the Term shall have expired or has been terminated and come to an end;
(ii) Landlord shall be entitled to retain all monies, if any,
paid by Tenant to Landlord, whether as advanced Rent, security deposit or
otherwise, but such monies shall be credited by Landlord against any damages
payable by Tenant to Landlord;
(iii) Tenant also shall be liable for and shall pay to Landlord,
as damages, any deficiency (the "Deficiency") between the Fixed Rent and
Additional Rent reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Term including any renewal term
exercised by Tenant (conclusively presuming the Additional Rent to be the same
as was payable for the year immediately preceding such termination or re-entry)
and the net amount, if any, of rents collected under any reletting of all or
part of the Premises for any part of such period, first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this Lease, and Landlord's re-entry upon the Premises and
with such reletting, including, without limitation, all repossession costs,
brokerage commissions, legal expenses, reasonable attorneys' fees, court costs
and disbursements, alteration costs and other expenses of preparing the Premises
for such reletting; it being agreed and understood by Tenant that any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this Lease for payment of installments of Rent, and that Landlord shall be
entitled to recover from Tenant each monthly Deficiency as the same shall arise,
and no suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any subsequent month by
a similar proceeding; and
(iv) Whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, as Additional Rent in lieu of any
further Deficiencies, as and for liquidated and agreed final damages and not as
a penalty, a sum equal to the amount by which the sum of the Fixed Rent and
Additional Rent reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Term, including any Renewal Term
exercised by Tenant prior to the expiration or termination of this Lease
pursuant to Article 18 hereof (conclusively presuming the Additional Rent to be
the same as payable for the year immediately preceding such termination or re-
entry) exceeds the then fair and reasonable rental value of the Premises for the
same period, discounted to the then present value of such sum at the rate of two
percent (2%) per annum below the then "Base Rate" of interest as established and
publicly announced by Manufacturers Hanover Trust Company in New York, New York,
or its successor, and less the aggregate amount of Deficiencies theretofore
collected by Landlord pursuant to the provisions of subdivision (iii) above, for
the same period; it being agreed and understood by Tenant that if before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the Premises, or any part thereof, shall have been relet in a bona-
fide arms-length transaction by Landlord for the period which otherwise
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would have constituted the unexpired portion of the Term, or any part thereof,
the amount of rent reserved upon such reletting shall be conclusively deemed,
prima facie, to be the fair and reasonable rental value for the part of the
- ----- -----
whole of the Premises so relet during the term of the reletting.
(b) If the Premises, or any part thereof, shall be relet together with
other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of Section 19.03(a) hereof. In no event whatsoever, shall
Tenant be entitled to any rents collected or payable under any reletting,
whether or not such rents shall exceed the Fixed Rent and Additional Rent
reserved in this Lease. Nothing contained in Article 18 hereof or this Article
19 shall be deemed to limit or preclude the recovery by Landlord from Tenant of
the maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in addition to
the damages set forth in subsection 19.03(a) hereof.
ARTICLE 20
CURING DEFAULTS
---------------
Section 20.01.
(a) If Tenant shall default in the observance or performance of any
term, covenant or condition in this Lease on Tenant's part to be observed or
performed, Landlord may, without thereby waiving such default and without
liability to Tenant in connection therewith, remedy such default for the account
of Tenant (including, without limitation, the right to bond or insure over any
mechanics' liens required under Section 5.04 hereof), immediately and without
notice in the case of an emergency, or in any other case, if Tenant shall fail
to remedy such default within a reasonable period after notice by Landlord or
within any time period required by law, and such default causes or permits any
condition which interferes with the use by Landlord or any other tenant of any
space in the Building, or interferes with the proper and efficient operation of
the Building, or is in contravention of any other agreement of which Landlord is
a party or to which Landlord is otherwise subject (and of which other agreement
Tenant has been given notice).
(b) If Landlord makes any expenditures, incurs any obligations for the
payment of money in connection therewith, or sustains or incurs any damages or
fines, due to such nonobservance or non-performance by Tenant, including,
without limitation, reasonable attorneys' fees, court costs and disbursements in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, together with interest at the Interest Rate and costs,
shall be paid by Tenant to Landlord, as Additional Rent, within five (5) days of
rendition of any bill or statement to Tenant therefor.
(c) Tenant hereby waives Tenant's right, if any, to designate the
items against which any payments made by Tenant to Landlord are to be credited
and Landlord may apply any such payments to any items Landlord sees fit.
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(d) For the purposes of this Section 20.01, a rent b111 sent by first
class mail, to the address to which notices to be given under this Lease, shall
be deemed a proper demand for the payment of the amounts set forth herein.
Section 20.02. If this Lease is terminated under the provisions of
Article 18 hereof, or if Landlord shall reenter the Premises under the
provisions of Article 19 hereof, Tenant agrees that:
(a) the Premises then shall be in the condition in which Tenant has
agreed to surrender the same to Landlord on the Expiration Date;
(b) Tenant shall have performed prior to any such termination any
covenant of Tenant contained in this Lease for the making of any Alterations or
Tenant's Work or for restoring or rebuilding the Premises or the Building, or
any part thereof; and
(c) for the breach of any covenant of Tenant set. forth above in this
Section 20.02, Landlord shall be entitled immediately, without notice or other
action by Landlord, to recover, and Tenant shall pay, as and for liquidated
damages therefor, the cost of performing such covenant (as estimated by an
independent contractor selected by Landlord).
ARTICLE 21
NO REPRESENTATIONS BY LANDLORD; LANDLORD'S APPROVAL
---------------------------------------------------
Section 21.01.
(a) Tenant hereby expressly acknowledges and agrees that (i) except as
herein expressly set forth, Landlord or Landlord's agents have not made and are
not making and Tenant, in executing and delivering this Lease, is not relying
upon any warranties, representations, statements or promises with respect to the
Project, the Building, the Real Property, or the Premises, and (ii) Tenant is
acquiring no rights, easements or licenses hereunder by implication or
otherwise, other than as expressly set forth in this Lease.
(b) Except as set forth in subsection 21.01(a) above, all
understandings and agreements previously had between the parties hereto are
merged in this Lease, which alone fully and completely expresses their agreement
and the same is entered into after full investigation, neither party relying
upon any statement or representation made by the other not embodied in this
Lease.
Section 21.02. All references in this Lease to the consent or
approval of Landlord shall be deemed to mean the written consent or approval of
Landlord as set forth in a written instrument executed and delivered by
Landlord.
Section 21.03.
(a) Wherever in this Lease Landlord's consent or approval is required,
if Landlord shall fail or refuse to give such consent or approval, Tenant in no
event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any claim, for money damages (nor shall Tenant claim
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any money damages by way of set-off, counterclaim or defense) based upon any
claim or assertion by Tenant that Landlord unreasonably withheld or unreasonably
delayed its consent or approval unless Tenant is able to demonstrate by
reasonable evidence that Landlord willfully and in bad faith failed or refused
to give such consent or approval.
(b) Except as set forth in subsection 21.03(a) above, Tenant's sole
remedy in the case of the foregoing shall be an action or proceeding to enforce
any such provision, for specific performance, injunction or declaratory
judgment, and such remedy shall be available only in those cases where Landlord
has expressly agreed in writing not to unreasonably withhold or delay its
consent or where as a matter of law, Landlord may not unreasonably withhold or
delay its consent.
Section 21.04. Tenant and Landlord recognize and knowledge that the
operation of the Building equipment may cause vibration, noise, heat or cold
which may be transmitted throughout the Premises. Tenant hereby agrees that
Landlord shall have no obligation to correct or reduce such vibration, noise,
heat or cold, unless caused by defects in Landlord's Base Building Work for
which Landlord is responsible for under Article 2 hereof, and that, subject to
the provisions of Section 3.01(b) and the requirements of Section 6.01 of this
Lease, Tenant shall not be responsible or obligated to correct the same
notwithstanding the same affects any of those tenants leasing the Retail
Premises, unless same are caused by Tenant's Alterations.
Section 21.05. Landlord acknowledges that, from time to time, Tenant
may require certain consents or approvals from the lessors and holders of
Superior Leases and Mortgages, respectively, and Landlord agrees to cooperate
and to use its best efforts, at Tenant's sole cost and expense, and without any
fee, cost, expense or liability to Landlord, to obtain said approvals and
consents. Notwithstanding the foregoing, Landlord's best efforts shall not
include any obligation to bring any legal action to obtain said approvals and
consents. Tenant has the right to bring an action against such lessors and
holders in Landlord's name at Tenant's sole cost and expense, provided that the
bringing of such action shall not subject Landlord to any civil or criminal
liability, and as to which action Landlord agrees to provide its reasonable
cooperation.
ARTICLE 22
END OF TERM; HOLDOVER
---------------------
Section 22.01. Upon the expiration or other termination of the Term,
or re-entry by Landlord upon the Premises in accordance with the terms and
provisions of this Lease, Tenant shall quit and surrender to Landlord the
Premises, broom clean, in good order and condition, ordinary wear and tear,
depreciation, obsolescence and damage for which Tenant is not responsible under
the terms of this Lease excepted, and Tenant may remove Tenant's Property and
Tenant's Work to the extent permitted under and in accordance with Article 5
hereof. If the Expiration Date of the Term falls on a non-Business Day, this
Lease shall expire on the Business Day immediately preceding such last day of
the Term.
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Section 22.02.
(a) The parties recognize and agree that the damage to Landlord
resulting from any failure by Tenant to timely surrender possession of the
Premises as aforesaid will be substantial, will exceed the amount of the monthly
installments of the Rent theretofore payable hereunder, and will be impossible
to accurately measure.
(b) Tenant therefore agrees that if possession of the Premises is not
surrendered to Landlord within twenty-four (24) hours after the Expiration Date
or sooner termination of the Term, in addition to any other rights or remedies
Landlord may have hereunder or at law, Tenant shall pay to Landlord for each
month and for each portion of any month during which Tenant holds over in the
Premises after the Expiration Date or sooner termination of this Lease, a sum
equal to the greater of (i) one and one-half (1-1/2) times the aggregate amount
of that portion of the Fixed Rent and all Additional Rent which was payable
under this Lease for the last full calendar month of the Term, or (ii) the then
fair market rent value of the Premises, as reasonably determined by Landlord.
(c) Nothing herein contained shall be deemed to permit Tenant to
retain possession of the Premises after the Expiration Date or sooner
termination of the Term of this Lease and no acceptance by Landlord of payments
from Tenant after the Expiration Date or sooner termination of the Term shall be
deemed to be other than on account of the amount to be paid by Tenant in
accordance with the provisions of this Article 22.
(d) Tenant's obligations under this Article 22 shall survive the
Expiration Date or earlier termination of the Term of this Lease.
Section 22.03. It is further stipulated and agreed that if Landlord
shall, at any time after the Expiration Date or earlier termination of the Term
proceed to remove Tenant from the Premises as a holdover, the Rent for the use
and occupancy of the Premises during any holdover period shall be calculated in
the manner as set forth above.
Section 22.04.
(a) Anything to the contrary set forth above notwithstanding, the
acceptance of any Rent paid by Tenant pursuant to this Article 22 shall not
preclude Landlord from commencing and prosecuting a holdover or summary eviction
proceeding.
(b) Tenant expressly waives, for itself and for any person claiming
by, through or under Tenant, any rights which Tenant or any such person may have
under the provisions of any law, ordinance or regulation of any Legal Authority
then in force permitting or mandating the issuance of a "stay" in connection
with any holdover summary proceedings which Landlord may institute to enforce
the foregoing provisions of this Article 22.
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Section 22.05.
(a) If Tenant shall holdover or remain in possession of any portion of
the Premises beyond the Expiration Date or earlier termination of the Term of
this Lease, Tenant shall be subject not only to summary proceedings and all
damages related thereto, but also to any losses and damages arising out of any
lost opportunities (and/or new leases) by Landlord to re-let the Premises, or
any part thereof.
(b) All damages to Landlord by reason of such holding over by Tenant
may be the subject of a separate action and need not be asserted by Landlord in
any summary proceedings against Tenant.
ARTICLE 23
QUIET ENJOYMENT
---------------
Section 23.01. Landlord covenants and agrees that upon Tenant paying
the Fixed Rent and Additional Rent and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed or performed, Tenant
may peaceably and quietly enjoy the Premises, subject, nevertheless, to (a) the
terms and conditions of this Lease, including, but not limited to, Article 16
hereof, and (b) all Superior Leases and Mortgages.
Section 23.02. The covenant set forth in Section 23.01 above shall be
construed as a covenant running with the Real Property, and is not, nor shall it
be construed as, a personal covenant of Landlord, except to the extent of
Landlord's interest, as tenant, under the ground lease of the Building or the
Real Property and only so long as such interest shall continue, and thereafter
Landlord shall be relieved of all liability hereunder and this covenant shall be
binding only upon subsequent successors in interest of Landlord's interest in
this Lease and, as tenant, under the ground lease of the Building or the Real
Property, to the extent of their respective interests, as and when they shall
acquire the same, and so long as they shall retain such interest.
ARTICLE 24
NO WAIVER
---------
Section 24.01.
(a) The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease
or Rule or Regulation, or to exercise any election herein contained, shall not
be construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this Lease or of the right to exercise such
election, but the same shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission.
(b) No executory agreement hereafter made between Landlord and Tenant
shall be effective to change, modify, waive, release, discharge, terminate or
effect an abandonment of this Lease, in whole or in part, unless such executory
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agreement is in writing and is signed by the party against whom enforcement of
the change, modification, waiver, release, discharge or termination or
effectuation for the abandonment is sought.
Section 24.02. The following provisions of this Section shall not be
deemed to limit the generality of any of the foregoing provisions of this
Article 24:
(a) No agreement or act or thing done shall be deemed an acceptance of
surrender of all or any part of the premises unless in writing and signed by
Landlord; it being agreed and understood that the delivery of keys to an
employee of Landlord or of its agent shall not operate as a termination of this
Lease or a surrender of the Premises, and that if Tenant shall, at any time or
from time to time, request Landlord to sublet the Premises for Tenant's account,
Landlord or its agent is authorized to receive said keys for such purposes
without releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Landlord from any liability for loss or damage to any of
Tenant's property in connection with such subletting;
(b) The receipt by Landlord of Fixed Rent or Additional Rent with
knowledge of breach of any obligation of this Lease shall not be deemed a waiver
of such breach;
(c) No payment by Tenant or receipt by Landlord of a lesser amount
than the correct Fixed Rent or Additional Rent due hereunder shall be deemed to
be other than a payment on account, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance or pursue any other remedy
in this Lease or at law provided; and
(d) The existence of a right of renewal or extension of this Lease, if
any, or the exercise of such right, shall not (i) limit Landlord's right to
terminate this Lease in accordance with the terms hereof, or (ii) create an
option for further extension or renewal of this Lease.
ARTICLE 25
WAIVER OF TRIAL BY JURY; NO COUNTERCLAIMS
-----------------------------------------
Section 25.01.
(a) Landlord and Tenant hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, and/or any claim of injury or damage, or for the enforcement of any
remedy under any statute, emergency or otherwise.
(b) It is further mutually agreed that in the event Landlord commences
any summary proceeding for non-payment of Fixed Rent or Additional Rent, or to
recover possession of the Premises, or for any holding over by Tenant following
the Expiration Date or earlier termination of the Term of this
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Lease, Tenant will not interpose (by consolidation of actions or otherwise) any
counterclaim of whatever nature or description in any such proceeding.
Notwithstanding the foregoing provisions of this subsection 25.01(b), Landlord
hereby agrees that Tenant shall not be prohibited from interposing a
counterclaim if its inability to do so would be waived as a result of Tenant's
failure to assert its claim in such proceeding.
(c) The provisions of this Article 25 shall survive the Expiration
Date or earlier termination of the Term of this lease.
ARTICLE 26
INABILITY TO PERFORM
--------------------
Section 26.01. Except as may be specifically provided to the contrary
in this Lease, this Lease and all of the obligations of Tenant hereunder
including, without limitation, the obligation to pay Rent hereunder and to
perform all of the other covenants and agreements hereunder on the part of
Tenant to be observed and performed, shall in no wise be affected, impaired or
excused, nor shall Landlord have any liability whatsoever to Tenant nor shall it
be deemed a constructive eviction because (a) Landlord is unable to fulfill or
is delayed in fulfilling any of its obligations under this Lease expressly or
impliedly to be performed by Landlord or is unable to supply, or is delayed in
supplying any equipment or fixtures required to be supplied by Landlord under
this Lease if Landlord is prevented or delayed from so doing by reason of Force
Majeure, or (b) of any failure or defect in the supply, quantity or character of
electricity or water furnished to the Premises, by reason of any act or omission
of the public utility companies or others serving the Building with electric
energy, steam, oil, gas or water, or for any other reason whether similar or
dissimilar, beyond Landlord's reasonable control.
ARTICLE 27
BILLS AND NOTICES
-----------------
Section 27.01. Except as otherwise expressly provided in this Lease,
any bills, statements, notices, demands, consents, approvals, requests or other
communications which may or are required to be given under this Lease, or by
law, rule or applicable governmental regulation of any Legal Authority
(collectively, the "notices"), shall be in writing (whether or not so stated
elsewhere in this Lease) and shall be deemed sufficiently given or rendered if
sent by registered or certified mail (return receipt requested) posted in a
United States post office station or letter box in the continental United
States, or by a reputable private overnight delivery service (provided a written
receipt therefor is obtained) addressed (a) to Tenant, Attention: Mr. Motoaki
Ibano, Exec. V.P., at the address set forth on page 1 of this Lease or at any
place where Tenant or any agent or employee of Tenant may be found if mailed
subsequent to Tenant's vacating, deserting, abandoning or surrendering the
Premises, unless Tenant has provided Landlord with another place to give
sufficient notice in accordance with the provisions of this Section 27.01, with
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a copy sent in the manner set forth above, to: Baer Marks & Upham, 805 Third
Avenue, New York, New York 10022, Attention: Keith M. Pattiz, Esq. and Howard R.
Shapiro, Esq., and (b) to Landlord at Landlord's address set forth in this
Lease, with-copies sent in the manner set forth above, to: Richard S. LeFrak,
Esq., at 40 West 57th Street, New York, New York 10019 and at 97-77 Queens
Boulevard, Rego Park, New York 11374, and Schulte Roth & Zabel, 900 Third
Avenue, New York, New York 10022, Attention: Robert S. Nash, Esq., or (c) to
such other address as either Landlord or Tenant may designate as its new address
for such purpose by notice given to the others in accordance with the provisions
of this Article 27.
Section 27.02. Any such notice shall be deemed to have been given
rendered or made one (1) day following the date when it shall have been mailed,
or upon the date delivered (if delivered personally as provided below or by
reputable private overnight delivery service), as provided in this Article 27.
Section 27.03. Notwithstanding the foregoing provisions of this
Article 27, with respect to an occurrence presenting imminent danger to the
health or safety of persons or damage to property in, on or about the Building
or Real Property or during a postal strike, notices may be hand delivered to a
party at the address to which notices to that party are to be sent, provided
that the same notice is also sent in the manner set forth above.
Section 27.04. Notices hereunder from Landlord may be given by
Landlord's managing agent, if one exists.
ARTICLE 28
ADDITIONAL PAYMENTS
-------------------
Section 28.01.
(a) In addition to the Fixed Rent set forth in Article 1 hereof,
Tenant shall also pay to Landlord, as Additional Rent, as and when herein set
forth, for any period, the sum of (i) all Operating Expenses set forth in
subsections 28.02(a)(ii), (iv) and (v), plus (ii) Tenant's Proportionate Share
of (A) the Real Estate Taxes and (B) the Operating Expenses set forth in
subsections 2B.02(a)(i) and (iii) for such period (such payments are
collectively called the "Tenant's Expense Payment"). Tenant's Expense Payment
shall be payable by Tenant from and after the Rent Commencement Date.
(b) (i) Prior to the beginning of each calendar year during the Term
(or for the calendar year in which the Term commences, prior to the Rent
Commencement Date), Landlord shall present to Tenant an estimate of Tenant's
Expense Payment for such calendar year (the "Tenant's Estimated Expense
Payment"). Tenant shall pay Tenant's Estimated Expense Payment for each
calendar year in twelve (12) equal monthly installments, in advance, on the Rent
Commencement Date and on the first day of each month thereafter (appropriately
prorated in the case of the first installment, if the Rent Commencement Date
is not the first day of a month); provided, however, with respect to Real
-------- -------
Estate Taxes, Tenant shall be obligated to pay its Proportional Share the same
(or installments thereof) no later than fifteen (15) days prior to the date(s)
upon which such Real Estate Taxes or
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installments thereof shall actually be due and payable to the respective Legal
Authority.
(ii) Tenant's Estimated Expense Payment for any calendar year,
and Tenant's monthly installments, may be adjusted from time to time at
reasonable intervals during such year by notice from Landlord to Tenant, which
notice shall specify Landlord's reasons for such adjustments.
(c) (i) (A) As soon as reasonably practicable after the end of the
calendar year in which the Term begins and of each calendar year thereafter,
Landlord shall provide Tenant with a statement (the "Expense Statement") showing
the Operating Expenses and Real Estate Taxes for such calendar year, and a
statement prepared by Landlord, comparing Tenant's Estimated Expense Payment
with Tenant's Expense Payment.
(B) Notwithstanding the foregoing, Landlord shall make
available to Tenant as promptly as possible prior to the date on which any Real
Estate Taxes or installments thereof shall actually be due and payable (but in
no event, however, later than fifteen (15) days prior to such date(s)) a copy of
the tax bill (either actual or estimated) received by Landlord from the
respective Legal Authority regarding the Real Estate Tax payment in question.
(ii) If Tenant's Estimated Expense Payment exceeds Tenant's
Expense Payment for such calendar year, Landlord shall pay to Tenant (in the
form of a credit against the Additional Rent next due) an amount equal to such
excess, unless the Term has come to an end, in which event the payment shall be
in the form of Landlord's check made payable to the order of Tenant.
(iii) If Tenant's Expense Payment exceeds Tenant's Estimated
Expense Payment for such calendar year, Tenant shall pay to Landlord, on or
before the date (the "Expense Payment Date") which is thirty (30) days after
receipt of the Expense Statement, an amount equal to such excess.
(iv) If Real Estate Taxes for any calendar year or part thereof
shall be reduced after a payment shall have been made in respect of such
calendar year, Landlord shall at Landlord's option, either refund to Tenant an
amount equal to the amount by which the amount otherwise payable for such
calendar year by Tenant would have been less if such reduction in Real Estate
Taxes had occurred during such calendar year, or credit such amount against
Tenant's payment of Real Estate Taxes for and during subsequent calendar years.
(d) (i) If Tenant shall dispute the inclusion of any item shown on
an Expense Statement by notice to Landlord delivered on or before the date which
is sixty (60) days after Tenant's receipt of such Expense Statement and Landlord
and Tenant are unable to resolve such dispute within thirty (30) days after such
date, the matter shall be determined by arbitration in the manner provided in
Article 38 hereof; provided, however, that Tenant shall pay the amount, if any,
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maintained by Landlord to be due on or prior to the related Expense Payment
Date; provided further, that the unsuccessful party in such arbitration
-------- -------
proceeding shall pay all costs thereof.
(ii) If the disputed amount, as determined by arbitration, shall
be different from the amount specified on the Expense Statement, then an
adjustment required to correct
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any sum previously overpaid by Tenant shall be made by Landlord's credit to
Tenant of the amount of such excess payment against Additional Rent next due.
(e) In the event that the Commencement Date shall be a day other than
a January 1, or the Expiration Date shall be a day other than a December 31, or
in the event of any abatement of the Rent pursuant to the express provision of
this Lease, if any, or of any decrease in the rentable area of the Premises
(pursuant to the provisions of this Lease) or of any increase or decrease in
the rentable area occupied in the Building, then in such event, in applying the
provisions of this Section with respect to any calendar year or portion thereof,
appropriate adjustments shall be made to reflect the result of such event on a
basis consistent with the principles underlying the provisions of this Section,
taking into consideration (i) the number of days in such year which shall have
elapsed prior to or after such event, (ii) the rentable area of the Premises
affected thereby, and (iii) the duration of such event.
Section 28.02.
(a) For purposes of this Lease, the term "Operating Expenses" shall
mean (i) all costs and expenses incurred in the maintenance, operation,
replacement, repair and security of the plazas, sidewalks and curbs at and
adjacent to the Real Property including, without limitation, snow and ice
removal, (ii) the cost of painting and/or decorating and/or other maintenance of
the public or common areas of the Real Property, (iii) the cost of all exterior
gardening and landscaping at the Real Property and all temporary exhibitions
located thereat; (iv) the cost of maintenance, repair and/or replacement of the
curtain wall facade and (v) the cost of the insurance obtained by Landlord
pursuant to Section 12.02 hereof or otherwise at the request of Tenant.
(b) Notwithstanding the provisions of the preceding section, the term
"Operating Expenses" shall not include (i) Real Estate Taxes, franchise,
transfer, inheritance or capital stock taxes or taxes imposed upon or measured
by the income or profits of Landlord, (ii) the cost of the Base Building Work
(inclusive of the cost of remedying defects or making replacements therein);
(iii) any cost to the extent that Landlord is reimbursed for the same out of
insurance proceeds or otherwise, (iv) ground rent under any Superior Lease and
principal, interest and other payments in connection with any Mortgage or
working capital loan affecting the Real Property, and (v) any amount payable to
any entity or person directly or indirectly related to Landlord or any partner,
shareholder or employee of Landlord to the extent such amount is in excess of
amounts which would have been paid absent such relationship.
Section 28.03.
(a) For purposes of this Lease, the term "Real Estate Taxes" shall
mean the taxes and assessments (special or otherwise), sewer and water rents,
rates and charges and any other governmental levies, impositions or charges,
whether general, special, ordinary, extraordinary, foreseen or unforeseen, which
may be assumed, levied or imposed upon all or any part of the Real Property
(other than any interest or penalties imposed in connection therewith or any
additional tax or assessment imposed solely by reason of any improvement made or
action taken by or on behalf of any particular tenant), and
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all expenses, including fees and disbursements of attorneys, experts,
consultants and witnesses reasonably incurred by, or reimbursable by, Landlord
in connection with the assessment process or any application for a reduction in
the assessed valuation for the Real Property or for a judicial review thereof
(collectively, the "Tax Reduction Expenses").
(b) It is understood, however, that except with regard to Tax
-------
Reduction Expenses incurred at the written request or with the written
permission of Tenant (which permission shall not be unreasonably withheld or
delayed), Real Estate Taxes for any given year shall include Tax Reduction
Expenses only to the extent that they are offset by actual reductions in Real
Estate Taxes payable for said year.
(c) In the event that any amounts falling within the definition of
Real Estate Taxes hereunder may be paid in installments, Landlord shall pay such
amounts in the maximum number of installments permitted and Tenant's payments of
Real Estate Taxes shall be deemed to be due and payable in such installments.
(d) Real Estate Taxes shall be calculated so as to take into account
any abatements or other special reductions therein now or hereafter during the
Term affecting the Real Property and so as to include any alternative or
substitute charges, including any so-called "service charge", resulting
therefrom. Tenant acknowledges that Tenant's Work may increase the Real Estate
Taxes and any so-called service charge payable pursuant to the "Financial
Agreement" (as such term is hereinafter defined). In such event, Tenant shall
pay the amount of such Real Estate Tax increase as part of its payment of Real
Estate Taxes hereunder.
(e) If due to a future change in the method of taxation any franchise,
income (other than an income or inheritance tax which is applicable to other
parties in addition to owners of real property), profit or other tax shall be
levied against Landlord in substitution in whole or in part for or in lieu of
any tax which would otherwise constitute a Real Estate Tax, or a tax or excise
shall be imposed upon or measured by rents, such franchise, income, profit or
other tax, or tax or excise imposed upon or measured by rents, shall be deemed
to be a Real Estate Tax for the purposes hereof.
(f) Landlord hereby agrees that Tenant shall have the right, at
Tenant's sole cost and expense, to apply to the appropriate Legal Authority for
a reduction in the assessed valuation of the Real Property or for a judicial
review thereof; provided, however, that Landlord and any Superior Lessor and
-------- -------
Mortgagee shall have the right to participate with Tenant in such application
and any subsequent hearings and proceedings regarding such tax reduction matter.
(g) Landlord and Tenant acknowledges that on August 25, 1987, Mid
Hudson Urban Renewal Company (a/k/a/Co.) ("Mid Hudson"), a general partnership
which is under common control with Landlord, and the City entered into a certain
financial agreement (the "Financial Agreement"). In the event that, as the
direct result of (i) the failure of Mid Hudson or its successors or assigns to
file annual reports, as required under the Financial Agreement; (ii) a
prohibited transfer by Mid Hudson or its successors or assigns (as set forth in
Paragraph 15 of the Financial Agreement); (iii) the default by
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Mid Hudson or its successors or assigns in the making of any payments due under
the Financial Agreement after any applicable notice and grace period; (iv) the
filing of materially false and misleading information by Mid Hudson or Landlord
in connection with its application and ancillary filings to obtain the Financial
Agreement; or (v) any breach by Landlord ___________________ of the obligations
to be observed or performed thereunder, the "Annual Service Charge" (as such
term is used in the Financial Agreement) is either terminated or is not put into
effect, then, from and after the first day of the month following the issuance
of a Certificate of Occupancy for the Building and until the end of the period
described in Paragraph 3 of the Financial Agreement, Real Estate Taxes shall be
computed as if (i) the Building was exempt from taxation and (ii) the Annual
Service Charge was in effect, computed in accordance with the Financial
Agreement. During the term of the Financial Agreement, Tenant shall neither
perform any act ___________________________ nor fail to perform any act which
will invalidate the Financial Agreement in whole or part.
Section 28.04.
(a) In addition to Tenant's obligation to pay Additional Rent on
account of the Operating Expenses and Real Estate Taxes as described in this
Article 28, Tenant shall also pay to Landlord, as Additional Rent, from and
after the Rent Commencement Date "Tenant's Project Maintenance Fee" (as such
term is defined in subsection 28.04(c) below).
(b) For the purposes of this Lease, the terms "Landlord's Project
Maintenance Fee" or the "Project Maintenance Fee" shall mean all costs and
expenses incurred by or on behalf of Landlord, or contributed to such firm,
person or entity as shall own, or otherwise be responsible for, the operation,
management, lighting, repairing, replacing and otherwise maintaining the public
areas of the Project and maintaining security therein.
(c) For purposes of this Lease, the term "Tenant's Project Maintenance
Fee" shall mean Tenant's annual payment to Landlord for Tenant's portion of the
Project Maintenance Fee.
(d) (i) The annual amount of the Tenant's Project Maintenance Fee
(prorated for any portion of a year) shall be equal to (A) twenty-five ($.25)
cents, as such figure may be adjusted pursuant to Section 28.04(f) hereof (as so
adjusted, the "Per Square Foot Maintenance Fee"), multiplied by (B) the number
of rentable square feet in the Premises.
(ii) The initial annual amount of Tenant's Project Maintenance
Fee shall be $113,750.00, which has been calculated in accordance with the
formula set forth in subsection 28.04(d)(i) above.
(e) Tenant shall pay to Landlord, as Additional Rent, the annual
amount of Tenant's Project Maintenance Fee in equal monthly installments, in
advance on the first (1st) day of each calendar month during the Term,
concurrently with Tenant's payment to Landlord of monthly installments of Fixed
Rent.
(f) (i) Effective on the first (1st) anniversary of the Rent
Commencement Date (or the first (1st) day of the month thereafter if such
anniversary date is not the first
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properties in the New Jersey-New York metropolitan area, or may enter into a
management agreement with a reputable management company experienced in the
operation and maintenance of first class office/retail buildings and properties
in the New Jersey-New York metropolitan area.
(ii) Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of a party or parties to
manage and/or operate the Real Property, the Premises and the Building if, in
Landlord's sole judgment, exercised in good faith, such employment will or is
likely to cause any union labor conflict with any other union labor engaged in
the management or operation of any portion(s) of the Project. Furthermore,
Tenant hereby agrees that Landlord shall have the right to designate the union
local from which all building service employees and other building laborers
?????????? are obtained, provided that such services are obtainable at a
comparable rate to that paid by Landlord for performance of similar services,
taking into account that Landlord, because if its utilization of services for
properties of greater aggregate size than the Building, may have obtained a more
favorable rate than Tenant.
(b) (i) Tenant hereby agrees to pay any and all fees, costs,
expenses and amounts incurred in connection with the management and operation of
the Real Property, the Premises and the Building.
(ii) Tenant hereby acknowledges that its payment to Landlord of
Fixed Rent hereunder does not include any fees, costs, expenses and amounts to
be incurred by Tenant in connection with the management and operation of the
Real property, the Premises and the Building.
(c) Tenant hereby agrees to operate and maintain the Real Property,
the Premises and Building in a manner consistent with the operation and
maintenance of a first-class office/retail building in the New Jersey-New York
metropolitan area.
(d) Except as expressly set forth in this Lease, Landlord shall be
under no obligation to furnish or perform any services to or for Tenant or any
Third Party Tenants, nor shall Landlord be responsible for the proper operation
of any Building facilities providing such services.
(e) In the event that Tenant shall fail to operate and maintain the
Real Property and/or provide the minimum services set forth in this Article 29,
Tenant shall be liable to Landlord for its failure to so comply with the terms
and provisions of this Article 29, and shall indemnify and hold Landlord
harmless from and against any and all fees, costs, expenses and liability
resulting or arising from such inability or failure, except to the extent such
failure is the result of Force Majeure.
(f) Tenant may not enter into any agreements or contracts with respect
to the, management, operation and/or maintenance of the Real Property, the
Building or the Premises which may extend beyond the Term without Landlord's
prior written approval, unless, upon thirty (30) days prior notice, such
agreement or contract is terminable by Tenant, and, upon the expiration or
earlier termination of this Lease, is terminable by Landlord or any successor
landlord.
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Section 29.02.
Tenant shall perform or furnish to Tenant and Third ______ Tenants
Building services in a manner and to the extent _______ is consistent with the
services provided to tenants in ________ first-class office buildings located in
the New York _____ ropolitan area or the so-called "Gold Coast" area of the
______ which services shall include, but shall not be limited _______ those
services set forth below:
(a) (i) Heat shall be provided to the Premises when _________ as
required by the laws and requirements of Legal Authorities.
(ii) Landlord does not represent the adequacy of, nor is
Landlord responsible for, Tenant's heat distribution system within the Premises,
or the design or capacity of such system. Tenant shall design and install such
heat distribution system at Tenant's sole cost and expense.
(b) (i) Landlord shall make available to Tenant, for Tenant's use,
the air-conditioning units installed at the Premises as described in Section 1
of Exhibit 4 annexed hereto, and Tenant shall be responsible (A) to pay for all
electricity (or other requisite power service), water and refrigerants used in
connection with such units, and (B) for making, or causing to be made all
repairs, replacements and alterations required to maintain such units in good
working order. Landlord, however, makes no representations or warranties as to
the operation, capacity nor the adequacy of such air-cooling units, subject,
however, to such warranties and guarantees which Tenant is entitled to under
Article 4 of this Lease.
(ii) Tenant covenants that its use of such air-cooling units at
all times shall be in compliance with all applicable orders, rules or
regulations of all Legal Authorities having jurisdiction over the same.
(iii) Tenant shall be responsible for the cost of providing water
for the operation of the air-cooling units servicing the Premises (i.e., the
costs of operating any chillers and the Building cooling tower utilized in
connection therewith, including without limitation, the costs of electric, water
and all repairs to and replacement of such chillers and cooling tower and all
equipment related thereto).
(c) Tenant shall arrange for the cleaning of the interior and
exterior of the Building, except for the Retail Premises, in a manner consistent
with that of a first class office building in the New Jersey-New York
metropolitan area.
(d) Tenant shall pay for its use or consumption of Water in the
Premises. Landlord shall install a water meter in the Building which shall
measure Tenant's water consumption for all purposes. Tenant shall (A) pay
Landlord for the cost Of the meter and its installation thereof, as Additional
Rent, upon demand, (B) keep said meter and installation equipment in good
working order and repair, at Tenant's sole cost and expense, in default of which
Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as Additional Rent, upon demand and (C)
Pay to the appropriate Legal Authority, on or prior to the due date imposed by
the Legal Authority, for all water consumed,
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as well as all sewer rents, charges or any other taxes, rents, levies or charges
which now or hereafter are assessed, imposed or which shall become a lien upon
the Premises or the Real Property pursuant to law, order or regulation made or
issued by any Legal Authority in connection with any such metered use,
consumption, maintenance or supply of water, water system or sewage or sewage
connection or system. If Tenant shall default in making such payment(s)
Landlord may pay such charges and collect the same from Tenant, together with
interest thereon at the Interest Rate, all as Additional Rent.
(e) Landlord reserves the right to require Tenant to stop, interrupt
or reduce the service or operation of the heating, ventilation or air-cooling
systems, elevator, electrical energy or plumbing or any other service or systems
when necessary by reason of any law, rule, regulation or order of any Legal
Authority having jurisdiction over the Building.
(f) The exercise of such right in subsection (e) above by Landlord
shall not (i) constitute an actual or constructive eviction, in whole or in
part, (ii) entitle Tenant to any compensation or to any abatement or diminution
in the payment of Rent, (iii) relieve Tenant from any of its obligations under
this Lease, or (iv) impose any responsibility or liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant or any Third Party
Tenants or injury to or interruption of Tenant's or any Third Party Tenant's
business, or otherwise.
ARTICLE 30
ELECTRICITY
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Section 30.01.
(a) (i) Tenant, at Tenant's sole cost and expense, shall arrange to
obtain electricity directly from the public utility or other company servicing
the Building. Tenant acknowledges that, for so long as Tenant and its Third
Party Tenants are in occupancy of the entire Building, other than that portion
of the ground floor which has not been leased to Tenant under this Lease, such
electricity shall service all of the Real Property and the Building, including
the lobby area, all public and common areas and all Building systems, services
and facilities, exclusive, however, of the Retail Premises.
(ii) Landlord represents and warrants to Tenant that the Retail
Premises shall receive electricity service directly from the public utility
providing the same to the Building (i.e., such portion of the Building shall not
---
receive electricity service through facilities providing electricity to Tenant
at the Premises). Notwithstanding the foregoing, in the event Tenant elects to
become a "primary service user" by the public utility servicing the Building and
is thereby required to purchase electrical energy for the entire Building,
including the Retail Premises, Tenant shall, at its expense, redistribute or
furnish electrical energy to or for the use of all tenants in the Retail
Premises. Tenant shall, at its expense, install sub-meters to measure such
tenants' consumption of electrical energy, and such tenants shall pay to Tenant
(or Landlord shall pay to Tenant on behalf thereof),
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on demand, from time to time, but no more frequently than monthly, for
consumption of electrical energy at a rate which Tenant actually pays for such
electrical energy to the public utility company servicing the Building, on the
basis of all of the electricity actually purchased by Tenant for the entire
Building. The rate to be paid by the tenants in the Retail Premises for sub-
metered electrical energy shall include any taxes or other charges in connection
therewith. If any tenant of Retail Premises fails to pay for such electrical
energy furnished to it by Tenant in a timely manner, Tenant shall give notice to
Landlord of such failure to pay, and an opportunity to cure such tenant's
failure within a reasonable time. If such retail tenant (or the Landlord, on
such retail tenant's behalf) shall fail to make payment within a reasonable time
thereafter, Tenant may exercise any and all legal remedies available to it
against such retail tenant.
(b) The cost of such utility service shall be paid by Tenant directly
to such utility company. Such electricity may be furnished to Tenant by means
of the then existing electrical facilities serving the Building and the Premises
to the extent that the same are available, suitable and safe for such purposes.
All meters and all additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electricity shall be
installed by Tenant, at Tenant's sole cost and expense, in a manner reasonably
satisfactory to Landlord.
(c) Tenant shall be obligated, at Tenant's sole cost and expense, to
arrange or to make arrangements with Landlord for the connection of its
electrical system servicing the Premises and the Building (except for the Retail
Premises) to the base Building electrical equipment and system installed by
Landlord in the Building.
Section 30.02.
(a) Any additional feeders or risers to be installed to supply
Tenant's additional electrical requirements, and all other equipment proper and
necessary in connection with such feeders or risers, shall be installed by
Tenant at its sole cost and expense; provided, however, that the installation of
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such additional feeders or risers will not violate any applicable laws and
regulations of any Legal Authority and Insurance Body and/or will not cause
permanent damage or injury to the Building or the Premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable alterations
or unreasonably interfere with or disturb other tenants or occupants of the
Building, including any Third Party Tenants.
(b) Tenant covenants that at no time shall the use of electrical
energy in the Premises exceed the capacity of the existing feeders to the
Building or the risers or wiring installations then serving the Premises and
Tenant shall not use any electrical equipment which, in Landlord's reasonable
judgment, will overload such installations.
(c) Any electrical Alterations, additions or consents by Landlord
thereto shall be subject to the provisions of this subsection, as well as to
other provisions of this Lease including, without limitation, the provisions of
Article 5 hereof.
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(d) Landlord shall not be liable or responsible to Tenant in any way
for any loss, damage or expense which Tenant may sustain or incur as a result of
any (A) interruption, curtailment or failure (whether or not temporary) or (B)
defect in the supply, character, quantity, availability or suitability of
electricity furnished to the Premises by reason of any requirement, act or
omission of Landlord or of any public utility or other company servicing the
Building with electricity or for any other reason except if and to the extent
the same is caused by or results from the negligence or willful misconduct of
Landlord or its agents. Landlord hereby agrees that if Tenant shall provide
electricity to tenants of the Retail Premises pursuant to subsection
30.04(a)(ii) hereof, Landlord shall thereafter endeavor to insert a clause in
each retail lease of the Retail Premises providing for substantially similar
provisions to those set forth in this subsection 30.02(d) with respect to
Tenant's obligation to provide electrical services to such retail tenants, and
Landlord shall not assert any claim against Tenant for any loss, damage or
expense which the retail tenants may sustain or incur as a result of any failure
of Tenant to provide electricity service, except to the extent expressly set
forth in this subsection 30.02(d).
(e) Tenant shall at all times comply with the rules and regulations
applicable to the service, equipment, wiring and requirements of the utility
company supplying electricity to the Building.
(f) If either the quantity or character of electrical service is
changed by the public utility or other company supplying electrical service to
the Building or is no longer available or suitable for Tenant's requirements, no
such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution in the payment of Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
ARTICLE 31
STATUS OF TENANT, TENANT'S AGREEMENTS AND COVENANTS
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Section 31.01. If Tenant, or a permitted assignee of this Lease
pursuant to Article 15 hereof, is a Partnership Tenant then: (a) the liability
of each of the parties comprising such Partnership Tenant shall be joint and
several, (b) each of the parties comprising such Partnership Tenant hereby
consents in advance to, and agrees to be bound by, any written instrument which
may hereafter be executed, changing, modifying or discharging this Lease, in
whole or in part, or surrendering all or any part of the Premises to Landlord,
(c) any bills, statements, notices, demands, requests or other communications
given or rendered by or to such Partnership Tenant and/or any of the parties
comprising such Partnership Tenant shall be binding upon all of the parties
comprising such Partnership Tenant, (d) if such Partnership Tenant shall admit
new partners, each such new partner shall, by his or her admission to such
Partnership Tenant, be deemed to have
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assumed performance of all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed, and (e) such Partnership Tenant
shall give prompt notice to Landlord of the admission of any such new partners,
and upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord an agreement in form and content satisfactory to Landlord,
wherein each such new partner shall assume performance of all the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed (but neither Landlord's failure to request any such agreement nor the
failure of any such new partner to execute or deliver any such agreement to
Landlord shall vitiate the provisions of subsection (d) of this Section 31.01).
Section 31.02. If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified (if foreign) corporation and is
authorized to do business in the State (a copy of evidence thereof shall be
supplied to Landlord upon execution of this Lease) and that each person
executing this Lease on behalf of Tenant is an officer of Tenant and that he is
duly authorized to execute, acknowledge and deliver this Lease to Landlord (a
copy of a resolution to that effect shall be supplied to Landlord upon execution
of this Lease).
Section 31.03. Tenant hereby represents and warrants that:
(a) there are no actions, suits or proceedings pending, or, to the
knowledge of Tenant, threatened against or affecting Tenant, at law or in equity
or before any Legal Authorities which would impair Tenant's ability to perform
its obligations under this Lease;
(b) this Lease has been duly authorized, executed and delivered by
Tenant and constitutes the legal, valid and binding obligation of Tenant; and
(c) the consummation of the transactions hereby contemplated and the
performance of this Lease will not result in any breach or violation of, or
constitute a default under, any lease, bank loan or credit agreement, to which
Tenant is a party.
Section 31.04. Tenant hereby agrees to give notice to Landlord
promptly after becoming aware of (a) any occurrence in or about the Premises for
which Landlord might be liable, (b) any fire or other casualty in the Premises,
and (c) any damage to or defect in the Premises, including the fixtures,
equipment and appurtenances thereof, for the repair of which Landlord might be
responsible.
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ARTICLE 32
CAPTIONS
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Section 32.01. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease or the intent of any provision thereof.
ARTICLE 33
CONSTRUCTION OF LEASE
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Section 33.01.
(a) The term "office" or "offices", wherever used in this Lease, shall
not be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, shoeshine or other stand, barber shop, or for other
similar purposes or for manufacturing.
(b) The words "reenter" and "reentry" as used in this Lease are not
restricted to their technical legal meaning.
(c) The term "person" when used in this Lease shall mean a natural
person or persons, a corporation, a partnership, an association, a joint
venture, an estate, a trust or any other legal entity.
(d) The terms "herein," "hereof" and "hereunder," and words of similar
import, shall be construed to refer to this Lease as a whole, and not to any
particular article or section, unless expressly so stated.
(e) The term "and/or" when applied to one or more matters or things
shall be construed to apply to any one or more or all thereof as the
circumstances warrant at the time in question.
(f) The terms "Landlord shall have no liability to Tenant" or "the
same shall be without liability to Landlord" or "without incurring any liability
to Tenant therefore," shall mean that Tenant is not entitled to terminate this
Lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution in the payment of Rent, or to be relieved in
any manner of any of its other obligations hereunder, or to be compensated for
loss or injury suffered or to enforce any other right or kind of liability
whatsoever against Landlord, under or with respect to this Lease or with respect
to Tenant's use or occupancy of the Premises.
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ARTICLE 34
PARTIES BOUND
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Section 34.01. The terms, covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective heirs, distributees, executors, administrators,
successors and, except as otherwise provided in this Lease, their assigns.
ARTICLE 35
BROKERS
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Section 35.01.
(a) Landlord and Tenant each represent and warrant to the other that
it has dealt directly with (and only with) the Brokers named herein as the
brokers in connection with this Lease, and that no broker, other than the
Brokers, negotiated this Lease or is entitled to any fee or brokerage commission
in connection herewith.
(b) The execution and delivery of this Lease by Landlord shall be
conclusive evidence that Landlord has relied upon the foregoing representation
and warranty.
Section 35.02.
(a) The parties shall make payments to the Brokers connection with the
Lease pursuant to separate agreement if a Landlord and Tenant shall each
indemnify, defend, save and hold the other harmless from and against all claims
for fees or brokerage commissions, and for all fees, costs and expenses,
including reasonable attorney's fees, court costs and expenses related thereto
from anyone other than the Brokers with whom Landlord and Tenant have dealt,
respectively, in connection with the Premises or this Lease.
(b) Landlord shall have no liability for fees or brokerage commissions
arising out of an assignment of this Lease or a sublease of all or a portion of
the Premises by Tenant and Tenant shall indemnify, defend and save Landlord
harmless from and against all liability for fees or brokerage commissions and
for all fees, costs and expenses, including attorney's fees, court costs and
expenses arising out of any such assignment or sublease.
Section 35.03.
(a) The covenants, representations and agreements of Landlord and
Tenant set forth in this Article 35 shall survive the Expiration Date or earlier
termination of the Term of this Lease.
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ARTICLE 36
ADJACENT EXCAVATION; SHORING; DARKENING OF WINDOWS
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Section 36.01.
(a) If an excavation or bulkhead work or other substructure work
shall be made upon land adjacent to the Real Property, or shall be authorized to
be made, Tenant shall afford to the person causing or authorized to cause such
excavation or other substructure work, license to enter upon the Premises and
the Building for the purpose of doing such work as said person shall deem
necessary to preserve the wall or foundation or structural elements of the
Building from injury or damage and to support the same by proper foundations
without any claim for damages, liability or indemnity against Landlord, or
diminution or abatement of Fixed Rent or Additional Rent, and without
constituting an eviction. Any interruption of or interference with Tenant's
business and the Premises which shall result from the foregoing shall be kept to
a minimum. Furthermore, to the extent such work is completely within the
control of Landlord or someone claiming by or through Landlord, Landlord shall
use its best efforts to avoid any interruption of or interference with Tenant's
business and the Premises.
(b) If, at any time or from time to time, during the Term, any windows
of the Premises are temporarily closed for a period of no greater than sixty
(60) days, darkened or covered as a result of any applicable law, ordinance or
regulation of any Legal Authority, Landlord shall not be liable for any damage
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement of Fixed Rent or Additional Rent, nor shall the same
release Tenant from any of its obligations hereunder nor shall the same
constitute an eviction.
ARTICLE 37
MISCELLANEOUS
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Section 37.01. This Lease is submitted to Tenant on the understanding
that it shall not be considered an offer and shall not bind Landlord or Tenant
in any way whatsoever until (a) Tenant has duly executed and delivered
duplicate originals to Landlord, and (b) Landlord has executed and delivered one
(1) of said fully executed originals to Tenant.
Section 37.02. If more than one person executes this Lease as Tenant,
each of them understands and hereby agrees that the obligations of each of them
under this Lease are and shall be joint and several, that the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally and
that the act of or notice from, or notice or refund to, or the signature of, any
one or more of them, with respect to the tenancy and/or this Lease, including,
but not limited to, any renewal, extension, expiration, termination or
modification of this Lease, shall be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
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Section 37.03. All Exhibits to this Lease and any and all Rider
provisions attached to this Lease are hereby incorporated into this Lease. If
any provision contained in any Exhibit hereto is inconsistent or in conflict
with any printed provision of this Lease, the provision contained in such
Exhibit shall supercede said printed provision and shall control.
Section 37.04.
(a) From time to time, within ten (10) days next following either
party's request, Landlord and Tenant agree that each shall deliver to the other
a written statement executed and acknowledged by the other, in form reasonably
satisfactory to the requesting party, (i) stating that this Lease is then in
full force and effect and has not been modified (or if modified, setting forth
all modifications), (ii) setting forth the date to which the Fixed Rent,
Additional Rent and other charges hereunder have been paid, together with the
amount of fixed base monthly Rent then payable, (iii) stating whether or not, to
the best of its knowledge, the other party is in default under this Lease, and,
if the other party is in default, setting forth the specific nature of all such
defaults, (iv) stating the amount of the security deposit, if any, under this
Lease, (v) stating whether there are any subleases affecting the Premises, (vi)
stating the address to which all notices and communications to such party under
the Lease shall be sent, (vii) stating the Commencement Date, Rent Commencement
Date and the Expiration Date, as the case may be, and (viii) specifying as to
any other matters requested.
(b) Landlord and Tenant acknowledge that any statement delivered
pursuant to this Section 37.04 may be relied upon by any purchaser or owner of
the Real Property or the Building, or Landlord's interest as tenant under the
ground lease of the Building and the Real Property or any Superior Lease, or by
any mortgagee of a Mortgage, or by any assignee of any mortgagee of a Mortgage,
or by any lessor under any Superior Lease or any prospective assignee of
Tenant's interest in the Premises or subtenant at the Premises.
Section 37.05. This Lease shall be governed by and construed in
accordance with the laws of the State, without giving effect to the principles
of conflicts of laws.
Section 37.06. In no event may Tenant record this Lease; provided,
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however, that Landlord and Tenant will, upon the request of the other and at the
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sole cost and expense of the requesting party, join in the execution of a
memorandum of lease in proper form for recordation.
Section 37.07. This Lease may not be modified or changed in whole or
in part in any manner other than by an instrument in writing duly signed by both
parties hereto.
Section 37.08. The parties hereto acknowledge that simultaneously
with the execution and delivery of this Lease, Tenant has caused the execution
and delivery to Landlord of the Guaranty. The parties further acknowledge that
Landlord would not have entered into this Lease but for the delivery to Landlord
of such Guaranty.
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ARTICLE 38
ARBITRATION
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Section 38.01.
(a) If any provision of this Lease expressly provides that a matter
shall be determined by arbitration in accordance with this Article, then either
party may request the other party in writing that such matter be so determined
by such arbitration, and
(i) each party shall, within ten (10) days thereafter, appoint
one competent and impartial arbitrator and such party shall notify the other
party in writing of the name and address of the arbitrator so appointed;
(ii) if either party shall fail to make such appointment and to
serve notice thereof within the time prescribed as aforesaid, then the
appointment of a competent and impartial arbitrator on behalf of such party
shall be made by the arbitrator already appointed;
(iii) such arbitrators so appointed shall meet within ten (10)
days after the second arbitrator is appointed and shall, if possible, determine
such matter within thirty (30) days after the second arbitrator is appointed,
and their determination under oath shall be binding and conclusive on the
parties;
(iv) if for any reason such two arbitrators fail to agree on
such matter within said period of thirty (30) days, they shall appoint a third
competent and impartial arbitrator, and in the event of their failure to agree
upon such third arbitrator within ten (10) days after the time aforesaid, either
party on behalf of both may request such appointment by the Superior Court in
the County of Hudson for the appointment of such third arbitrator, and the other
party shall not raise any question as to the Court's full power and jurisdiction
to entertain the application and make the appointment; and
(v) the determination of such matter under oath of any two of
such three arbitrators shall be given within a period of thirty (30) days (or
such longer period as may be reasonable in light of the circumstances) after the
appointment of the third arbitrator and shall in all cases be binding and
conclusive upon the parties hereto.
(b) Each arbitrator shall be duly sworn to determine such matter
fairly and impartially. If any arbitrator shall die, be disqualified or
incapacitated, or shall fail or refuse to act, before such matter shall have
been determined, then, in place of such arbitrator, a competent and impartial
arbitrator shall promptly be appointed in the same manner as the arbitrator who
shall have died, become disqualified or incapacitated, or who shall have failed
or refused to act, as the case may be, as aforesaid.
(c) Each arbitrator shall have at least ten (10) years' experience
with the subject matter under dispute in the particular context of urban high-
rise office buildings with premises.
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(d) (i) The arbitrator shall set forth findings of fact and
conclusions of law.
(ii) The arbitrator's conclusions of law shall conform to the
laws of the State.
(iii) The arbitrator may interpret and apply the terms of this
Lease but shall not change any of the terms of this Lease.
(e) The decision of the arbitrator shall be binding on the parties,
and either party shall have the right to enter the decision of such arbitration
as a judgment in any court of competent jurisdiction in the State.
(f) Except as otherwise provided in this Lease, each shall pay the
fees and expenses of the arbitrator appointed by or on behalf of such party and
the arbitrators shall allocate the fees and expenses of the third arbitrator on
the basis of the relative success of the parties in such arbitration.
ARTICLE 39
SIGNAGE; BUILDING NAME
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Section 39.01.
(a) Tenant shall have the right, at Tenant's sole cost and expense, to
install, maintain and replace, from time to time, upon the facade of the
Building no less than two (2) signs and logos which identify Tenant or Tenant's
parent or affiliate, provided such parent or affiliate is conducting business at
the Premises (but in no event Tenant's subtenants or other occupants of the
Premises). Such signs shall be tasteful and dignified, and of a size, design,
character, construction and materials as shall first be approved in writing by
Landlord, which approval shall not be unreasonably withheld or delayed,
provided, however, that such signs or logos shall (A) be in conformity with
overall design and appearance criteria for the Project in effect on the date of
the installation thereof, and (B) be shall be installed in a manner and at a
particular place or places as shall be selected by Tenant, with Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed;
provided, however, in no event whatsoever shall any such sign puncture the
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facade of the Building. No neon, flashing or other lighted signs, logos or
displays shall be permitted on the Building, within any windows or otherwise
visible from outside of the Building.
(b) Tenant shall, at its sole cost and expense, maintain and repair
any such signs, and shall be responsible for all costs and expenses in
connection with complying with any and all laws, ordinances or regulations of
any Legal Authority with respect thereto.
(c) Landlord shall reasonably cooperate, at Tenant's sole cost and
expense, and without any cost, fee, expense or liability to Landlord, with
Tenant's efforts to obtain or file
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any and all permits or other documents and renewals thereof that may be
necessary to install and maintain said signs.
(d) Upon the Expiration Date or earlier termination of the Term of
this Lease, upon Landlord's request, Tenant, at Tenant's sole cost and expense,
shall remove all such signs, lettering and logos installed by Tenant on or at
the Building or Real Property, and shall repair any damage to, or restore the
facade of the Building or any portion of the Building and Real Property, caused
by such removal.
Section 39.02.
(a) Landlord shall, at Tenant's option, name the Building "The Recruit
Building" or such other name that Tenant may designate, from time to time,
subject to Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed, provided, however, that such other name (i)
would not adversely affect the reputation of the Building as a first class
office/retail building, (ii) will not conflict with the naming of any other
building in the Project and (iii) contains the name of the Tenant herein named.
Tenant may include the word "Newport" in its name for the Building.
(b) Upon prior written notice to Tenant, Landlord reserves the right
to change the number or address of the Building at any time that such change is
required by any Legal Authority or any law, rule, notice or regulation issued
thereby.
Section 39.03.
(a) Tenant acknowledges that the Retail Premises of the Building not
leased to Tenant is intended by Landlord to be leased to retail stores or other
service establishments offering a variety of goods, merchandise and services for
sale, at retail, to the general public.
(b) Landlord hereby agrees that the uses of the retail or service
establishment tenant(s) at the Retail Premises shall be consistent with the uses
of other ground floor premises in first class office buildings in the New York
metropolitan area or the "Gold Coast" area of the City and the signage of such
tenant(s) shall be in conformity with the overall design and appearance criteria
for the Project.
(c) The foregoing shall not be deemed to give Tenant any right of
approval as to the identity of the tenants or uses to whom or which Landlord
shall lease the Retail Premises, or the signage therefor which is approved by
Landlord.
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ARTICLE 40
PARKING
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Section 40.01.
(a) (i) Landlord hereby agrees to provide or cause to be provided
to Tenant both initial and subsequent parking facilities (which may be a parking
lot or parking garage or a combination of both) in an area or areas located at
the Project (collectively, the "Parking Facilities").
(ii) The initial Parking Facilities which are called the
"Initial Parking Facilities" and the subsequent Parking Facilities which are
called the "Subsequent Parking Facilities" are more particularly described
below.
(iii) The Subsequent Parking Facilities shall be comprised of the
"Interim Parking Facilities" and the "Permanent Parking Facilities." The Interim
Parking Facilities and the Permanent Parking Facilities are more particularly
described below.
(iv) All Parking Facilities shall be located within six hundred
fifty (650) feet from the Building and shall be in the locations of the type
designated by Landlord, as hereinafter provided. The Interim Parking Facilities
and the Permanent Parking Facilities shall be located within the area indicated
on Exhibit 8 annexed hereto and made a part hereof.
(b) The provision of the Parking Facilities to Tenant shall be subject
to all of the terms, provisions and conditions set forth in Article 44 of the
Superior Lease between Newport Associates Development Company, as lessor, and
Landlord, as lessee, as amended, which Superior Lease is more particularly
described in paragraphs 2, 3, 4 and 5, under the heading of "Mortgages and
Superior Leases" on Exhibit 6 hereof (a copy of which Superior Lease Tenant
acknowledges it has received and reviewed).
Section 40.02.
(a) (i) Upon the Commencement Date and through and including the
date which is eighteen (18) months thereafter (the "Construction/Move-In
Period"), as same may be extended as the result of Landlord's Delay, Landlord
shall provide or cause to be provided to Tenant, and Tenant's contractors,
subcontractors and workers engaged in the performance of Tenant's Initial Work,
on a monthly basis, during such performance of Tenant's Initial Work and
Tenant's move-in into the Premises, initial parking facilities containing such
parking spaces as shall then be reasonably required by Tenant and its
contractors, subcontractors and workers for each month during the
Construction/Move-In Period (the "Initial Parking Facilities"). For a reasonable
time after the Construction/Move-In Period, upon the written request of Tenant,
Landlord shall use reasonable efforts to continue to provide Initial Parking
Facilities at no cost to Tenant, provided that Landlord shall not be required to
incur any expense or liability in connection therewith.
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(ii) Tenant shall provide a written notice to Landlord on the
Commencement Date and at least ten (10) days prior to each monthly period
thereafter for which Tenant shall require Initial Parking Facilities, setting
forth the number of parking spaces which Tenant shall require at the
Initial Parking Facilities during such month, and Landlord shall use all
reasonable efforts to accommodate Tenant with regard to such parking during such
monthly period.
(iii) The Initial Parking Facilities shall be made available to
Tenant and Tenant's contractors, subcontractors and workers twenty-four (24)
hours per day, seven (7) days per week.
(iv) Tenant shall promptly furnish to Landlord notice of the
date upon which Tenant shall require Subsequent Parking Facilities, which date
shall be no earlier than March 1, 1989, and upon a date determined by Landlord
no later than thirty (30) days after receipt of such notice (the "Subsequent
Parking Commencement Date"), Landlord shall be obligated to furnish to Tenant
Subsequent Parking Facilities, and shall have no obligation to continue to
furnish Initial Parking Facilities to Tenant from and after the date same are
made available to Tenant.
(b) (i) Upon and after the Subsequent Parking Commencement Date,
Landlord hereby agrees to make available to Tenant the use of one (1) parking
space per one thousand (1000) rentable square feet in the Premises, equal to
four hundred fifty-five (455) spaces in the Subsequent Parking Facilities (the
"Allocated Spaces") as provided below.
(ii) In order to provide Tenant with the Allocated Spaces in
Subsequent Parking Facilities, Landlord, with reasonable diligence, shall
construct, or cause to be constructed, a permanent, multi-level parking garage
at the Project for the non-exclusive use of Tenant, its employees and licensees
(the "Permanent Parking Facilities").
(iii) If, prior to the Subsequent Parking Commencement Date,
Landlord has not provided Tenant with Permanent Parking Facilities, Landlord
will temporarily make available to Tenant, until the Permanent Parking
Facilities are available, the non-exclusive use of a parking lot, which lot
shall be semi-attended, striped, lighted, fenced and paved (the "Interim Parking
Facilities").
(iv) Tenant shall be required to pay for all Allocated Spaces at
all times during the Term of the Lease (whether or not such spaces are actually
utilized by Tenant), at the rate set forth in Section 40.04 hereof; provided,
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however, that prior to the Rent Commencement Date, Tenant shall only be required
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to pay for those Allocated Spaces which Tenant has requested by written notice
to Landlord delivered on or prior to the Subsequent Parking Commencement Date,
and Landlord has made available to Tenant, at the rate set forth in Section
40.04 hereof.
Section 40.03.
(a) Landlord or its parking operator (the "Parking Operator"), as the
case may be, shall, at their option, make available any such parking
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at the Parking Facilities on an unassigned, unreserved basis, or shall designate
specific parking spaces for Tenant in such Parking Facility, as the case may be,
provided, however, that Landlord or the Parking Operator shall have the right to
change the assignment of such designated parking spaces at any time and from
time to time during the Term. Notwithstanding the foregoing, Landlord or the
Parking Operator, as the case may be, shall at all times during the Term
designate at least thirty (30) specific parking spaces for Tenant, subject to
Landlord's or the Parking Operator's right to change such designations, provided
that such parking spaces shall be located as close to the main entrance of the
Building as practicable. Any Parking Facilities described herein may be attended
or unattended, as the Landlord or Parking Operator may determine from time to
time, or except as is otherwise set forth herein.
(b) Tenant, in its use of any Parking Facilities, shall at all times
observe the rules and regulations reasonably promulgated by Landlord or the
Parking Operator with respect to the use thereof, and Tenant and its employees
and agents shall refrain from parking in spaces and areas which Landlord has
designated as restricted. Landlord hereby agrees that neither Landlord nor the
Parking Operator, as the case may be, will enforce said rules and regulations in
a manner which discriminates against Tenant or anyone claiming through or under
Tenant. If any of said rules and regulations promulgated by Landlord conflict
with the terms and provisions of this Lease, the terms and provisions of this
Lease shall prevail.
(c) If Tenant, its agents, employees or visitors shall fail to observe
such rules and regulations, or shall use any restricted spaces or areas,
Landlord or the Parking Operator shall have the right and option, in addition to
any other remedy they may have, to tow away such non-observing vehicles, at the
sole cost and expense of the owner of such vehicle.
(d) (i) If any of the Parking Facilities shall become unavailable
for any reason whatsoever, provided Landlord complies with the provisions of
subsection 40.03(d)(ii) below, Tenant's inability to use the same or the parking
spaces therein shall not relieve Tenant of any of its obligations under this
Lease, including the payment of Rent and this Lease shall remain in full force
and effect in accordance with its terms; provided, however, that Landlord shall
use all reasonable efforts to cause the restoration of such unavailable Parking
Facility with all reasonable dispatch.
(ii) Following the occurrence of such unavailability, Landlord
shall provide alternate and comparable parking facilities within six hundred
fifty (650) feet from the Building for the use of Tenant, and Third Party
Tenants and the agents, employees and visitors, and during any use of such
alternate interim parking facilities, Tenant shall pay a monthly charge for each
space, at the same rate as would be payable by Tenant for the unavailable
Parking Facility, as hereinafter set forth.
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Section 40.04.
(a) (i) Tenant shall pay to Landlord, or if directed by Landlord to
the Parking Operator, on account of parking spaces (A) in the Interim Parking
Facilities the amount per space per month as is hereinafter set forth in
subsection 40.04(b) below, and (B) in the Permanent Parking Facilities the
initial amount of Dollars per space per month, adjusted on an annual basis
pursuant to the provisions of subsection 40.04(b) below (collectively, the
"Parking Fee").
(ii) Landlord hereby agrees that Tenant shall have no obligation
or requirement to pay to Landlord any Parking Fee for its use of the Initial
Parking Facilities.
(iii) The Parking Fee shall be paid on the first (1st) day of
each month during the Term. The Parking Fee for both of the Interim Parking
Facilities and the Permanent Parking Facilities, subject, however, to the
provisions of subsection 40.02.(b)(iv) hereof, shall be payable by Tenant
commencing upon the date Landlord has made available to Tenant for Tenant's use,
each of such Parking Facilities, but in no event later than the Rent
Commencement Date.
(b) (i) Tenant shall pay Landlord, on a monthly basis on account of
each parking space provided to Tenant in the Interim Parking Facilities, the
"Gross Interim Parking Expenses", which term shall mean and shall be comprised
of all costs of operating and maintaining the Interim Parking Facilities
(including, without limitation, the cost of personnel, lighting and repairs)
allocated monthly on an accrual basis and the costs of the initial construction
of the Interim Parking Facilities and capital improvements thereto, such costs
to be amortized on a straight line basis month to month over the period during
which Landlord provides Tenant with the use of the Interim Parking Facilities,
which monthly fee shall in no event exceed Ninety-Five and No/100 ($95.00)
dollars (collectively, the "Actual Monthly Interim Parking Expenses").
(ii) On the first (1st) day of the month following the
Construction/Move-In Period in which Landlord shall make the Interim Parking
Facilities available to Tenant, and on the first (1st) day of each month
thereafter until Landlord has made available the Permanent Parking Facilities
(at which time the Parking Fee set forth in subsection 40.04(a)(i) shall be
payable), Tenant shall pay Landlord an amount which Landlord estimates, in its
reasonable judgment, to be the Actual Monthly Interim Parking Expenses.
Landlord may adjust the monthly amount billed to Tenant on account of the Gross
Interim Parking Expenses from time to time during the period the Interim Parking
Facilities are made available to Tenant.
(iii) Promptly after Landlord makes the Permanent Parking
Facility available to Tenant, Landlord shall forward to Tenant an itemized
statement setting forth Landlord's final computation of the Gross Interim
Parking Expenses and the actual costs and expenses comprising said Gross Interim
Parking Expenses, and Landlord or Tenant, as the case may be, promptly shall
make appropriate payment to the other (without
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interest) of any amount overpaid by Tenant or owing to Landlord based on the
amount due pursuant to such statement and the amount theretofore paid by Tenant
for the Gross Interim Parking Expenses.
(c) Effective on the first (1st) anniversary of the date on which
Landlord has made available for Tenant's use the Permanent Parking Facilities
(or the first (1st) day of the month thereafter if such anniversary date is not
the first (1st) day of a month) and on each subsequent anniversary date
thereafter during the Term (the "Parking Increase Effective Date") the Parking
Fee then in effect shall be increased by the percentage increase, if any, in (x)
the average of the monthly posted rates at parking garages located at the
Project [and those certain other "Gold Coast" projects, namely, Evertrust Plaza,
Harborside and Exchange Place] as of the date immediately preceding the Parking
Increase Effective Date above (y) the average of the monthly posted rates at
such parking garages as of the date immediately preceding the prior Parking
Increase Effective Date.
It is agreed and understood by Tenant that in no event shall the
adjusted monthly Parking Fee be less than the monthly Parking Fee in effect
during the immediately preceding year.
(d) Landlord, no later than thirty (30) days prior to a Parking
Increase Effective Date, shall notify Tenant in writing of Landlord's
determination or estimate (the "Parking Estimate") of the adjusted or increased
amount of the Parking Fee for the month in which the Parking Increase Effective
Date shall occur, and promptly after each Parking Increase Effective Date, the
parties hereto shall make an appropriate adjustment if the Parking Estimate is
less or greater than the actual Parking Fee, as calculated pursuant to section
40.04(b) above, and shall execute an agreement in form and substance
satisfactory to Landlord setting forth the new Parking Fee.
Section 40.05.
(a) Tenant shall use all parking spaces provided to Tenant pursuant to
this Article 40 for the sole and exclusive use of Tenant and its Third Party
Tenants or their employees and visitors, and in no event may Tenant sublicense
its use of, or accept any fee, charge or other payment from any other party for
or regarding the temporary or permanent use of any the Parking Facilities
without first obtaining Landlord's prior written consent.
(b) Any violation of the foregoing shall constitute a default under
this Lease, permitting Landlord to exercise all of its rights and remedies
hereunder.
(c) Tenant shall, in the event of any sublicense of its parking spaces
to its subtenants, remain liable for payment to Landlord of any Parking Fee for
such Parking Facilities so sublicensed to a subtenant of Tenant.
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Section 40.06.
(a) Tenant hereby agrees for itself that Tenant's use of the Parking
Facilities shall be at Tenant's risk, and Landlord shall have no liability to
Tenant with regard to Tenant's use of the Parking Facilities (or any alternate
Interim Parking Facilities as above described), nor shall Landlord be liable for
any damage or injury to Tenant, or its agents, employees or visitors, or the
property of any of the same, if any automobile or the contents thereof shall be
damaged, lost or stolen while in the Parking Facilities (or such alternate
Interim Parking Facilities) unless caused solely by the negligence of Landlord
or its agents.
(b) Tenant's use of the Parking Facilities, as herein set forth, shall
be in common with other tenants of the Building, other tenants at other
buildings located at the Project, and any other parties permitted by Landlord
and the Parking Operator to use such Parking Facilities.
Section 40.07.
(a) Tenant shall provide Landlord or the Parking Operator with a list
of those persons to whom Tenant shall have given parking permits issued to
Tenant and the cars used by such persons and shall provide Landlord with the
changes thereto from time to time, but in no event less than once per month
during the Term.
(b) Upon the expiration of this Lease, Tenant shall assign and deliver
to Landlord any parking permits which Tenant shall have received from Landlord
or the Parking Operator. Tenant expressly assumes the responsibility for the
return of any such parking permits in its possession.
ARTICLE 41
RENEWAL OPTIONS
---------------
Section 41.01.
(a) Provided this Lease shall then be in full force and effect and
Tenant shall not then be in default in the observance or performance of any of
the terms of this Lease which are of a monetary nature and in connection with
which default Landlord shall have commenced a legal action against Tenant,
Tenant may elect, at its option, to extend the Term of this Lease, for an
initial renewal period of five (5) years (the "First Renewal Term"). The First
Renewal Term shall commence on the date immediately following the Expiration
Date (the "First Renewal Term Commencement Date") and shall terminate on the
fifth (5th) anniversary of the Expiration Date (the "First Renewal Term
Expiration Date").
(b) Tenant shall exercise the option described herein by giving
Landlord written notice of such election to extend the initial Term of this
Lease not later than twenty-four (24) months prior to the Expiration Date, and
upon the giving of such notice, but subject to Tenant's right to revoke
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its election pursuant to subsection 41.01(d)(iii)(C), and provided that this
Lease shall then be in full force and effect at the time of the exercise of such
option and on the Expiration Date, the initial Term of this Lease shall
thereupon be deemed renewed for the First Renewal Term upon all the covenants,
agreements, terms, provisions and conditions contained herein, except such
covenants, agreements, terms, provisions and conditions of this Lease as shall
be inapplicable or irrelevant and except as otherwise set forth in this Section
41.01, and with the same force and effect as if the First Renewal Term had
originally been included in the initial Term of this Lease.
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Section 41.02.
(a) Provided Tenant shall have exercised its option to renew this
Lease for the First Renewal Term, and provided further that this Lease shall
then be in full force and effect and Tenant shall not then be in default in the
observance or performance of any of the terms of this Lease which are of a
monetary nature and in connection with which default Landlord shall have
commenced a legal action against Tenant, Tenant, at Tenant's option, shall have
the right to extend the Term of this Lease for a second five (5) year period
(the "Second Renewal Term"). The Second Renewal Term shall commence on the date
immediately following the First Renewal Term Expiration Date (the "Second
Renewal Term Commencement Date") and shall terminate on the fifth (5th)
anniversary of the First Renewal Term Expiration Date (the "Second Renewal Term
Expiration Date").
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Section 41.03.
(a) Provided Tenant shall have exercised its option to renew this
Lease for the Second Renewal Term, and provided further that this Lease shall
then be in full force and effect and Tenant shall not then be in default in the
observance or performance of any of the terms of this Lease which are of a
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_________ nature and in connection with which default Landlord ______ have
commenced a legal action against Tenant, Tenant, at ______ option, shall have
the right to extend the Term of _____ Lease for a third five (5) year period
(the "Third ____________ Term"). The Third Renewal Term shall commence on the
_______ immediately following the Second Renewal Term Expiration __________ the
"Third Renewal Term Commencement Date") and shall _________ on the fifth (5th)
anniversary of the Second Renewal Expiration Date (the "Third Renewal Term
Expiration
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Section 41.04.
(a) Provided Tenant shall have exercised its option to renew this
Lease for the Third Renewal Term, and provided further that this Lease shall
then be in full force and effect and Tenant shall not then be in default in the
observance or performance of any of the terms of this Lease which are of a
monetary nature and in connection with which default Landlord shall have
commenced a legal action against Tenant, Tenant, at Tenant's option, shall have
the right to extend the Term of this Lease for a fourth five (5) year period
(the "Fourth Renewal Term"). The Fourth Renewal Term shall commence on the date
immediately following the Third Renewal Term Expiration Date (the "Fourth
Renewal Term Commencement Date") and shall terminate on the fifth (5th)
anniversary of the Third Renewal Term Expiration Date (the "Fourth Renewal Term
Expiration Date").
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Commencement Date" and "the First Renewal Term" shall mean the Fourth Renewal
Commencement Date" and "the Fourth Renewal Term", respectively, as the case may
be.
(d) Notwithstanding the foregoing provisions of Section 41.04, Tenant
may elect to renew the Term of this Lease for the Fourth Renewal Term
simultaneously with its election to renew the Term of this Lease for the Third
Renewal Term pursuant to provisions of Section 41.03. If Tenant so elects to
renew the Third Renewal Term and the Fourth Renewal Term concurrently, the
annual Fixed Rent during the Fourth Renewal Term shall be as set forth in
subsection 41.04(c) above, utilizing, however, in such calculation the
??? in connection with the determination of the annual Fixed Rent for the Third
Renewal Term pursuant to the provisions of Section 41.03.
Section 41.05.
(a) Provided Tenant shall have exercised its option to renew this
Lease for the Fourth Renewal Term, and provided further that this Lease shall
then be in full force and effect and Tenant shall not then be in default in the
observance or performance of any of the terms of this Lease which are of a
monetary nature and in connection with which default Landlord shall have
commenced a legal action against Tenant, Tenant, at Tenant's option, shall have
the right to extend the Term of this Lease for a fifth five (5) year period (the
"Fifth Renewal Term"). The Fifth Renewal shall commence on the date immediately
following the Fourth Renewal Term Expiration Date (the "Fifth Renewal Term
Commencement Date") and shall terminate on the fifth (5th) anniversary of the
Fourth Renewal Term Expiration Date (the "Fifth Renewal Term Expiration Date").
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TENANT'S PURCHASE OPTION
------------------------
Section 42.01. Provided that (i) Tenant is not then in default in the
observance or performance of any of the terms of this Lease which are of a
monetary nature and in connection with which default Landlord has commenced a
legal action and this Lease shall then be in full force and effect, and (ii)
Tenant shall have exercised its option to renew this Lease for all of the
Premises for the First Renewal Term, as provided in this
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Section 42.12. Tenant shall not be permitted to assign its rights
under this Article 42 with respect to the Purchase Option independently of its
rights to assign this Lease as set forth in Article 15 of this Lease.
ARTICLE 43
TENANT'S ROOF AND UNDERGROUND INSTALLATIONS
-------------------------------------------
Section 43.01.
Tenant shall have the right, with no increase in Tenant's payment of
Fixed Rent or Additional Rent hereunder, to install and maintain on the roof of
the Building, at Tenant's sole cost and expense, (i) any and all data processing
or communications equipment, dishes or antennae and connecting cables and
associated equipment, (ii) emergency generators with suitable enclosures and
(iii) air conditioning cooling towers (collectively, the "Tenant's Roof
Installations") necessary or desirable for the conduct of Tenant's business in
the Premises. Tenant shall further have the right, with no increase in Tenant's
payment of Fixed Rent or Additional Rent hereunder, to install and maintain, in
an underground location at the Real Property selected by Landlord and Tenant, at
Tenant's sole cost and expense, up to a 15,000 gallon fuel tank to service the
emergency generators (the "Tank"). Notwithstanding the foregoing provisions of
this subsection 43.01(a), if the installation, operation or maintenance of such
Tenant's Roof Installations or the Tank shall result in an increase in the
assessment of the Building or the Real Property for tax purposes or if any
similar or additional tax or other charge shall be imposed upon Landlord or the
Building or the Real Property as a result thereof, then Tenant shall reimburse
Landlord for such increase within thirty (30) days after written demand
therefor, provided such date is not earlier than fifteen (15) days prior to the
due date of such taxes.
Section 43.02.
(a) Tenant shall install the Tenant's Roof Installations and the Tank
in a good and workmanlike manner and, in installing Tenant's Roof Installations
shall adhere to the procedures reasonably prescribed by Landlord so as not to
invalidate any warranties running to Landlord with respect to the work
previously performed or materials utilized to install the roof. Tenant's
insurance coverage for Tenant's Work obtained pursuant to the provisions of
Article 12 shall include coverage of Tenant's Roof Installations and the Tank.
(b) Tenant's Roof Installations and the Tank shall (i) be in a
location reasonably satisfactory to Landlord, (ii) be installed, repaired and
maintained in accordance with all of the terms, covenants and conditions of this
Lease (including, without limitation, those contained in Articles 3, 5, 7, 9 and
29 hereof) and upon such other reasonable terms, covenants and conditions as
Landlord may impose in connection therewith, and (iii) in Landlord's reasonable
judgment, meet Landlord's reasonable aesthetic guidelines (in terms of their
appearance from street level) so as to not materially adversely affect the
appearance of the Building as a first class office building with ground floor
retail tenants.
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(c) Landlord shall provide Tenant with access to that portion of the
Real Property where the Tank shall be located in order to permit Tenant to
install, maintain, repair and, if necessary, replace the Tank; provided,
--------
however, that Tenant shall be obligated, at Tenant's sole cost and expense, to
- -------
repair any and all damage to the Real Property, including the plantings,
shrubbery, lawn, sidewalks and curbs, occasioned by Tenant's installation,
repair, maintenance and replacement, if necessary, of the Tank and to minimize
interference with the tenants of the Retail Premises.
(d) Tenant's Roof Installations and the Tank shall at all times be the
property of Tenant, provided that, at the expiration or sooner termination of
the Term, Tenant restores and repairs the Building to its condition prior to the
installation of the Tenant's Roof Installations and restores the Real Property
to its condition prior to the installation of the Tank.
Section 43.03.
Tenant shall maintain the Tenant's Roof Installations and the Tank, at
Tenant's sole cost and expense, and shall indemnify and hold the Landlord
harmless from and against any violation of any Environmental Law or requirement
of any Legal Authority, or any claim or action for any damage or injury to
person or property caused by the installation, maintenance or use of the
Tenant's Roof Installations and the Tank, unless such damage or injury is caused
solely by an act or omission of Landlord, its agents, contractors, employees,
servants, or any other person for whom it is legally responsible. Landlord
shall assist Tenant in obtaining any and all required permits in connection with
such Tenant's Roof Installations provided, however, that Landlord shall incur no
liability, fee, cost or expense in connection with rendering such assistance.
Landlord and Tenant acknowledge that Landlord shall be required to obtain site
plan modification and a waterfront development permit to the extent legally
required in connection with the installation of the Tank at no cost to Tenant.
Landlord further agrees to excavate for purposes of installing the Tank and
complete any remedial compliance, if any, required for such excavation, also at
no cost to Tenant. Tenant shall bear the cost of obtaining and maintaining all
other permits required for the Tank and the cost of a concrete pad for the Tank,
which pad shall be installed by Landlord as directed by Tenant. Landlord and
Tenant each agree to cooperate with the other in connection with the foregoing,
provided, however, that Landlord shall incur no liability, fee, cost or expense
other than as set forth herein.
Section 43.04.
Tenant acknowledges that the rights given to Tenant pursuant to this
Article 43 are non-exclusive, and that Landlord may, for itself and third
parties, install and maintain on the roof of the Building data processing or
communications equipment, dishes or antennae and connecting cables and
associated equipment (collectively, "Landlord's Roof Installations") to the
extent the same are reasonably available and not inconsistent with or materially
adverse to Tenant's use of Tenant's Roof Installations. Tenant shall
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provide Landlord with access to the Building roof to allow Landlord to install,
maintain, repair and replace Landlord's Roof Installations and the electrical
risers and cables therefor. Tenant shall not be responsible for any additional
taxes or charges imposed upon Landlord or the Building as a result of the
installation, operation or maintenance of Landlord's Roof Installations.
Section 43.05.
Landlord and Tenant each agree that its respective Roof Installations
shall not interfere with the installation, use and maintenance of the other's
Roof Installations and Landlord and Tenant shall each cooperate with the other
with respect to insuring that interference from each other's Roof Installations
is kept to a minimum, it being understood and agreed, that in the event of any
such interference, Tenants' rights to such Roof Installations shall be
paramount.
ARTICLE 44
SECURITY DEPOSIT (LETTER OF CREDIT)
-----------------------------------
Section 44.01.
Tenant shall deposit with Landlord on the signing of this Lease the
amount of Nineteen Million One Hundred Ten Thousand and No/100 ($19,110,000.00)
Dollars in cash (the "Security Deposit"), as security for the faithful
performance and observance by Tenant of the terms, conditions and provisions of
this Lease, including without limitation, the surrender of possession of the
Premises to Landlord as herein provided.
Section 44.02.
(a) In lieu of a cash deposit, Tenant may deliver to Landlord a clean,
irrevocable, non-documentary and unconditional letter of credit issued by and
drawn upon any commercial bank (the "Issuing Bank") with offices for banking
purposes in The City of New York and having a net worth of not less than One
Hundred Million and 00/100 ($100,000,000.00) Dollars (the "Letter of Credit"),
which Letter of Credit shall have a term of not less than one (1) year, be in
form and content satisfactory to Landlord, be for the account of Landlord, be in
the amount of the Security Deposit and be fully transferable by Landlord without
any fees or charges therefore. Landlord and Tenant shall equally share the fees
charged by the Issuing Bank to obtain and maintain the Letter of Credit;
provided, however, in no event shall Landlord's annual share of such fees exceed
- -------- -------
the lesser of (i) 15/100 of one percent (.15%), or (ii) one-half (1/2) of the
annual fee actually charged to Tenant by the Issuing Bank.
(b) The Letter of Credit shall provide that it shall be deemed
automatically renewed, without amendment, for consecutive periods of one (1)
year each thereafter during the Term of this Lease, unless the Issuing Bank
sends notice (the "Non-Renewal Notice") to Landlord by certified mail, return
receipt requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of Credit that it elects not
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to have such Letter of Credit renewed. Additionally, the parties hereto agree
that under this Lease Landlord shall have the right at any time after receipt of
the Non-Renewal Notice, by sight draft on the Issuing Bank, to receive the
monies represented-by the existing Letter of Credit and to hold such proceeds
pursuant to the terms of this Article 44 as a cash security pending the
replacement of such Letter of Credit and the Letter of Credit shall confirm the
foregoing rights. It is agreed that in the event Tenant defaults in respect of
any of the terms, provisions and conditions of this Lease, including, but not
limited to, the payment of Fixed Rent and Additional Rent, Landlord may apply or
retain the whole or any part of the cash security so deposited or may notify the
Issuing Bank and thereupon receive all the monies represented by the Letter of
Credit and use, apply, or retain the whole or any part of such proceeds, as the
case may be to the extent required for the payment of any Fixed Rent and
Additional Rent or any other sum as to which Tenant is in default or for any sum
which Landlord may expend, or may be required to expend, by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this Lease,
including but not limited to, any damages or deficiency in the reletting of the
Premises, whether such damages or deficiency accrue or accrues before or after
summary proceedings or other reentry by Landlord.
(c) If Landlord applies or retains any part of the cash security or
proceeds of the Letter of Credit, as the case may be, Tenant, upon demand, shall
deposit with Landlord the amount so applied or retained so that Landlord shall
have the full amount of the Security Deposit on hand and available for its
utilization, as provided herein, at all times during the Term of this Lease.
(d) If Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Lease, the cash security or Letter
of Credit, as the case may be, shall be returned to Tenant after the Expiration
Date and after delivery of the entire possession of the Premises to Landlord.
In the event of a sale of the Real Property or the Building or leasing of the
Building, Landlord shall transfer the cash security to the vendee or lessee and
with respect to the Letter of Credit, within thirty (30) days of notice of such
sale or leasing, Tenant, at Landlord's sole cost and expense, shall arrange for
the transfer of the Letter of Credit to the new landlord who shall acknowledge
receipt therefor, as designated by Landlord in the foregoing notice, or have the
Letter of Credit reissued in the name of the new landlord, as the case may be,
and Landlord shall obtain a written assumption of this Lease from the new
landlord and shall thereupon be released by Tenant from all liability for the
return of the Security Deposit.
(e) Landlord shall also have the right to transfer the cash security
or Letter of Credit to a successor landlord who has succeeded to the rights of
Landlord under this Lease, at Landlord's sole cost and expense.
(f) Provided Landlord has complied with the provisions of Section
44.02(d) or Section 44.02(e) above, as the case may be, Tenant agrees to look
solely to the new landlord or successor landlord, as the case may be, for the
return of such cash security or Letter of Credit and it is agreed that the
provisions hereof shall apply to every transfer or assignment
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made of the security to a new landlord. Tenant further covenants that it will
not assign or encumber or attempt to assign or encumber the monies or Letter of
Credit deposited herein as security and that neither Landlord nor its successors
or assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
ARTICLE 45
LANDLORD'S REPRESENTATIONS AND
WARRANTIES
------------------------------
Section 45.01. Landlord hereby represents and warrants as follows:
(a) there are, as of the date hereof, no actions, suits or proceedings
pending, or, to the best knowledge of Landlord, threatened against or affecting
Landlord at law or in equity or before any Legal Authorities which would impair
Landlord's ability to perform its obligations under this Lease;
(b) this Lease has been duly authorized and executed by Landlord and
constitutes the legal, valid and binding obligation of Landlord;
(c) the consummation of the transactions hereby contemplated and the
performance of this Lease will not result in any breach or violation of, or
constitute a default under, any lease, bank loan or credit agreement to which
Landlord is a party;
(d) as of the date hereof, Landlord has not received any written
notice of and, to the best knowledge of Landlord, Landlord is not in default
under any Superior Lease, Mortgage and/or any other instrument of record beyond
the expiration of any applicable notice and grace periods provided for the same
in such documents affecting the Premises as of the date hereof;
(e) as of the date hereof, Landlord has not received any written
notice from any Legal Authority regarding violations of law or municipal or
zoning ordinances or requirements affecting the Premises as of the date hereof;
(f) for so long as all highways, streets and roads at the Project have
not been dedicated to the public, Landlord shall enforce all of its access
rights thereto so that such access rights shall be made available to Tenant and
cause all highways, streets and roads located within the Project to be
maintained in a manner comparable to that of other first class office
developments located in Hudson County, New Jersey;
(g) Landlord is the beneficiary of easements and other agreements of
record which provide for unrestricted, non-exclusive access to and from any
present and future location of the parking facility or facilities serving the
Premises;
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(h) as of the date hereof, Landlord has received no written notice of
any pending or contemplated condemnation proceedings affecting the Premises or
any part thereof;
(i) During the term of the Financial Agreement, Landlord will not
through any action breach the Financial Agreement so as to cause Mid Hudson to
lose its status as an "urban renewal association" as such term is used in the
statutory act pursuant to which a Foxx Lance tax abatement has been granted with
respect to the Real Property and will not relinquish any rights to the tax
exemption provided in the Financial Agreement;
(j) Landlord has received no written notice of the termination of the
Financial Agreement; and
(k) Landlord represents and warrants that, prior to the time Tenant is
ready to use and occupy the Premises, Landlord will secure, to the extent then
required for such occupancy of Tenant, all permits which are prerequisites to
obtaining a Certificate of Occupancy, including the so-called " wet sewer
permit", subject, however, to completion of all Tenant's Work as may also be
required in order to obtain such Certificate of Occupancy.
LANDLORD:
NEWPORT OFFICE CENTER I CO., a
New Jersey general partnership
By: LEFRAK NEWPORT REALTY CORP.,
a general partner
By: [SIGNATURE ILLEGIBLE]
---------------------------
President
TENANT:
RECRUIT U.S.A., INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------
President
Tenant's Federal Tax Identification
Number Applied For
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<PAGE>
EXHIBIT 10.12
SUBLEASE
--------
THIS SUBLEASE, dated as of the 30 day of April, 1997, between NIPPON
TRAVEL AGENCY PACIFIC INC., a Hawaii corporation having an office at lll
Pavonia Avenue Suite 317, Jersey City, New Jersey (herein called "Sublessor")
and PILOT NET WORK SERVICES, INC., a California corporation having an office
at l080 Marina Village Parkway, Alameda California 94501 (herein called
"Subtenant").
W I T N E S S E T H:
- - - - - - - - - -
1. DEMISE AND TERM. Sublessor hereby leases to Subtenant, and
---------------
Subtenant hereby hires from Sublessor, those certain premises (herein called the
"Subleased Premises" constituting a portion of Suite 317 (+ 2,582 square feet)
as shown on Exhibit A attached hereto and made a part hereof, in the building
(herein called the "Building") located at lll Pavonia Avenue, Suite 317 Jersey
City, New Jersey, being a part of the premises which were leased to Sublessor
under the Main Lease (as hereinafter defined) together with the appurtenances to
the Subleased Premises which are demised to Sublessor under the Main Lease. The
term of this Sublease shall been the period commencing on the date (herein
called ("the Commencement Date"), which is the date on which for the first time
the Subtenant's Work (as hereinafter defined) under the Subtenant Work Letter
(as hereinafter defined) shall have been substantially completed and a temporary
or permanent certificate of occupancy shall have been issued permitting the use
of the Subleased Premises for the use permitted in Paragraph 12 below, and
ending at 11:59 p.m. of January 21, 2002 (the "Expiration Date"), or as sooner
terminated as herein provided. The work under the Subtenant Work Letter shall
have deemed substantially completed notwithstanding the fact that minor or
insubstantial details of construction, mechanical adjustment or decoration
remain to be performed, the non-completion of which does not materially
interfere with Subtenant's use of the Subleased Premises.
2. RENT. Subtenant shall pay to Sublessor rent (herein called the
----
"Fixed Rent") the annual rate of $66,486.50 in equal monthly installments
$5,540.54 in advance on the first day of each month during the term of this
Sublease, commencing on the Commencement Date, except that the first full
monthly installment due under this Sublease is being paid
<PAGE>
on the signing of this Sublease. If the Commencement Date is not the first day
of a month, Fixed Rent for the second month shall be apportioned on the basis of
the number of days in the first incomplete month. Fixed Rent and all other
amounts payable by Subtenant to Sublessor under the provisions of this Sublease
(herein called the "Additional Charges") shall be paid promptly when due,
without notice or demand therefor, and without deduction, abatement counterclaim
or setoff of any amount or for any reason whatsoever. Fixed Rent and additional
Charges shall be paid to Sublessor in lawful money of the United States at the
address of Sublessor set forth at the head of this Sublease or to such other
person and/or at such same address as Sublessor may from time to time designate
by written notice to Subtenant. No payment by Subtenant or receipt by Sublessor
of any lesser amount than the amount stipulated to be paid hereunder shall be
deemed other than on account of the earliest stipulated Fixed Rent or Additional
Charges; nor shall any endorsement or statement on any check or letter be deemed
an accord and satisfaction, and Sublessor may accept any check or payment
without prejudice to Sublessor's right to recover the balance due or to pursue
any other remedy available to Sublessor. Any provision in the Main Lease
referring to "Fixed Rent" incorporated herein by reference shall be deemed to
refer to the Fixed Rent due under the Sublease. Any provision in the Main Lease
referring to "Additional Rent" or "Additional Charges" incorporated herein by
reference shall be deemed to refer to the Additional Charges due under this
Sublease.
3. ADDITIONAL RENT. Subtenant shall pay to Sublessor on demand...
---------------
any and all amounts payable by Sublessor to the Main Landlord pursuant to the
provisions of Sections 6.01 and 6.02 of the Main Lease in respect of the
Subleased Premises only, for all periods occurring within the term of this
Sublease, excluding the portion of the term which precedes the Commencement
Date. For purposes of determining the amounts payable by Subtenant pursuant to
this Paragraph 3, any of the aforesaid amounts payable by Sublessor under the
Main Lease which cover a fiscal or other period any part of which occurs before
the Commencement Date or after the expiration of the term of this Sublease,
shall be apportioned according to the number of days in such period which occur
within the portion of the term of the Sublease which starts on the Commencement
Date. For purposes of determining the payments due from Sublessor with respect
to the Subleased Premises to the Main Landlord
-2-
<PAGE>
pursuant to Sections 6.01 and 6.02 of the Main Lease Subtenant's "Real Estate
Fraction" (as defined in Section 1.01(JJ)(ii) of the Main Lease) shall be
.635% and Subtenant's "Operating Fraction" (as defined in Section 1.0l(JJ)(i)
of the Main Lease) shall be .841% (calculated as 52% of Sublessor's fraction,
subject to adjustment hereunder if Sublessor's fraction changes).
4. SUBORDINATE TO MAIN LEASE. This Sublease is and shall be subject
-------------------------
and subordinate to the lease (the "Main Lease") dated January 23, 1992 between
Newport Office Properties Corp. (the "Main Landlord"), as lessor and Sublessor,
as 1essee, and to the matters to which the Main Lease is or shall be subject and
subordinate including, but not limited to, the Prime Lease between the Main
Landlord and Newport Office Center 1 Company (the "Prime Landlord"). A copy of
the Main Lease has been delivered to and examined by Subtenant and is attached
hereto as Exhibit C. A copy of the Prime Lease has been delivered to and
examined by Subtenant. If for any reason the term of the Main Lease shall
terminate prior to the expiration date of this Sublease, including, without
limitation, a termination caused by Sublessor's exercise of any right of
Sublessor under the Main Lease to terminate the Main Lease by reason of fire,
casualty or condemnation, this Sublease shall thereupon be terminated; provided,
however, that Sublessor shall not exercise any of its rights to amend or
terminate the Main Lease or take any action (or fail to take any action) which
would amend or cause the termination of the Main Lease in a manner which
adversely affects Subtenant or the Subleased Premises without Subtenant's prior
written consent, which consent shall not be unreasonably withheld. Sublessor
shall not be liable to Subtenant as a result of such termination if either (a)
Subtenant shall be in material default under this Sublease and has failed to
cure such default within the specified cure period, (b) Subtenant consents to
such termination, or (c) such termination shall have been effected without
Sublessor's consent, action or fault. Sublessor represents and warrants that to
its knowledge (i) the document attached as Exhibit C is a true, correct and
complete copy of the Main Lease, and that the Main Lease represents the entire
agreement between Sublessor and Main Landlord with respect to the lease of the
Demised Premises (as defined in the Main Lease) or the Subleased Premises, and
there are no other leases (other than the Prime Lease) currently in effect which
relate to the Subleased Premises, (ii) there is no default on the part of
Sublessor under the Main Lease and Sublessor is not aware of any default on the
part of the Main Landlord under
-3-
<PAGE>
the Main Lease or the Prime Lease, (iii) Sublessor has not, prior to the date
hereof, assigned, encumbered or otherwise transferred any interest of
Sublessor as tenant under the Main Lease with respect to the Demised Premises or
the Subleased Premises and (iv) Sublessor will not amend the Main Lease in a
manner which adversely affects Subtenant or the Subleased Premises without the
prior written consent of Sublessee, which shall not be unreasonably withheld.
5. INCORPORATION BY REFERENCE. The terms, covenants and conditions
--------------------------
of the Main Lease are incorporated herein by reference so that, except to the
extent that they are inapplicable or modified by the provisions of this Sublease
for the purpose of incorporation by reference, each and every term, covenant and
condition of the Main Lease binding or inuring to the benefit of the Main
Landlord shall, in respect of this Sublease, bind or inure to the benefit of
Sublessor, and each and every term, covenant and condition of the Main Lease
binding upon or inuring to the benefit of the lessee thereunder shall, in
respect of this Sublease, bind or inure to the benefit of Subtenant, with the
same force and effect as if such terms, covenants and conditions were completely
set forth in this Sublease, and as if the words "Landlord" and "Tenant", or
words of similar import, wherever the same appear in the Main Lease, were
construed to mean, respectively, "Sublessor" and "Subtenant" in this Sublease,
and as if the words "Demised Premises," or words of similar import, wherever the
same appear in the Main Lease, were construed to mean "Subleased Premises" in
this Sublease, and as if the word "Lease," or words of similar import, wherever
the same appear in the Main Lease, were construed to mean this "Sublease", and
as if the word "Master Lease" or words of similar import, wherever the same
appear in the Main Lease, were construed to mean "Prime Lease" in this Sublease;
provided, however, that with respect to (i) Sections 1.01(K), 1.01(V), l.0l(CC),
21.01, 21.04, 40.10 and 40.01 and Articles 14 and 38, the term "Landlord" shall
continue to refer to the Main Landlord, (ii) the parentheticals under Sections
13.04(a), 13.04(c), 23.02(a) and 23.02(c) shall also include the Main Landlord,
and (iii) the reference to "Landlord" on the eighth line of Section 23.01 shall
also refer to the Main Landlord. The time limits contained in the Main Lease for
the giving of notices, making of demands or performing of any act, condition or
covenant on the part of the lessee thereunder, or for the exercise by the lessee
thereunder of any right, remedy or option, are changed for
-4-
<PAGE>
the purposes of incorporation herein by reference by shortening the same in each
instance by five day, so that in each instance Subtenant shall have five days
less time to observe or perform hereunder than Sublessor has as the lessee
under the Main Lease; provided, however that where Sublessor has five or fewer
days to observe or preform under the Main Lease, Subtenant shall have half of
such time to observe or perform hereunder (in the event of an uneven number of
days, Subtenant shall have until noon of the odd day). Articles 5; 7; 8; 18; 19;
20; 33; 34; and 41, Sections 1.01(A), (E), (J), (L), (M), (N), (DD), (LL); 3.01;
3.05; 12.03; 12.04; 13.01; 17.02; 23.03; 26.02; 29.05; and 40.15 and Exhibits B
and E shall be deemed deleted for the purposes of incorporation by reference in
this Sublease. For purposes of incorporating herein by reference the provisions
of Article 1 of the Main Lease, Section 1.0l(JJ) is modified as set forth in
Paragraph 3 of this Sublease. If any of the express provisions of this Sublease
shall conflict with any of the provisions incorporated by reference, such
conflict shall be resolved in every instance in favor of the express provisions
of this Sublease.
6. PERFORMANCE BY MAIN LANDLORD. Upon the request of Subtenant,
----------------------------
Sublessor, at Subtenant's sole cost and expense, shall use reasonable efforts to
cause the Main Landlord to observe and/or perform the obligations of the Main
Landlord under the Main Lease which relate to the Subleased Premises, and
Sublessor shall have a reasonable time to enforce its rights to cause such
observance or performance after request for such enforcement has been made by
Subtenant; provided, however that Sublessor shall not be required to incur any
expense or expend any sums to obtain such enforcement, except to the extent of
funds advanced by Subtenant to Sublessor for such purpose. Subtenant shall not
in any event have any rights in respect of the Subleased Premises greater than
Sublessor's rights under the Main Lease, and, notwithstanding any provision to
the contrary, as to obligations contained in this Sublease by the incorporation
by reference of the provisions of the Main Lease or as to any obligation of the
Main Landlord, Sublessor shall not be required to take any payment, provide any
services or perform any obligation, and Sublessor shall have no liability to
Subtenant for any matter whatsoever, except for Sublessor's obligation to pay
the rent and additional rent due under the Main Lease and, for Sublessor's
obligations set forth hereunder. Sublessor shall not be responsible for any
failure or interruption, for any reason
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<PAGE>
whatsoever, of the services or facilities that may be appurtenant to or
supplied at the Building by the Main Landlord or otherwise, inc1uding, without
limitation, heat, air conditioning, water, elevator service and cleaning
service, if any; and no failure to furnish, or interruption of, any such
services or facilities shall give rise to any (a) abatement, diminution or
reduction of Subtenant's obligations under this Sublease, unless Sublessor's
obligations under the Main Lease have been abated or reduced, (b) constructive
eviction, whether in whole or in part, or (c) liability on the part of the
Sublessor. Nothing contained in this Sublease shall be construed to create
privity of estate or of contract between Subtenant and the Main Landlord.
7. NO BREACH OF MAIN LEASE. Neither Sublessor nor Subtenant shall
-----------------------
do, omit to do, or permit to be done any act or thing which may constitute a
breach or violation of any term, covenant or condition of the Main Lease by the
lessee thereunder, whether or not such act or thing is permitted under the
provisions of this Sublease.
8. INDEMNITY. Except to the extent caused by the negligence or
---------
willful misconduct of Sublessor, Subtenant shall indemnify, defend and hold
harmless Sublessor from and against all losses, costs, damages, expenses and
liabilities, including, without limitation, reasonable attorneys' fees, which
Sublessor may incur or pay out by reason of (a) any accidents, damages or
injuries to persons or property occurring in, on or about the Subleased Premises
(unless the same shall have been caused by Sublessor's negligence or
willful misconduct), (b) any breach or default hereunder on Subtenant's part,
(c) any work done in or to the Subleased Premises, or (d) any act, omission or
negligence on the part of Subtenant and/or its officers, employees, agents,
customers and/or invitees, or any person claiming through or under Subtenant.
Except to the extent caused by the negligence or willful misconduct of
Subtenant, Sublessor shall indemnify, defend and hold harmless Subtenant from
and against all losses, costs, damages, expenses and liabilities, including
without limitation, reasonable attorneys' fees, which Subtenant may incur or pay
out by reason of (a) any accidents, damages or injuries to persons or property
occurring in, on or about the Subleased Premises caused by Sublessor's
negligence or willful misconduct or (b) any breach on Sublessor's part or (c)
any act, omission or negligence on the part of Sublessor and/or its officers,
employees or agents.
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<PAGE>
9. RELEASES. Subtenant hereby releases the Main Landlord to the
--------
extent that Sublessor released the Main Landlord from liability by way of
subrogation and/or the Main Landlord was relieved of liability or responsibility
pursuant to the provisions of Article 13 of the Main Lease, and Subtenant will
cause its insurance carriers to include any clauses or endorsements in favor
of the Main Landlord which Sublessor is required to provide pursuant to the
provisions of the Main Lease.
10. LATE CHARGES. If payment of any Fixed Rent or Additional Charges
------------
shall not have been paid by the 10th day after receiving notice of such
nonpayment from Sublessor, a late charge of the maximum lawful interest rate
shall be calculated from the date on which such amount was due, on the amount
overdue and shall be payable as damages for Subtenant's failure to make prompt
payment. The late charges for any month shall be payable on the first day of the
following month, and in default of any payment of late charges, if payment of
any late charge shall not have been paid by the 10th day after receiving notice
of such nonpayment from Sublessor, Sublessor shall have (in addition to all
other remedies) the same rights as provided in this Sublease (including the
provisions incorporated by reference) for non-payment of Fixed Rent). For the
purposes of this Paragraph 10, a court of appropriate jurisdiction shall decide
any good faith dispute between Sublessor and Subtenant with respect to whether
Subtenant failed to timely make payment of Fixed Rent or Additional Rent under
this Sublease, and such final determination shall govern whether Sublessor is
entitled to any late charges pursuant to this Paragraph 10. In no event shall
this Paragraph 10 limit any of Sublessor's other rights or remedies under this
Sublease. Nothing in this Section contained and no acceptance of late charges by
Sublessor shall be deemed to extend or change the time for payment of Fixed Rent
or Additional Charges.
11. ELECTRICITY. (a) Subtenant shall pay to Sublessor from time to
-----------
time on Sublessor's demand (which demands shall be made not more frequently
than Sublessor is required to pay electric charges to the Main Landlord) a
charge for Subtenant's proportionate share of electric energy consumption, at
the rate which the Main Landlord shall then be using to determine Sublessor's
electric charges under the Main Lease, pursuant to Article 18 of the Main Lease.
(b) In the absence of a direct meter, Subtenant shall pay to Sublessor 52% of
Sublessor's electric charges under the Main Lease. If Subtenant desires to
install equipment
-7-
<PAGE>
other than administrative office equipment within the Subleased Premises (and
the required consents, if any, have been received), then Subtenant shall first
install and pay for a direct meter to measure the consumption of electric
energy within the Subleased Premises.
12. USE. Subtenant shall use and occupy the Subleased Premises for
---
general and executive offices for Subtenant's business and for no other purpose,
except that Subtenant shall have the right to install its computer equipment in
the Subleased Premises; provided however, that the Main Landlord's consent
-------- -------
and the Prime Landlord's consent are obtained. Subtenant's use shall be subject
to all applicable laws, ordinances, rules and regulations of any governmental
boards or bodies having jurisdiction thereof. Subtenant shall comply with the
certificate of occupancy relating to the Subleased Premises.
13. CONDITION OF SUBLEASED PREMISES. Subtenant is leasing the
-------------------------------
Subleased Premises "as is" and Sublessor shall have no obligation to
furnish, render or supply any work, labor, services, material, fixtures,
equipment or decorations to make the Subleased Premises ready for Subtenant's
occupancy, except as provided in Paragraph 31 of this Sublease, and except that
on the Commencement Date the Subleased Premises shall be vacant and Sublessor
shall have removed all of its personal property therefrom. In making and
executing this Sublease, Subtenant has relied solely on such investigations,
examinations and inspections as Subtenant has chosen to make or has made
Subtenant acknowledges that Sublessor has afforded Subtenant the opportunity for
full and complete investigations, examinations, and inspections.
14. CONSENTS AND APPROVALS. In any instance when Sublessor's
----------------------
consent or approval is required under this Sublease and Sublessor has agreed not
to unreasonably withhold or delay such consent or approval, Sublessor's refusal
to consent to or approve any matter or thing shall be deemed reasonable if,
inter alia, such consent or approval has not been obtained from the Main
- ----- ----
Landlord or the Prime Landlord and such consent or approval is required under
the terms of the Main Lease or the Prime Lease.
15. NOTICES. All notices, consents, approvals, demands and requests
-------
(collectively "Notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be hand-delivered or
delivered by any nationally recognized over-night delivery service, or sent by
United States registered or certified mail
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<PAGE>
and deposited in a United States post office, return receipt requested and
postage prepaid. Notices which are served upon Sublessor or Subtenant in the
manner provided herein shall be deemed to have been given or served for all
purposes hereunder on the date received if delivered by hand or on the business
day next following the date on which such Notice shall have been mailed as
aforesaid. All Notices given to Subtenant shall be addressed to Subtenant at its
address set forth at the head of this Sublease, if given prior to the
Commencement Date or after termination of this Sublease, or at the Subleased
Premises, if given during the term of this Sublease or at such other place as
Subtenant may from time to time designate in a notice given in accordance with
the provisions of this Paragraph. All Notices given to Sublessor shall be
addressed to Sublessor at its address set forth at the head of this Sublease,
with a copy to Mitchell J. Nelson, Esq., Christy & Viener, 620 Fiffh Avenue, New
York, New York 10020. Sublessor may from time to time change the names and/or
addresses to which Notices given to Sublessor shall be addressed and sent as
aforesaid, by designating such other names and/or addresses in a Notice given in
accordance with the provisions of this Paragraph.
16. ASSIGNMENT AND SUBLETTING.
--------------------------
A. The provisions of Article 11 of the Main Lease are incorporated
herein by reference. For the purposes of incorporation by reference, the words
"Landlord" and "Tenant", or words of similar import, wherever the same appear
in the Main Lease, were construed to mean, respectively, "Sublessor" and
"Subtenant" in this Sublease, and as if the words "Demised Premises," or words
of similar import, wherever the same appear in the Main Lease, were construed to
mean "Subleased Premises" in this Sublease, and as if the word "Lease," or words
of similar import, wherever the same appear in the Main Lease, were construed to
mean this "Sublease", and as if the word "Master Lease" or words of similar
import, wherever the same appear in the Main Lease were construed to mean "Prime
Lease" in this Sublease.
B. Neither the consent of Sublessor to an assignment, subletting,
concession, or license, nor the references in this Sublease to assignees,
subtenants, concessionaires or licensees, shall in any way be construed to
relieve Subtenant of the requirement of obtaining the consent of Sublessor to
any further assignment or subletting or to the making
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<PAGE>
of any assignment, subletting, concession or license for all or any part of
the Subleased Premises. In the event Sublessor consents to any assignment of
this Sublease, the assignee shall execute and deliver to Sublessor an agreement
in form and substance reasonably satisfactory to Sublessor whereby the assignee
shall assume all of Subtenant's obligations under this Sublease accruing from
and after the effective date of the assignment. Notwithstanding any assignment
or subletting, including, without limitation, any assignment or subletting
permitted or consented to, the original Subtenant named herein and any other
person(s) who at any time was or were Subtenant shall remain fully liable on
this Sublease, and if this Sublease shall be amended, modified, extended or
renewed, the original Subtenant named herein and any other person(s) who at any
time was or were Subtenant shall remain fully liable on this Sublease as so
amended, modified, extended or renewed. Any violation of any provision of this
Sublease during the term hereof by any assignee, subtenant or other occupant
shall be deemed a violation by the original Subtenant named herein, the then
Subtenant and any person(s) who at any time was or were Subtenant, it being the
intention and meaning that the original Subtenant named herein, the then
Subtenant and any other person(s) who at any time was or were Subtenant shall
all be liable to Sublessor for any and all acts and omissions of any and all
assignees, subtenants and other occupants of the Subleased Premises. If this
Sublease shall be assigned or if the Subleased Premises or any part thereof
shall be sublet or occupied by any person or persons other than the original
Subtenant named herein, Sublessor may collect rent from any such assignee and/or
any subtenants or occupants, and apply the net amounts collected to the Fixed
Rent and Additional Charges, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of this Paragraph,
or the acceptance of the assignee, subtenant or occupant as Subtenant, or a
release of any person from the further performance by such person of the
obligations of Subtenant under this Sublease.
C. Subtenant may not assign or sublet this Sublease without first
obtaining any required consent of Sublessor or the Main Landlord or the Prime
Landlord. Provided Subtenant obtains any required consent of the Main Landlord
or the Prime Landlord, Subtenant may assign this Sublease to the acquiror of all
or substantially all of its business, stock or assets.
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<PAGE>
D. If Subtenant shall at any time or times during the term of this
Sublease desire to assign this Sublease or sublet all or part of the premises
(other than an assignment or subletting which is permitted to occur under this
Paragraph 16 without Sublessor's consent), Subtenant shall give notice thereof
to Sublessor, which notice shall be accompanied by a description of the proposed
transaction (i.e, whether the proposed transaction is an assignment or sublease)
---
and which in the case of a sub1ease shall identify the proposed space and term
(the "Deal Memo") Such notice shall be deemed an offer from Subtenant to
Sublessor whereby Sublessor (or Sublessor's designee) may, at its option, (i)
terminate this Sublease (if the proposed transaction is an assignment or a
sublease of all or substantially all of the premises with a term that extends
into the last year of the term of this Sublease, as the same may have then been
extended), or (ii) terminate this Sublease with respect to the space covered by
the proposed sublease for the proposed term of the sublease (but, if the
proposed transaction is a sublease of part of the premises which extends into
the last year of the term of this Sublease, as the same may have then been
extended, then Sublessor may terminate this Sublease with respect to such space
for the remainder of this Sublease). Said option may be exercised by Sublessor
by notice to Subtenant at any time within 15 business days after such notice has
been given by Subtenant to Sublessor; and during such 15 business day period
Subtenant shall not assign this Sublease or sublet such space to any person.
E. If Sublessor exercises its option to terminate this Sublease
pursuant to Subparagraph 16(D), then, this Sublease shall end and expire on the
date that such assignment or sublet was to be effective (in the case of an
assignment) or commence (in the case of a sublease), as the case may be, and the
Fixed Rent and Additional Charges shall be paid and apportioned to such date.
F. If Sublessor exercises its option to terminate this Sublease in
part, in any case where Subtenant desires to sublet part of the premises, then,
(a) this Sublease shall end and expire with respect to such part of the premises
on the date that the proposed sublease was to commence; and (b) from and after
such date the Fixed Rent and Additional Charges shall be adjusted, based upon
the proportion that the rentable area of the premises remaining bears to the
total rentable area of the premises and Subtenant will be relieved of any
liability with respect to such space which accrues during the term of the
recapture. Upon
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the end of the period of the termination (where the termination is effective for
less than all of the term), Sublessor shall deliver to Subtenant the space which
was the subject of the termination, free of all tenancies, occupancies and
personal property, in substantially the same condition (e.g., Sublessor may
----
perform minor alterations) as at the commencement of the termination period,
reasonable wear and tear excepted. The cost of separating the space which is the
subject of the termination from the balance of the premises (demising walls,
doors, etc.), and the cost of removing such items of separation, shall be borne
by Sublessor.
17. INSURANCE. Subtenant shall maintain throughout the term of this
---------
Sublease (i) comprehensive general public liability insurance in respect of the
Subleased Premises and the conduct and operation of business therein, with
Sublessor and the Main Landlord as additional insureds, with limits of not less
than $3,000,000 for bodily injury or death, and $1,000,000 for property
damage, including water damage and sprinkler leakage legal liability, (ii)
All-Risk insurance in respect to Subtenant's stock in trade fixtures, furniture,
furnishings, removable floor coverings, equipment, signs, and all other property
of Subtenant in the Subleased Premises, in any amounts required by the Main
Landlord but not less than 80% of the full insurable value of the property
covered and not less than the amount sufficient to avoid the effect of the
coinsurance provisions of the applicable policy or policies, (iii) workers'
compensation insurance; and (iv) any other insurance required under the Main
Lease even if such insurance is greater than that required by subclauses (i),
(ii) and (iii) of this Paragraph 17. Subtenant shall deliver to Sublessor a
fully paid-for policy or policies or certificates prior to the Commencement
Date. Subtenant shall procure and pay for renewals of such insurance from time
to time before the expiration thereof, and Subtenant shall deliver to Sublessor
such renewal policy or certificate at least 30 days before the expiration of any
existing policy. All such policies shall be issued by companies of recognized
responsibility licensed to do business in the State of New York, and all such
policies shall contain a provision whereby the same cannot be cancelled or
modified unless Sublessor is given at least 10 days' prior written notice of
such cancellation or modification.
18. INTENTIONALLY DELETED
---------------------
19. ALTERATIONS. The provisions of Article 15 of the Main Lease are
-----------
incorporated herein by reference. For the purposes of incorporation by
reference, the words
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"Landlord" and "Tenant", or words of similar import, wherever the same appear in
the Main Lease, were construed to mean, respectively, "Sublessor" and
"Subtenant" in this Sublease, and as if the words "Demised Premises," or words
of similar import, wherever the same appear in the Main Lease, were construed to
mean "Subleased Premises" in this Sublease, and as if the word "Lease," or words
of similar import, wherever the same appear in the Main Lease, were construed to
mean this "Sublease", and as if the word "Master Lease" or words of similar
import, wherever the same appear in the Main Lease, were construed to mean
"Prime Lease" in this Sublease. Subtenant shall not make or cause, suffer or
permit the making of any alteration, addition, change, replacement, installation
or addition (collectively "Alterations") in or to the Subleased Premises without
obtaining any required consent of Sublessor or the Main Landlord or the Prime
Landlord in each instance. In no event shall Subtenant be required to pay the
Additional Charge referred to under Section 15.01 of the Main Lease to both
Sublessor and the Main Landlord.
20. RIGHT TO CURE SUBTENANT'S DEFAULTS. If Subtenant shall at any
----------------------------------
time fail to make any payment or perform any other obligation of Subtenant
hereunder, then Sublessor shall have the right, but not the obligation, after 10
days' notice to Subtenant, or without notice to Subtenant in the case of any
emergency, and without waiving or releasing Subtenant from any obligations of
Subtenant hereunder, to make such payment or perform such other obligation of
Subtenant in such manner and to such extent as Sublessor shall deem necessary,
and in exercising any such right, to pay any incidental costs and expenses,
employ attorneys, and incur and pay reasonable attorneys' fees. Subtenant shall
pay to Sublessor upon demand all sums so paid by Sublessor and all incidental
costs and expenses of Sublessor in connection therewith, together with interest
thereon at the rate of one and one-half percent per calendar month or any part
thereof or the then maximum lawful interest rate, whichever shall be less, from
the date of the making of such expenditures. For the purposes of this Paragraph
20, a court of appropriate jurisdiction shall decide any good faith dispute
between Sublessor and Subtenant with respect to whether Subtenant failed to
timely make payment or perform any other obligation under this Sublease, and
such final determination shall govern whether Sublessor is entitled to any sums
expended by it (plus interest) pursuant to this
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<PAGE>
Paragraph 20. In no event shall this Paragraph 20 limit any of Sublessor's other
rights or remedies under this Sublease.
21. BROKERAGE. Each party represents to the other that no broker or
---------
other person had any part, or was instrumental in any way, in bringing about
this Sublease other than Cushman & Wakefield of New Jersey, Inc. (the "Broker"),
and each party shall pay, and shall indemnify, defend and hold harmless, the
other party from and against, any claims made by any broker or other person
(other than the Brokers) for a brokerage commission, finder's fee, or similar
compensation, by reason of or in connection with this Sublease, and any loss,
liability, damage, cost and expense (including, without limitation, reasonable
attorneys' fees) in connection with such claims if such other broker or other
person claims to have had dealings with the indemnifying party. Sublessor agrees
to pay a commission to the Broker in accordance with a separate agreement
between Sublessor and the Broker, but such agreement by Sublessor shall not be
deemed to be or construed as a covenant for the benefit of any third party.
22. WAIVER OF JURY TRIAL AND RIGHT TO COUNTERCLAIM.
----------------------------------------------
Subtenant and Sublessor hereby waive all right to trial by jury in any summary
or other action, proceeding or counterclaim arising out of or in any way
connected with this Sublease, the relationship of Sublessor and Subtenant, the
Subleased Premises and the use and occupancy thereof, and any claim of injury or
damages. If Sublessor commences any summary proceeding against Subtenant,
Subtenant will not interpose any counterclaim of any nature or description in
any such proceeding (unless failure to impose such counterclaim would preclude
Subtenant from asserting in a separate action the claim which is the subject of
such counterclaim), and will not seek to consolidate such proceeding with any
other action which may have been or will be brought in any other court by
Subtenant.
23. NO WAIVER. The failure of Sublessor to insist in any one or more
---------
cases upon the strict performance or observance of any obligation of Subtenant
hereunder or to exercise any right or option contained herein shall not be
construed as a waiver or relinquishment for the future of any such obligation of
Subtenant or any right or option of Sublessor. Sublessor's receipt and
acceptance of Fixed Rent or Additional Charges, or Sublessor's acceptance of
performance of any other obligation by Subtenant, with knowledge
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<PAGE>
of Subtenant's breach of any provision of this Sublease, shall not be deemed a
waiver of such breach. No waiver by Sublessor of any term, covenant or condition
of this Sublease shall be deemed to have been made unless expressed in writing
and signed by Sublessor.
24. COMPLETE AGREEMENT. There are no representations, agreements,
------------------
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Sublease which are not fully expressed in this
Sublease. This Sublease cannot be changed or terminated orally or in any manner
other than by a written agreement executed by both parties.
25. SUCCESSORS AND ASSIGNS. The provisions of this Sublease, except
-----------------------
as herein otherwise specifically provided, shall extend to, bind and inure to
the benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns. In the event of any assignment or
transfer of the leasehold estate under the Main Lease, the transferor or
assignor, as the case may be, shall be and hereby is entirely relieved and freed
of all further obligations under this Sublease; provided, however, that the
transferee or assignee of the leasehold, as the case may be, has agreed in
writing to assume all of the obligations, liabilities and responsibilities under
the Main Lease.
26. NO PERSONAL LIABILITY. Sublessor's partners and principals,
---------------------
disclosed or undisclosed, shall have no personal liability under this Sublease.
27. INTERPRETATION. Irrespective of the place of execution or
--------------
performance, this Sublease shall be governed by and construed in accordance with
the laws of the State of New Jersey. If any provision of this Sublease or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, the remainder of this Sublease and the
application of that provision to other persons or circumstances shall not be
affected but rather shall be enforced to the extent permitted by law. The table
of contents, captions, headings and titles, if any, in this Sublease are solely
for convenience of reference and shall not affect its interpretation. This
Sublease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Sublease to be drafted. If
any words or phrases in this Sublease shall have been stricken out or otherwise
eliminated, whether or not any other words or phrases have been added, this
Sublease shall be construed as if the words or phrases so stricken out or
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<PAGE>
otherwise eliminated were never included in this Sublease and no implication or
inference shall be drawn from the fact that said words or phrases were so
stricken out or otherwise eliminated. Each covenant, agreement, obligation or
other provision of this Sublease shall be deemed and construed as a separate and
independent covenant of the party bound by, undertaking or making same, not
dependent on any other provision of this Sublease unless otherwise expressly
provided. All terms and words used in this Sublease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require. The word "person" as used in this
Sublease shall mean a natural person or persons, a partnership, a corporation or
any other form of business or legal association or entity. This Sublease shall
not be deemed to constitute an offer by Sublessor nor shall this Sublease be
binding upon Sublessor unless and until one or more counterparts of this
Sublease shall have been executed by Sublessor and unconditionally delivered to
Subtenant.
28. BUILDING DIRECTORY LISTINGS. Subject to the prior written
---------------------------
consent of the Main Landlord and paying any fee required by the Main Landlord,
Subtenant shall be entitled to use its proportionate share of those lines on the
Building's lobby directory which have been made available to Sublessor pursuant
to the Main Lease.
29. SECURITY DEPOSIT. Subtenant has deposited with Sublessor the sum
----------------
of $16,621.62 as security for the due performance and observance by Subtenant of
the terms, provisions and conditions of this Sublease. Sublessor will deposit
said sum in a bank account with a commercial bank or trust company, which
account shall bear interest at "money market" rates. In the event Subtenant
materially defaults in respect of any of the terms, provisions and conditions of
this Sublease on the part of Subtenant to be observed or performed hereunder,
and such default shall continue beyond the grace period, if any, in which
Subtenant is permitted to cure such default, Sublessor may use, apply or retain
the whole or any part of the security so deposited, together with the interest
earned thereon, to the extent required for the payment of any Fixed Rent,
Additional Charges or any other sum as to which Subtenant is in default or for
any sum which Sublessor may expend or be required to expend by reason of
Subtenant's aforesaid default, including, but not limited to, any damages or
deficiency in the reletting of the Subleased Premises, whether such damages or
deficiency
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<PAGE>
accrued before or after summary proceedings or other re-entry by Sublessor. In
the event that Subtenant shall faithfully comply with all the terms, provisions,
covenants and conditions of this Sublease, (i) $5,540.54 of the security shall
be returned to Subtenant promptly after the first anniversary of the
Commencement Date, and (ii) the remaining security together with the interest
earned thereon shall be returned to Subtenant promptly after the end of the term
of this Sublease and after delivery of possession of the Subleased Premises to
Sublessor.
30. CONSENT OF LESSOR UNDER MAIN LEASE AND UNDER PRIME LEASE. The
--------------------------------------------------------
term of this Sublease shall not commence until (i) the Main Landlord shall have
given its written consent hereto in accordance with the terms of the Main Lease,
(ii) the Prime Landlord shall have given its written consent hereto in
accordance with the terms of the Prime Lease and (iii) Sublessor shall have
notified Subtenant that such consents have been given. Sublessor shall not be
obligated to take any action to obtain such consents other than to request such
consents from the Main Landlord. Sublessor shall notify Subtenant of the
granting or denial of the Main Landlord's consent and the Prime Landlord's
consent to this Sublease, and if such consents shall be granted, Sublessor shall
furnish Subtenant with copies thereof. If the Main Landlord and the Prime
Landlord do not give their respective consent to this Sublease for any reason
within 45 days after it shall have been executed and delivered and submitted to
the Main Landlord, then at any time after the expiration of said 45-day period,
either party hereto may cancel this Sublease by giving written notice to the
other party, and if such notice shall be given, this Sublease shall be deemed
cancelled and have no further force or effect. If this Sublease shall be
cancelled as aforesaid, then (a) if Subtenant is then in possession of all or
any part of the Subleased Premises, Subtenant shall immediately quit and
surrender to Sublessor the Subleased Premises, shall remove all of its property
and repair all damage caused by such removal and restore the Subleased Premises
to the condition in which they were prior to the installation of the items so
removed, and (b) Sublessor shall return to Subtenant all Fixed Rent, if any,
prepaid by Subtenant and Subtenant's security deposit, less so much of such
deposit, if any, which Sublessor shall have applied or shall be entitled to
retain in accordance with the provisions of Paragraph 29 of this Sublease to
remedy any default by Subtenant hereunder.
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<PAGE>
31. SUBTENANT'S WORK.
----------------
A. Sublessor and Subtenant have attached the Subtenant's Sealed
Construction Plan (the "Subtenant's Work Letter") as Exhibit B, describing the
Subtenant's Work (the "Subtenant's Work") to be performed to the Subleased
Premises by Sublessor on behalf of Subtenant at Sublessor's expense. All work
described in the Subtenant's Plan shall be performed by an architect and general
contractor pre-approved by the Sublessor and Subtenant pursuant to plans and
specifications mutually approved and signed by the parties, which are attached
as Exhibit B. The Subtenant's Work must be performed and completed in a manner
reasonably satisfactory to Subtenant.
B. Subtenant has inspected the Subleased Premises and accepts the
same "as is" in their presently existing condition, and Sublessor shall have no
obligation to perform any work in order to prepare the Subleased Premises for
Subtenant's occupancy other than as set forth in Exhibit B.
C. Subtenant shall occupy the Subleased Premises promptly after the
same are Ready for Occupancy (as defined in Section 1.01(Z) of the Main Lease)
and possession thereof is delivered to Subtenant by Sublessor giving to
Subtenant written notice of such effect. Except as expressly provided to the
contrary in this Sublease, with the exception of latent defects, the taking of
possession by Subtenant of the Subleased Premises shall be conclusive evidence
as against Subtenant that the Subleased Premises and the Building were in good
and satisfactory condition at the time such possession was taken, subject to the
provisions of Subparagraph 31(D) below.
D. If the substantial completion of the Subtenant's Plan is delayed
due to any act or omission of Subtenant or any of its employees, agents or
contractors (including, without limitation, (i) any delays due to changes in or
additions to the Subtenant's Plan or (ii) any delays by Subtenant in the
submission of plans, drawings, specifications or other information or in
approving any additional drawings or estimates or in giving any authorization or
approvals), then the Subleased Premises shall be deemed Ready for Occupancy on
the date when they would have been ready but for such delay(s). The Subleased
Premises shall be conclusively presumed to be in satisfactory condition on the
Commencement Date except for the minor or insubstantial details of which
Subtenant gives
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<PAGE>
Sublessor notice within 30 days after the Commencement Date specifying such
details with reasonable particularity.
32. SURRENDER OF POSSESSION. In the event that Subtenant does not
-----------------------
timely surrender possession of the Subleased Premises, in the condition required
to be surrendered, on the expiration of the term or earlier termination hereof
following the exercise of Sublessor's remedies for Subtenant's material default
as provided in this Sublease, Subtenant agrees to continue to pay Sublessor
Fixed Rent in an amount equal to three times the Fixed Rent due under this
Sublease (the "Holdover Rent") until Subtenant surrenders possession in
accordance with the terms hereof. For the purposes of this Paragraph 32, a court
of appropriate jurisdiction shall decide any good-faith dispute between
Sublessor and Subtenant with respect to whether Subtenant is in material default
under the terms of this Sublease, and such final determination shall govern
whether Sublessor is entitled to the Holdover Rent. In no event shall the
foregoing in any way limit any of Sublessor's other rights or remedies under
this Sublease.
33. RIGHT OF FIRST REFUSAL. If at any time during the term of this
----------------------
Sublease Sublessor desires to sublet the remainder of Suite 317 adjacent to the
Subleased Premises, then Sublessor agrees it (i) will promptly advise Subtenant
of such available space, (ii) will offer the space to Subtenant on substantially
the same terms as would be offered to any proposed subtenant and (iii) will
negotiate in good faith with Subtenant on rental terms for the space. If
Sublessor and Subtenant cannot agree on such rental terms within seven (7) days
after notice to Subtenant of such available space, then Sublessor thereafter
shall be free to rent such space to whomever it wishes and on whatever terms it
desires.
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<PAGE>
LEASE AGREEMENT
BETWEEN
NEWPORT OFFICE PROPERTIES CORP.
AND
NIPPON TRAVEL AGENCY PACIFIC, INC.
A HAWAII CORPORATION
DATED: JANUARY 23, 1992
PREPARED BY
PANEPINTO, PAOLINO, DOHERTY & MANGIN
JOURNAL SQUARE PLAZA
JERSEY CITY, NEW JERSEY 07306
201-653-2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS..................................... 1
ARTICLE 2 DEMISE AND TERM................................. 8
ARTICLE 3 RENT............................................ 8
ARTICLE 4 USE OF DEMISED PREMISES......................... 9
ARTICLE 5 PREPARATION OF DEMISED PREMISES
AND COMMENCEMENT DATE........................... 10
ARTICLE 6 TAX AND OPERATING EXPENSE PAYMENTS.............. 11
ARTICLE 7 COMMON AREAS.................................... 13
ARTICLE 8 SECURITY........................................ 14
ARTICLE 9 SUBORDINATION................................... 14
ARTICLE 10 QUIET ENJOYMENT................................. 16
ARTICLE 11 ASSIGNMENT, SUBLETTING AND MORTGAGING........... 16
ARTICLE 12 COMPLIANCE WITH LAWS............................ 20
ARTICLE 13 INSURANCE AND INDEMNITY......................... 22
ARTICLE 14 RULES AND REGULATIONS........................... 25
ARTICLE 15 ALTERATIONS..................................... 25
ARTICLE 16 LANDLORD'S AND TENANT'S PROPERTY................ 27
ARTICLE 17 REPAIRS AND MAINTENANCE......................... 28
ARTICLE 18 ELECTRIC ENERGY................................. 29
ARTICLE 19 HEAT, VENTILATION AND AIR-CONDITIONING.......... 35
ARTICLE 20 OTHER SERVICES: SERVICE INTERRUPTION............ 36
ARTICLE 21 ACCESS, CHANGES AND NAME........................ 37
ARTICLE 22 MECHANICS' LIENS AND OTHER LIENS................ 38
ARTICLE 23 NON-LIABILITY AND INDEMNIFICATION............... 39
ARTICLE 24 DAMAGE OR DESTRUCTION........................... 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 25 EMINENT DOMAIN............................ 42
ARTICLE 26 SURRENDER................................. 44
ARTICLE 27 CONDITIONS OF LIMITATION.................. 44
ARTICLE 28 RE-ENTRY BY LANDLORD...................... 45
ARTICLE 29 DAMAGES................................... 46
ARTICLE 30 AFFIRMATIVE WAIVERS....................... 49
ARTICLE 31 NO WAIVERS................................ 49
ARTICLE 32 CURING TENANT'S DEFAULTS.................. 50
ARTICLE 33 BROKER.................................... 50
ARTICLE 34 NOTICES................................... 50
ARTICLE 35 ESTOPPEL CERTIFICATES..................... 51
ARTICLE 36 ARBITRATION............................... 52
ARTICLE 37 INTENTIONALLY OMITTED..................... 53
ARTICLE 38 BUILDING NAME............................. 53
ARTICLE 39 ENVIRONMENTAL LAWS........................ 53
ARTICLE 40 MISCELLANEOUS............................. 55
ARTICLE 41 PARKING................................... 61
</TABLE>
EXHIBIT A LAND
EXHIBIT B TENANT WORK LETTER
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D FLOOR PLAN
EXHIBIT E CLEANING STANDARDS
<PAGE>
THIS LEASE dated January 23, 1992 made between NEWPORT OFFICE
PROPERTIES CORP., a Delaware Corporation, having an office at 111 Pavonia
Avenue, Jersey City, New Jersey ("Landlord") and NIPPON TRAVEL AGENCY PACIFIC,
INC., a Hawaii Corporation, having an office at 120 West 45th Street, Suite 901,
New York, New York 10036 ("Tenant").
ARTICLE 1
---------
DEFINITIONS
-----------
1.01. As used in this Lease (including in all Exhibits and any Riders
attached hereto, all of which shall be deemed to be part of this Lease) the
following words and phrases shall have the meanings indicated:
A. Advance Rent: Nine Thousand Four Hundred Seventy-Nine & 17/100
($9,479.17) Dollars.
B. Additional Charges: All amounts that become payable by the Tenant
to Landlord hereunder other than the Fixed Rent. The term "Additional Charge"
shall be interchangeable with the term "Additional Rent".
C. Architect: Deleted
D. Base Year: 1992
E. Broker: Chilmark
F. Building: "Newport Financial Center", 111 Pavonia Avenue, Jersey
City, New Jersey.
G. Business Days: All days except Saturdays after 1:00 P.M.,
Sundays, days observed by the federal or state government as legal holidays and
such other days as shall be designated as holidays by the applicable operating
engineers union or building service employees union contract.
H. Business Hours: Generally customary daytime business hours but
not before 8:00 A.M. or after 6:00 P.M. and Saturdays 9:00 A.M. to 1:00 P.M.
I. Calendar Year: Any twelve-month period commencing on January 1.
J. Commencement Date: January 1, 1992 or the date on which the
Landlord notifies Tenant that Landlord has obtained the Prime Landlord's consent
to this Lease or the date on which the Demised Premises are Ready for Occupancy,
whichever is latest.
K. Common-Areas: All areas, spaces and improvements in the Building
and on the Land which Landlord makes available
1
<PAGE>
from time to time for the common use and benefit of the tenants and occupants of
the Building and which are not exclusively available for use by a single tenant
or occupant, including, without limitation, parking areas, roads, walkways,
landscaped and planted areas, community rooms, if any, the managing agent's
office, if any, and public rest rooms, if any.
L. Demised Premises: 5,000 rentable s.f. located on the third (3rd)
floor as shown on Exhibit D.
M. Expiration Date: The date that is the day before the tenth (10th)
anniversary of the Commencement Date if the Commencement Date is the first day
of a month, or the tenth (10th) anniversary of the last day of the month in
which the Commencement Date occurs if the Commencement Date is not the first day
of a month. However, if the Term is extended by Tenant's effective exercise of
Tenant's rights, if any, to extend the Term, the "Expiration Date" shall be
changed to the last day of the latest extended period as to which Tenant shall
have effectively exercised its right to extend the Term. For the purposes of
this definition, the earlier termination of this Lease shall not affect the
"Expiration Date."
N. Fixed Rent:
(i) $22.75 per rentable s.f. or One Hundred Thirteen Thousand
Seven Hundred Fifty & 00/100 ($113,750.00) Dollars per year for the period
commencing on the Commencement Date and ending on the day before the fifth (5th)
anniversary of the Commencement Date if the Commencement Date is the first day
of the month or the fifth (5th) anniversary of the last day of the month in
which the Commencement Date occurs if the Commencement Date is not the first day
of a month, payable at the rate of Nine Thousand Four Hundred Seventy-Nine &
17/100 ($9,479.17) Dollars per month as hereinafter provided.
(ii) $25.75 per rentable s.f. or One Hundred Twenty-Eight
Thousand Seven Hundred Fifty & 00/100 ($128,750.00) Dollars per year for the
period commencing on the first month following the fifth (5th) anniversary of
the Commencement Date and ending on the Expiration Date, payable at the rate of
Ten Thousand Seven Hundred Twenty-Nine & 17/100 ($10,729.17) Dollars per month
as hereinafter provided.
O. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
2
<PAGE>
P. Land: The land described in Exhibit A, upon which the Building is
located.
Q. Legal Requirements: Laws and ordinances of all federal, state and
local governments, and rules, regulations, orders and directives of all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public, quasi-public authorities having jurisdiction over
the Land and Building.
R. Master Lease: Agreement of Lease, dated June 14, 1988, as amended
or may be amended, between Newport Office Center I Company, as Landlord ("Prime
Landlord"), and Landlord, as Tenant, covering a portion of the first (lst)
floor, including the lobby area, the roof and the entire second (2nd) through
fifteenth (15th) floors in the Building.
S. Mortgage: A mortgage and/or a deed of trust.
T. Mortgagee: A holder of a mortgage or a beneficiary of a deed of
trust.
U. Office Component: A portion of the 2nd and 6th floors of the
Building and the entire 3rd, 4th, 5th, 7th, 8th, 12th, 14th and 15th floors,
representing a total of 306,181 rentable s.f. in the Building.
V. Operating Expenses: All costs and expenses, and taxes thereon, if
any, paid or incurred by Landlord in connection with the Office Component of
Building, the Building utility and service systems, the sidewalks, curbs, plazas
and other areas adjacent to the Building, and with respect to the services
provided tenants, including, without limitation: (i) salaries, wages and bonuses
paid to, and the cost of any hospitalization, medical, surgical, union and
general welfare benefits (including group life insurance), any pension,
retirement or life insurance plan or any other benefit or similar expense
relating to employees of Landlord engage in the operation, cleaning, repairs,
safety, management providing security or maintenance of the Land and/or the
Building or in providing services to tenants; (ii) social security, unemployment
and other payroll taxes, the cost of providing disability and worker's
compensation coverage imposed by any requirements of law, union contract or
otherwise with respect to said employees; (iii) the cost of casualty, rent,
liability, fidelity, plate glass and any other insurance; (iv) the cost of
repairs, replacements, maintenance and painting; (v) expenditures for
improvements and equipment which are made by reason of Legal Requirements or
Insurance Requirements; (vi) the cost or rental of all building and cleaning
supplies, tools, materials and equipment; (vii) the cost of uniforms, work
clothe and dry cleaning; (viii) window cleaning, concierge, guard, watchman or
other security personnel, service or system, if any;
3
<PAGE>
(vix) management fees or if no managing agent is employed by Landlord, a sum in
lieu thereof which is not in excess of then prevailing rates for management fees
payable for first-class office buildings; (x) charges of independent contractors
performing work included within this definition of Operating Expenses; (xi)
telephone and stationery; (xii) legal, accounting and other professional fees
and disbursements incurred in connection with the operation and management of
the Building and Land; (xiii) association fees and dues; (xiv) decorations; (xv)
depreciation of hand tools and other movable equipment used in the operation,
cleaning, repair, safety, management, security or maintenance of the Building;
(xvi) the cost of painting and/or decorating and/or other maintenance of the
public or common areas of the Building and Land; (xvii) the cost of all interior
and exterior gardening and landscaping of the Building and Land and all
temporary exhibitions located thereon; (xviii) the cost of maintenance, repair
and/or replacement of the curtain wall facade; (xix) all operating expenses,
project maintenance fees and charges required to be paid by Landlord to Prime
Landlord pursuant to the terms of the Master Lease; (xx) the cost of pest and
vermin extermination for the common areas of the Building and the Land; and
(xxi) Utility Costs (as hereinafter defined), provided, however, that Operating
Expenses shall exclude or have deducted from them, as the case may be:
(a) amounts actually received by Landlord through insurance proceeds,
condemnation awards, warranties and service contracts, or
otherwise, to the extent they are compensation for sums
previously included in operating Expenses hereunder;
(b) brokerage commissions;
(c) Real Estate Taxes;
(d) the cost of electricity furnished to the Demised Premises or any
other space leased to tenants as reasonably estimated by
Landlord;
(e) financing and refinancing costs, rents payable under the Master
Lease or any Superior Lease, and mortgage interest and mortgage
payments due under any Mortgage;
(f) depreciation except as otherwise expressly herein provided;
(g) cost and expenses incurred in connection with the enforcement of
leases and disputes with tenants in the Building, including
without
4
<PAGE>
limitation, court costs, attorney's fees and disbursements;
(h) cost and expenses incurred in connection with leasing or re-
leasing space in the Building such as space planning,
architectural, engineering, attorneys' fees and advertising and
promotional expenses;
(i) expenses in connection with the operation, cleaning, repair,
safety, management, security, maintenance or other services of
any kind provided exclusively to any portion of the Building
which are leased or used for retail purposes and which do not
benefit the office tenants of the Building;
(j) the cost of installing, operating and maintaining a specialty
improvement, including, without limitation, an observatory,
broadcasting, cafeteria or dining facility or athletic, luncheon
or recreational club.
W. Permitted Use: General and executive offices subject to all
applicable laws, ordinances, rules and regulations of any governmental boards or
bodies having jurisdiction thereof.
X. Person: A natural person or persons, a partnership, a
corporation, or any other form of business or legal association or entity.
Y. Prime Landlord: Newport Office Center I Company
Z. Ready for Occupancy: The condition of the Demised Premises when
for the first time the Tenant's Work under the Tenant Work Letter shall have
been substantially completed and a temporary or permanent Certificate of
Occupancy shall have been issued permitting use of the Demised Premises for the
Permitted Use. The work under the Tenant Work Letter shall be deemed
substantially completed notwithstanding the fact that minor or insubstantial
details of construction, mechanical adjustment or decoration remain to be
performed, the noncompletion of which does not materially interfere with
Tenant's use of the Demised Premises.
AA. Real Estate Taxes: The real estate taxes, assessments and special
assessments imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities, any alternative or
substitute charges, including any so-called "service charge" resulting from any
abatements or other special reductions included in Real Estate Taxes now or
hereafter during the term of this Lease,
5
<PAGE>
including, without limitation, service charges payable pursuant to a certain
agreement dated August 25, 1987 between Mid Hudson Urban Renewal Company and the
City of Jersey City (the "Financial Agreement"). Pursuant to the said Financial
Agreement, an Annual Service Charge in lieu of Real Estate Taxes is due to the
City of Jersey City for a total period of fifteen (15) years as follows: $1.66
per rentable square foot for a period of five (5) years, commencing July 1989;
$2.07 per rentable square foot for the next five (5) years and $2.49 per
rentable square foot for the last five (5) years. Any expenses incurred by
Landlord in contesting such taxes or assessments and/or the assessed value of
the Building and Land, which expenses shall be allocated to the period of time
to which such expenses relate. Tenant shall not be obligated or required to pay
any tax on the income or receipts of Landlord. If at any time during the Term
the methods of taxation prevailing on the date hereof shall be altered so that
in lieu of, or as an addition to or as a substitute for, the whole or any part
of such real estate taxes, assessments and special assessments now imposed on
real estate there shall be levied, assessed or imposed (a) a tax, assessment,
levy, imposition, license fee or charge wholly or partially as a capital levy or
otherwise on the rents received therefrom, or (b) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be deemed to be included within the term "Real Estate
Taxes" for the purposes hereof.
BB. Rent: The Fixed Rent, Additional Rent and Additional Charges.
CC. Rules and Regulations: The reasonable rules and regulations that
may be promulgated by Landlord from time to time, as same may be reasonably
changed by Landlord from time to time. The Rules and Regulations now in effect
are attached hereto as Exhibit C.
DD. Security Deposit: Eighteen Thousand Nine Hundred Fifty-Eight &
34/100 ($18,958.34) Dollars as provided in Article 8 herein.
EE. Successor Landlord: As defined in Section 9.03.
FF. Superior Lease: Any lease to which this Lease is at the time
referred to, subject and subordinate.
GG. Superior Lessor: The lessor of a Superior Lease or its successor
in interest, at the time referred to.
HH. Superior Mortgage: Any Mortgage to which this Lease is, at the
time referred to, subject and subordinate.
6
<PAGE>
II. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the
time referred to.
JJ. Tenant's Fraction:
(i) "Tenant's Operating Fraction" for the Operating Expenses
attributable to the Office Component of the Building and Land shall be 1.63%. If
the size of the Demised Premises or the Building shall be changed from the
initial size thereof, due to any taking, any construction or alteration work or
otherwise, the Tenant's Operating Fraction shall be changed to the fraction the
numerator of which shall be the rentable square footage of the Demised Premises
and the denominator of which shall be the rentable square footage of the Office
Component of the Building;
(ii) "Tenant's Real Estate Fraction" for Tenant's proportionate
share of Real Estate Taxes for the Building and Land shall be 1.23%. If the size
of the Demised Premises or the Building shall be changed from the initial size
thereof, due to any taking, any construction or alteration work or otherwise,
the Tenant's Real Estate Fraction shall be changed to the fraction the numerator
of which shall be the rentable square footage of the Demised Premises and the
denominator of which shall be the rentable square footage of the Building.
KK. Tenant's Property: As defined in Section 16.02.
LL. Tenant's Work: The facilities, materials and work which will be
undertaken by and for the account of Tenant to equip, decorate and furnish the
Demised Premises for Tenant's occupancy in accordance with the provisions of
Article 5.01 and Exhibit B attached hereto.
MM. Term: The period commencing on the Commencement Date and ending
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
NN. Unavoidable Delays: A delay arising from or as a result of a
strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or
civil commotion, act of war, fire or Other catastrophe, Legal Requirement or an
act of the other party and any cause beyond the reasonable control of that
party, provided that the party asserting such Unavoidable Delay has exercised
its best efforts to minimize such delay.
OO. Utility Costs: Landlord's cost (incurred directly or through
independent contractors) for all electricity (to the extent Landlord is not
directly reimbursed therefor by individual tenants), steam, water, gas or other
fuel and utilities supplied to the Building or the Land, including in each case,
any
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surcharges, fuel adjustments and taxes payable by Landlord in connection
therewith.
ARTICLE 2
---------
DEMISE AND TERM
---------------
2.01. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Demised Premises, for the Term. Promptly following the
Commencement Date, at the option of the Landlord, the parties hereto shall enter
into an agreement in form and substance satisfactory to Landlord and Tenant
setting forth the Commencement Date.
ARTICLE 3
--------
RENT
----
3.01. (a) Tenant shall pay the Fixed Rent in equal monthly
installments in advance on the first day of each and every calendar month during
the Term. If the Commencement Date occurs on a day other than the first day of a
calendar month, the Fixed Rent for the partial calendar month at the
commencement of the term shall be prorated. Upon execution of the Lease, Tenant
shall pay the Advance Rent which shall be applied to the first month's Fixed
Rent following the Commencement Date.
(b) Notwithstanding the Fixed Rent described herein, Tenant
shall not be responsible for and shall not pay Fixed Rent for the following
periods:
(i) for the first nine (9) consecutive months following the
Commencement Date; and
(ii) for the first three (3) consecutive months following the
first anniversary of the Commencement Date.
Following the Free Rent Period(s), Tenant shall pay Fixed Rent as
herein set forth. All Additional Charges shall however be due notwithstanding
the Free Rent Period(s) for Fixed Rent. In the event that Tenant defaults under
any of the terms of this Lease, the entire Fixed Rent, otherwise due for the
Free Rent Period(s), shall become immediately due and payable to the Landlord.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord or Landlord's agent, at its office, or such other place, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not
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<PAGE>
be required to accept the check of any other person, and any check received by
Landlord shall be deemed received subject to collection. If any check is mailed
by Tenant, Tenant shall post such check in sufficient time prior to the date
when payment is due so that such check will be received by Landlord on or before
the date when payment is due.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives
Tenant's right, if any, to designate the items to which any payments made by
Tenant are to be credited, and Landlord may apply any payments made by Tenant to
such items as Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items to which any such payments
shall be credited. Notwithstanding the foregoing, in the event Tenant in good
faith disputes a liability asserted by Landlord, Tenant may designate the
item(s) to which its payments should be credited provided Tenant's designation
does not prejudice Landlord's position with respect to the dispute.
3.05. Any payment due Landlord under this Lease which is not paid
within five (5) days of written notice of non-payment shall, from the due date
until such payment is received by Landlord, bear interest at the prime rate of
Chemical Bank of New York plus 6% (the "Late payment Rate"), provided however,
the aforesaid interest shall not be imposed unless Landlord fails to receive an
overdue payment within five (5) days of Landlord's written notice to Tenant
thereof.
ARTICLE 4
---------
USE OF DEMISED PREMISES
-----------------------
4.01. Tenant shall use and occupy the Demised Premises for the
Permitted Use, and Tenant shall not use or permit or suffer the use of the
Demised Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit, other than a Certificate
of Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises or any part thereof, Tenant shall duly procure
and thereafter maintain such license or permit, and submit the same to Landlord
for inspection. Tenant shall at all times comply with the terms and conditions
of each such license or permit. Tenant shall not
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<PAGE>
at any time use or occupy, or suffer or permit anyone to use or occupy the
Demised Premises, or do or permit anything to be done in the Demised Premises,
in any manner which (a) violates the Certificate of Occupancy for the Demised
Premises or for the Building; (b) causes or is liable to cause injury to the
Building or any equipment, facilities or systems therein; (c) constitutes a
violation of the Legal Requirements or Insurance Requirements; (d) impairs or
tends to impair the character, reputation or appearance of the Building as a
first-class office building; (e) impairs the proper and economic maintenance,
operation and repair of the Building and/or its equipment, facilities or
systems; or (f) interferes with the Quiet Enjoyment rights of the other tenants
in the Building.
ARTICLE 5
---------
PREPARATION OF DEMISED PREMISES
-------------------------------
AND COMMENCEMENT DATE
---------------------
5.01. Landlord and Tenant have attached a Tenant Work Letter as
Exhibit B, describing the Tenant's Work to be performed to the Demised Premises
by the Landlord on behalf of the Tenant at Landlord's expense. All work
described in the Tenant Work Letter shall be performed by an architect and
general contractor chosen by the Landlord in its sole discretion pursuant to
plans and specifications mutually approved and signed by the parties.
5.02. Tenant has inspected the Demised Premises and accepts the same
"as is" in their presently existing condition, and Landlord shall have no
obligation to perform any work in order to prepare the Demised Premises for
Tenant's occupancy other than as set forth in the Tenant's Work Letter.
5.03. Subject to Section 1.01(J) Tenant shall occupy the Demised
Premises promptly after the same are Ready for Occupancy (as defined in Section
1.01(Z) above) and possession thereof is delivered to Tenant by Landlord giving
to Tenant a notice of such effect. Except as expressly provided to the contrary
in this Lease, with the exception of latent defects, the taking of possession by
Tenant of the Demised Premises shall be conclusive evidence as against Tenant
that the Demised Premises and the Building were in good and satisfactory
condition at the time such possession was taken, subject to the provisions of
Section 5.04 below.
5.04. If the substantial completion of the Tenant's Work under the
Tenant Work letter shall be delayed due to (a) any act or omission of Tenant at
any of its employees, agents or contractors (including, without limitation, (i)
any delays due to changes in or additions to the Tenant's Work or (ii) any
delays by Tenant in the submission of plans, drawings, specifications or other
information or in approving any working drawings or
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<PAGE>
estimates or in giving any authorization or approvals), then the Demised
Premises shall be deemed Ready for Occupancy on the date when they would have
been ready but for such delay(s). The Demised Premises shall be conclusively
presumed to be in satisfactory condition on the Commencement Date except for the
minor or insubstantial details of which Tenant gives Landlord notice within
thirty (30) days after the Commencement Date specifying such details with
reasonable particularity.
5.05. Landlord reserves the right, at any time and from time to time,
to increase, reduce or change the number, type, size, location, elevation,
nature and use of any of the Common Areas of the Building and any other
buildings and other improvements on the Land, including without limitation the
right to move and/or remove same, provided same shall not unreasonably block or
interfere with Tenant's means of ingress or egress to and from the Demised
Premises; provided, however, Landlord shall not cause a material adverse impact
on the conduct of Tenant's business, nor shall Landlord do anything inconsistent
with maintaining the Building as a first class office building. Further, in the
event of any relocation of the Demised Premises, Landlord shall provide Tenant
with six (6) months written notice prior to the relocation and Landlord shall be
responsible for all reasonable costs of Tenant associated with such relocation.
ARTICLE 6
---------
TAX AND OPERATING EXPENSE PAYMENTS
----------------------------------
6.01. Tenant shall pay, as Additional Rent, to Landlord, as
hereinafter provided, Tenant's share of the Real Estate Taxes. Tenant's share of
the Real Estate Taxes shall be the Real Estate Taxes for the Building for the
period in question, less the Real Estate Taxes attributable to the Base Year,
multiplied by the Tenant's Real Estate Fraction [Section 1.01(JJ) (ii)], plus
the Real Estate Taxes in respect of the Land for the period in question, less
the Real Estate Taxes attributable to the Land for the Base Year, multiplied by
the Tenant's Real Estate Fraction. If any portion of the Building shall be
exempt from all or any part of the Real Estate Taxes, then for the period of
time when such exemption is in effect, the rentable space on such exempt portion
shall be excluded when making the above computations in respect of the part of
the Real Estate Taxes for which such portion shall be exempt. Landlord shall
estimate the annual amount of Tenant's proportionate share of the Real Estate
Taxes (which estimate may be changed by Landlord at any time and from time to
time), and Tenant shall pay to Landlord 1/12th of the amount so estimated on the
first day of each month in advance. Tenant shall also pay to Landlord on demand
from time to time the amount which, together with said monthly installments,
will be sufficient in Landlord's estimation to pay Tenant's proportionate share
of any Real Estate Taxes thirty (30) days prior to the date when such Real
Estate Taxes
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<PAGE>
shall first become due. When the amount of any item comprising Real Estate Taxes
is finally determined for a real estate fiscal tax year, Landlord shall submit
to Tenant a statement in reasonable detail of the same, and the figures used for
computing Tenant's proportionate share of the same, and if Tenant's
proportionate share so stated is more or less than the amount theretofore paid
by Tenant for such item based on Landlord's estimate, Tenant shall pay to
Landlord the deficiency, or Landlord shall refund to Tenant the excess, within
ten (10) Business Days after submission of such statement. Any Real Estate Taxes
for a real estate fiscal tax year, a part of which is included within the Term
and a part of which is not so included, shall be apportioned on the basis of the
number of days in the real estate fiscal tax year included in the Term, and the
real estate fiscal tax year for any improvement assessment will be deemed to be
the one-year period commencing on the date when such assessment is due, except
that if any improvement assessment is payable in installments, the real estate
fiscal tax year for each installment will be deemed to be the one-year period
commencing on the date when such installment is due.
6.02. Tenant shall pay, as Additional Rent, to Landlord, as
hereinafter provided, Tenant's share of the Operating Expenses. Tenant's share
of the Operating Expenses shall be the Operating Expenses for the period in
question, less the Operating Expenses paid by Landlord during the Base year,
multiplied by Tenant's Operating Fraction [Section 1.01(JJ)(i)]. Landlord shall
estimate Tenant's annual proportionate share of the Operating Expenses (which
estimate may be reasonably changed by Landlord from time to time), and Tenant
shall pay to Landlord 1/12th of the amount so estimated on the first day of each
month in advance. If at any time Landlord changes its estimate of Tenant's
proportionate share of the Operating Expenses for the then current Calendar Year
or partial Calendar Year, Landlord shall give notice to Tenant of such change
and within ten (10) Business Days after such notice Landlord and Tenant shall
adjust for any overpayment or underpayment during the prior months of the then
current Calendar Year or partial Calendar Year. After the end of each Calendar
Year, including any partial Calendar Year at the beginning of the Term, and
after the end of the term, Landlord shall submit to Tenant a statement in
reasonable detail stating Tenant's proportionate share of the Operating Expenses
for such Calendar Year, or partial Calendar Year in the event the Term shall
begin on a date other than a January 1st and/or, end on a date other than a
December 31st, as the case may be, and stating the Operating Expenses for the
period in question and the figures used for computing Tenant's proportionate
share, and if Tenant's proportional share so stated for such period is more or
less than the amount paid for such period, Tenant shall pay to Landlord the
deficiency, or Landlord shall refund to Tenant the excess, within ten (10)
Business Days after submission of such statement of Tenant's proportionate
share.
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<PAGE>
6.03. Each such statement given by Landlord pursuant to Section 6.01
or Section 6.02 shall be conclusive and binding upon Tenant unless within sixty
(60) days after the receipt of such statement Tenant shall notify Landlord that
it disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect. If such dispute is not
settled by agreement, either party may submit the dispute to arbitration as
provided in Article 36. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall, within ten (10) Business Days after
receipt of such statement, pay the Additional Charges in accordance with
Landlord's statement, without prejudice to Tenant's position. If the dispute
shall be determined in Tenant's favor, Landlord shall within ten (10) Business
Days pay to Tenant the amount of Tenant's overpayment resulting from compliance
with Landlord's statement.
ARTICLE 7
---------
COMMON AREAS
------------
7.01. Subject to the provisions of Section 5.05, Landlord will
operate, manage, equip, light, repair and maintain, or cause to be operated,
managed, equipped, lighted, repaired and maintained, the Common Areas for their
intended purposes. Landlord reserves the right, at any time and from time to
time, to construct within the Common Areas kiosks, fountains, aquariums,
planters, pools and sculptures, and to install vending machines, telephone
booths, benches and the like, provided same shall not unreasonably block or
interfere with Tenant's means of ingress or egress to and from the Demised
Premises; provided however, Landlord shall not cause a material adverse impact
on the conduct of Tenant's business, nor shall Landlord do anything inconsistent
with maintaining the Building as a first class office building.
7.02. Tenant, its subtenants and concessionaires, and their respective
officers, employees, agents, customers and invitees, shall have the non-
exclusive right to use the Common Areas, in common with Landlord and all others
to whom Landlord has granted or may hereafter grant such right, but subject to
the Rules and Regulations. Landlord reserves the right, at any time and from
time to time, to close temporarily all or any portions of the Common Areas when
in Landlord's reasonable judgment any such closing is necessary or desirable (a)
to make repair or changes or to effect construction, (b) to prevent the
acquisition of public rights in such areas, (c) to discourage unauthorized
parking, or (d) to protect or preserve natural persons or property. Landlord may
do such other acts in and to the Common Areas as in its judgment may be
desirable to improve or maintain same. In connection with the foregoing,
Landlord shall make reasonable efforts to avoid a material adverse impact on the
13
<PAGE>
conduct of Tenant's business and shall provide adequate ingress and egress to
the Demised Premises.
ARTICLE 8
---------
SECURITY
--------
8.01. Upon execution of this Lease, Tenant shall deposit with Landlord
the Security Deposit for the full and faithful payment and performance by Tenant
of Tenant's obligations under this Lease. If Tenant defaults in the full and
prompt payment and performance of any of its obligations under this Lease,
including, without limitation, the payment of Rent, Landlord may use, apply or
retain the whole or any part of the Security Deposit so deposited to the extent
required for the payment of any Rent or any other sums as to which Tenant is in
default or for any sum which Landlord may expend or may be required to expend by
reason of Tenant's default in respect of any of Tenant's obligations under this
Lease, including, without limitation, any damages or deficiency in the reletting
of the Demised Premises, whether such damages or deficiency accrue before or
after summary proceedings or other re-entry by Landlord. If Landlord shall so
use, apply or retain the whole or any part of the Security Deposit, Tenant
shall, upon demand, immediately deposit with Landlord a sum equal to the amount
so used, applied and retained as the Security Deposit. If Tenant shall fully and
faithfully pay and perform all of Tenant's obligations under this Lease, the
Security Deposit or any balance thereof to which Tenant is entitled shall be
returned or paid over to Tenant, with interest as provided by Landlord's
Security Deposit Account for tenants of the Building, after the date on which
this Lease shall expire or sooner end or terminate, and after delivery to
Landlord of entire possession of the Demised Premises. In the event of any sale
or leasing of the Building and/or the Land, Landlord shall have the right to
transfer the Security Deposit to which Tenant is entitled to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return or payment thereof and Tenant shall look solely to the new landlord
for the return or payment of the same. The provisions hereof shall apply to
every transfer or assignment made of the same to a new landlord. The Tenant
shall not assign or encumber or attempt to assign or encumber the monies
deposited herein as security, and neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
ARTICLE 9
---------
SUBORDINATION
-------------
9.01. This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to all Mortgages affecting the Land and/or Building,
whether or not such Mortgages shall also cover other lands and/or buildings, to
each and every
14
<PAGE>
advance made or hereafter to be made under such Mortgages, to all renewals,
modifications, replacements and extensions of such Mortgages and spreaders and
consolidations of such Mortgages, to the Master Lease, all present or future
ground leases and grants of term of the Building, Land or parts thereof. The
provisions of this Section 9.01 shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, Prime Landlord or the Mortgagee of any such Mortgage
or any of their respective successors in interest may reasonably request to
evidence such subordination; and if Tenant fails to execute, acknowledge or
deliver any such instruments within ten (10) Business Days after request
therefor, Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's attorney-in-fact, coupled with an interest, to execute and deliver any
such instruments for and on behalf of Tenant.
9.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord,
Prime Landlord and each Superior Mortgagee and each Superior Lessor whose name
and address shall previously have been furnished to Tenant, and (b) until a
reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice and following the time when such Superior
Mortgagee, Prime Landlord or Superior Lessor shall have become entitled under
such Superior Mortgage, Master Lease or Superior Lease, as the case may be, to
remedy the same (which reasonable period shall in no event be less than the
period to which Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such Superior Mortgagee, Prime
Landlord or Superior Lessor shall with due diligence give Tenant notice of
intention to, and commence and continue to, remedy such act or omission.
9.03. If the Prime Landlord or any Superior Lessor or Superior
Mortgagee shall succeed to the rights of Landlord under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of such party so succeeding to Landlord's rights ("Successor
Landlord") and upon such Successor Landlord's written agreement to accept
Tenant's attornment, Tenant shall attorn to and recognize such Successor
Landlord as Tenant's Landlord under this Lease and shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease
except that the
15
<PAGE>
Successor Landlord shall not (a) be liable for any previous act or omission of
Landlord under this Lease; (b) be subject to any offset, not expressly provided
for in this Lease, which theretofore shall have accrued to Tenant against
Landlord; or (c) be bound by any previous modification of this Lease or by any
previous prepayment of more than one month's Fixed Rent or Additional Charges,
unless such modification or prepayment shall have been expressly approved in
writing by the Prime Landlord, the Superior Lessor of the Superior Lease or the
Mortgagee of the Superior Mortgage through or by reason of which the Successor
Landlord shall have succeeded to the rights of Landlord under this Lease.
9.04. If the Prime Landlord or any then present or prospective
Superior Mortgagee shall require any modification(s) of this Lease, Tenant shall
promptly execute and deliver to Landlord such instruments effecting such
modification(s) as Landlord shall request, provided that such modification(s) do
not adversely affect in any material respect any of Tenant's rights under this
Lease, for example, and not by way of limitation, changes to the Term, Fixed
Rent, Additional Rent and location of the Demised Premises.
ARTICLE 10
----------
QUIET ENJOYMENT
---------------
10.01. So long as Tenant pays all of the Rent and performs all of
Tenant's other obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Demised Premises without hindrance, ejection or molestation
by Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Mortgages.
ARTICLE 11
----------
ASSIGNMENT, SUBLETTING AND MORTGAGING
-------------------------------------
11.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or advertise to do so, or allow the same to be used, occupied
or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or
otherwise hypothecate this Lease in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord which consent shall not
be unreasonably withheld or delayed.
11.02. Any proposed assignee, sublessee or transferee, whether or not
Landlord's consent is required hereunder, shall in any event:
16
<PAGE>
(a) have a net worth at least equal to Tenant as of the
date of this Lease; and
(b) demonstrate financial responsibility reasonably
necessary to fulfill its obligations hereunder; and
(c) occupy the Demised Premises for the Permitted Use and
only the Permitted Use, as described in this Lease; and
(d) in the reasonable opinion of Landlord, be a tenant whose
occupancy will be in keeping with the dignity and
character of a first class office building the use and
occupancy of the Building and whose occupancy will not be
more objectionable or more hazardous than that of Tenant
herein or impose any additional burden upon Landlord in
the maintenance and operation of the Building and shall,
in the reasonable opinion of the Landlord, be eligible,
suitable and qualified as a tenant at Newport Financial
Center in accordance with the provisions of this Lease.
In connection with any proposed assignment, sublease or transfer,
Tenant shall pay to the Landlord on demand (i) the reasonable costs (not
including attorney's fees) that may be incurred by the Landlord, including,
without limitation, the reasonable costs of making investigations as to the
acceptability of the proposed assignee or sublessee and (ii) the reasonable
attorney's fees of Landlord and Prime Landlord.
11.03. An assignment of this Lease as to which Landlord's consent
shall be required shall be deemed to include: (i) if Tenant is a corporation not
listed on a recognized security exchange, one or more sales or transfers of
stock, by operation of law or otherwise, or creation of new stock, by which an
aggregate of more than 50% of Tenant's stock shall be vested in a party or
parties who are non-stockholders as of the date hereof; and (ii) if Tenant is a
partnership or joint venture, the transfer of any interest in the Tenant,
whether by sale, exchange, merger, consolidation or otherwise.
Landlord shall grant its consent to assignments of this Lease
pursuant to transactions with a corporation into which the Tenant may be merged
or consolidated or to any corporation which shall be an affiliate, subsidiary,
parent or successor of Tenant,-or of a corporation into which or with which
Tenant may be merged or consolidated, or to a partnership, the
17
<PAGE>
majority interest in which shall be owned by stockholders of Tenant.
For the purposes of this Article, a "subsidiary" or "affiliate"
or "successor" of Tenant shall mean the following:
(a) an "affiliate" shall mean any corporation which, directly
or indirectly, controls or is controlled by or is under common control with
Tenant. For this purpose "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting securities
or by contract or otherwise;
(b) a "subsidiary" shall mean any corporation, not less than
50% of whose outstanding stock shall, at the time, be owned directly or
indirectly by Tenant; and
(c) a "successor" of Tenant shall mean:
(i) a corporation in which or with which Tenant, its
corporate successors or assigns, is merged or consolidated, in accordance with
applicable statutory provisions for merger or consolidation of corporations,
provided that by operation of law or by effective provisions contained in the
instruments of merger or consolidation, the liabilities of the corporations
participating in such merger or consolidation are assumed by the corporation
surviving such merger or created by such consolidation, or
(ii) a corporation acquiring this Lease and the terms
hereby demised and a substantial portion of the property and assets of Tenant,
its corporate successors or assigns, or
(iii) a corporate successor to a successor corporation
becoming such either by the methods described in (i) or (ii) provided that in
the completion of such merger, consolidation, acquisition or assumption, the
successor shall have a net worth of no less than that of Tenant.
11.04. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect Rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default collect
Rent from the subtenant or occupant. In either event, Landlord may apply the
net amount collected to the Rent, but no such assignment, subletting, occupancy
or collection shall be deemed a waiver of any of the provisions of Section 11.01
or Section 11.02, or the acceptance of the assignee, subtenant or occupant
18
<PAGE>
as tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.05. Any permitted assignment or transfer, whether made with
Landlord's consent or without Landlord's consent, shall be made only if, and
shall not be effective until, the assignee or transferee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee or transferee shall assume
Tenant's obligations under this Lease from and after the effective date of the
assignment or transfer and whereby the assignee or transferee shall agree that
all of the provisions in this Article 11 shall, notwithstanding such assignment
or transfer, continue to be binding upon it in respect to all future assignments
and transfers. Notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent by Landlord from an assignee, transferee, or any other party, the original
Tenant and any other person(s) who at any time was or were Tenant shall remain
fully liable for the payment of the Rent and for Tenant's other obligations
under this Lease.
11.06. The liability of the originally named Tenant and any other
Person(s) who at any time was or were Tenant for Tenant's obligations under this
Lease shall not be discharged, released or impaired by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
11.07. The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
11.08. Without limiting any of the provisions of Article 27, if
pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted
having the same general purpose), Tenant is permitted to assign this Lease
notwithstanding the
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restrictions contained in this Lease, adequate assurance of future performance
by an assignee expressly permitted under such Code shall be deemed to mean the
deposit of cash security in an amount equal to the sum of one (1) year's Fixed
Rent plus an amount equal to the Additional Charges for the Calendar Year
preceding the year in which such assignment is intended to become effective,
which deposit shall be held by Landlord for the balance of the Term, without
interest, as security for the full performance of all of Tenant's obligations
under this Lease, to be held and applied in the manner specified for the
Security Deposit in Section 8.01.
11.09. In the event of any assignment or sublease of the Demised
Premises which requires the payment of Fixed Rent, Additional Rent and other
charges in excess of the amounts payable to the Landlord as set forth in this
Lease, then the "net excess or profit" shall be paid to Landlord by Tenant as
Additional Rent and shall be due and payable at such times as shall be due and
payable by such assignee or subtenant to the Tenant. In the event the Tenant
fails to make payment of such excess or profit in violation of this Lease,
Landlord may collect such rent directly from the assignee or subtenant. The "net
excess or profit" shall mean the amount remaining after payment of Fixed Rent,
Additional Rent and other charges, marketing, brokerage and other professional
fees and expenses reasonably incurred by Tenant.
ARTICLE 12
----------
COMPLIANCE WITH LAWS
--------------------
12.01. Tenant shall comply with all Legal Requirements which shall, in
respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
cost, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 12.01.
However, Tenant need not comply with such law or requirement of any public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 12.02.
12.02. Tenant may contest by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated by reason-of non-compliance or otherwise by reason of such contest; (b)
before the commencement of such contest Tenant
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shall furnish to Landlord either (i) the bond of a surety company satisfactory
to Landlord, which bond shall be, as to its provisions and form, satisfactory to
Landlord and shall be in an amount at least equal to 125% of the cost of such
compliance (as estimated by a reputable contractor designated by Landlord) and
shall indemnify Landlord against the cost thereof and against all liability for
damages, interest, penalties and expenses (including reasonable attorney's fees
and expenses), resulting from or incurred in connection with such contest or
non-compliance, or (ii) other security in place of such bond satisfactory to
Landlord; (c) such non-compliance or contest shall not constitute or result in
any violation of any Superior Lease or Superior Mortgage, or if any such
Superior Lease and/or Superior Mortgage shall permit such non-compliance or
contest on condition of the taking of action or furnishing of security by
Landlord, such action shall be taken and such security shall be furnished at the
expense of Tenant; and (d) Tenant shall keep Landlord advised as to the status
of such proceedings. Without limiting the application of the above, Landlord
shall be deemed subject to prosecution for a crime if Landlord, or its managing
agent, or any officer, director, partner, shareholder or employee of Landlord or
its managing agent, as an individual, is charged with a crime of any kind or
degree whatsoever, whether by service of summons or otherwise, unless such
charge is withdrawn before Landlord or its managing agent, or such officer,
director, partner, shareholder or employee of Landlord or its managing agent
(as the case may be) is required to plead or answer thereto.
12.03. The Tenant shall have the right to use the Demised Premises for
the permitted Use. The Landlord represents and warrants that Tenant's proposed
use is currently lawful under the Jersey City zoning Ordinance and the Permitted
Use is lawful under current applicable governmental requirements or regulation
with respect to land use.
12.04. Landlord shall comply with all then existing Legal Requirement
and shall pay all the cost, expenses, fines, penalties and damages which may be
imposed upon Tenant for any violation by Landlord of the Legal Requirements
existing at the time of the completion of Tenant's Work. Landlord shall comply
with all Legal Requirements applicable to the Building (other than the Demised
Premises) during the Term. If any changes or additions are required to be made
to the Building and/or Land due to a change in Legal Requirements after the
Commencement Date, Landlord shall perform same, and the cost thereof shall be
amortized with interest at the annual Prime Rate of interest as declared by the
Chemical Bank of New York plus two (2%) percent as of the date of such charge or
addition to the Building and/or the Land, calculated over the useful life of the
change or addition and Tenant's Operating Fraction thereof shall be applied to
such amount. Tenant shall pay such amortized amount monthly,
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as and for Additional Rent, Based on the number of years of the useful life
thereof falling within the remainder of the Term.
ARTICLE 13
----------
INSURANCE AND INDEMNITY
-----------------------
13.01. Landlord shall maintain or cause to be maintained All-Risk
insurance in respect of the Building and other improvements on the Land normally
covered by such insurance (except for the property Tenant is required to cover
with insurance under Section 13.02 and similar property of other tenants and
occupants of the Building and except for buildings and other improvements which
are on land neither owned by nor leased to Landlord) for the benefit of
Landlord, Prime Landlord, any Superior Lessors, any Superior Mortgagees and any
other parties Landlord may at any time and from time to time designate, as their
interests may appear, but not for the benefit of Tenant, and shall maintain rent
insurance as required by Prime Landlord or any Superior Lessor or any Superior
Mortgagee. The All-Risk insurance will be in the amounts required by the Prime
Landlord, any Superior Lessor or any Superior Mortgagee but not less than the
amount sufficient to avid the effect of the coinsurance provisions of the
applicable policy or policies. Landlord may also maintain any other forms and
types of insurance which Landlord shall deem reasonable in respect to the
Building and Land. Landlord shall have the right to provide any insurance
maintained or caused to be maintained by it under blanket policies.
13.02. Tenant shall maintain the following insurance: (a)
comprehensive general public liability insurance in respect of the Demised
Premises and the conduct and operation of business therein, with Landlord named
as an additional insured, and at Landlord's request with the Prime Landlord, any
Superior Lessors, and Superior Mortgagees as additional insured(s), with limit
of not less than $3,000,000 for bodily injury or death and $1,000,000 for
property damage, including water damage and sprinkler leakage legal liability,
(b) All-Risk insurance in respect to Tenant's stock in trade, fixtures,
furniture, furnishings, removable floor coverings, equipment, signs, and all
other property of Tenant in the Demised Premises, in any amounts required by
Prime Landlord or any Superior Lessor or any Superior Mortgagee but not less
than 10% of the full insurable value of the property covered and not less than
the amount sufficient to avoid the effect of the coinsurance provisions of the
applicable policy or policies; (c) workers' compensation insurance; and (d) any
other insurance required for compliance with the Insurance Requirements. Tenant
shall deliver to Landlord and any additional insured(s) certificates for such
fully paid-for policies at least 10 days before the Commencement Date. Tenant
shall procure and pay for renewals of such insurance from time to time before
the expiation thereof, and Tenant shall deliver to
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Landlord and any additional insured(s) certificates therefor at least 30 days
before the expiration of any existing policy. All such policies shall be issued
by companies of recognized responsibility licensed to do business in New Jersey,
and all such policies shall contain a provision whereby the insurer shall
provide written notice to Landlord and any additional insured(s) at least twenty
(20) days prior to cancellation of such policies.
13.03. Tenant shall not do, permit or suffer to be done any act,
matter, thing or failure to act in respect of the Demised Premises or use or
occupy the Demised Premises or conduct or operate Tenant's business in any
manner objectionable to any insurance company or companies whereby the fire
insurance or any other insurance then in effect in respect to the Land and
Building or any part thereof shall become void or suspended or whereby any
premiums in respect of insurance maintained by Landlord shall be higher than
those which would normally have been in effect for the occupancy contemplated
under the Permitted Uses. Landlord shall give Tenant written notice in the event
Landlord becomes aware of Tenant's breach of the provisions of this Section
13.03. In case of a breach of the provisions of this Section 13.03, in addition
to all other rights and remedies of Landlord hereunder, Tenant shall (a)
indemnify Landlord, Prime Landlord, Superior Lessors and the Superior
Mortgagees, and hold Landlord, Prime Landlord, Superior Lessors and Superior
Mortgagees harmless from and against any loss which would have been covered by
insurance which shall have become void or suspended because of such breach by
Tenant and (b) pay to Landlord any and all increases of premiums on any
insurance, including, without limitation, rent insurance, resulting from any
such breach. Landlord represents that the Permitted Use complies with Landlord's
Insurance Requirements.
13.04. Subject to Section 13.03 and to the extent not covered by
Tenant's insurance, Tenant shall indemnify, defend and hold harmless Landlord,
Prime Landlord, Superior Mortgagee and all Superior Lessors and their respective
partners, joint venturers, directors, officers, agents, servants and employees
from and against any and all claims arising from or in connection with (a) the
conduct or management of the Demised Premises or of any business therein or any
work or thing whatsoever done, or any condition created (other than by Landlord)
in the Demised Premises during the Term or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Demised Premises, caused by Tenant, its agents, servants, representatives or
employees; (b) any act, omission or negligence of Tenant or any of its
subtenants or licensees or its or their partners, joint venturers, directors,
officers, agents, employees or contractors; (c) any accident, injury or damage
whatever (unless caused solely by Landlord's negligence) occurring in the
Demised Premises, caused by Tenant, its agents, servants, representatives or
employees; and (d) any breach or
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default by Tenant in the full and prompt payment and performance of Tenant's
obligations under this Lease. Tenant's obligation to indemnify shall also
include all costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon, including without
limitation, all attorney's fees, expert fees and expenses. In case any action or
proceeding is brought against Landlord, Prime Landlord, Superior Mortgagee
and/or any Superior Lessor and/or its or their partners, joint venturers,
directors, officers, agents and/or employees by reason of such claim, Tenant
upon notice from Landlord, Prime Landlord, Superior Mortgagee and/or such
Superior Lessor, shall resist and defend such action or proceeding by counsel
reasonably satisfactory to Landlord.
13.05. Landlord, Prime Landlord, Superior Mortgagee or any Superior
Lessor, shall not be liable to or responsible for, and Tenant hereby releases
Landlord, Prime Landlord, Superior Mortgagee and Superior Lessor from all
liability and responsibility to Tenant and any person claiming by, through or
under Tenant, by way of subrogation, for any injury, loss or damage to any
person or property in the Demised Premises or to Tenant's business irrespective
of the cause of such injury, loss or damage. This release shall apply to the
extent that such injury, loss or damage to person or property is covered and
actually paid by insurance, regardless of whether such insurance is payable to
or protects Landlord, Tenant or both. Nothing herein shall be construed to
impose any other or greater liability upon Landlord than would have existed in
the absence of this provision. Further, Tenant shall require its insurers to
include in all of Tenant's insurance policies which could give rise to a right
of subrogation against Landlord, Prime Landlord, Superior Mortgagee and Superior
Lessor a clause or endorsement whereby the insurer waives any rights of
subrogation against Landlord, Prime Landlord, Superior Mortgagee and such
Superior Lessor or permits the insured, prior to any loss, to agree with a third
party to waive any claim it may have against said third party without
invalidating the coverage under the insurance policy. The release in favor of
Landlord, Prime Landlord, Superior Mortgagee and Superior Lessors, contained
herein, is in addition to, and not in substitution for, or in diminution of the
hold harmless and indemnification provisions contained in this Article and in
Article 23.
13.06. Exit as provided herein, Tenant shall not be liable or
responsible for and Landlord hereby releases Tenant from all liability and
responsibility to Landlord and any person claiming by, through or under Landlord
by way of subrogation or any injury, loss or damage to any person or property in
the Demised Premises irrespective of the cause of such injury, loss or damage.
This release shall apply to the extent that such injury, loss or damage to
person or property is covered by insurance, regardless of whether such insurance
is payable or
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protects Landlord, Tenant or both. Nothing herein shall be construed to impose
any other or greater liability upon Tenant than would have existed in the
absence of this provision. Further, Landlord shall require its insurers to
include in all of Landlord's insurance policies which could give rise to a right
of subrogation against Tenant, a clause or endorsement whereby the insurer
waives any right of subrogation against Tenant or permits the insured, prior to
any loss, to agree with a third party to waive any claim against said third
party without invalidating the coverage under the insurance policy.
ARTICLE 14
----------
RULES AND REGULATIONS
---------------------
14.01. Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations (attached hereto as Exhibit C) and
such reasonable changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate to
Tenant, which, in Landlord's judgment, shall be necessary for the reputation,
safety, care or appearance of the Land and Building, or the preservation of good
order therein or the operation or maintenance of the Building or its equipment
and fixtures, or the Common Areas, and which do not unreasonably affect the
conduct of Tenant's business in the Demised Premises; provided, however, that in
case of any conflict or inconsistency between the provisions of this Lease and
any of the Rules and Regulations, the provisions of this Lease shall control.
Nothing contained in this Lease shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations against any other tenant
or any employees or agents of any other tenant, and Landlord shall not be liable
to Tenant for violation of the Rules and Regulations by any other tenant or its
employees, agents, invitees or licensees. Landlord shall give Tenant notice of
any change in the Rules and Regulations. Landlord shall not enforce the Rules
and Regulations against Tenant in an arbitrary or discriminatory manner.
ARTICLE 15
----------
ALTERATIONS
-----------
15.01. Tenant shall not make any alterations or additions to the
Demised Premises, or make any holes or cuts in the walls, ceilings, roofs or
floors thereof, or change the architectural treatment of the Demised Premises
without the Landlord's prior written consent, which consent shall not be
unreasonably withheld; provided, however, the Tenant' may make non-structural
alterations or improvements to the Demised Premises consistent with the use of
said Demised Premises as an office by giving prior written notice to the
Landlord. Tenant shall submit to Landlord plans and specifications for such work
at the time notice is given to Landlord or at any time requested
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<PAGE>
by Landlord. Except with respect to the work done by Landlord or by Tenant to
complete the Demised Premises pursuant to the Tenant Work Letter (Exhibit B),
and without respect to whether, in fact the alterations are constructed, Tenant
shall pay to Landlord upon demand the reasonable cost and expense of Landlord
for (a) reviewing the plans and specifications; (b) inspecting the alterations
to determine whether the same are being performed in accordance with the
approved plans and specifications and all Legal Requirements, including, without
limitation, the fees of any architect or engineer employed by Landlord for such
purpose. With respect to any alteration, estimated to cost more than Ten
Thousand ($10,000.00) Dollars, Tenant shall pay to Landlord, as an Additional
Charge, within five (5) days after demand, ten (10%) percent of the cost of such
alterations for indirect job costs, general conditions and coordination of the
work. Upon the completion of each alteration, Tenant shall deliver to the
Landlord a certificate signed by an officer of Tenant, in form and substance
reasonably satisfactory to Landlord, certifying the cost of the alteration.
Before proceeding with any alterations, Tenant shall fully and promptly comply
with and observe the Rules and Regulations then in force in respect of the
making of alterations. Any review or approval by Landlord of any plans and/or
specifications with respect to any alterations is solely for Landlord's benefit,
and without any representation or warranty whatsoever to Tenant in respect to
the adequacy, correctness or efficiency thereof or otherwise.
15.02. Tenant shall obtain all necessary governmental permits and
certificate for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance with all applicable Legal Requirements and Insurance
Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the better of (a) the original installation of the Building, or (b)
the then standards for the Building established by Landlord. Alterations shall
be performed by Contractors subject to Landlord's reasonable approval.
Alterations shall be made in such manner as not to unreasonably interfere with
or delay and as not to impose any additional expense upon Landlord in the
construction, maintenance, repair or operation of the Building; and if any such
additional expense shall be incurred by Landlord as a result of Tenant's making
of any alterations, Tenant shall pay any such additional expense upon demand.
Throughout the making of alterations, Tenant shall carry, or cause to be
carried, workmen's compensation insurance in statutory limits and general
liability insurance, with completed operation endorsement, for any occurrence in
or about the Building, under which Landlord and its managing agent and any
Superior Lessor whose name and address shall previously have been furnished to
Tenant shall be name as parties insured, in such limits as Landlord may
reasonably
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require, with insurers reasonably satisfactory to Landlord. Tenant shall furnish
Landlord with reasonably satisfactory evidence that such insurance is in effect
at or before the commencement of alterations and on request at reasonable
intervals thereafter during the making of alterations.
ARTICLE 16
----------
LANDLORD'S AND TENANT'S PROPERTY
--------------------------------
16.01. All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the Term, whether or not by or at the expense of Tenant, shall be and remain a
part of the Demised Premises, shall be deemed to be the property of Landlord and
shall not be removed by Tenant, except as provided in Section 16.02. Further,
any carpeting or other personal property in the Demised Premises on the
Commencement Date, unless installed and paid for by Tenant, shall be and shall
remain Landlord's property and shall not be removed by Tenant.
16.02. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of the Tenant and may be removed by Tenant at any time
during the Term; provided that if any of the Tenant's Property is removed,
Tenant shall repair or pay the cost of repairing any damage to the Demised
Premises, the Building or the exterior Common Areas, resulting from the
installation and/or removal thereof. Any equipment or other property for which
Landlord shall have granted any allowance or credit to Tenant shall not be
deemed to have been installed by or for the account of Tenant without expense to
Landlord, shall not be considered as the Tenant's Property and shall be deemed
the property of Landlord.
16.03. In the event at or before the Expiration Date or the date of
any earlier termination of this Lease, or within thirty (30) days after the
Expiration Date or an earlier termination date, Tenant removes from the Demised
Premises any of the Tenant's Property(except such items thereof as Landlord
shall have expressly permitted to remain, which property shall become the
property of the Landlord if not removed), Tenant shall repair any damage to the
Demised Premises, the Building and the Common Areas resulting from any
installation and/or removal the Tenant's Property. Any items of the Tenant's
Property which shall remain in the Demised Premises after the Expiration Date or
after a period of thirty (30) days following the Expiration Date
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or an earlier termination date, may, at the option of the Landlord, be deemed to
have been abandoned, and in such case such items may be retained by Landlord as
its property or disposed of by Landlord, without accountability, in such manner
as Landlord shall determine at Tenant's expense.
ARTICLE 17
----------
REPAIRS AND MAINTENANCE
-----------------------
17.01. Tenant shall, throughout the Term, take good care of the
Demised Premises, the fixtures and appurtenances therein. Tenant, at its
expense, shall be responsible for all repairs, interior and exterior, structural
and non-structural, ordinary and extraordinary, in and to the Demised Premises,
the premises of other tenants, the Building (including the facilities and
systems thereof), and the Common Areas the need for which arises out of (a) the
performance of alterations, (b) the installation, use or operation of the
Tenant's Property in the Demised Premises, (c) the moving of the Tenant's
Property in or out of the Building, or (d) the act, omission, misuse or neglect
of Tenant or any of its subtenants or its or their employees, agents,
contractors or invitees. Tenant shall promptly replace all scratched, damaged or
broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make all repairs in or to the Demised Premises for which Tenant is responsible,
and any repairs required to be made by Tenant to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other Systems of the
Building shall be performed only by contractor(s) designated by Landlord. Any
other repairs in or to the Building, its facilities and Systems or the premises
of other Tenants for which Tenant is responsible shall be performed by Landlord
at Tenant's expense; but Landlord may, at its option, before commencing any such
work or at any time thereafter, require Tenant to furnish to Landlord such
security, in form (including, without limitation, a bond issued by a corporate
surety licensed to do business in New Jersey) and amount, as Landlord shall deem
necessary to assure the payment for such work by Tenant.
17.02. Landlord shall be responsible for all repairs and maintenance
in and to the Building (including the facilities and systems and structure
thereof), except for those repairs and maintenance for which Tenant is
responsible pursuant to any of the provisions of this Lease. Tenant shall give
Landlord written notice of any repairs it believes Landlord should make. In the
event Landlord has not commenced making the repairs within ten (10) Business
Days subsequent to Landlord's receipt of this notice, Tenant may elect to give
Landlord written notice of Tenant's intention to do the repair. In the event
Landlord has
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not commenced the repair within five (5) Business Days of Landlord's receipt of
such written notice, Tenant may do the repair and Landlord shall reimburse
Tenant for all reasonable costs in connection therewith.
17.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's doing any repairs, maintenance, or changes which Landlord is required
or permitted by this Lease, or required by law, to make in or to any portion of
the Building.
ARTICLE 18
----------
ELECTRIC ENERGY
---------------
18.01. Electric current will be supplied to the Demised Premises at
the commencement of the Term in accordance with the provisions of subdivision B
of this Section 18.01. However, at any time and from time to time during the
Term of this Lease, provided it is then permissible under applicable law or
Public Service Regulation, Landlord shall have the option to have electric
current supplied to the Demised Premises in accordance with either of the
subdivisions of this Section not then applicable, including, without limitation,
reverting to the method under which electricity was originally or previously
supplied.
A. Checkmetering.
Electric current will be supplied by Landlord to the Demised Premises
to service Tenant's office equipment, and Tenant will pay Landlord or Landlord's
designated agent, as Additional Rent for such service, the amounts (hereinafter
called the "Electricity Additional Rent"), as determined by a meter or
checkmeter installed for the purpose of measuring such consumption, at charges,
terms and rates set, from time to time during the Term of this Lease by
Landlord, but not less than those specified in the service classification in
effect on June 12, 1988, pursuant to which the then owner of the Building
purchased electric current from the public utility corporation serving the part
of the City of Jersey City where the Building is located, together with
Landlord's administrative charges, calculated at the rate of 15% of the
Electricity Additional Rent as billed to the Tenant. Landlord at its option may,
from time to time, increase the Electricity Additional Rent based upon changes
occurring subsequent to the aforementioned date in the method, rates (including,
without limitation, time of day and seasonal rate differentials) or manner by
which Landlord thereafter purchases electricity for the Building. Such increases
in the Electricity Additional Rent shall be in the
29
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amount which bears the same proportion to the Electricity Additional Rent,
payable prior to such increase, as the increase in the average cost per kilowatt
hour payable in accordance with the rates and other charges pursuant to which
Landlord will purchase electricity after such change bears to the average cost
per kilowatt hour payable in accordance with the rates and other charges prior
to such change. The periods to be used for the aforesaid computation shall be
the billing periods ending in February and August immediately preceding such
change, or such other period or periods as Landlord, in its sole discretion,
from time to time elect. "Average cost per kilowatt hour" is defined as
including energy charges, demand charges, time of charges, fuel adjustment
charges (as determined for each month of said period and not averages), rate
adjustment charges, sales taxes and/or any other factors used by the public
utility in computing its charges to Landlord, applied to the kilowatt hour of
energy and the kilowatts of demand purchased by Landlord during a given bill
period. Where more than one meter measures the electric service to Tenant, the
electric service rendered through each meter may be computed and billed
separately in accordance with the provisions hereinabove set forth. Bills ~~ the
Electricity Additional Rent (the "Bills") shall be render to Tenant at such time
as Landlord may elect and the amount, computed from the meter, shall be the
Electricity Additional Rent.
B. Tenant's Proportionate Share of Electricity Service
---------------------------------------------------
(i) For the purpose of this subdivision B:
(a) The term "Electric Rate" shall mean the greater at the
time in question of the public utility rate schedule (including all surcharges,
demand charges, time of day charges, seasonal rate adjustment charges, taxes,
fuel adjustments, taxes regularly passed on to consumers by the public utility,
and other sums payable in respect thereof) for the supply of electric current
(1) to Landlord for the entire Building, as if Landlord were to purchase current
solely for the Demised Premises; or (2) to Tenant for the Demised Premises, as
if Tenant were to Purchase electric current solely for the Demised Premises.
Notwithstanding the foregoing provisions of this Paragraph B, if the public
utility rate schedule (with such inclusions) applicable to Landlord for the
purchase of electric current for the entire Building shall be increased, and the
percentage of the increase in such rate schedule shall exceed the percentage of
the increase, if any, in the public utility rate schedule (with such inclusions)
applicable to Landlord for the purchase of electric current solely for the
Demised Premises, then the percentage of the increase in the cost to Landlord
for the purchase of electric current for the entire Building shall be used in
determining the Electric Rate.
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(b) The term "Base Electric Rate" shall mean the Electric
Rate in effect on the date the Lease is executed.
(ii) (a) Landlord shall furnish electric current to the Demised
Premises in such reasonable quantities as may be required by Tenant to service
its ordinary office equipment and air-conditioning equipment installed in the
Demised Premises as of the Commencement Date during Business Hours on Business
Days. Tenant shall pay to Landlord as the Electricity Additional Rent or Charge
for such electricity service the sum of $ ??? per annum, per rentable square
foot, based upon a maximum electricity demand of five (5) watts per rentable
square foot of the Demised Premises for space only within the Demised Premises
together with Landlord's administrative charge, calculated at the rate of 15% of
the Electricity Additional Rent as billed to the Tenant. If the Tenant shall
require electric service on any days or hours other than those set forth above
(herein called "after hours service"), Landlord shall furnish the same upon
advance notice from Tenant given prior to (i) 4:00 P.M. of any Business Day if
service is requested to be provided during the next following non-Business Day
or (ii) 3:00 P.M. of any Business Day if service is requested to be provided
during non-business Hours of that Business Day. If Landlord furnishes such
after-hours service, Tenant shall pay Landlord's then established charges
thereof as Additional Rent and Charge upon demand.
(b) If Landlord shall have previously furnished electric current
in accordance with either subdivision A or C of this Section, or if Tenant's use
of electric current shall exceed the amount of demand or consumption set forth
herein, or if the Electric Rate shall increase over the Base Electric Rate, the
Electricity Additional Rent or Charge shall be proportionately increased, in
light of the then prevailing Electric Rate, to reflect the election to utilize
the method set forth in this subdivision B, the increase in the amount of demand
or consumption, or the increase in the Electric Rate, as the case may be, and if
the parties cannot agree thereon, the amount of such adjustment shall be
determined by a reputable electrical engineer, to be selected by Landlord, whose
fees shall be paid equally by both parties. Tenant shall have the right to
dispute the amount of the adjustment so determined provided Tenant submits a
survey and determination of such adjustment made at its sole expense, by a
reputable and independent electrical engineer, within thirty (30) days after
receipt of a copy of the determination of Landlord's engineer. If Landlord and
Tenant are unable to resolve the differences between them within thirty (30)
days after receipt by Landlord of a copy of the determination of Tenant's
engineer, the dispute shall be decided by arbitration. Pending the resolution of
such dispute by agreement or arbitration as aforesaid, Tenant shall pay the
amount of the adjustment as determined by Landlord's engineer, without prejudice
to Tenant's position. Tenant agrees that for the
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purposes of this Section 18.01B(ii) the amount of electrical consumption and
demand estimated by Landlord as Tenant's consumption of and demand for
electrical current at the time electric current is first furnished to Tenant
under the provisions of this subdivision B shall be deemed to be the minimum
quantities of consumption and demand used by Tenant, despite the fact that
Tenant's actual consumption of and demand for usage of electric current may be
less than such amount. In no event shall any adjustment made pursuant to this
Section 18.01B(ii) (b) reduce the electricity Additional Rent or Charge.
(iii) Landlord may furnish to Tenant, from time to time during the
Term of this Lease, a written statement (an "Estimate Statement") setting forth
the Landlord's estimate of Electricity Additional Rent and any increase which
has occurred or which Landlord expects to occur in the Electricity Additional
Rent or Charge pursuant to the provisions of Section 18.0lB (ii) (b) hereof for
the twelve-month period commencing on the first day of the month immediately
succeeding the month in which such Estimate Statement was sent to Tenant. Tenant
shall pay to Landlord, as Additional Rent, on the first day of each month
following receipt of the Estimate Statement and each month thereafter until its
receipt of a new Estimate Statement, an amount equal to one-twelfth (1/12th) of
the amount of such Estimate Statement on account of the Electricity Additional
Rent or Charge for the ensuing period.
(iv) If Landlord shall have furnished Tenant an Estimate Statement
pursuant to Section 18.01B(iii) above, then, as promptly as reasonably
practicable thereafter, Landlord shall furnish to Tenant a statement (the
"Electricity Statement") for the period beginning with the effective date of the
previous Estimate Statement given by Landlord to Tenant and ending with the last
day of the period during which such previous Estimate Statement remained in
effect. If the Electricity Statement shall show that the sums paid by Tenant
under Section 18.0lB exceeded the Electricity Additional Rent or Charge which
Tenant was actually obligated to pay for such period, Landlord shall promptly
either refund to Tenant the amount of such excess or permit Tenant to credit the
amount of such excess against subsequent increases in the Electricity Additional
Rent or Charge payable under this Section; and if the Electricity Statement for
such period shall show that the sums so paid by Tenant were less than the
Electricity Additional Rent or Charge which Tenant was obligated to pay for such
Period, Tenant shall pay the amount of such deficiency within ten (10) days
after receipt of said Electricity Statement. Landlord may, but is not obligated
to, give Tenant an Electricity Statement together with an Estimate Statement.
(v) Each such Electricity Statement given by Landlord pursuant to
Section 18.0lB(iv) above shall be conclusive
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and binding upon Tenant unless within thirty (30) days after receipt of such
Electricity Statement, Tenant shall notify Landlord that it disputes the
correctness of the Electricity Statement, specifying the particular respects in
which the Electricity Statement is claimed to be incorrect. If such dispute
shall not have been settled by agreement, either party may submit the dispute to
arbitration within ninety (90) days after receipt of such Electricity Statement.
Pending the resolution of such dispute by agreement or arbitration as aforesaid,
Tenant shall pay the increase in the Electricity Additional Rent or Charge in
accordance with the Electricity Statement, without prejudice to Tenant's
position, as herein provided. If the dispute shall be resolved in Tenant's favor
Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment of the
Electricity Additional Rent, resulting in compliance with the Electricity
Statement.
C. Direct Supply.
-------------
Tenant shall obtain electric energy directly from public utility
company furnishing electric service to the Building. The costs of such service
shall be paid by Tenant directly to such public utility, but a default by Tenant
in timely payment of any hill or charge of such company shall be deemed a
default by Tenant under this Lease.
18.02. Landlord shall have full and unrestricted access to all air-
conditioning and heating equipment, and to other utility installations servicing
the Building and the Demised Premises. Landlord reserves the right temporarily
to reasonably interrupt, curtail, stop or suspend air-conditioning and heating
service, and all other utility, or other services, because of Landlord's
inability to obtain, or difficulty or delay in obtaining, labor or materials
necessary therefor, or in order to comply with governmental restrictions in
connection therewith, or for any other cause beyond Landlord's reasonable
control. No diminution or abatement of Fixed Rent, Additional Rent, or other
compensation shall be or will be claimed by Tenant, nor shall this Lease or any
of the obligations of Tenant hereunder be affected or reduced by reason of such
interruptions, stoppages or curtailments, the causes of which are hereinabove
enumerated, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial eviction from the
Demised Premises, unless such interruptions, stoppages or curtailments have been
due to the intentional or willful misconduct of Landlord.
18.03. Landlord shall not be liable or responsible to Tenant in any
way for any loss, damage or expense which Tenant may sustain or incur as a
result of any (i) interruption, curtailment or failure (whether or not
temporary) or (ii) defect in the supply, character, quantity, availability or
suitability
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of electricity (including UPS power) furnished to the Demised Premises by reason
of any requirement, act or omission of the Utility Company or any other company
servicing the building with electricity or for any other reason except if and to
the extent the same is caused by or results from the intention of or willful
misconduct of Landlord.
18.04. If either the quantity or character of electrical service is
changed by the Utility Company or other company supplying electricity to the
Building or is no longer available or suitable for Tenant's requirements, no
such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution in the payment of Fixed Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
18.05. In the event that Tenant does not pay the Electricity
Additional Rent owing by Tenant pursuant to this Article within ten (10)
Business Days after the request for same by Landlord, Landlord may, without
further notice and in addition to any other remedies Landlord may have,
discontinue the service of electricity to the Demised Premises without releasing
Tenant from any liability under this Lease and without Landlord incurring any
liability for any damage or loss sustained by Tenant as the result of such
discontinuance. If any tax is imposed upon Landlord's receipts from the sale or
resale of electric current to Tenant by any Federal, state or municipal
authority, Tenant agrees that, unless prohibited by law, Tenant's proportionate
share of such tax shall be passed on to and included in the bill of, and paid by
Tenant to Landlord as Additional Rent.
18.06. Tenant will make no electrical installations, alterations,
additions or changes to electrical equipment or appliances without the prior
written consent of Landlord in each instance. Tenant will at all times comply
with the rules, regulations, terms and conditions applicable to service,
equipment, wiring and requirements of the public utility supplying electricity
to the Building. Tenant covenants and agrees that at all times its use of
electric current will not exceed the capacity of existing feeders to the
Building or the risers or wiring installation and Tenant will not use any
electrical equipment which, in Landlords sole judgment, will overload such
installations or interfere with the use thereof by other tenants of the
Building. In the event that, in Landlord's sole judgment, Tenant's electrical
requirements necessitate installation of an additional riser, risers or other
proper and necessary equipment, the same shall be installed by Landlord at
Tenant's sole expense and shall be chargeable and collectible as
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Additional Rent and paid within ten (10) days after the rendition of a bill to
Tenant therefor.
ARTICLE 19
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HEAT, VENTILATION AND AIR-CONDITIONING
--------------------------------------
19.01. Landlord, at its expense, (but included in Operating Expenses
pursuant to Article 6), shall maintain and operate the base Building heating,
ventilating and air-conditioning systems (hereinafter called the "Systems"), and
shall furnish heat, ventilating and air-conditioning (hereinafter collectively
called "HVAC services"), in the Demised Premises through the Systems, during
Business Hours on Business Days throughout the year. If Tenant shall require
base Building HVAC services at any time other than during Business Hours (herein
referred to as "after hours") Landlord may, if reasonably possible, furnish such
after hours HVAC service upon reasonable advance notice from Tenant, and Tenant
shall pay to Landlord within five (5) days after demand, as Additional Rent, the
sum of $150.00 per hour per quadrant of the Building for such after hours HVAC
service. The term "quadrant" of the Building shall mean a contiguous one-quarter
of the square footage of a floor of the Building as designated by the Landlord.
19.02. Landlord shall furnish necessary passenger elevator service
during Business Hours and shall have a passenger elevator subject to call at all
other times. If Landlord shall at any time have elected to furnish operator
service for any automatic elevators, Landlord shall have the right to
discontinue furnishing such service. If Tenant shall require the use of the
Building's freight elevators, Landlord shall provide a service elevator for the
use of Tenant, provided Tenant gives Landlord reasonable notice of the time and
use of such elevators to be made by Tenant and Tenant pays Landlord's usual and
reasonable charges for the use thereof, as an Additional Charge, within ten (10)
Business Days after demand, including without limitation, any expense for
operator service for such elevator which Landlord may deem necessary in
connection with Tenant's use of such elevator. Landlord shall have the right to
change the operation or manner of operating any of the elevators in the Building
and shall have the right to discontinue, temporarily or permanently, the use of
any one or more cars in any of the banks of elevators provided reasonable
elevator service is provided to the Demised Premises. Tenant shall be entitled
to utilize the freight elevator service during Business Hours on Business Days
on two (2) occasions per day without charge. Except as set forth above, Tenant
shall pay, as and for Additional Rent, for freight elevator use the sum of
$75.00 per hour when such use occurs during Business Hours on Business Days and
$150.00 per hour when such use occurs during non-Business Hours or non-Business
Days.
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ARTICLE 20
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OTHER SERVICES: SERVICE INTERRUPTION
------------------------------------
20.01. Landlord shall keep the outside ground level clean and free of
debris and trash and shall use its best efforts to keep the Building area free
of loiterers.
20.02. Landlord shall furnish adequate hot and cold water to the
Demised Premises, for drinking, lavatory and cleaning purposes. If Tenant uses
water for any other purpose, Landlord may install and maintain, at Tenant's
expense, meters to measure Tenant's consumption of cold water and/or hot water
for such other purpose. Tenant shall reimburse Landlord for the quantities of
cold water and hot water shown on such meters on demand; provided however,
Landlord shall not charge Tenant more than the cost to Landlord for such water
and Landlord shall not cut off the flow of such water.
20.03. Except as otherwise specifically provided herein, the Landlord
shall not be liable for full or partial interruption of any of the above
services or utilities described in this Article or Article 19 from conditions
beyond Landlord's control, but Landlord shall take immediate action to restore
the services and utilities. The rent shall not abate, in whole or in part,
during any such interruption or partial interruption of any of the above
services or utilities from conditions beyond the Landlord's control, but
Landlord shall take immediate action to restore the services and utilities.
20.04. (a) Provided Tenant shall keep the Demised Premises in good
order, Landlord, at its expense, but included in Operating Expenses, shall cause
the Demised Premises, but excluding any portions of the Demised Premises used
for the storage, preparation, service or consumption of food or beverages, to be
cleaned, substantially in accordance with the standards set forth in Exhibit E
attached hereto. Tenant shall pay to Landlord as Additional Rent on demand
Landlord's charges for (A) cleaning work in the Demised Premises or the Building
required because of (i) misuse or neglect on the part of Tenant or its agents,
employees, contractors, licensees or invitees (ii) use of portions of the
Demised Premises for the storage, preparation, service, or consumption of food
or beverages, reproduction, data processing or computer operations, private
lavatories or toilets or other special purposes requiring greater or more
difficult cleaning work than office areas, (iii) interior glass surfaces, (iv)
non-Building Standard materials or finishes installed by Tenant or at its
request, (v) increases in frequency or scope in any of the items set forth in
Exhibit E as shall have been requested by Tenant, and (B) removal from the
- ---------
Demised Premises and the Building of (i) so much refuse and rubbish of Tenant as
shall exceed that normally accumulated in the daily routine of ordinary business
office occupancy and (ii) all of the
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refuse and rubbish of Tenant's machines and of any eating facilities requiring
special handling and (C) additional cleaning work in the Demised Premises or the
Building required because of the use of the Demised Premises by Tenant after
hours. Landlord and its cleaning contractor and their employees shall have
access to the Premises at all times except during Business Hours on Business
Days and, to the extent that it will not unreasonably interfere with the
operation of Tenant's business, during Business Hours. Landlord and its cleaning
contractor and their employees shall have the use of Tenant's light, power and
water in the Demised Premises, without charge therefor, as may be reasonably
required for the purpose of cleaning the Demised Premises. If Tenant is
permitted hereunder to and does have a separate area for the storage,
preparation, service or consumption of food or beverages in the Demise Premises,
Tenant, at its sole cost and expense, shall cause all portions of the Demised
Premises so used to be cleaned daily in manner reasonably satisfactory to
Landlord.
(b) The cleaning services required to be furnished by Landlord
pursuant to this Section may be furnished by a contractor or contractors
employed by Landlord and Tenant agrees that Landlord shall not be deemed in
default of any of its obligations under this section unless such default shall
continue for an unreasonable period of time after notice from Tenant to Landlord
setting forth the specific nature of such default.
ARTICLE 21
----------
ACCESS, CHANGES AND NAME
------------------------
21.01. Except for the space within the inside surfaces of all walls,
hung ceiling, floors, windows and doors bounding the Demised Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities and the use thereof, as well
as access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved to Landlord. Landlord also
reserves the right to install, erect, use and maintain pipes, ducts and conduits
in and through the Demised Premises, provided such are properly enclosed.
21.02. Upon reasonable notice to the Tenant except in the event of an
emergency, Landlord and its agents shall have the right to enter and/or pass
through the Demised Premises at any time or times (a) to examine the Demised
Premises and to show them to the Prime Landlord, actual and prospective Superior
Lessors, Superior Mortgagees, or prospective purchasers of the Building, and (b)
to make such repairs, alterations, additions
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and improvements in or to the Demised Premises and/or in or to the Building or
its facilities and equipment as Landlord is required or desires to make.
Landlord shall be allowed to take all materials into and upon the Demised
Premises that may be required in connection therewith, without any liability to
Tenant and without any reduction of Tenant's obligations hereunder. During the
period of eighteen (18) months prior to the Expiration Date or the date when
Tenant has given Landlord notice of Tenant's intention to terminate this Lease
pursuant to the provisions herein, Landlord and its agents may exhibit the
Demised Premises to prospective tenants. Landlord shall give notice to the
Tenant reasonable under the circumstances and make reasonable efforts to avoid a
material adverse impact on the conduct of Tenant's business.
21.03. If, during the last month of the Term, Tenant has removed all
or substantially all of the Tenant's Property from the Demised Premises,
Landlord may, without notice to Tenant, immediately enter the Demised Premises
and later, renovate and decorate the same, without liability to Tenant and
without reducing or otherwise affecting Tenant's obligations hereunder.
21.04. Landlord reserves the right, at any time and from time to time,
to make such changes, alterations, additions and improvements in or to the
Building and the fixtures and equipment thereof as Landlord shall deem necessary
or desirable, provided however, Landlord shall not cause a material adverse
impact on the conduct of Tenant's business, nor shall Landlord do anything
inconsistent with maintaining the Building as a first class office building.
ARTICLE 22
----------
MECHANICS' LIENS AND OTHER LIENS
--------------------------------
22.01. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to subject
Landlord's interest or estate to any liability under any mechanic's or other
lien law. If any mechanic's or other lien or any notice of intention to file a
lien is filed against the Land, or any part thereof, or the Demised Premises, or
any part thereof, for any work, labor, service or materials claimed to have been
performed or furnished for or on behalf of Tenant or anyone holding any part of
the Demised Premises through or under Tenant, Tenant shall cause the same to be
canceled and discharged of record by payment, bond or order of a court of
competent Jurisdiction within fifteen (15) days after notice by Landlord to
Tenant.
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ARTICLE 23
----------
NON-LIABILITY AND INDEMNIFICATION
---------------------------------
23.01. None of Landlord, Prime Landlord, Superior Mortgagee, Superior
Lessor, their respective partners, joint venturers, directors, officers, agents,
servants or employees shall be liable to Tenant for any loss, injury or damage
to Tenant or to any other Person, or to its or their property, irrespective of
the cause of such injury, damage or loss, unless caused by or resulting from the
intentional or willful misconduct of Landlord, its agents, servants or employees
in the operation or maintenance of the Land or Building to the extent caused by
such intentional or willful misconduct. Further, Landlord, Prime Landlord,
Superior Mortgagee, Superior Lessor or their respective partners, joint
venturers, directors, officers, agents, servants or employees shall not be
liable to Tenant (a) for any such damage caused by other tenants or Persons in,
upon or about the Land or Building, or caused by operations in construction of
any private work, performed by someone other than Landlord, or by public or
quasi-public work; or (b) even in the event of intentional or willful
misconduct, for consequential damages arising out of any loss of use of the
Demised Premises or any equipment or facilities therein by Tenant or any Person
claiming through, against or under Tenant.
23.02. Tenant shall indemnify, defend and hold harmless Landlord,
Prime Landlord, Superior Mortgagees, all Superior Lessors and its and their
respective partners, joint venturers, directors, officers, agents, servants and
employees from and against any and all claims arising from or in connection with
(a) the conduct or management of the Demised Premises or of any business
therein, or any work or thing whatsoever done, or any condition created (other
than by Landlord) in the Demised' Premises during the Term or during the period
of time, if any, prior to the commencement Date that Tenant may have been given
access to the Demised Premises, caused by Tenant, its agents, servants,
representatives or employees; (b) any act, omission or negligence of Tenant or
any of its subtenants or licensees or its or their partners, joint venturers,
directors, officers, agents, employees or contractors; (c) any accident, injury
or damage whatever (unless caused solely by Landlord's negligence) occurring in
the Demised Premises caused by Tenant, its agents, servants, representatives or
employees; and (d) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease. Tenant's
obligation to indemnify shall also include all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including, without limitation, all attorney's fees, expert fees
and expenses. In the event any action or proceeding is brought against Landlord,
Prime Landlord, Superior Mortgagee and/or any Superior Lessor and/or its or
their partners, joint venturers, directors, officers, agents and/or
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employees by reason of any such claim, Tenant, upon notice shall resist and
defend such action or proceeding, by counsel reasonably satisfactory to
Landlord.
23.03. Notwithstanding any provision to the contrary, Tenant shall
look solely to the estate and property of Landlord in and to the Land and
Building (or the proceeds received by Landlord on a sale of such estate and
property but not the proceeds of any financing or refinancing thereof) in the
event of any claim against Landlord arising out of or in connection with this
Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised
Premises or the Common Areas, and Tenant agree that the liability of the
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas
shall be limited to such estate and property of Landlord (or sale proceeds). No
other properties or assets of Landlord or any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be subject to levy,
execution or other enforcement procedures for the satisfaction of any judgment
(or other judicial process) or for the satisfaction of any other remedy of
Tenant arising out of, or in connection with, this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas
and if Tenant shall acquire a lien on or interest in any other properties or
assets by judgment or otherwise, Tenant shall promptly release such lien on or
interest in such other properties and assets by executing, acknowledging and
delivering to Landlord an instrument to that effect prepared by Landlord's
attorneys. Tenant hereby waives the right of specific performance and any other
remedy allowed in equity if specific performance or such other remedy could
result in any liability of Landlord for the payment of money to Tenant or to any
third party.
ARTICLE 24
----------
DAMAGE OR DESTRUCTION
---------------------
24.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as provided in this Article 24), Landlord shall repair the
damage and restore and rebuild the Building and/or the Demised Premises (except
for the Tenant's Property) with reasonable dispatch after notice to it of the
damage or destruction and the collection of the insurance proceeds attributable
to such damage.
24.02. Subject to the provisions of Section 24.05, if all or part of
the Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised
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Premises, for the period from the date of the damage or destruction to (a) the
date the damage to the Demised Premises shall be substantially repaired, or (b)
if the Building and not the Demised Premises is so damaged or destroyed, the
date on which the Demised Premises shall be made tenantable; provided however,
should Tenant reoccupy a portion of the Demised Premises during the period the
repair or restoration work is taking place and prior to the date that the
Demised Premises are substantially repaired or made tenantable, the Rent
allocable to such reoccupied portion based upon the proportion which the area of
the reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
24.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other casualty, or (b) the Building shall be so
damaged or destroyed by fire or other casualty (whether or not the Demised
Premises are damaged or destroyed) that its repair or restoration requires the
expenditure, as estimated by a reputable contractor or architect designated by
Landlord, of more than twenty (20%) percent (or ten (10%) percent if such
casualty occurs during the last two (2) years of the Term) of the full insurable
value of the Building immediately prior to the casualty, or (c) the Building
shall be damaged or destroyed by fire or other casualty (whether or not the
Demised Premises are damaged or destroyed) and either the loss shall not be
covered by Landlord's insurance or the net insurance proceeds (after deducting
all expenses in connection with obtaining such proceeds) shall, in the
estimation of a reputable contractor or architect designated by Landlord, be
insufficient to pay for the repair or restoration work, then, in any such case
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the fire or other casualty.
24.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 24.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as to not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Business Hours on Business Days.
Landlord shall not be required to restore fixtures, improvements or other
property of Tenant. The word "restore" as used in this Article shall include
repairs.
24.05. Notwithstanding any of the foregoing provisions of this
Article 24, if by reason of some act or omission on the part of Tenant or any of
its subtenants or its or their partners,
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directors, officers, servants, employees, agents or contractors, either (a)
Landlord, Prime Landlord or any Superior Lessor or any Superior Mortgagee shall
be unable to collect all of the insurance proceeds (including without
limitation, rent insurance proceeds) applicable to damage or destruction of the
Demised Premises or the Building by fire or other casualty, or (b) the Demised
Premises or the Building shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, then without
prejudice to any other remedies which may be available against Tenant, there
shall be no abatement or reduction of Rent. Further, nothing contained in this
Article 24 shall relieve Tenant from any liability that may exist as a result of
any damage or destruction by fire or other casualty. The provisions of this
section shall be subject to the terms of Section 13.06.
24.06. Landlord will not carry insurance of any kind on the
Tenant's Property, and, except as provided by law or by reason of Landlord's
breach of any of its obligations hereunder, shall not be obligated to repair any
damage or to replace the Tenant's Property.
24.07. The provisions of this Article 24 shall be deemed an express
agreement governing any case of damage or destruction of the Demised Premises
and/or Building by fire or other casualty, and any law providing for such
contingency in the absence of an express agreement, now or hereafter in force,
shall have no application in such case.
ARTICLE 25
----------
EMINENT DOMAIN
--------------
25.01. If the whole of the Demised Premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent domain
or expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If 25% or less of the rentable square footage
of the Demised Premises shall be so taken or conveyed, this Lease shall
terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority. If more than 25% of the rentable
square footage of the Demised Premises shall be so taken or conveyed, this Lease
shall terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority, but either party shall have the
right to terminate this Lease upon notice given to the other party within thirty
(30) days after such taking of possession. If more than 25% of the rentable
square footage of the Building shall be so taken or conveyed, Landlord, may, by
notice to Tenant, terminate this Lease as of the day possession shall be taken.
If this Lease shall continue in effect as to any portion of the Demised Premises
not so taken
42
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or conveyed, the Rent shall be computed as of the day possession shall be taken
on the basis of the remaining rentable square footage of the Demised Premises.
Except as specifically provided herein, in the event of any such taking or
conveyance there shall be no reduction in Rent. If this Lease shall continue in
effect, Landlord shall, at its expense, but shall be obligated only to the
extent of the net award or other compensation (after deducting all expenses in
connection with obtaining the award or other compensation), available to
Landlord for the improvements taken or conveyed (excluding any award or other
compensation for land or for the unexpired portion of the term of any Superior
Lease), make all necessary alterations so as to constitute the remaining
Building a complete architectural and tenantable unit, except for the Tenant's
Property, and Tenant shall make all alterations or replacements to the Tenant's
Property and decorations in the Demised Premises. Landlord shall give notice of
any and all condemnation proceedings and eminent domain negotiations so that
Tenant may protect its own rights. All awards and compensation for any taking or
conveyance, whether for the whole or a part of the Land or Building, the Demised
Premises or otherwise, shall be the property of Landlord, and Tenant hereby
assigns to Landlord all of Tenant's right, title and interest in and to any and
all such awards and compensation, including, without limitation, any award or
compensation for the value of the expired portion of the Term. Tenant shall be
entitled to claim, prove and receive in the condemnation proceeding such award
or compensation as may be allowed for the Tenant's non-depreciated leasehold
improvements and for loss of business, goodwill, and depreciation or injury to
and cost of removal of the Tenant's Property.
25.02. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation for the taking of the Tenant's
Property and for moving expenses, and Landlord shall be entitled to receive that
portion which represents reimbursement for the cost of restoration of the
Demised Premises. This Lease shall be and remain unaffected by such taking and
Tenant shall continue to be responsible for all of its obligations hereunder
insofar as such obligations are not affected by such taking and shall continue
to pay the Rent in full when due. If the period of temporary use or occupancy
shall extend beyond the Expiration Date, that part of the award or payment which
represents compensation for the use and occupancy of the Demised Premises (or a
part thereof) shall be divided between Landlord and Tenant so that Tenant shall
receive (except as otherwise provided below) so much thereof as represents
compensation for the period up to and including the Expiration Date and
Landlord shall receive so much thereof as represents compensation for the period
after the Expiration Date.
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ARTICLE 26
----------
SURRENDER
---------
26.01. On the Expiration Date, or upon any earlier termination of
this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant
shall quit and surrender the Demised Premises to Landlord "broom-clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease. Tenant shall also remove all of Tenant's Property therefrom except as
otherwise expressly provided in this Lease. Further, at Landlord's election,
Tenant shall remove, if required by Landlord, all underfloor cabling, wiring,
power distribution units and conduits, installed for Tenant's use.
26.02. If Tenant remains in possession of the Demised Premises
after the expiration of the Term, Tenant shall be deemed to be occupying the
Demised Premises as a tenant from month to month at the sufferance of Landlord
subject to all of the provisions of this Lease, except that the monthly Fixed
Rent shall be twice the monthly Fixed Rent and Additional Rent in effect during
the last month of the Term.
26.03. No act or thing done by Landlord or its agents shall be
deemed an acceptance of or a surrender of the Demised Premises, and no agreement
to accept such surrender shall be valid unless in writing and signed by
Landlord.
ARTICLE 27
----------
CONDITIONS OF LIMITATION
------------------------
27.01. This Lease is subject to the limitation that whenever Tenant
or any Guarantor (a) shall make an assignment for the benefit of creditors, or
(b) shall commence a voluntary case or have entered against it an order for
relief under any chapter of the Federal Bankruptcy Code (Title 11 of the United
States Code) or any similar order or decree under any federal or state law, now
in existence or hereafter enacted having the same general purpose, and such
order or decree shall have not been stayed or vacated within 30 days after
entry, or (c) shall cause, suffer, permit or consent to the appointment of a
receiver, trustee, administrator, conservator, sequestrator, liquidator or
similar official in any federal, state or foreign judicial or nonjudicial
proceeding, to hold, administer and/or liquidate all or substantially all of its
assets, and such appointment shall not have been revoked, terminated, stayed or
vacated and such official discharged of his duties within 30 days of his
appointment, then Landlord, at any time after the occurrence of any such event,
may give Tenant a notice of intention to end the Term at the expiration of five
(5) days from the date of service of such notice of intention, and upon the
expiration of said five (5) day period, whether or not the Term shall
theretofore have
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commenced, this Lease shall terminate with the same effect as if that day were
the Expiration Date of this Lease, but Tenant shall remain liable for damages as
provided in Article 29.
27.02. This Lease is subject to the further limitations that: (a)
if Tenant shall default in the payment of any Rent, and such default shall
continue for ten (10) days after notice thereof, or (b) if Tenant shall, whether
by action or inaction, be in default of any of its obligations under this Lease
(other than a default in the payment of Rent) and such default shall continue
and not be remedied within thirty (30) days after Landlord shall have given to
Tenant a notice specifying the same, or, in the case of default which cannot
with due diligence be cured within a period of thirty (30) days and the
continuance of which for the period required for cure will not subject Landlord,
Prime Landlord, Superior Mortgagor or Superior Lessor to prosecution for a crime
(as more particularly described in the last sentence of Section 12.02.) or
termination of any Superior Lease or foreclosure of any Superior Mortgage, if
Tenant shall not, (i) within said thirty (30) day period advise Landlord of
Tenant's intention to take all steps necessary to remedy such default, (ii) duly
commence within said thirty (30) day period and thereafter diligently prosecute
to completion all steps necessary to remedy the default, and (iii) to complete
such remedy within a reasonable time after the date of said notice by Landlord,
or (c) if any event shall occur or any contingency shall arise whereby this
Lease would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 11, or (d) if Tenant shall abandon the Demised Premises, then in any of
said cases Landlord may give to Tenant a notice of intention to end the Term at
the expiration of five (5) days from the date of the service of such notice of
intention, and upon the expiration of said five (5) days, whether or not the
Term shall theretofore have commenced, this Lease shall terminate with the same
effect as if that day were the Expiration Date of this Lease, but Tenant shall
remain liable for damages as provided in Article 29.
ARTICLE 28
----------
RE-ENTRY BY LANDLORD
--------------------
28.01. If Tenant shall default in the payment of any Rent, and such
default shall continue for ten (10) Business Days after notice thereof, or if
this Lease shall terminate as provided in Article 27, Landlord or Landlord's
agent and employees may immediately or at any time thereafter re-enter the
Demised Premises, or any part thereof, either by summary dispossess proceedings
or by any suitable action or proceeding at law, or otherwise, without being
liable to indictment, prosecution or damages therefor, and may repossess the
same, and may remove any Person therefrom, to the end that Landlord may
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have, hold and enjoy the Demised Premises. The word "re-enter" as used herein,
is not restricted to its technical legal meaning. if this Lease is terminated
under the provisions of Article 27, or if Landlord shall re-enter the Demised
Premises under the provisions of this Article 28, or in the event of the
termination of this Lease, or of re-entry, by or under any summary dispossess or
other proceedings or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Rent
payable up to the time of such termination of this Lease, or of such recovery of
possession of the Demised Premises by Landlord, as the came may be, and shall
also pay to Landlord damages as provided in Article 29.
28.02. In the event of a breach or threatened breach by a party of
any of its obligations under this Lease, the other party shall also have the
right of injunction.
28.03. If this Lease shall terminate under the provisions of
Article 27, or if Landlord shall re-enter the Demised Premises under the
provisions of this Article 28, or in the event of the termination of this Lease,
or re-entry, by or under any summary dispossess or other proceeding or action or
any provision of law by reason of default hereunder on the part of Tenant,
Landlord shall be entitled to retain all monies, if any, paid by Tenant to
Landlord whether as Advance Rent, Security Deposit(and interest thereon, if any,
or otherwise, but such monies shall be credited by Landlord against any Rent due
from Tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Article 29 or pursuant to
law.
ARTICLE 29
----------
DAMAGES
-------
29.01. If this Lease is terminated under the provisions of Article
27, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 28, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay as
Additional Charges to Landlord as a condition precedent to the dismissal of any
summary dispossess or other proceeding or action for damages, at the election of
Landlord. either:
(a) A sum which at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (i) the aggregate
amount of the Rent which would have been payable by Tenant
(conclusively presuming the average monthly Additional Charges to be
the same as were the average monthly
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Additional Charges Payable for the year, or if less than 365 days have
then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry) for the period
commencing with such earlier termination of this Lease or the date of
any such re-entry, as the case may be, and ending with the Expiration
Date, over (ii) the aggregate fair market rental value of the Demised
Premises for the same period; or
(b) Sums equal to the Fixed Rent and the Additional Charges which
would have been payable by Tenant had this Lease not so terminated, or
had Landlord not so re-entered the Demised Premises, payable upon the
due dates therefor specified herein following such termination or such
re-entry and until the Expiration Date, provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease or in
reentering the Demised Premises and in securing possession thereof, as
well as the expense of reletting, including, without limitation,
altering and preparing the Demised Premises for new tenants, brokers'
commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or
longer than the period ending on the Expiration Date; but in no event
shall Tenant be entitled to receive any excess of such net rents over
the sums payable by Tenant to Landlord hereunder, nor shall Tenant be
entitled in any suit for the collection of damages pursuant to this
subdivision (b) to a credit in respect of any rents from reletting,
except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet
in combination with other space, then proper apportionment on a square
foot basis shall be made of the rent received from such reletting and
of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord
before presentation of proof of such damages to any court, commission or
tribunal, the amount of rent reserved upon such reletting shall, prima facia, be
the fair and reasonable rental value for the Demised Premises, or part thereof,
to relet during the term of the reletting. Landlord shall not be liable in any
way whatsoever for its failure or refusal to relet the
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Demised Premises or any part thereof, or if the Demised Premises or any part
thereof are relet, for its failure to collect the rent under such reletting, and
no such failure or refusal to relet or failure to collect the rent shall release
or affect Tenant's liability for damages or otherwise under this Lease.
29.02. Suit or suits for the recovery of any such damages, or any
installments thereof, may be brought by Landlord at any time and from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term would have expired if it
had not been so terminated under the provisions of Article 27 or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord mat lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove and/or obtain as
damages by reason of the termination of this Lease or re-entry on the Demised
Premises for the default of Tenant under this Lease an amount equal to the
maximum amount permitted by any statute or rule of law in effect at the time
when the governing proceedings have been initiated, whether or not such amount
is greater than, equal to, or less than any of the sums referred to in Section
29.01.
29.03. In addition, if this Lease is terminated under the
provisions of Article 27, or if Landlord shall re-enter the Demised Premises
under the provisions of Article 28, Tenant covenants that: (a) the Demised
Premises then shall be in the same condition as that in which Tenant has agreed
to surrender the same to Landlord at the Expiration Date; (b) Tenant shall have
performed prior to any such termination any obligation of Tenant contained in
this Lease for the making of any alteration or for restoring or rebuilding the
Demised Premises or the Building, or any part thereof; and (c) for the breach of
any covenant of Tenant set forth above in this Section 29.03, Landlord shall be
entitled immediately without notice or other action by Landlord, to recover, and
Tenant shall pay as and for liquidated damages therefor, the cost of performing
such covenant (as estimated by an independent contractor selected by Landlord).
29.04. In addition to any other remedies Landlord may have under
this Lease, and without reducing or adversely affecting any of Landlord's rights
and remedies under this Article 29, if any rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) days after notice therefor, the
same shall bear interest at the Late Payment Rate pursuant to Section 3.05 from
the due date thereof until paid, and the amount(s) of such interest shall be
Additional Charges hereunder.
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29.05. In addition to any remedies which Landlord may have under
this Lease, if there shall be a material monetary default hereunder by Tenant
which shall not have been remedied within the applicable grace period, Landlord
shall not be obligated to furnish to Tenant or the Demised Premises any HVAC
services, or any building services; and the discontinuance of any one or more of
such services shall be without liability by Landlord to Tenant and shall not
reduce, diminish or otherwise affect any of Tenant's covenants and obligations
under this Lease. Landlord shall provide Tenant with ten (10) days prior written
notice in addition to the notice of default, indicating the date on which HVAC
services or other building services shall be discontinued.
ARTICLE 30
----------
AFFIRMATIVE WAIVERS
-------------------
30.01. Tenant, on behalf of itself and any and all person claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or them might have under or by reason of any present or future
law, to redeem the Demised Premises or to have a continuance of this Lease after
being dispossessed or ejected from the Demised Premises by process of Law or
under the terms of this Lease or after the termination of this Lease as provided
in this Lease.
30.02. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including without limitation, any
claim of injury or damage, and any emergency and other statutory remedy with
respect thereto. Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the Demised
Premises.
ARTICLE 31
----------
NO WAIVERS
----------
31.01. The failure of the Landlord to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
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ARTICLE 32
----------
CURING TENANT'S DEFAULTS
------------------------
32.01. If Tenant shall default in the performance of any of
Tenant's obligations under this Lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice in a case of emergency, and in any
other case only if such default continues after the expiration of ten (10) days
from the date Landlord gives Tenant notice of the default. Bills for any
expenses incurred by Landlord in connection with any such performance by it for
the account of Tenant, and bills for all costs, expenses and disbursements of
every kind and nature whatsoever, including reasonable attorney's fees and
expenses, involved in collecting or endeavoring to enforce any rights against
Tenant or Tenant's obligations hereunder, under or in connection with this Lease
or pursuant to law, including any such cost, expense and disbursement involved
in instituting and prosecuting Summary Dispossess proceedings or in recovering
possession of the Demised Premises after default by Tenant or upon the
expiration of the Term or sooner termination of this Lease, and interest on all
sums advanced by Landlord under this Article at the interest rate provided in
Section 3.05 may be sent by Landlord to Tenant monthly, or immediately at
Landlord's option and such amounts shall be due and payable in accordance with
the terms of such bills.
ARTICLE 33
----------
BROKER
------
33.01. Parties represent that no broker except the Broker was
instrumental in bringing about or consummating this Lease and that the parties
have had no conversations or negotiations with any broker except the Broker
concerning the leasing of the Demised Premises. Parties agree to indemnify and
hold harmless each other against and from any claims for any brokerage
commissions and all costs, expenses and liabilities in connection therewith,
including, without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by each other with any broker other than the
Broker. Landlord shall pay any brokerage commissions due the Broker for the
leasing of the Demised Premises as defined in Section 1.01(L) pursuant to a
separate agreement between Landlord and the Broker.
ARTICLE 34
----------
NOTICES
-------
34.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall
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be in writing and shall be deemed to have been properly given, rendered or made
only if hand delivered, or delivered by any nationally recognized over-night
delivery service, or sent by United States registered or certified mail, return
receipt requested, addressed to the other party at the address hereinabove set
forth (except that after the Commencement Date, Tenant's address, unless Tenant
shall give notice to the contrary, shall be the Building) as to Landlord, with a
copy to the attention of Eugene T. Paolino, Esq. of Panepinto, Paolino, Doherty
& Mangin, Journal Square Plaza, Jersey City, New Jersey and shall be deemed to
have been given, rendered or made on the date received if delivered by hand or
the second day after the day so mailed unless mailed outside the State of New
Jersey, in which case it shall be deemed to have been given, rendered or made on
the third business day after the day so mailed. Landlord shall also send notices
to Tenant in compliance with this paragraph to the attention of William J.
Russo, Esq. of Russo & Burke, 600 Third Avenue, New York, New York 10016. Either
party may, by notice as aforesaid, designate a different address or addresses
for notices, statements, demands, consents, approvals or other communications
intended for it.
ARTICLE 35
----------
ESTOPPEL CERTIFICATES
---------------------
35.01. Each party shall, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice,
execute and deliver to the requesting party a statement certifying that this
Lease is not modified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge and stating
whether or not, to the best knowledge of the party giving the statement, any
event has occurred which with the giving of notice or passage of time, or both,
would constitute such a default of the requesting party, and, if so, specifying
each such event; and such statement delivered pursuant hereto shall be deemed a
representation and warranty to be relied upon by the party requesting the
certificate and by others with whom such party may be dealing, regardless of
independent investigation. Tenant also shall include in any such statement such
other information concerning this Lease as Landlord may reasonably request.
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ARTICLE 36
----------
ARBITRATION
-----------
36.01. Landlord may at any time request arbitration, and Tenant may
at any time when not in default in the payment of any Rent request arbitration,
of any matter in dispute but only where arbitration is expressly provided for in
this Lease. Such dispute shall be submitted to the arbitration of three (3)
disinterested persons, one of whom shall be chosen by each of the parties
hereto, and the third by the two arbitrators so chosen; and the award and
finding of said arbitrators, or of any two of them, shall be final and
conclusive on any questions or matters so submitted to them. In case an
arbitration is not otherwise arranged, either party desiring such submission to
arbitration shall notify the other party in writing of the matter which it
desires to submit to arbitration, designating its arbitrator in such notice.
Within twenty (20) days thereafter, the party thus notified shall name its
arbitrator, and notify the other party of such selection. The arbitrators thus
selected shall immediately proceed to select the third arbitrator as aforesaid,
and with him to consider and determine all matters submitted. In case the party
notified of the desired submission to arbitration shall fail, upon due
notification, to name an arbitrator, the arbitrator selected by the other party
shall have the right to proceed alone and determine the matters thus submitted,
and his award shall be final and conclusive upon the parties hereto. In the
event that the two arbitrators first selected shall be unable to agree upon the
third arbitrator within twenty (20) days after the selection of the second
arbitrator, either party hereto, upon giving ten (10) days' notice in writing to
the other party, or to the arbitrator selected by such other party, may apply to
the Superior Court of New Jersey for the appointment of a third arbitrator, and
any arbitrator appointed by such court upon such application shall have the same
powers and duties as if appointed by the two arbitrators first selected as
hereinbefore provided. The award in such arbitration may be enforced on
application of either party by the order or judgment of a court of competent
jurisdiction.
36.02. If any delay in complying with any requirement of this Lease
by Landlord might subject Tenant to any fine or penalty, or to prosecution for a
crime, or materially interfere with Tenant's use and enjoyment of the Demised
Premises or its access thereto, of if it would constitute a default by Tenant
under any permitted mortgage, or of any of the foregoing, Tenant shall have the
right to remedy such default and in such event the sole question to be
determined by the arbitrators shall be whether Landlord is liable for Tenant's
costs and expenses of curing such default.
36.03. Each party to the arbitration shall pay the costs or fees of
the arbitrator selected by it and all further
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costs and fees, including court costs in connection with the arbitration, shall
be shared equally by the two parties to the arbitration. Each party shall bear
the cost of its own attorneys and experts and the additional expenses of
presenting its own proofs.
ARTICLE 37
----------
INTENTIONALLY OMITTED
---------------------
ARTICLE 38
----------
BUILDING NAME
-------------
38.01. The Building may be designated and known by any name or
address Landlord may choose from time to time in Landlord's sole discretion.
Tenant agrees not to refer to the Building by any name or address other than as
designated by Landlord. The Building may be named after any person, firm, or
otherwise, whether or not such name is, or resembles, the name of a tenant of
the Building. In no event shall Tenant use, in connection with its business or
otherwise, any photographic or other type of representation of the Building. In
the event the Building is named after any person, firm or otherwise, Tenant, in
connection with its business or otherwise, shall not refer to the Building by
such name but shall only use the street address of the Building.
38.02. Tenant shall have the right, subject to Landlord's prior
written consent, to have its name included in the Building directory.
ARTICLE 39
----------
ENVIRONMENTAL LAWS
------------------
39.01. (a) Tenant acknowledges the existence of federal, state and
local environmental laws, rules and regulations including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) 42 U.S.C. 9601-9657, the Resource Conservation and Recovery Act (RCRA)
42 U.S.C. 6901-6987, the State of New Jersey Environmental Clean-Up
Responsibility Act of 1983 (ECRA) N.J.S.A. 13:1K-6 to 18 and the Spill and
Compensation and Control Act N.J.S.A. 58:10-23.11 et seq., all of which,
together with any successor legislation, are collectively referred to
hereinafter as the "Environmental Laws". Tenant agrees, from and after the date
hereof, to act in compliance with the Environmental Laws and that it shall not
perform any acts in violation of the Environmental Laws. Tenant represents to
the Landlord that Tenant's Standard Industrial Classification (SIC) Number, as
used on its Federal Tax Return, will not, under the applicable rules and
regulations existing as of the date hereof, subject the Demised Premises, the
Building or the Land to ECRA applicability. Tenant represents to
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Landlord and covenants that Tenant will not change to an operation with a
different SIC Number without Landlord's and Prime Landlord's prior written
consent. Any such proposed change shall be sent in writing to Landlord sixty
(60) days prior to the proposed change. Landlord or Prime Landlord may deny
consent, if, inter alia, the different SIC Number would subject the Demised
----------
Premises, the Building or the Land to ECRA applicability.
(b) Upon the occurrence of any event requiring Tenant's compliance
with ECRA, or if Landlord by reason of any act or omission or failure to act or
not act on the part of Tenant, shall be required to comply with ECRA, Tenant
shall make all necessary filings with the New Jersey Department of Environmental
Protection ("DEP") and any other relevant federal, state, county or municipal
legal authority and, at its own expense, shall cause all necessary tests and
studies to be performed. Landlord shall complete such documents and otherwise
cooperate (provided such cooperation does not subject Landlord to any fee, cost,
expense or liability or require performance by Landlord of Tenant's obligation
hereunder) as may be reasonably requested by Tenant or required by the ECRA
requirements of the DEP. In the event an environmental clean-up is required, the
Landlord shall have an unrestricted right to inspect, as often as it deems
necessary in its sole discretion, during and after such clean-up.
(c) Tenant hereby agrees to execute such documents and provide such
information as Landlord reasonably requires to assure compliance with ECRA or to
comply with the Environmental Laws, and rules or regulations of any other
relevant federal, state, county or municipal legal authority. Tenant shall bear
all costs and expenses incurred by Landlord associated with any required ECRA
compliance resulting from Tenant's use of the Demised Premises or any acts
and/or omissions which Tenant, its agents, employees, invitees or independent
contractors initiate, including, without limitation, state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ECRA compliance shall include applications for determinations of
non applicability from the appropriate legal authority. Tenant agrees to
indemnify and hold Landlord and Prime Landlord harmless from and against any
fines, suits, proceedings, claims and actions and any other cost, expense or
liability of any kind arising under the Environmental Laws, rules or regulations
resulting from Tenant's failure to comply with this Section 39.01 or Tenant's
failure to provide all information, make all submissions and take all actions
required by any legal authority, including reasonable attorney's fees.
(d) Tenant shall immediately provide Landlord with copies of all
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to Tenant's
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compliance hereunder or any other environmental enforcement requirements under
any Environmental Laws as they are issued or received by Tenant. More
specifically, but not limiting the foregoing, Tenant shall promptly provide
Landlord with: (i) all documentation and correspondence provided to DEP pursuant
to the Worker and Community Right to Know Act, N.J.S.A. 34:5A-1 et seq. and the
regulations promulgated thereunder; (ii) all reports and notices made by Tenant
pursuant to the Hazardous Substance Discharge-reports and Notices Act, N.J.S.A.
13:1K-15 et seq. and the New Jersey Spill Compensation and Control Act, N.J.S.A.
58:10-23.11 et seq., and the regulations promulgated thereunder; and (iii) any
notices, correspondence and submissions made by Tenant to DEP, the United States
Environmental Protection Agency, the United States Occupational Safety and
Health Administration, or any other legal authority which requires submission of
any information concerning environmental matters of hazardous wastes or
substances, and any notices, correspondence, documents and directives received
by Tenant from any of said authorities.
(e) In addition to any other remedies of Landlord pursuant to this
Lease, Tenant's failure to abide by the terms of this Section 39.01 shall
survive the Expiration Date or earlier termination of the Term of this Lease.
Tenant's failure to abide by the terms of this Article shall be restrainable by
injunction.
(f) Tenant shall indemnify, defend and hold Landlord, Prime Landlord,
Superior Lessors and Superior Mortgagees harmless from and against all claims,
liabilities, losses, damages and costs, foreseen or unforeseen, including
without limitation, reasonable attorney's fees, engineering and other
professional and expert fees and costs, which Landlord may incur by reason of
Tenant's action or non-action with regard to Tenant's obligations under this
Article.
(g) At expiration or earlier termination of this Lease, Landlord may
require and Tenant shall obtain a statement from the DEP of compliance with
ECRA, its amendments or rules and regulations promulgated thereunder, or a
Letter of Non-Applicability, as the case may be.
ARTICLE 40
----------
MISCELLANEOUS
-------------
40.01. Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement(s) which may be made between the parties concurrently with the
execution and delivery of this Lease. All understandings and agreements
heretofore had between the parties
55
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are merged in this Lease and any other written agreement(s) made concurrently
herewith, which alone fully and completely express the agreement of the parties
and which are entered into after full investigation. Neither party has relied
upon any statement or representation not embodied in this Lease or in any other
written agreement(s) made concurrently herewith.
40.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease in whole or
in part, unless such agreement is in writing, refers expressly to this Lease and
is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
40.03. If Tenant shall at any time request Landlord to sublet or let
the Demised Premises for Tenant's account, Landlord or its agent is authorized
to receive keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord from any
liability for loss or damage to any of the Tenant's Property in connection with
such subletting or letting.
40.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights in any
successor or assignee of Tenant and (b) the provisions of this Section 40.04
shall not be construed as modifying the conditions of limitation contained in
Article 27.
40.05. Except for Tenant's obligations to pay Rent, the time for
Landlord or Tenant, as the case may be, to perform any of its respective
obligations hereunder shall be extended if and to the extent that the
performance thereof shall be prevented due to any Unavoidable Delays. Except as
expressly provided to the contrary, the obligations of Tenant hereunder shall
not be affected, impaired or excused, nor shall Landlord have any liability
whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed
in fulfilling, any of its obligations under this Lease due to any of the matters
set forth in the first sentence of this Section 40.05, or (b) because of any
failure or defect in the supply, quality or character of electricity, water or
any other utility or service furnished to the Demised Premises for any reason
beyond the Landlord's reasonable control.
40.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration or earlier
termination of this Lease.
56
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40.07. Tenant shall not exercise its rights under Article 15 or any
other provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing, labor disruption or dispute or
any interference with the business of Landlord or any tenant or occupant of the
Building.
40.08. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Demised Premises for which Landlord might be liable,
(b) any fire or other casualty in the Demised Premises, (c) any damage to or
defect in the Demised Premises, including the fixtures and equipment thereof,
for the repair of which Landlord might be responsible, and (d) any damage to or
defect in any part of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in, on or passing through
the Demised Premises or any part thereof.
40.09. This Lease shall be governed by and construed in accordance
with the laws of the State of New Jersey. If any provision of this Lease shall
be invalid or unenforceable, the remainder of this Lease shall not be affected
and shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. Each covenant, agreement,
obligation or other provision of this Lease on Tenant's part to be performed,
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision of this Lease. All terms and words used in
this Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require.
40.10. If deemed necessary by Landlord, no person will be allowed
access to the Building without a security pass which shall be issued by Landlord
upon written request of Tenant. Tenant shall be fully liable for the acts of all
persons for whom a security pass is requested. All security passes shall be
returned to Landlord in the event the persons to whom they were issued are no
longer employed by Tenant or are otherwise not entitled to access to the
Building. In no event shall Landlord be liable for its refusal to allow access
to the Building to any person who does not have a security pass.
40.11. As part of its security program for the Building, Landlord
may restrict entry to the elevator lobby of the Building by use of an
electronically controlled lock activated by a "card-key" which is electronically
programmed with a special access code to permit entry. Landlord will issue card-
keys to Tenant, provided that Tenant shall pay to Landlord a charge for each
card issued at the rates established from time to time by Landlord for all
tenants of the Building. Tenant may
57
<PAGE>
obtain a replacement of any lost or stolen card-key, provided that Tenant shall
pay to Landlord its then established charges for the issuance of replacement
cards and for reprogramming of the security card access system to permit the use
of the replacement cards issued. Landlord shall have no liability to Tenant, its
employees, invitees or any other person for any injuries, damages, losses, costs
or expenses, including, without limitation, theft of property, suffered or
incurred by anyone by reason of the non-operation or malfunction of said card-
key entry system.
40.12. Whenever in this Lease Tenant is required to obtain Landlord's
consent or approval, Tenant understands that Landlord may be required to first
obtain the consent or approval of Prime Landlord pursuant to the Master Lease.
If Prime Landlord should delay any such consent or approval, Landlord may
similarly delay any consent or approval to Tenant. If Prime Landlord should
refuse such consent or approval, Landlord shall be released from any obligation
to grant its consent or approval, whether or not Prime Landlord's refusal, in
Tenant's opinion, is arbitrary or unreasonable. Tenant agrees that Landlord
shall not have any duty or responsibility with respect to obtaining such consent
or approval of Prime Landlord when the same is required under the terms of the
Master Lease, other than the mere transmissions by Landlord to Prime Landlord of
Tenant's request for such consent or approval.
40.13. With respect to any provisions of this Lease which provide, in
effect, the Landlord shall not unreasonably withhold or unreasonably delay any
consent or approval, Tenant in no event shall be entitled to make, nor shall
Tenant make, any claim and Tenant hereby waives any claim, for money damages;
nor shall Tenant claim any money damages by way of set-off, counterclaim or
defense, based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed any consent or approval; but
Tenant's sole remedy shall be an action or proceeding to enforce any such
provision, or for specific performance, injunction or declaratory judgment.
Landlord shall not be deemed to have unreasonably withheld or delayed its
consent or approval if the same or similar consent or approval is required to be
obtained from Prime Landlord pursuant .to the terms of the Master Lease and
Prime Landlord withholds or delays its consent or approval.
40.14. To the extent that Landlord, its agents, employees or
licensees have access to the Demised Premises pursuant to the provisions of this
Lease or otherwise, Landlord agrees to indemnify, defend and save harmless
Tenant from and against all bodily harm and personal injury, loss, claim and
damage to or of any person or property of whatever nature arising from any act,
omission, fault, misconduct or negligence of Landlord, or Landlord's
contractors, licensees, agents, servants
58
<PAGE>
or employees, unless caused by the Tenant's negligence or willful misconduct.
This indemnity and hold harmless clause shall include indemnity against all
costs, expense and liabilities paid or incurred in or in connection with any
such claim or proceeding brought thereon and the defense thereof, and shall
include reasonable attorney's fees.
40.15. If the Master Lease terminates for any reason whatsoever prior
to the date on which this Lease is scheduled to expire, this Lease shall
thereupon terminate. Landlord shall not be liable to Tenant by reason of any
such termination and thereafter shall have no further obligations of any kind
whatsoever.
40.16. This Lease is subject to the Master Lease, and Tenant accepts
this Lease subject to the Master Lease, as amended and supplemented and any
amendments and supplements to the Master Lease hereafter made between Prime
Landlord and Landlord.
40.17. (a) If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified, if a foreign corporation, corporation
and is authorized to do business in the State of New Jersey (a copy of evidence
thereof shall be supplied by Tenant to Landlord upon request); and that each
person executing this Lease on behalf of Tenant is an officer of Tenant and is
duly authorized to execute, acknowledge and deliver this Lease to Landlord (a
copy of resolution to such effect shall be supplied by Tenant to Landlord upon
request).
(b) If Tenant is a partnership (or is comprised of two (2)
or more persons, individually, or as joint venturers or as copartners of a
partnership), or if Tenant's interest in this Lease shall be assigned to a
partnership (or to two (2) or more persons, individually, or as joint venturers
or as co-partners of a partnership) (any such partnership and such persons are
referred to in this Article as the "Partnership Tenant"), the following shall
apply: (i) the liability of each of the parties comprising the Partnership
Tenant shall be joint and several (ii) each of the parties comprising the
Partnership Tenant hereby consents in advance to, and agrees to be bound by,
any modifications, termination, discharge or surrender of this Lease which may
hereafter be made, and by any notices which may hereafter be given, by the
Partnership Tenant or by any of the parties comprising the Partnership Tenant,
(iii) any notices given or rendered to the Partnership Tenant or to any of the
parties comprising the Partnership Tenant shall be deemed given or rendered to
the Partnership Tenant and to all such parties and shall be binding upon the
Partnership Tenant and all parties, (iv) if the Partnership Tenant shall admit
new partners, all such new partners shall, by their admission to the
59
<PAGE>
Partnership Tenant, be deemed to have assumed performance of all of the terms of
this Lease on Tenant's part to be performed and (v) the Partnership Tenant shall
give prompt notice to Landlord of the admission of any such new partners, and
upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord and agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all of the terms of this Lease on
Tenant's part to be performed (but neither Landlord's failure to request any
such agreement nor the failure of any such new partner to execute or deliver any
such agreement to Landlord shall vitiate the provisions of this Section).
40.18. All Exhibits to this Lease are hereby incorporated into this
Lease, and references to "this Lease" shall include all Exhibits.
40.19. Tenant shall not place a load upon any floor that exceeds the
floor load per square foot that such floor was designed to carry or which is
allowed by any laws.
40.20. Tenant acknowledges that there may be noise, dust, vibrations
and other effects from construction work occurring near or about the Building
and that Tenant shall have no claims against Landlord for any disruption caused
by same or interruption or interference with Tenant's business resulting from
same and that Landlord shall have no liability otherwise to Tenant therefor.
40.21. In the event Tenant is in arrears in the payment of Rent,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by or refunds payable to Tenant are to be credited and Landlord
may apply any payments made by Tenant to any items Landlord sees fit,
irrespective of and notwithstanding any designation or requests by Tenant as to
the items against which any such payments shall be credited.
40.22. In the event Landlord incurs legal, investigative and/or other
professional fees and expenses in connection with any request to Landlord by
Tenant for any action, other than that specifically required of the Landlord
pursuant to the provisions of the Lease, then, in that event, the reasonable
cost of such legal, investigative and/or other professional fees and expenses,
incurred by the Landlord, shall be paid on demand by Tenant to the Landlord.
40.23. The person signing this Lease on behalf of Tenant personally
represents and warrants to Landlord that (1) all action necessary to be taken
and all consents necessary to be obtained to fully authorize the execution,
delivery and performance of this Lease by Tenant has been duly taken or
60
<PAGE>
obtained, as the case may be and (ii) he or she is a duly authorized officer of
Tenant who has full power and authority to execute and deliver this Lease on
behalf of Tenant and bind Tenant to all of the terms and conditions hereof.
40.24. Telephone installation and service shall be the sole
responsibility of Tenant at Tenant's sole cost and expense unless agreed
otherwise in writing between Landlord and Tenant. Tenant shall make all
arrangements for telephone service with the company supplying said service,
including the deposit requirement for the furnishing of service. Landlord shall
not be responsible for any delays occasioned by failure of the telephone company
to furnish service.
40.25. In the event Tenant, is for any reason, entitled to protection
by virtue of Sovereign Immunity, Tenant hereby unconditionally waives such
Sovereign Immunity with respect to the performance of the terms and conditions
under this Lease.
40.26. This Lease may be executed in one or more counterparts, each
of which shall be original, and all of which shall constitute one and the same
instrument.
ARTICLE 41
----------
PARKING
-------
41.01. Landlord agrees that Tenant shall have the right to use five
(5) unassigned spaces in the parking facilities furnished by the Prime Landlord
to the Landlord at the rate of $115.00 per space per month, subject to periodic
adjustments, during the term of the Lease. Such right shall be exercised within
sixty (60) days of the execution of the within Leasee. Such right to use the
parking facilities shall terminate with this Lease.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
LANDLORD:
ATTEST: NEWPORT OFFICE PROPERTIES CORP.
/s/ Martina Grant BY: /s/ Koshi Okamota
- --------------------------- ----------------------------
Name: MARTINA GRANT KOSHI OKAMOTO
Title: RE SPECIALIST Senior Vice President
TENANT:
ATTEST: NIPPON TRAVEL AGENCY PACIFIC, INC.
BY: /s/ Jun Ishiyama
__________________________ ---------------------------
Name: Name: Jun Ishiyama
Title Title: President
62
<PAGE>
STATE OF NEW JERSEY )
) ss:
COUNTY OF HUDSON )
On this day of , 1991, before me personally came Koshi
Okamoto, to me known, who being by me duly sworn, did depose and say that he is
the Senior Vice President of Newport Office Properties Corp., the corporation
described in and which executed the foregoing instrument, as Landlord, and the
he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Edward F. Nelson
--------------------------------
EDWARD F. NELSON
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On this 13th day of January, 1992, before me personally came Jun
Ishiyama, to me known, who being by me duly sworn, did depose and say that he is
the President of Nippon Travel Agency Pacific, Inc., the corporation described
in and which executed the foregoing instrument, as Tenant, and the he signed his
name thereto by order of the Board of Directors of said corporation.
/s/ Cathie Meusborn
--------------------------------
CATHIE MEUSBORN
(SEAL)
63
<PAGE>
EXHIBIT A
DESCRIPTION OF THE REAL PROPERTY
BEGINNING at a point at the southwesterly corner of the herein described,
having coordinates in the New Jersey Plane Coordinate System of N 690,094.82
feet and E 2,175,100.78 feet, said point further described as being the
following courses from the intersection of the easterly line of Tract 1-B (also
known as Washington Boulevard) of Newport City with the southwesterly most line
of lands of Newport City as shown on certain maps entitled "Final Subdivision
Plan for Newport City, Jersey City, Hudson County, New Jersey," filed December
12, 1985 as Maps 3195 and 3196 and as amended by Maps 3206 and 3207 filed May
20, 1986;
a. Along said easterly line of Tract l-B, N 08 degrees 21 minutes O1
seconds E, 406.64 feet to a point of curvature, thence;
b. Along the same, northerly along a curve to the right having a radius
of 740.00 feet, an arc distance of 221.32 feet to a point of rectangular,
thence;
c. Still along the same, N 25 degrees 29 minutes 13 seconds E, 128.99
feet to a point at the intersection of the same with the southerly line of the
herein described as produced westerly, thence;
d. Along said line, S 83 degrees 42 minutes 51 seconds E, 102.94 feet to
the aforesaid point of beginning and running, thence;
1. N 6 degrees 17 minutes 09 seconds E, 131.67 feet,
thence;
2. S 83 degrees 42 minutes 51 seconds E, 419.50 feet,
thence;
3. S 6 degrees 17 minutes 09 seconds W, 131.67 feet to a point in an
existing marine bulkhead, thence;
4. Along said bulkhead, N 83 degrees 42 minutes 51 seconds W, 419.50
feet to the point of BEGINNING.
HEREIN DESCRIBED CONTAINING 55,234 SQUARE FEET OR 1.2680 ACRES. DESCRIPTION
IN ACCORDANCE WITH A CERTAIN PLAN ENTITLED "SUBDIVISION PORTION OF TRACT 2,
NEWPORT CITY CENTER - 1, TAX MAP LOT - B10A IN BLOCK-16, CITY OF JERSEY CITY,
HUDSON COUNTY, NEW JERSEY," DRAWING NO. 85-269-19, DATED JULY 3, 1983, REV. JULY
8, 1986, PREPARED BY BOSWELL ENGINEERING, RIDGEFIELD PARK, NEW JERSEY.
<PAGE>
EXHIBIT B
WORK LETTER
I. PARTITIONS The Tenant will be entitled to one linear foot of
drywall partition per 10 square feet of rentable
area. All partitions within the premises will be 2
5/8" 16 gauge metal studs at 24" o.c. with one
layer of 5/8" gypsum board on each side. Metal
studs will extend to the underside of the hung
ceiling and affixed to "T" bar.
II. BASE New partitions as described in Paragraph I above
will receive 4" straight vinyl base on each side
of the partition. The color may be a choice of the
manufacturer's standard black or brown.
III. PAINTING All partitions will be painted two coats: one coat
of primer and one coat of latex paint (flat
finish). All door frames and trim will be painted
two coats: one coat of primer and one coat latex
enamel (semi-gloss finish).
IV. DOORS a. Tenant Entrance Door: The Tenant will be
entitled to two (2) 2'6" x 7'0" hollow metal doors
and bucks. b. Interior Doors: The Tenant will be
entitled to one 3'0" x 7'0" solid core hardwood
veneer door and metal frame per 20 linear feet of
partitioning.
V. HARDWARE a. Entrance Door: The entrance door will be
fitted with a concealed closer, silencers, two (2)
pairs of hinges and two lever sets Yale 4500
series Augustine AU. Latch set hardware shall be a
satin chrome finish.
b. Interior Doors: Each door will be fitted with
silencers, one and a half pairs of hinges and one
latchset. Hardware will be a satin chrome finish
with satin chrome levers.
VI. SUSPENDED The Tenant will be entitled to a suspended
CEILINGS acoustic ceiling throughout the demised premises.
Suspended ceilings will be 2' x 2' Armstrong
<PAGE>
fissured acoustical tile with a rectangular edge
on a half inch exposed grid suspension system.
VII. FLOORING Except for building common areas, Landlord to
furnish and install 9" cement filled panels
throughout. Landlord to furnish and install 18" x
18" 4502 floor carpet tiles of existing stock.
VIII. WINDOW All exterior windows are provided with venetian
TREATMENT mini blinds for all perimeter windows.
IX. LIGHTING The Tenant will be entitled to one light fixture
per 150 square feet of rentable area. Light
fixtures are 2' x 4' 18 cell parabolic lense with
return air slot. Initial lamping will be by
Landlord at Landlord's expense. Cost of
replacement lamps will be at Tenant's expense.
X. ELECTRICAL 120/208 volt electrical service will be provided
SERVICE not to exceed 6 watts per square foot of rentable
area for all lighting and power.
The Tenant will be entitled to one or more surface
mounted electrical panelboards as determined by
the Landlord's electrical engineer for the
Tenant's power and lighting. The panelboards will
be located within the demised premises in the
closest location to the electrical closet on that
floor.
XI. TELEPHONE, The Tenant will be entitled to the following
POWER OUTLETS, quantities of building standard duplex power
& SWITCHING outlets, building standard telephone boxes, and
building standard switches:
a. One 120 volt duplex power outlet for each 150
square feet of rentable area, and
b. One telephone outlet box for each 200 square
feet of rentable area, and
c. One standard toggle-style light switch for
each private office and
<PAGE>
other switches as required to meet the applicable
code for open areas.
All switches and outlets will be ivory color with
stainless steel coverplates.
All telephone boxes shall be standard wall rough-
in boxes to receive the Tenant's telephone outlet
and shall be served by stub conduit extended to a
point above the suspended ceiling ready to receive
the Tenant's wiring.
XII. HEATING, The Tenant will be entitled to a system as
HVAC VENTILATION & required to serve the building standard work
AIR letter materials and quantities which will satisfy
CONDITIONING the following criteria:
The air conditioning system shall be capable of
providing inside conditions of not more than 78
degrees Fahrenheit, drybulb, and 50 percent
relative humidity, with outside conditions of not
more than 90 degrees dry bulb and 75 degrees wet
bulb, except that as the outside temperature
conditions vary the inside space conditions shall
be maintained approximately as follows:
<TABLE>
<CAPTION>
Outside Conditions Inside Conditions
<S> <C>
66 - 72 db 72 plus/minus 2 db, 50% RH plus/minus 5
72 - 80 db 75 plus/minus 2 db, 50% RH plus/minus 5
85 - 90 db 78 plus/minus 2 db, 50% RH plus/minus 5
</TABLE>
There are seven thermostatically controlled VAV
boxes providing seven zones of control per
quadrant.
The heating system shall be capable of providing
an inside temperature of 72 degrees F. dry bulb,
plus/minus 2 when the outside condition is 0
degrees F. dry bulb.
XIII. SPRINKLER Landlord has furnished and installed chrome head
per 170 rentable square feet and will move heads
to suit Tenant's needs and as per code.
XIV. EXIT LIGHTS Landlord has furnished and installed three (3)
McPhilden ER 45 AR - 2 GF exit lights per quadrant
of full floor.
<PAGE>
The parties agree that the Landlord shall construct or cause to be
constructed the Tenant's Work under this Tenant Work Letter on behalf of the
Tenant pursuant to stamped and sealed Plans and Specifications signed and
mutually approved by the parties.
Except as otherwise provided hereinafter, the cost of the Tenant's Work
hereunder and the cost of construction pursuant to the stamped and sealed plans
and specifications signed and mutually approved by the parties shall be the
responsibility of the Landlord. However, Tenant shall contribute the sum of
$10,350.00 (Tenant's Share) toward the cost of Tenant's Work which amount shall
be promptly paid to Landlord or Landlord's Contractor upon submission of an
invoice when Tenant's Work has been substantially completed. Landlord shall be
responsible for and shall pay for architects fees, engineering fees and all
filing fees related to the construction. If Tenant fails to make payment of the
Tenant's Share within ten (10) days of the submission of an invoice, the Late
Payment Rate under Section 3.05 shall apply.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any tenant or used for any purpose other than for ingress or egress from the
Building and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Landlord.
There shall not be used in any space, or in the public hall of the Building,
either by any tenant or by jobbers or others in the delivery or receipt of
merchandise, and hand trucks, except those equipped with rubber tires and
sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building; and no tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the Building and tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors, and/or vibrations, or unreasonably interfere in any way with other
tenants or those having business therein, nor shall any animals or birds be kept
in or about the demised premises or the Building. Smoking or carrying lighted
cigars or cigarettes in the elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside of the
demised premises if the same is visible from the outside of the demised premises
without the prior written consent of Landlord, except that the name of tenant or
any subtenant may appear on the entrance door of the demised premises. In the
event of the violation of the foregoing by tenant, Landlord may remove same
without any liability, and may charge the expense incurred by such removal to
tenant(s)
<PAGE>
violating this rule. Interior signs on doors and a directory tablet, if any,
shall be subject to the prior written approval of Landlord.
6. Except as provided in Article 15, no tenant shall mark, paint, drill
into, or in any way deface any part of the demised premises or the Building of
which they form a part. No boring, cutting or stringing of wire shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or mechanisms thereof. Each tenant must, upon the termination of his
tenancy, restore the Landlord all keys of stores, offices and toilet rooms, and
passes to the Building, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys so furnished, such tenant shall
pay to Landlord the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the demised premises
only on the freight elevators and through the service entrances and corridors,
and only during Business Hours, and in a manner approved by Landlord. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations of the Lease of which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
10. Landlord reserves the right to exclude from the Building at all hours
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests same in
writing. Each tenant shall be responsible for all persons for whom he requests
such passes and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Building, or its desirability as a first class office building, and upon written
notice from Landlord, tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance (other than chemicals used in ordinary office use in
quantities customary therefor), or cause or permit any odors of cooking or other
<PAGE>
processes, or any unusual or other objectionable odors to permeate in or emanate
from the Premises.
13. Tenant agrees to abide by all reasonable rules and regulations issued
by the Landlord with respect to services for heating, ventilating and air-
conditioning, and if required, to keep all windows in the demised premises
closed at all times.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the Building without Landlord's prior
written consent which shall not be unreasonably withheld. If such safe,
machinery, equipment, bulky matter or fixtures requires special handling, all
work in connection therewith shall comply with all laws and regulations
applicable thereto and shall be done during such hours as Landlord may
designate.
15. No tenant shall use, or permit the use of, fire exits for ingress to
or egress from the demised premises. No tenant shall invite to the demised
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, elevators and other facilities of the Building by the
ground floor tenants. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the Retail Premises, or the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. Landlord reserves the right to control and operate the public portions
of the Building, the public facilities, as well as facilities furnished for the
common use of tenants, in such manner as Landlord deems best for the benefit of
tenants generally and consistent with a first-class office building with retail
tenants.
16. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of such
tenants, shall be paid by such tenant as provided in the Lease.
17. No window or other air-conditioning units shall be installed by any
tenant, and only such window coverings as are supplied or permitted by Landlord
shall be used in the demised premises. Tenant shall be permitted to install
opaque window panels.
18. All entrance doors in the demised premises shall be left locked when
the demised premises are not in use. Entrance doors shall not be left open at
any time.
19. No bicycles, mopeds or vehicles of any kind shall be kept in or about
the Building or permitted therein.
<PAGE>
20. The exterior windows and doors that reflect or admit light and air
into any premises or the halls, passageways or other public places in the
Building, shall not be covered or obstructed by any tenant, nor shall any
articles be placed on the windowsills.
21. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them.
<PAGE>
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT E
CLEANING STANDARDS
Office Areas - Nightly (excluding Saturdays, Sundays and Holidays)
- ----------------------
Vacuum all carpeted areas and sweep hard floors.
Empty and damp wipe ashtrays.
Empty wastepaper baskets.
Remove wastepaper and waste materials to a designated area on the premises.
Dust and wipe clean furniture, fixtures, desk equipment, telephones and window
sills with specially treated cloths.
Dust baseboards, chair rails, trim, louvres, pictures, charts, doors, etc.,
within reach.
Disinfect water fountains and coolers
Office Areas - Periodic
- -----------------------
Dust pictures, frames, charts, graphs, and similar wall hangings not reached in
nightly cleaning, monthly.
Dust vertical surfaces such as partitions, ventilating louvres, etc. not reached
in nightly cleaning, monthly.
Damp-mop hard floors, monthly.
Common Lavatories - Nightly
- ---------------------------
Sweep and wash flooring with approved germicidal detergent solution, using spray
tank method.
Wash and polish mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges.
Wash both sides of toilet seats, wash basins, bowls and urinals with approved
germicidal detergent solution.
Dust partitions, tile walls, dispensers, doors and receptacles.
Empty and clear towel and sanitary disposal receptacles.
Remove wastepaper and refuse to a designated area in the premises.
Fill toilet tissue, soap and towel dispensers.
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
TBCC
LOAN AND SECURITY AGREEMENT
BORROWER: PILOT NETWORK SERVICES, INC.,
A CALIFORNIA CORPORATION
ADDRESS: 1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
DATE: MAY 11, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its
principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018
and having an office at 16133 Ventura Blvd., Suite 700, Encino, California
91436. The Schedule to this Agreement (the "Schedule") being signed concurrently
is an integral part of this Agreement. (Definitions of certain terms used in
this Agreement are set forth in Section 9 below.) The parties agree as follows:
1. LOANS.
-----
1.1. Loans. TBCC, subject to the terms and conditions of this Agreement,
-----
agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule. If at any
time the total outstanding Loans and other monetary Obligations exceed said
limit, Borrower shall repay the excess immediately without demand. Borrower
shall use the proceeds of all Loans solely for lawful general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
--------
Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an account on its books in the name
------------
of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
charged to the Loan Account. All amounts received by TBCC from Borrower or for
Borrower's account will be credited to the Loan Account. TBCC will send Borrower
a monthly statement reflecting the activity in the Loan Account, and each such
monthly statement shall be an account stated between Borrower and TBCC and shall
be final conclusive and binding absent manifest error.
1.4 Collection of Receivables. Borrower shall remit to TBCC all
-------------------------
Collections relating to trade Receivables (and such other Receivables as TBCC
may request from time to time) including all checks, drafts and other documents
and instruments evidencing remittances in payment (collectively referred to as
"Items of Payment") within one Business Day after receipt, in the same form as
received, with any necessary endorsements. For purposes of calculating interest
due to TBCC, credit will be given for Collections and all other proceeds of
Collateral and other payments to TBCC three Business Days after receipt of
cleared funds. Borrower's Loan Account will be credited only with the net
amounts actually received in payment of Receivables, and such payments shall be
credited to the Obligations in such order as TBCC shall determine in its
discretion. Pending delivery to TBCC, Borrower will not commingle any Items of
Payment with any of its other funds or property, but will segregate them from
the other assets of Borrower and will hold them in trust and for the account and
as the property of TBCC. Borrower hereby agrees to endorse any Items of Payment
upon the request of TBCC.
1.5. Reserves. TBCC may, from time to time, in its Good Faith business
--------
judgment: (i) establish and modify reserves against Eligible Receivables, (ii)
modify advance rates with respect to Eligible Receivables, (iii) modify the
standards of eligibility set forth in the definitions of Eligible Receivables,
and (iv) establish reserves against available Loans.
1.6. Term.
----
(a) The term of this Agreement shall be from the date of this
Agreement to the Maturity Date set forth in the Schedule, unless sooner
terminated in accordance with the terms of this Agreement, provided that the
Maturity Date
-1-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date. On the Maturity Date or on any earlier termination of
this Agreement Borrower shall pay in full all Obligations, and notwithstanding
any termination of this Agreement all of TBCC's security interests and all of
TBCC's other rights and remedies shall continue in full force and effect until
payment and performance in full of all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as
follows: (i) by Borrower, effective three business days after written notice of
termination is given to TBCC; or (ii) by TBCC at any time after the occurrence
of an Event of Default, without notice, effective immediately. If this Agreement
is terminated by Borrower or by TBCC under this Section 1.6(b), Borrower shall
pay to TBCC a termination fee (the "Termination Fee") in the amount shown on the
Schedule. The Termination Fee shall be due and payable on the effective date of
termination. Notwithstanding the foregoing, Borrower shall have no principal
of, or interest on any of the Loans or any other monetary Obligations are
outstanding, except upon prepayment of all Obligations and the satisfaction of
all other conditions set forth in the Loan Documents. Other than with respect to
the Termination Fee set forth above, the Borrower may pay the Loans and other
Obligations arising under this Agreement and the Revolving Credit Note of even
date herewith, as modified from time to time at any time without penalty or any
other additional cost to the Borrower, provided that the foregoing shall not
--------
limit or otherwise affect any termination or prepayment fee with respect to
other indebtedness owing to TBCC under any other document, instrument or
agreement.
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the Loan
------------------
Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. TBCC may, but shall not be
obligated to, discharge Borrower's payment obligations hereunder by so charging
the Loan Account. Whenever any payment to be made hereunder is due on a day that
is not a Business Day, the payment may be made on the next succeeding Business
Day and such extension of time shall be included in the computation of the
amount of interest due.
1.8. Conditions to Initial Loan. The obligation of TBCC to make the initial
--------------------------
Loan is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Loan, and Borrower shall cause all such conditions
to be satisfied by the Closing Deadline set forth in the Schedule.
(a) Except for the filing of termination statements under the Uniform
Commercial Code by the existing lender to Borrower whose loans are being repaid
with the Loan proceeds, no consent or authorization of, filing with or other act
by or in respect of any Governmental Authority or any other Person is required
in connection, with the execution, delivery, performance, validity or
enforceability of this Agreement, or the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
continuing operations of the Borrower following the consummation of such
transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel: (i) a Depository Account Agreement duly
executed by the Borrower and its Bank on TBCC's standard form; (ii)
acknowledgment copies of Uniform Commercial Code financing statements (naming
TBCC as secured party and the Borrower as debtor), duly filed in all
jurisdictions that TBCC deems necessary or desirable to perfect and protect the
Liens created hereunder, and Official Uniform Commercial Code searches in such
jurisdictions, showing such financing statements of record; (iii) the opinion of
counsel for the Borrower in the form attached hereto as Exhibit A; (iv)
certified copies of all policies of insurance required by this Agreement and the
other Loan Documents, together with loss payee endorsements for all such
policies naming TBCC as lender loss payee and an additional insured; (v) Copies
of the Borrower's articles or certificate of incorporation, certified as true,
correct and complete by the secretary of state of Borrower's state of
incorporation within 45 days of the date hereof; (vi) copies of the bylaws of
the Borrower and a copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the other Loan Documents, and the transactions contemplated hereby and thereby,
attached to which is a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) that such copies of the bylaws and resolutions are
true, complete and accurate copies thereof, have not been amended or modified
since the date of such certificate and are in full force and effect and (B) the
incumbency, names and true signatures of the officers of the Borrower; (vii) a
good standing certificate from the Secretary of State of Borrower's state of
incorporation and each state in which the Borrower is qualified as a foreign
corporation, each dated within ten days of the date hereof; (viii) such other
agreements and instruments as TBCC reasonably deems necessary in its sole and
absolute discretion in connection with the transactions contemplated hereby.
-2-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
---------------------
subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after
due inquiry, threatened litigation, proceeding, inquiry or other action relating
to this Agreement, or any other Loan Document, or which could be expected to
have a Material Adverse Effect in the judgment of TBCC.
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a Material
Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and
shall constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan as of the date
of such request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
-----------------
2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans
--------
and other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be increased by two percent per annum.
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
----
2.3. Calculations. All interest and fees under this Agreement shall be
------------
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4 Taxes. Any and all payments by Borrower under this Agreement or any
-----
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
--------
3.1. Grant of Security Interest. To secure the payment and performance when
--------------------------
due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Inventory, Equipment,
Other Property, and other Collateral, wherever located provided that TBCC shall
have no security interest in any of the IP Assets.
3.2. Other Liens; Location of Collateral. Borrower represents, warrants and
-----------------------------------
covenants that all of the Collateral and the IP Assets are and will at all times
continue to be, free and clear of all Liens, other that Permitted Liens and
Liens in favor of TBCC, except it is understood that TBCC does not have a
security interest in IP Assets. All Collateral is and will continue to be
maintained at the locations shown on the Schedule.
3.3. Receivables.
-----------
(a) Schedules. As often as reasonably requested by TBCC, Borrower
---------
shall execute and deliver to TBCC written schedules of Receivables and Eligible
Receivables (but the failure to execute or deliver any schedule shall not affect
or limit TBCC's security interest in all Receivables). On TBCC's reasonable
request, Borrower shall also furnish to TBCC copies of invoices to customers and
shipping and delivery receipts. Borrower shall deliver to TBCC the originals of
all letters of credit, notes, and instruments as defined in the Uniform
Commercial Code in its favor and such endorsements or assignments as TBCC may
reasonably request (other than with respect to notes receivables from the
employees of the Borrower with respect to the loans made to employees in
accordance with the ordinary custom and practices of the Borrower with respect
to the making of any such loans).
(b) Records, Collections. Borrower shall report all customer credits
--------------------
to TBCC, on the regular reports to TBCC in the form from time to time specified
by TBCC, Borrower shall notify TBCC of all returns and recoveries of merchandise
and of all claims asserted with respect to merchandise, on its regular reports
to TBCC. Borrower shall not settle or adjust any dispute or claim, or grant any
discount, credit or allowance or accept any return of merchandise, except in the
ordinary course of its business, without TBCC's prior written consent.
(c) Representations. Borrower represents and warrants to TBCC that
---------------
each Receivable with respect to which Loans are requested by Borrower shall, on
the date each Loan is requested and made, represent and undisputed, bona fide,
existing, unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods or the condition of services, in the ordinary
course of Borrower's business, and meet the Minimum Eligibility Requirements set
forth in Section 9.1(n) or represent Receivables relating to advance payments by
the account debtors with respect to service contracts that are satisfactory to
TBCC in its discretion and that otherwise meet the Minimum eligibility
Requirements set forth in Section 9.1(n).
-3-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
3.4. Inventory. Borrower shall maintain full, accurate and complete records
---------
respecting the Inventory describing the kind, type and quantity of the Inventory
and Borrower's cost therefor, withdrawals therefrom and additions thereto,
including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate
---------
records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and
by obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6. Further Assurances. Borrower will perform any and all steps that TBCC
------------------
may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. If TBCC determines it is
reasonably necessary or desirable to do so in light of the then existing
circumstances, TBCC is hereby authorized by Borrower to sign Borrower's name or
file any financing statements or similar documents or instruments covering the
Collateral whether or not Borrower's signature appears thereon, Borrower agrees,
from time to time, at TBCC's request, to file notices of Liens, financing
statements, similar document or instruments, and amendments, renewals and
continuations thereof, and cooperate with TBCC, in connection with the continued
perfection and protection of the Collateral. If any Collateral is in the
possession or control of any Person other than a public warehouseman where the
warehouse receipt is in the name of or held by TBCC, Borrower shall notify such
Person of TBCC's security interest therein and, upon request, instruct such
Person or Persons to hold all such Collateral for the account of TBCC and
subject to TBCC's instructions, provided that the foregoing requirement shall
--------
not apply to Equipment located at the premises of the Borrower's customers in
the ordinary course of business. If so requested by TBCC, Borrower will deliver
to TBCC warehouse receipts covering any Collateral located in warehouses showing
TBCC as the beneficiary thereof and will also cause the warehouseman to execute
and deliver such agreements as TBCC may request relating to waivers of liens by
such warehouseman and the release of the Inventory to TBCC on its demand.
Borrower shall defend the Collateral against all claims and demands of all
Persons.
3.7. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
-----------------
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon
in accordance with procedures of which TBCC has advised the Borrower, (ii) upon
the occurrence and during the continuance of an Event of Default, to convey any
item of Collateral to any purchaser thereof, (iii) to give or sign Borrower's
name to any notices or statements necessary or desirable to create or continue
the Lien on any Collateral granted hereunder if TBCC determines it is reasonably
necessary or desirable to do so in light of the then existing circumstances, and
(iv) to make any payment or take any act necessary or desirable to protect or
preserve any Collateral. TBCC's authority hereunder shall include, without
limitation, the authority to execute and give receipt for any certificate of
ownership or any document, transfer title to any item of Collateral and take any
other actions arising from or incident to the powers granted to TBCC under this
Agreement. This power of attorney is coupled with an interest and is irrevocable
during the term of this agreement.
4. Representations and Warranties of Borrower. Borrower represents and
------------------------------------------
warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California set (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
--------------------------------------------
principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in heading of this Agreement. Borrower has places
of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule.
4.3 Authority. Borrower has the requisite corporate power and authority to
---------
execute, deliver and perform its obli-
-4-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
gations under each of the Loan Documents. All corporate action necessary for the
execution, delivery and performance by Borrower of the Loan Documents has been
taken.
4.4. Enforceability. This Agreement is, and, when executed and delivered,
--------------
each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
4.5. No Conflict. The execution, delivery and performance of each Loan
-----------
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
4.6. Consents and Filings. No consent, authorization or approval of, or
--------------------
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any other
Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, and (ii) the filing of
financing statements under the Uniform Commercial Code.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
--------
of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate
--------------
Financial Statements, which have been prepared in accordance with GAAP (except
with respect to the notes thereto) consistently applied throughout the periods
involved and fairly present the financial position and results of operations of
Borrower for each of the periods covered. Borrower has no Contingent Obligation
or liability for taxes, unrealized losses, unusual forward or long-term
commitments or long-term leases, which is not reflected in such Financial
Statements or the footnotes thereto. Since the last date covered by such
Financial Statements, there has been no sale, transfer or other disposition by
Borrower of any material part of its business or property (including any capital
stock of any other Person) material in relation to the financial condition of
Borrower at said date. Since said date, (i) there has been no change,
occurrence, development or event which has had or could reasonably be expected
to have a Material Adverse Effect and (ii) none of the capital stock of Borrower
has been redeemed, retired, purchased or otherwise acquired for value by
Borrower except that the Borrower has previously repurchased shares of Common
Stock of the Borrower from its employees, officers, directors, consultants and
other person performing services for the Borrower pursuant to the Borrower's
option to repurchase such shares at cost or upon the occurrence of certain
events, such as termination of employment.
4.9. Accuracy and Completeness of Information. All data, reports and
----------------------------------------
information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated or
certified, and not incomplete by omitting to state any material fact necessary
to make such data, reports and information not materially misleading at such
time. There are not facts now known to Borrower which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
-----------------------------------------------
engaged in any joint venture or partnership with any other Person. Borrower has
no Subsidiaries.
4.11. Corporate and Trade Name. During the past five years, Borrower has
------------------------
not been known by or used any other corporate, trade or fictitious name except
for its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists
------------------------------------------------------
no actual or, to the best of Borrower's knowledge after due inquiry, threatened
termination, cancellation or limitation of, or any modification or change in the
business relationship of Borrower with any customer or group of customers whose
purchases individually or in the aggregate are material to the operation of
Borrower's business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
----------------------------
Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely
---------------------
filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established) and Borrower has no liability for taxes in excess of the amounts so
paid or reserves so established. No deficiencies for taxes have been claimed,
proposed or assessed by any taxing or other Governmental Authority against
Borrower and no notice of any take Lien has been filed. There are no pending or
threatened audits, investigations or claims for or relating to
-5-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
any liability for taxes and there are not matters under discussion with any
Governmental Authority which could result in an additional liability for taxes.
No extension of a statute of limitations relating to taxes, assessments, fees or
other governmental charges is in effect with respect to Borrower.
Borrower is not a party to and does not have any obligations under any written
tax sharing agreement or agreement regarding payments in lieu of taxes.
4.15. No Judgments or Litigation. No judgments, orders, writs or decrees
--------------------------
are outstanding against Borrower, nor is there now pending or, to the knowledge
of Borrower after due inquiry, threatened litigation, contested claim,
investigation, arbitration, or governmental proceeding by or against Borrower
that (i) could individually or in the aggregate be likely in the reasonably
business judgment of TBCC to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Agreement, any other
Loan Document or the consummation of the transactions contemplated hereby or
thereby.
4.16. Investments; Contracts. Borrower (i) has not committed to make any
----------------------
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, bylaw or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any "take or pay" contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17. No Defaults; Legal Compliance. Borrower is not in default under any
-----------------------------
term of any Material Contract or in violation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law.
4.18. Rights in Collateral; Priority of Liens. All Collateral and all IP
---------------------------------------
Assets are owned or leased by Borrower, free and clear of any and all Liens in
favor of third parties, other than Permitted Liens. The Liens granted to TBCC
pursuant to the Loan Documents constitute valid, enforceable and perfected
first-priority Liens on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
---------------------
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered), and all applications therefor and licenses thereof, of Borrower.
Borrower owns or licenses all material patents, trademarks, service-marks,
logos, tradenames, trade secrets, know-how, copyrights, or licenses and other
rights with respect to any of the foregoing, which are necessary or advisable
for the operation of its business as presently conducted or proposed to be
conducted in accordance with the current business plans of the Borrower. To the
best of its knowledge after due inquiry, Borrower has not infringed any patent,
trademark, service-mark, tradename, copyright, license or other right owned by
any other Person by the sale or use of any product, process, method, substance,
part or other material presently contemplated to be sold or used, where such
sale or use would reasonably be expected to have a Material Adverse Effect and
no claim or litigation is pending, or to the best of Borrower's knowledge,
threatened against or affecting Borrower that contests its right to sell or use
any such product, process, method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts
-------------
or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force
--------------------
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, casements, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted in accordance with the
current business plans of the Borrower except where the failure to possess any
of the foregoing (individually or in the aggregate) would not have a Material
Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under
---------------------
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other Loan
Documents.
4.23. Business and Properties. The business of Borrower is not affected (as
-----------------------
of the date that this representation is made or is deemed to be made) by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, bail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could reasonably be expected
to have a Material Adverse Effect.
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
----------------------
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower, (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person and (iii) in
connection with the status of an affiliate as a shareholder of the Borrower
regarding agreements executed in connection with the purchase by such person of
the preferred and common stock of the Borrower.
-6-
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
4.25. Survival of Representations. All representations made by Borrower in
---------------------------
this Agreement and in any other Loan Document executed and delivered by it in
connection herewith shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
-------------------------------------
and payment and satisfaction of all Obligations:
5.1 Corporate Existence. Borrower shall (i) maintain its corporate
-------------------
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the conduct of its business as now conducted and as now
contemplated to conducted by the Borrower, and (iii) continue in, and limit its
operations to, the same lines of business as presently conducted by it. Nothing
in this Agreement is intended to restrict the Borrower from undertaking a public
offering of its stock.
5.2 Maintenance of Property. Borrower shall keep all property useful and
-----------------------
necessary to its business in good working order and condition (ordinary wear and
tear excepted) in accordance with its past operating practices.
5.3 Affiliate Transactions. Borrower shall conduct transactions with any
----------------------
of its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of Directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax assessments, and other
-----
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
-------- -------
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have been
made therefor as required in accordance with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of
-------------------
Law applicable to it, including, without limitation, all applicable Federal,
State, local or foreign laws and regulations, including, without limitation,
those relating to environmental matters, employee matters, the Employee
Retirement Income Security Act of 1974, and the collection, payment and deposit
of employees' income, unemployment and social security taxes, provided that
--------
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than $50,0000 to cure the same.
5.6. Insurance. Borrower shall maintain public liability insurance,
---------
business interruption insurance, third party property damage insurance and
replacement value insurance on its assets (including the Collateral) under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to TBCC in its commercially
reasonably judgment, all of which policies covering the Collateral shall name
TBCC as an additional insured and lender loss payee in case of loss, and contain
other provisions as TBCC may reasonably require to protect fully TBCC's interest
in the Collateral and any payments to be made under such policies.
5.7. Books and Records; Inspections. Borrower shall (i) maintain books and
------------------------------
records (including computer records) pertaining to the Collateral and the IP
Assets in such detail, form and scope as is consistent with good business
practice and (ii) provide TBCC and its agents reasonable access to the premises
of Borrower at any time and from time to time, during the normal business hours
and upon reasonable notice under the circumstances (provided that prior to an
Event of Default TBCC agrees that it will conduct no more than three audits per
calendar year as set forth herein), and at any time on and after the occurrence
of a Default or Event of Default, for the purposes of (A) inspecting and
verifying the Collateral, (B) inspecting and copying (at Borrower's expense) any
and all records pertaining thereto and to the IP Assets, and (C) discussing the
affairs, finances and business of Borrower with any officer, employee or
director of Borrower or with the Auditors. Borrower shall reimburse TBCC for the
reasonable travel and related expenses of TBCC's employees or, at TBCC's option,
of such outside accountants or examiners as may be retained by TBCC to verify or
inspect Collateral, records or documents of Borrower on a regular basis or for a
special inspection if TBCC deems the same appropriate. If TBCC's own employees
are used, Borrower shall also pay therefor $600 per person per day (or such
other amount as shall represent TBCC's then current standard charge for the
same), or, if outside examiners or accountants are used, Borrower shall also pay
TBCC such sum as TBCC may be obligated to pay as fees therefor.
5.8. Notification Requirements. Borrower shall give TBCC the following
-------------------------
notices and other documents;
(a) Notice of Defaults. Borrower shall give TBCC written notice of
------------------
any Default or Event of Default within two Business Days after becoming aware of
the same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written
------------------------------
notice of any of the following, promptly, and in any event within five Business
days after Borrower becomes aware of any of the following: (i) any proceeding
being instituted or threatened by or against it in any federal, state, local or
foreign court or before any commission or other regulatory body involving a sum,
together
-7-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
with the sum involved in all other similar proceedings, in excess of $200,000
or, if for a lesser amount, could have a Material Adverse Effect in the
aggregate, (ii) any order, judgment or decree being entered against Borrower or
any of its properties or assets involving a sum, together with the sum of all
other orders, judgments or decrees, in excess of $100,000 in the aggregate, and
(iii) any actual or prospective change, development or event which has had or
could reasonably be expected to have a Material Adverse Effect.
(c) Change of Name or Chief Executive Officer Opening Additional
------------------------------------------------------------
Places of Business. Borrower shall give TBCC at least 20 days prior written
- ------------------
notice of any change of Borrower's corporate name or its chief executive office
or of the opening of any additional place of business where any Collateral is
located, other than for the locating of Equipment on the premises of the
customers of the Borrower in the ordinary course of Borrower's business,
provided that with respect to sales offices locations only, Borrower shall give
TBCC reasonably prompt notice regarding the opening thereof.
(d) Casualty Loss. Borrower shall (i) provide written notice to
-------------
TBCC, promptly, and in any event within ten Business Days after Borrower becomes
aware, of any material damage to the destruction of or any other material loss
to any asset or property owned or used by Borrower other than any such asset or
property with a net book value (individually or in the aggregate) less than,
$20,000 or any condemnation, confiscation or other taking, in whole or in part,
or any event that otherwise diminishes so as to render impracticable or
unreasonable the use of such asset or property owned or used by Borrower
together with the amount of the damage, destruction, loss or diminution in value
and (ii) diligently file and prosecute its claim or claims for any award or
payment in connection with any of the foregoing.
5.9. Qualify to Transact Business. Borrower shall qualify to transact
----------------------------
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10. Financial Reporting. Borrower shall timely deliver to TBCC the
-------------------
following financial information: the information set forth in the Schedule, and,
when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11. Payment of Liabilities. Borrower shall pay and discharge, in the
----------------------
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12. Trademarks. Borrower shall do and cause to be done all things
----------
reasonably necessary to preserve and keep in full force and effect all of its
material registrations of trademarks, service marks and other marks, trade names
and other trade rights.
5.13. Proceeds of Collateral. Without limiting any of the other terms of
----------------------
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC provided that the foregoing shall not apply
to the permitted sales of assets as set forth in Section 6.4 hereof.
5.14. Solvency. Borrower shall be Solvent at all times.
--------
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
------------------
satisfaction of all Obligations:
6.1. Contingent Obligations. Borrower will not (without the written
----------------------
consent of TBCC), directly or indirectly, incur, assume, or suffer to exist any
Contingent Obligation, excluding indemnities given in connection with this
Agreement or the other Loan Documents in favor of TBCC or in connection with the
sale of Inventory or other asset dispositions permitted hereunder or indemnities
given in connection with the Borrower's entering into service contracts,
equipment lease transactions, marketing agreements, in any initial public
offering of the stock of the Borrower or in other agreements entered into the
ordinary course of the Borrower's business.
-8-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
6.2. Corporate Changes, Borrower will not (without the written consent to
-----------------
TBCC) directly or indirectly, merge or consolidate with any Person, or liquidate
or dissolve (or suffer any liquidation or dissolution).
6.3. Change in Nature of Business. borrower will not at any time make any
----------------------------
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business.
6.4. Sales of Assets. Borrower will not, directly or indirectly, in any
---------------
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $100,000 the proceeds of which
shall be paid to TBCC and applied to the Obligations to the extent that TBCC has
a first priority security interest therein or to the extent that any proceeds
arising therefrom remain after the holder of a first priority security has
received any amount due it , and (ii) sales of Inventory in the ordinary course
of business.
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt
--------------------
owned to it, except in the ordinary course of business.
6.6. Loans to Other Persons. Borrower will not at any time make loans or
----------------------
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of $100,000 in the aggregate at any time for all such
loans and $100,000 in the aggregate outstanding at any one time for loans make
to employees in connection with the purchase of the stock of the borrower by
such employees or the Borrower.
6.7. Liens. Borrower will not, directly or indirectly, at any time create,
-----
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8. Dividends, Stock Redemptions. Borrower will not, directly or
----------------------------
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or right
to purchase any such capital stock, whether now or hereafter outstanding
("Stock"), or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower provided that the foregoing restriction shall not apply to the
repurchase of Common Stock of the Borrower from its employees, officers,
directors, consultants and other persons performing services for the Borrower
Borrower pursuant to the Borrower's option to repurchase such shares at cost or
upon the occurrence of certain events, such as termination of employment
provided that the aggregate amount paid by the borrower in any fiscal year shall
not exceed $200,000 provided, further, that the foregoing restriction shall not
-------- -------
affect the exercise, cancellation, expiration or termination of warrants,
options or rights to purchase any capital stock of the Borrower.
6.9. Investments in Other Persons. Borrower will not, directly or
----------------------------
indirectly, at any time make or hold any investment in any Person (whether in
cash, securities or other property of any kind) other than Investments in Cash
Equivalents and other Investments in an aggregate amount not to exceed $100,000
outstanding at any one time.
6.10. Partnerships: Subsidiaries; Joint Ventures Management Contracts.
---------------------------------------------------------------
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement or become a partner in any general
or limited partnership or enter into any management contract (other than an
employment contract for the employment of an officer or employee entered into in
the regular course of Borrower's business) permitting third party management
rights with respect to Borrower's business, except with respect to rights
granted in connection with the sale of the Borrower's securities. Further,
notwithstanding the foregoing, TBCC consents to the creation by the Borrower of
a subsidiary in the United Kingdom
6.11. Fiscal Year. Borrower will not change its fiscal year.
-----------
6.12. Accounting Changes. Borrower will not at any time make or permit any
------------------
change in accounting policies or reporting practices, except as required by or
in compliance with GAAP.
6.13. Broker's or Finders Fees. Borrower will not pay or incur any broker's
------------------------
or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
---------------------
extended terms, consignment terms, on a progress billing or bill and hold basis,
or on any other unusual terms, except that Borrower may effect such sales as are
in its ordinary course of business consistent with its past business practices
even though such sales may be on extended terms or on a progress billing or bill
and hold basis.
-9-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
6.15. Amendments of Material Contracts. Borrower will not amend, modify,
--------------------------------
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination of, any Material Contract, if such amendment,
modification, cancellation or termination could have a Material Adverse Effect.
6.16. Sale and Leaseback Obligations. Borrower will not at any time create,
------------------------------
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit
------------------------------
or agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business
other than as otherwise permitted under Section 6.9 hereof, without duplication
of the permitted amount thereunder.
7. EVENTS OF DEFAULT.
-----------------
7.1. Events of Default. The occurrence of any of the following events
-----------------
shall constitute an "Event of Default";
(a) Borrower shall fail to pay any principal, interest, fees,
expenses or other Obligations when payable, whether at stated maturity, by
acceleration, or otherwise; provided that such amounts are stated in a loan
account that is provided to the Borrower, or is to be provided to the Borrower,
in accordance with the standard practices of TBCC relating thereto; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision of term contained in Section 1.1, 1.2,
1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform in any material respect, in any
material respect, any nonmonetary Obligation which by its nature cannot be
cured; or
(c) Borrower shall default in the performance or observance of any
other agreement, covenant, condition, provision or term of this Agreement (other
than those referred to in Section 7.1(a) above or Section 7.1 (b) above) or any
other Loan Document, and such failure continues uncured for a period of ten
Business Days after the date it occurs; or
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise
cease to conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an
insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event or (ii) an Insolvency Event as set forth in clause (c) of the
definition of Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty make by or on behalf of Borrower
to TBCC, under this Agreement or with respect to any written materials that have
been provided to TBCC shall be incorrect or misleading in any material respect
when make or deemed made; or
(g) A change in the ownership or control of more than 50% of the
voting stock of the Borrower compared to such ownership on the date of this
Agreement provided an Event of Default shall not arise by virtue of a greater
percentage change due to the initial public offering of the common stock of the
Borrower.
(h) any judgment or order for the payment of money in excess of
$50,000 shall be rendered against Borrower and shall not be stayed, vacated,
bonded or discharged within thirty days provided that with respect to any
judgment order for $50,000 or less at no time shall there exist a lien, by
operation of law or otherwise, on any of the Collateral; or
(i) Borrower or any Guarantor shall deny or disaffirm its
obligations under any of the Loan Documents or any Liens granted in connection
therewith or shall otherwise challenge any of its obligations under any of the
Loan Documents; or any Liens granted in any of the Collateral shall be
determined to be void, voidable or invalid, are subordinated or are not given
the priority contemplated by this Agreement, or
(j) any Loan Document shall for any reason cease to create a valid
and perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens) (such event or occurrence being a
"Lien/Priority Failure") provided that an Event of Default shall not arise for
--------
ten days of (I) the Lien/Priority Failure results solely from the action or
inaction of TBCC, (II) the Lien/Priority Failure during such ten day period is
rectified in a, manner satisfactory to TBCC in its sole desecration and (III)
if no other lien at any time (other than Permitted Liens) has been established
that attains a higher priority with respect to any of the Collateral compared to
the then position of TBCC as a result of such Lien/Priority Failure, provided,
--------
further, that no loans by TBCC are required to be made by TBCC during such
- -------
Lien/Priority Failure period.
(k) the independent public accountants for Borrower shall deliver a
Qualified opinion on any Financial Statement; or
(l) Borrower (i) shall fail to pay any Indebtedness in excess of
$100,000 owing to any Person other than TBCC or any interest or premium thereon,
when due (whether at scheduled maturity or by required prepayment, acceleration,
-10-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
demand or otherwise), or (ii) shall otherwise be in breach or default in any of
its obligations under any agreement with respect to any such Indebtedness, if
the effect of such breach, default or failure to pay is to cause such
Indebtedness to become due or redeemed or permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holders) to declare such
indebtedness due or require such Indebtedness to be redeemed prior to its stated
maturity; or
(m) the occurrence of any event or condition that, in TBCC's
judgment, could reasonably be expected to have a Material Adverse Effect; or (n)
a default or event of default occurs under the equipment financing facility that
TBCC has entered into with Borrower, as such facility is amended, restated,
supplemented or otherwise modified from time to time.
TBCC may cause making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2. Remedies. Upon the occurrence and during the continuance of an Event
--------
of Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable
(except with respect to any Event of Default with respect to Borrower set forth
in Section 7.1(e), in which case all Obligations shall automatically become
immediately due and payable) without presentment, demand, protest or any other
action or obligation of TBCC.
(b) Cease making any Loans or other extensions of credit to Borrower
of any kind.
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables and other Collateral (in the name of
Borrower or TBCC) and otherwise administer and collect the Receivables and other
Collateral;
(e) Sell, assign and deliver the Receivables and other Collateral,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law; and
(f) Foreclose the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(g) TBCC may bid or become a purchaser at any sale, free from
any right of redemption, which right is expressly waived by Borrower, if
permitted under applicable law. If notice of intended disposition of any
Collateral is required by law, it is agreed that ten days' notice shall
constitute reasonable notification. Borrower will assemble the Collateral and
make it available at such locations as TBCC may specify, whether at the premises
of Borrower or elsewhere, and will make available to TBCC the premises and
facilities of borrower for the purpose of TBCC's taking possession of or
removing the Collateral or putting the Collateral in salable form.
7.3. Receivables. Upon the occurrence and during the continuance of an
-----------
Event of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which it considers advisable, and (ii) notify
account debtors on the Receivables and other Collateral that the Receivables and
Collateral have been assigned to TBCC, and that payments in respect thereof
shall be made directly to TBCC. If an Event of Default has occurred and is
continuing or TBCC reasonably believes in good faith that fraud has occurred, or
that Borrower has failed to deliver the proceeds of Receivables or other
Collateral to TBCC as required by this Agreement or any other Loan Document,
Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may
designate, as it attorney-in-fact, at Borrower sole cost and expense, to
exercise, all of the following powers, which are coupled with an interest and
are irrevocable, until all of the Obligations have been indefeasibly paid and
satisfied in full in cash : (A) to receive, take, endorse, sign, assign and
deliver, all in the name of TBCC or Borrower, any and all checks, notes,
drafts, and other documents or instruments relating to the Collateral; (B) to
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as TBCC
may designate; and (C) to take or bring, in the name of TBCC or Borrower, all
steps, actions, suits or proceedings deemed by TBCC necessary or desirable to
enforce or effect collection of Receivables and other Collateral or file and
sign Borrower's name on a proof of claim in bankruptcy or similar document
against any obligor of Borrower.
7.4. Right of Setoff. In addition to all rights of offset that TBCC may
---------------
have under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit of the account of
Borrower. In the event that TBCC exercises any of its rights under this Section,
TBCC shall provide notice to Borrower of such exercise, provided that
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5. License for Use of Software and Other Intellectual Property. After
-----------------------------------------------------------
the occurrence and during the continuance of an Event of Default, unless
expressly prohibited by any licensor thereof, TBCC is hereby granted a license
to use all computer software programs, data bases, processes, trademarks,
tradenames and materials used by Borrower in connection with its businesses or
in connection with the Collateral.
7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash
-------------------------------------------------
proceeds resulting form TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
disecretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any other available remedy under this
Agreement, under any other Loan Document, at equity or at law.
7.7. Waivers. Borrower hereby waives any bonds, security or sureties
-------
required by any statue, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement for any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts of omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8. Right to Make Payments. In the event that Borrower shall fail to
----------------------
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
------------------------------
8.1. Assignments. Borrower shall not assign this Agreement or any right or
-----------
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of its
rights and obligations under this Agreement and the other Loan Documents
provided, however, that such assignment shall in no way affect Borrower's rights
and obligations under the Agreement or the other Loan Documents, other than
regarding the fact that a new entity shall be the lender hereunder. TBCC agrees
to use its commercially reasonable efforts to provide to Borrower with at least
five Business Days' notice prior to the effective date of any such assignment.
8.2. Participations. TBCC may sell participations in or to all or a
--------------
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3. Disclosure. TBCC may, in connection with any permitted assignment or
----------
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower provided that such information is not provided to a
competitor the Borrower (as understood to be so by TBCC) and such disclosure is
otherwise made in accordance with Section 10.13 (A) hereof.
9. DEFINITIONS.
-----------
9.1 General Definitions. As used herein, the following terms shall have
-------------------
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined);
(a) "Affiliate" means as to any Person, any other Person who directly
---------
or indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary voting
power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20%) or more of the
securities having ordinary voting power for the election of the members of the
board of directors or other governing body of a corporation or twenty percent
(20%) or more of the partnership or other ownership interests of any other
Person (other than as a limited partner of such other Person) will be deemed to
control such corporation, partnership or other Person.
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
(b) "Agreement" means this Loan and Security Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
(c) "Auditors" means a nationally recognized firm of independent
--------
public accountants selected by Borrower and reasonably satisfactory to TBCC.
(d) "Bankruptcy Code" means Title 11 of the United States Code
---------------
entitled "Bankruptcy," as that title may be amended from time to time, or any
successor statue.
(e) "Borrowing" means a borrowing of Loans.
---------
(f) "Business Day" means any day other than a Saturday, Sunday, or
------------
any other day on which commercial banks in Chicago, Illinois are required or
permitted by law to close.
(g) "Cash Equivalents" means (i) securities issued, guaranteed or
----------------
insured by the United States or any of its agencies with maturities of not more
than one year from the date acquired; (ii) certificates of deposit with
maturities of not more than one year from the date acquired, issued by any U.S.
federal or state chartered commercial bank of recognized standing which has
capital and unimpaired surplus in excess of $100,000,000; (iii) investments in
money market funds registered under the Investment Company Act of 1940; and (iv)
other instruments, commercial paper or investments acceptable to TBCC in its
sole discretion.
(h) "Collateral" means Receivables, Inventory, Equipment, and Other
----------
Property, and all additions and accessions thereto and substitutions and
replacements therefor and improvements thereon, and all proceeds (whether cash
or other property) and products thereof, including, without limitation, all
proceeds of insurance covering the same and all tort claims in connection
therewith, and all records, files, computer programs and files, data and
writings relating to the foregoing, and all equipment containing the foregoing.
(i) "Collections" means all cash, funds, checks, notes, instruments,
-----------
and other form of remittance rendered by account debtors in respect of payment
of Receivables and my other payments received by Borrower with respect to any
other Collateral.
(j) "Compliance Certificate" means a certificate as to compliance
----------------------
with the Obligations, on TBCC's standard form (in effect from time to time).
(k) "Contingent Obligation" means any direct, indirect, contingent or
---------------------
non-contingent guaranty or obligation for the Indebtedness of another Person,
except endorsements in the ordinary course of business.
(l) "Default" means any of the events specified in Section 7.1,
-------
whether or not any of the requirements for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(m) "Eligible Inventory" [Inapplicable]
------------------
(n) "Eligible Receivables" means and includes only those Receivables
--------------------
which TBCC in its sole discretion deems eligible for borrowing, based on such
consideration as TBCC in its sole discretion may deem appropriate from time to
time and less any such reserves as TBCC in its sole discretion deems eligible
for borrowing, based on such considerations as TBCC in its sole discretion may
deem appropriate from time to time and less any such reserves as TBCC, in its
sole discretion, may require. Without limiting the fact that the determination
of which Receivables are eligible for borrowing is a matter of TBCC's sole
discretion, the following (the "Minimum Eligibility Requirements") are the
--------------------------------
minimum requirements for a Receivable to be an Eligible Receivable: (i) the
Receivable must not be outstanding for more than 90 days from its invoice date,
(ii) the Receivable must not represent progress billings, or be due under a
fulfillment or requirements contract with the account debtor, (iii) the
Receivable must not be subject to any contingencies (including Receivables
arising from sales on consignment, guaranteed sale or other terms pursuant to
which payment by the account debtor may be conditional), (iv) the Receivable
must not be owing from an account debtor with whom the Borrower has any dispute
(whether or not relating to the particular Receivable), (v) the Receivable must
not be owing from an Affiliate of Borrower, (vi) the Receivable must not be
owing from an account debtor which is subject to any insolvency or bankruptcy
proceeding, or whose financial condition is not acceptable to TBCC, or which,
fails or goes out of a material portion of its business, (vii) the Receivable
must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to TBCC's
satisfaction, with the United States Assignment of Claims Act), (viii) the
Receivable must not be owing from an account debtor located outside the United
States or Canada (unless pre-approved by TBCC in its discretion in writing, or
backed by a letter of credit satisfactory to TBCC, or FCIA insured satisfactory
to TBCC), (ix) the Receivable must not be owing from an account debtor to whom
Borrower is or may be liable for goods purchased from such account debtor or
otherwise. Receivables owing from one account debtor will not be deemed Eligible
Receivables to the extent they exceed 25% of the total eligible Receivables
outstanding. In addition, if more than 50% of the Receivables owing from an
account debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that account debtor will be deemed ineligible
for borrowing. TBCC may, from time to time, in its sole discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
(o) "Equipment" means all machinery, equipment, furniture, fixtures,
---------
conveyors, tools, materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including central processing
units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input or output devices, molds, dies, stamps, vehicles, and
other equipment of every kind and nature and wherever situated now or hereafter
owned by Borrower or in which Borrower may have any interest as lessee or
otherwise (to the extent of such interest), together with all additions and
accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, know-how, warranties and records in connection therewith,
all rights against suppliers, warrantors,
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
manufacturers, sellers or others in connection therewith, and together with all
substitutes for any of the foregoing.
(p) "Event of Default" means the occurrence of any of the events
----------------
specified in Section 7.1.
(q) "Financial Statements" means the balance sheets, profit and loss
--------------------
statements, statements of cash flow, and statements of changes in intercompany
accounts, if any, for the period specified, prepared in accordance with GAAP and
consistent with prior practices.
(r) "GAAP" means generally accepted accounting principles set forth
----
in the opinions and pronouncements of the Account Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination. Whenever any accounting
term is used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
(s) "Good Faith" means "good faith" as defined in the Uniform
----------
Commercial Code, from time to time in effect in the State of Illinois.
(t) "Governing Documents" means the articles or certificate of
-------------------
incorporation and by-laws of Borrower.
(u) "Governmental Authority" means any nation or government, any
----------------------
state or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
(v) "Guarantor" means any present or future guarantor of any or all
---------
of the Obligations.
(w) "Indebtedness" means, with respect to any Person, as of the date
------------
of determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and contingent
obligations).
(x) "Insolvency Event" means, with respect to any Person, the
----------------
occurrence of any of the following: (a) such Person shall be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing its
inability to pay its debts as they become due, (b) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its creditors, (c)
such Person shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (d)
such Person shall file a voluntary petition under any bankruptcy, insolvency or
similar law or take a corporate or similar act in furtherance thereof, or (e)
such Person, or a substantial portion of its property, assets or business shall
become the subject of an involuntary proceeding or petition for its dissolution,
reorganization, and such proceeding is not dismissed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator, and
such receiver is not dismissed within sixty days.
(x-1) "IP Assets" means with respect to the Borrower, all of its
---------
patents, patent applications, copyrights, trade secrets, trademarks, trade
names, service marks and names, logos, designs, blueprints, plans, know-how.
Excluded Licenses, Excluded Programs and Excluded Service Contracts (as each of
the foregoing three capitalized terms are defined in the definition of "Other
Property")
(y) "Inventory" means all present and future goods intended for
---------
sale, lease or other disposition by Borrower including, without limitation, all
raw materials, work in process, finished goods and other retail inventory, goods
in the possession of outside processors or other third parties, goods consigned
to Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, and all documents of title or documents
representing the same.
(z) "Investment" in any Person means, as of the date of
----------
determination thereof, any payment or contribution, or commitment to make a
payment or contribution, by any Person including, without limitation, property
contributed or committed to be contributed by any Person, on its account for or
in connection with its acquisition of any stock, bonds, notes, debentures,
partnership or other ownership interest or any other security of the Person in
whom such Investment is made of any evidence of indebtedness by reason of a
loan, advance, extension of credit, guaranty or other similar obligation for any
debt, liability or indebtedness of such Person in whom the Investment is made.
(aa) "Lien" means any lien, claim, charge, pledge, security interest,
----
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect us any of the foregoing, whether voluntary or imposed by
law.
(bb) "Loan Account" has the meaning specified in Section 1.3.
------------
(cc) "Loan Documents" means this Agreement and all present and future
--------------
documents and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, as each of the same may be amended, supplemented or otherwise
modified from time to time.
(dd) "Loans" means the loans and financial accommodations made by
-----
TBCC hereunder.
(ee) "Material Adverse Effect" means (i) a material adverse effect on
-----------------------
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (ii) the impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of TBCC to enforce the Obligations or realize upon the
Collateral or (iii) a material
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
adverse effect on the value of the Collateral or the amount which TBCC would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of the Collateral.
(ff) "Material Contract" means any contract or other arrangement to
-----------------
which Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material Adverse
Effect.
(gg) "Obligations" means and includes all loans (including the
-----------
Loans), advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, which may arise under, out
of, or in connection with, this Agreement any other Loan Document or any other
agreement executed in connection herewith or therewith, whether or not for the
payment of money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit, opening, guaranteeing or
confirming of a letter of credit, loan, guaranty, indemnification or in any
other manner, whether direct of indirect (including those acquired by
assignment, purchase, discount or otherwise), whether absolute or contingent,
due or to become due, now due or hereafter arising and however acquired. The
term includes, without limitation, all interest (including interest accruing on
or after an Insolvency Event, whether or not an allowed claim), charges,
expenses, commitment, facility, closing and collateral management fees, letter
of credit fees, reasonable attorneys' fees, and any other sum property
chargeable to Borrower under this Agreement, the other Loan Documents or any
other agreement executed in connection herewith or therewith.
(hh) "Other Property" means all present and future: instruments,
--------------
documents, documents of title, securities, investment securities, bonds, notes,
promissory notes, drafts, acceptances, letters of credit and rights to receive
proceeds of letters of credit, deposit accounts, chattel paper, certificates,
insurance policies, insurance proceeds, leases, computer tapes, causes of
action, judgments, claims against third parties, leasehold rights in any
personal property, books, ledgers, files and records, general intangibles
(including without limitation, all contract rights, tax refunds, rights to
receive tax refunds, royalties, licenses excluding, however, those licenses
where the Borrower is the licensee (the "Excluded Licenses"), permits, franchise
rights, authorizations, customer lists, rights of indemnification, contribution
and subrogation, computer programs, discs and software relating only to such
programs, discs or software that encompass or address accounting functions of
the Borrower (the other programs, discs or software are referred to collectively
as the "Excluded Programs"), computer service contracts excluding, however,
those computer service contracts where the Borrower is the recipient of the
services contracted thereunder (the "Excluded Service Contracts"), goodwill,
deposits, choses in action, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations whatsoever now or hereafter owing to
Borrower), all property at any time in the procession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement. Notwithstanding the foregoing, "Other Property" shall not
include patents, patent applications, copyrights, trade secrets, trademarks,
trade names, service marks and names, logos, designs, blueprints, plans, know-
how, the Excluded Licenses, the Excluded Programs and the Excluded Service
Contracts.
(ii) "Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing (i) Liens for taxes, assessments and other
governmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen and other like Persons arising by
operation of law in the ordinary course of business for sums which are not yet
due and payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause(ii) shall permit the
creation of Liens on Receivables or Inventory or Other Property), (iii) zoning
restrictions, casements, encroachments, licenses, restrictions, or covenants on
the use of the Property which do not materially impair either the use of the
Property in the operation of the business of Borrower or the value of the
Property, (iv) rights of general application reserved to or vested in any
municipality or other governmental, statutory or public authority to control or
regulate property, or to use property in a manner which does not materially
impair the use of the property for the purposes for which it is held by
Borrower, (v) state and municipal Liens for personal property taxes which are
not yet due and payable, and (vi) Purchase Money Liens.
(jj) "Person" means any individual, sole proprietorship, partnership,
------
joint venture, limited liability company, trust unincorporated organization,
joint stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
(kk) "Plan" means any employee benefit plan, program or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
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TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
(ll) "Purchase Money Lien" means a Lien on any item of Equipment created
-------------------
substantially simultaneously with the acquisition of such Equipment for the
purpose of financing such acquisition, provided that such Lien shall attach only
to the Equipment acquired.
(mm) "Qualification" or "Qualified" means, with respect to any report of
------------- ---------
independent public accountants covering Financial Statements, a material
qualification to such report (i) resulting from a limitation on the scope of
examination of such Financial Statements or the underlying data, (ii) as to the
capability of Borrower to continue operations as a going concern or (iii) which
could be eliminated by changes in Financial Statements or notes thereto covered
by such report (such as by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so eliminated by the
making of any such change and after giving effect thereto would result in a
Default or an Event of Default.
(nn) "Receivables" means all present and future accounts and accounts
-----------
receivable, together with all security therefor and guaranties thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(oo) "Retirement of Law" means (a) the Governing Documents, (b) any law,
-----------------
treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its property.
(pp) "Schedule" means the Schedule to this Agreement being signed concurrently
--------
by Borrower and TBCC, as amended from time to time.
(qq) "Solvent" means when used with respect to any Person that as of the date
-------
as to which such Person's solvency is to be measured; (b) it has sufficient
capital to conduct its business; and (c) it is able to meet its debts as they
mature.
(rr) "Subsidiary" means, as to any Person, a corporation or other entity in
----------
which that Person directly or indirectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2 Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting determinations for purposes of determining compliance
with this Agreement shall be made in accordance with GAAP as in effect on the
date of this Agreement and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to TBCC on or before
the date of this Agreement. The Financial Statements required to be delivered
hereunder, and all financial records, shall be maintained in accordance with
GAAP. If GAAP shall change from the basis used in preparing the audited
Financial Statements delivered to TBCC on or before the date of this Agreement,
the Compliance Certificates required to be delivered pursuant to this Agreement
shall include calculations setting forth the adjustments necessary to
demonstrate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3. Other Terms: Headings: Construction. Unless otherwise defined herein,
-----------------------------------
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", whenever used in this Agreement
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event of Default has been
waived or cured within the grace period specified therefor under Section 7.1.
References' to Articles, Sections, Annexes, Schedules, and Exhibits are internal
references to this Agreement, and to its attachments, unless otherwise
specified. The headings and any Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against TBCC or Borrower under any rule of construction or
otherwise.
10. GENERAL PROVISIONS.
------------------
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND TBCC
--------------------------
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED, BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
-16-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
------------------
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
-----------------------
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS
AGAINST TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5. Delays, Partial Exercise of Remedies. No delays or omission of TBCC to
------------------------------------
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
-------
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
--------------------------------------------------------
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
-----------------
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
------
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director or Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing,
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC
-17-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
in order to enforce of defend any of its rights under or in respect of this
Agreement, any other Loan Document or any other document or instrument now or
hereafter executed and delivered in connection herewith, collect the Obligations
or otherwise administer this Agreement, foreclose or otherwise realize upon the
Collateral or any part thereof, prosecute actions against, or defend actions by,
account debtors; commence, intervene in, or defend actions by, account debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
TBCC's security interest in, the Collateral; and otherwise represent TBCC in any
litigation relating to Borrower. Without limiting the generality of the
foregoing, Borrower shall pay TBCC a fee with respect to each wire transfer in
the amount of $15 plus all bank charges and a fee of $15 for all returned checks
plus all bank charges. If either TBCC or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. If and to the extent that the Obligations of Borrower hereunder are
unenforceable for any reason. Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of the Obligations which is
permissible under applicable law. Borrower's obligations under Section 2.4 and
this Section shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any of the other Obligations.
10.8. Amendments and Waivers. Any provision of this Agreement or any other
----------------------
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the extent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent and whether or
not similar. None of the provisions of this Agreement or any other agreement
now or in the future executed by Borrower and delivered to TBCC shall be deemed
to have been waived by any act or knowledge of TBCC or its agents or employees,
but only by a specific written waiver signed by an authorized officer of TBCC
and delivered to Borrower.
10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or
-----------------------------------
amendment hereto may be executed in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
------------
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.11. Joint and Several Liability. If Borrower consists of more than one
---------------------------
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum non-usurious interest rate than under the laws of the
State of Illinois (or such other jurisdiction), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and the other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and exclusions
(the "Highest Lawful Rate"). If due to any circumstance whatsoever, fulfilment
of any provisions of this Agreement or any of the other Loan Documents at the
time performance of such provision shall be due shall exceed the Highest Lawful
Rate, then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the Highest Lawful
Rate, and if from any such circumstance TBCC should ever receive anything of
value deemed interest by applicable law which would exceed the Highest Lawful
Rate, such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then
-18-
<PAGE>
TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
outstanding Obligations, such excess shall be refunded to Borrower. All sums
paid or agreed to be paid to TBCC for the use, forbearance, or detention of the
Obligations and other indebtedness of Borrower to TBCC shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms and provisions of this Section shall control every other provision of
this Agreement, the other Loan Documents and all other agreements between the
parties hereto.
10.13. Entire Agreement; Successors and Assigns. This Agreement and the other
----------------------------------------
Loan Documents constitute the entire agreement between the parties, supersede
any prior written and verbal agreements between them, and shall bind and benefit
the parties and their respective successors and permitted assigns. There are no
------------
oral understandings, oral representations or oral agreements between the parties
- --------------------------------------------------------------------------------
which are not set forth in this Agreement or in other written agreements signed
- -------------------------------------------------------------------------------
by the parties in connection herewith.
- -------------------------------------
10.13A CONFIDENTIAL INFORMATION. IN HANDLING ANY CONFIDENTIAL INFORMATION
TBCC SHALL EXERCISE THE SAME DEGREE OF CARE THAT IT EXERCISES WITH RESPECT TO
ITS OWN PROPRIETARY INFORMATION OF THE SAME TYPES TO MAINTAIN THE CONFIDENTIALLY
OF ANY NON-PUBLIC INFORMATION THEREBY RECEIVED OR RECEIVED PURSUANT TO THIS
AGREEMENT EXCEPT THAT DISCLOSURE OF SUCH INFORMATION MAY BE MADE (I) TO THE
SUBSIDIARIES OR AFFILIATES OF TBCC IN CONNECTION WITH THEIR PRESENT OR
PROSPECTIVE BUSINESS RELATIONS WITH BORROWER, (II) TO PROSPECTIVE TRANSFEREES OR
PURCHASERS OF ANY INTEREST IN THE LOANS, PROVIDED THAT THEY HAVE ENTERED INTO A
COMPARABLE CONFIDENTIALITY AGREEMENT IN FAVOR OF BORROWER AND HAVE DELIVERED A
COPY TO BORROWER, (III) AS REQUIRED BY LAW, REGULATIONS, RULE OR ORDER,
SUBPOENA, JUDICIAL ORDER OR SIMILAR ORDER, (IV) AS MAY BE REQUIRED IN CONNECTION
WITH THE EXAMINATION, AUDIT OR SIMILAR INVESTIGATION OF TBCC, AND (V) AS TBCC
MAY DEEM APPROPRIATE IN CONNECTION WITH THE EXERCISE OF ANY REMEDIES HEREUNDER.
CONFIDENTIAL INFORMATION HEREUNDER SHALL NOT INCLUDE INFORMATION THAT EITHER;
(A) IS IN THE PUBLIC DOMAIN OR IN THE KNOWLEDGE OR POSSESSION OF TBCC WHEN
DISCLOSED TO TBCC, OR BECOMES PART OF THE PUBLIC DOMAIN AFTER DISCLOSURE TO TBCC
THROUGH NO FAULT OF TBCC; OR (B) IS DISCLOSED TO TBCC BY A THIRD PARTY, PROVIDED
TBCC DOES NOT HAVE ACTUAL KNOWLEDGE THAT SUCH THIRD PARTY IS PROHIBITED FROM
DISCLOSING SUCH INFORMATION.
10.14. MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
---------------------------
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO; (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
BORROWER ; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
BORROWER:
PILOT NETWORK SERVICES, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------------
Title: CEO
-----------------------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:______________________________________
Title:___________________________________
-19-
<PAGE>
- --------------------------------------------------------------------------------
TBCC
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: PILOT NETWORK SERVICES, INC.,
ADDRESS: 1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501
DATE: MAY 11, 1998
This schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower
("Borrower") of even date.
1. CREDIT LIMIT (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser of:
(i) $1,500,000 at any one time outstanding; or (ii) 85% of
the amount of Borrower's Eligible Receivables (as defined
in Section 9.1(n) above).
For purposes of determining compliance with the Credit
Limit set forth in Section 1.1 of this Loan Agreement,
loans outstanding under the Master Loan and Security
Agreement dated as of September 1, 1997 between Borrower
and TBCC (the "Equipment Loan Agreement") shall not be
taken into account, but for all other purposes of this Loan
Agreement all present and future loans and all other
present and future indebtedness, liabilities and
obligations of Borrower under the Equipment Loan Agreement
shall be included in the "Obligations" as used in this Loan
Agreement. In the event of any conflicts between the
provisions of this Agreement and the Equipment Loan
Agreement, the provision that grants TBCC greater rights
shall control.
2. INTEREST. (Section 2.1): The interest rate in effect throughout each calendar
month during the term of this Agreement shall be the
highest "Base Rate" in effect during such month, plus 2%
per annum, provided that the interest rate in effect in
each month shall not be less than 9% per annum, and
provided that the interest charged for each month shall be
a minimum of $7,500, regardless of the amount of the
Obligations outstanding. Interest shall be calculated on
the basis of a 360-day year for the actual number of days
elapsed. "Base Rate" shall mean the higher of (a) the
highest prime, base or equivalent rate of interest
announced from time to time by Citibank, N.A., First
National Bank of Chicago and Bank of America National Trust
and Savings Association (which may not be the lowest rate
of interest charged by such bank) and (b) the published
annualized rate for 90-day dealer commercial paper which
appears in the "Money Rates" section of The Wall Street
---------------
Journal.
--------
<PAGE>
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
3. FEES (Section 2.2):
Loan Fee: $15,000, payable concurrently herewith.
Termination Fee: An amount equal to $5,000 multiplied by
each month (or portion thereof) from the effective date of
termination to the Maturity Date, which Termination Fee shall
be payable on the date of termination.
4. MATURITY DATE (Section 1.6): MAY 31, 1999 (the "Maturity Date"), subject to
automatic renewal and early termination as
provided in Section 1.6 above.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the following
reports:
(a) Monthly Financial Statements. Monthly unaudited
-----------------------------
financial statements, as soon as available, and in any
event within 30 days after the end of each month.
(b) Monthly Receivable Agings. Monthly Receivable agings,
--------------------------
aged by invoice date, within 10 days after the end of
each month.
(c) Monthly Payable Agings. Monthly accounts payable
-----------------------
agings, aged by invoice date, and outstanding or held
check registers within 10 days after the end of each
month.
(d) Monthly Compliance Certificates. As soon as available,
--------------------------------
but not later than thirty days after the end of each
month, a Compliance Certificate, with an attached
schedule of calculations demonstrating compliance or
indicating non-compliance with any Financial Covenants.
(e) Quarterly Financial Statements. Quarterly unaudited
-------------------------------
financial statements, as soon as available, and in any
event within 30 days after the end of each fiscal
quarter of Borrower.
(f) Annual Financial Statements. As soon as available, but
----------------------------
not later than 90 days after the end of the Borrower's
fiscal year, (A) Borrower's annual audited Financial
Statements; (B) a comparison in reasonable detail to the
prior year's audited Financial Statements; (C) the
Auditors' opinion without Qualification, a "Management
Letter" and a statement indicating that the Auditors
have not obtained knowledge of the existence of any
Default or Event of Default during their audit; (D) a
narrative discussion of Borrower's financial condition
and results of operations and the liquidity and capital
resources for such fiscal year.
6. BORROWER INFORMATION:
(a). Prior Names of Borrower (Section 4.11): Orpheus Network
Services, Inc.
(b). Prior Trade Names of Borrower (Section 4.11): None
(c). Existing Trade Names of Borrower (Section 4.11): None
-2-
<PAGE>
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
(d). Other Places of Business and Locations of Collateral (Section 4.2);
See Representations and Warranties form of the Borrower dated
March 30, 1998.
7. FACSIMILE NUMBERS:
Borrower: (510) 433-7811
TBCC: (818) 995-9148
8. CLOSING DEADLINE (Section 1.8): MAY 31, 1998
Borrower: TBCC:
PILOT NETWORK SERVICES, INC. TRANSAMERICA BUSINESS CREDIT CORPORATION
By[SIGNATURE ILLEGIBLE] By___________________________________
---------------------------
President or Vice President Title________________________________
-3-
<PAGE>
EXHIBIT A
Form of Legal Opinion
-4-
<PAGE>
EXHIBIT 10.14
MASTER LOAN AND SECURITY AGREEMENT
THIS AGREEMENT dated as of September 1, 1997, is made by Pilot Network
Services, Inc. (the "Borrower"), a California corporation having its principal
place of business and chief executive office at 1080 Marina Village Parkway,
Alameda, CA, 94501 in favor of Transamerica Business Credit Corporation, a
Delaware corporation (the "Lender"), having its principal office at Riverway II,
West Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018.
WHEREAS, the Borrower has requested that the Lender make Loans to it
from time to time; and
WHEREAS, the Lender has agreed to make such Loans on the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to extend credit, the Borrower hereby agrees with the Lender as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings,
and shall be equally applicable to both the singular and plural forms of the
terms defined:
Agreement shall mean this Master Loan and Security Agreement together with all
schedules and exhibits hereto, as amended, supplemented, or otherwise modified
from time to time.
Applicable Law shall mean the laws of the State of Illinois (or any other
jurisdiction whose laws are mandatorily applicable notwithstanding the parties'
choice of Illinois law) or the laws of the United States of America, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Business Day shall mean any day other than a Saturday, Sunday, or public holiday
or the equivalent for banks in New York City.
Code shall have the meaning specified in Section 8(d).
Collateral shall have the meaning specified in Section 2.
Collateral Access Agreement shall mean any landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement of any warehouseman or processor in
possession of any Equipment, in each case substantially in the form of Exhibit
A.
Effective Date shall mean the date on which all of the conditions specified in
Section 3.3 shall have been satisfied.
Equipment shall have the meaning specified in Section 2.
Event of Default shall mean any event specified in Section 7.
Financial Statements shall have the meaning specified in Section 6.1.
GAAP shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time.
<PAGE>
Loans shall mean the loans and financial accommodations made by the Lender to
- -----
the Borrower in accordance with the terms of this Agreement and the Notes.
Loan Documents shall mean, collectively, this Agreement, the Notes, and all
- --------------
other documents, agreements, certificates, instruments, and opinions executed
and delivered in connection herewith and therewith, as the same may be modified,
extended, restated, or supplemented from time to time.
Material Adverse Change shall mean, with respect to any Person, a material
- -----------------------
adverse change in the business, operations, results of operations, assets,
liabilities, or condition (financial or otherwise) of such Person taken as a
whole.
Material Adverse Effect shall mean, with respect to any Person, a material
- -----------------------
adverse effect on the business, operations, results of operations, assets,
liabilities, or condition (financial or otherwise) of such Person taken as a
whole.
Note shall mean each Promissory Note made by the Borrower in favor of the
- ----
Lender, as amended, supplemented, or otherwise modified from time to time, in
each case substantially in the form of Exhibit B.
Obligations shall mean all indebtedness, obligations, and liabilities of the
- -----------
Borrower under the Notes and under this Agreement, whether on account of
principal, interest, indemnities, fees (including, without limitation,
attorneys' fees, remarketing fees, origination fees, collection fees, and all
other professionals' fees), costs, expenses, taxes, or otherwise.
Permitted Liens shall mean such of the following as to which no enforcement,
- ---------------
collection, execution, levy, or foreclosure proceeding shall have been
commenced: (a) liens for taxes, assessments, and other governmental charges or
levies or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen, and other like Persons in the ordinary course of business
for sums which are not yet due and payable, or liens which are being contested
in good faith by appropriate proceedings diligently conducted and with respect
to which adequate reserves are maintained to the extent required by GAAP; (b)
deposits or pledges to secure the payment of worker's compensation, unemployment
insurance, or other social security benefits or obligations, public or statutory
obligations, surety or appeal bonds, bid or performance bonds, or other
obligations of a like nature incurred in the ordinary course of business; (c)
licenses, restrictions, or covenants for or on the use of the Equipment which do
not materially impair either the use of the Equipment in the operation of the
business of the Borrower or the value of the Equipment; and (d) attachment or
judgment liens that do not constitute an Event of Default; and (e) any liens
specifically permitted in writing by the Lender.
Person shall mean any individual, sole proprietorship, partnership, joint
- ------
venture, trust, unincorporated organization, association, corporation,
institution, entity, party, or government (including any division, agency, or
department thereof), and the successors, heirs, and assigns of each.
Schedule shall mean each Schedule in the form of Schedule A hereto delivered by
- --------
the Borrower to the Lender from time to time.
Solvent means, with respect to any Person, that as of the date as to which such
- -------
Person's solvency is measured:
(a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including contingent liabilities as valued in
accordance with GAAP) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able generally to meet its debts as they mature.
Taxes shall have the meaning specified in Section 5.5.
- -----
2
<PAGE>
SECTION 2. CREATION OF SECURITY INTEREST: COLLATERAL. The Borrower
-----------------------------------------
hereby assigns and grants to the Lender a continuing general, first priority
lien on, and security interest in, all the Borrower's right, title, and interest
in and to the collateral described in the next sentence (the "Collateral") to
secure the payment and performance of all the Obligations. The Collateral
consists of all equipment set forth on all the Schedules delivered from time to
time under the terms of this Agreement (the "Equipment"), together with all
present and future additions, parts, accessories, attachments, substitutions,
repairs, improvements, and replacements thereof or thereto, and any and all
proceeds thereof, including, without limitation, proceeds of insurance and all
manuals, blueprints, know-how, warranties, and together with all substitutes for
any of the foregoing.
SECTION 3. THE CREDIT FACILITY.
-------------------
SECTION 3.1. BORROWINGS. Each Loan shall be in an amount not
less than $100,000, and in no event shall the sum of the aggregate Loans made
exceed the amount of the Lender's written commitment to the Borrower in effect
from time to time. Notwithstanding anything herein to the contrary, the Lender
shall be obligated to make the initial Loan and each other Loan only after the
Lender, in its sole discretion exercised in good faith, determines that the
applicable conditions for borrowing contained in Sections 3.3 and 3.4 are
satisfied. The timing and financial scope of Lender's obligation to make Loans
hereunder are limited as set forth in a commitment letter executed by Lender and
Borrower, dated as of July 9, 1997 and attached hereto as Exhibit C (the
"Commitment Letter").
SECTION 3.2. APPLICATION OF PROCEEDS. The Borrower shall not
directly or indirectly use any proceeds of the Loans, or cause, assist, suffer,
or permit the use of any proceeds of the Loans, for any purpose other than for
the purchase, acquisition, installation, or upgrading of Equipment or the
reimbursement of the Borrower for its purchase, acquisition, installation, or
upgrading of Equipment.
SECTION 3.3. CONDITIONS TO INITIAL LOAN.
(a) The obligation of the Lender to make the initial Loan is subject
to the Lender's receipt of the following, each dated the date of the initial
Loan or as of an earlier date acceptable to the Lender, in form and substance
satisfactory to the Lender and its counsel:
(i) completed requests for information (Form UCC-11) listing
all effective Uniform Commercial Code financing statements naming the
Borrower as debtor and all tax lien, judgment, and litigation searches
for the Borrower as the Lender shall deem necessary or desirable (to
be completed by the Lender);
(ii) Uniform Commercial Code financing statements (Form UCC-1)
duly executed by the Borrower (naming the Lender as secured party and
the Borrower as debtor and in form acceptable for filing in all
jurisdictions that the Lender deems necessary or desirable to perfect
the security interests granted to it hereunder) and, if applicable,
termination statements or other releases duly filed in all
jurisdictions that the Lender deems necessary or desirable to perfect
and protect the priority of the security interests granted to it
hereunder in the Equipment related to such initial Loan;
(iii) a Note duly executed by the Borrower evidencing the amount
of such Loan;
(iv) a Collateral Access Agreement duly executed by the lessor
or mortgagee, as the case may be, of each premises where the Equipment
is located;
(v) -certificates of insurance required under Section 5.4 of
this Agreement together with loss payee endorsements for all such
policies naming the Lender as lender loss payee and as an additional
insured;
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(vi) a copy of the resolutions of the Board of Directors of the
Borrower (or a unanimous consent of directors in lieu thereof)
authorizing the execution, delivery, and performance of this
Agreement, the other Loan Documents to which the Borrower is a party,
and the transactions contemplated hereby and thereby, attached to
which is a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) that the copy of the resolutions is true,
complete, and accurate, that such resolutions have not been amended or
modified since the date of such certification and are in full force
and effect and (B) the incumbency, names, and true signatures of the
officers of the Borrower authorized to sign the Loan Documents to
which it is a party;
(vii) a copy of the Borrower's audited financial statements for
the fiscal year ended March 3l, 1997 and a copy of the Borrower's
internally-prepared financial statements for the quarter ended June
30, 1997; and
(viii) such other agreements and instruments as the Lender deems
necessary in its commercially reasonable judgment in connection with
the transactions contemplated hereby.
(b) There shall be no pending or, to the knowledge of the Borrower,
threatened litigation, proceeding, inquiry, or other action (i) seeking an
injunction or other restraining order, damages, or other relief with respect to
the transactions contemplated by this Agreement or the other Loan Documents to
which the Borrower is a party or (ii)which affects or could affect the business,
prospects, operations, assets, liabilities, or condition (financial or
otherwise) of the Borrower, except, in the case of clause (ii), where such
litigation, proceeding, inquiry, or other action could not reasonably be
expected to have a Material Adverse Effect.
(c) The Borrower shall have paid all fees and expenses required to be
paid by it to the Lender as of such date.
(d) The security interests in the Equipment related to the initial
Loan granted in favor of the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens, except with respect to
Permitted Liens.
SECTION 3.4. CONDITIONS PRECEDENT TO EACH LOAN. The obligation
of the Lender to make each Loan is subject to the satisfaction of the following
conditions precedent:
(a) the Lender shall have received the documents, agreements, and
instruments set forth in Section 3.3(a)(i) through (v) applicable to such Loan,
each in form and substance reasonably satisfactory to the Lender and its counsel
and each dated the date of such Loan or as of an earlier date acceptable to the
Lender;
(b) the Lender shall have received a Schedule of the Equipment
related to such Loan, in form and substance satisfactory to the Lender and its
counsel, and the security interests in such Equipment related to such Loan
granted in favor of the Lender under this Agreement shall have been duly
perfected and shall constitute first priority liens, except with respect to
Permitted Liens;
(c) all representations and warranties by the Borrower contained in
this Agreement and the other Loan Documents shall be true and correct on and as
of the date of such Loan as if then made, other than representations and
warranties that expressly relate solely to an earlier date, in which case they
shall have been true and correct as of such earlier date; and
(d) no Event of Default or event which with the giving of notice or
the passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or would result from the making of the requested Loan
as of the date of such request.
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SECTION 4. THE BORROWER'S REPRESENTATIONS AND WARRANTIES.
---------------------------------------------
SECTION 4.1. GOOD STANDING; QUALIFIED TO DO BUSINESS. The
Borrower (a)is duly organized, validly existing, and in good standing under the
laws of the State of its organization, (b) has the power and authority to own
its properties and assets and to transact the businesses in which it is
presently, or plans to be, engaged, and (c) is duly qualified and authorized to
do business and is in good standing in every jurisdiction in which the failure
to be so qualified could have a Material Adverse Effect on (i) the Borrower,
(ii) the Borrowers ability to perform its obligations under the Loan Documents,
or (iii) the rights of the Lender hereunder.
SECTION 4.2. DUE EXECUTION, ETC. The execution, delivery, and
performance by the Borrower of each of the Loan Documents to which it is a party
are within the powers of the Borrower, do not contravene the charter documents,
if any, of the Borrower, and do not (a) to the knowledge of the Borrower violate
in any material respect any law or regulation, or any order or decree of any
court or governmental authority, (b) in any material respect, conflict with or
result in a breach of, or constitute a default under, any material indenture,
mortgage, or deed of trust or any material lease, agreement, or other instrument
binding on the Borrower or any of its properties, or (c) require the consent,
authorization by, or approval of or notice to or filing or registration with any
governmental authority or other Person. This Agreement is, and each of the other
Loan Documents to which the Borrower is or will be a party, when delivered
hereunder or thereunder, will be, the legal, valid, and binding obligation of
the Borrower enforceable against the Borrower in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, or similar
laws affecting creditors' rights generally and by general principles of equity.
SECTION 4.3. SOLVENCY; NO LIENS. The Borrower is Solvent and
will be Solvent upon the completion of all transactions contemplated to occur
hereunder (including, without limitation, the Loan to be made on the Effective
Date); the security interests granted herein constitute and shall at all times
constitute the first liens on the Collateral other than Permitted Liens; and the
Borrower is, or will be at the time additional Collateral is acquired by it, the
absolute owner of the Collateral with full right to pledge, sell, consign,
transfer, and create a security interest therein, free and clear of any and all
claims or liens in favor of any other Person other than the Lender and other
than Permitted Liens.
SECTION 4.4. NO JUDGMENTS, LITIGATION. No judgments are
outstanding against the Borrower nor is there now pending or, to the Borrower's
knowledge, threatened any litigation, contested claim, or governmental
proceeding by or against the Borrower except judgments and pending or threatened
litigation, contested claims, and governmental proceedings which would not, in
the aggregate, have a Material Adverse Effect on the Borrower.
SECTION 4.5. NO DEFAULTS. The Borrower is not in material
default or has not received a notice of default under any contract, lease, or
commitment to which it is a party or by which it is bound. The Borrower knows of
no dispute regarding any contract, lease, or commitment which could have a
Material Adverse Effect on the Borrower.
SECTION 4.6. COLLATERAL LOCATIONS. On the date hereof, each
item of the Collateral is located at the place of business specified in the
applicable Schedule.
SECTION 4.7. NO EVENTS OF DEFAULT. To the knowledge of the
Borrower, no Event of Default has occurred and is continuing nor has any event
occurred which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default.
SECTION 4.8. NO LIMITATION ON LENDER'S RIGHTS. Except as
permitted herein, none of the Collateral is subject to contractual obligations
that may restrict or inhibit the Lender's rights or abilities to sell or dispose
of the Collateral or any part thereof after the occurrence of an Event of
Default.
SECTION 4.9. PERFECTION AND PRIORITY OF SECURITY INTEREST. The
Borrower has not knowingly taken any action which would prevent this Agreement
from creating a valid and, upon completion of all
5
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required filings of financing statements, perfected first priority and exclusive
security interest in the Collateral (other than Permitted Liens), securing the
payment of all the Obligations.
SECTION 4.10. MODEL AND SERIAL NUMBERS. The Schedules set forth
the true and correct model number and serial number of each item of Equipment
that constitutes Collateral.
SECTION 4.11. ACCURACY AND COMPLETENESS OF INFORMATION. All
data, reports, and information heretofore, contemporaneously, or hereafter
furnished by or on behalf of the Borrower in writing to the Lender or for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are or will be true and accurate
in all material respects to the Borrower's knowledge on the date as of which
such data, reports, and information are dated or certified and not incomplete by
omitting to state any material fact known to the Borrower and necessary to make
such data, reports, and information not misleading at such time.
SECTION 4.12. PRICE OF EQUIPMENT. To the Borrower's knowledge,
the cost of each item of Equipment does not exceed the fair and usual price for
such type of equipment purchased in like quantity and reflects all discounts,
rebates and allowances for the Equipment (including, without limitation,
discounts for advertising, prompt payment, testing, or other services) given to
the Borrower by the manufacturer, supplier, or any other person.
SECTION 5. COVENANTS.
---------
SECTION 5.1. EXISTENCE, ETC. The Borrower shall: (a) maintain
its existence, (b) maintain in full force and effect all licenses, bonds,
franchises, leases, trademarks, patents, contracts, and other rights reasonably
necessary for the conduct of its business unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect on the Borrower, (c)
continue in the same general lines of business as those presently conducted by
it, and (d) comply with all applicable laws and regulations of any federal,
state, or local governmental authority, except for such laws and regulations the
violations of which would not, in the aggregate, have a Material Adverse Effect
on the Borrower.
SECTION 5.2. NOTICE TO THE LENDER. As soon as possible, and in
any event within ten business days after the Borrower learns of the following,
the Borrower will give written notice to the Lender of (a) any proceeding
instituted or threatened to be instituted by or against the Borrower in any
federal, state, local, or foreign court or before any commission or other
regulatory body (federal, state, local, or foreign) which would have a Material
Adverse Affect on the Borrower, (b) the occurrence of any Material Adverse
Change with respect to the Borrower, and (c) the occurrence of any Event of
Default or event or condition which, with notice or lapse of time or both, would
constitute an Event of Default, together with a statement of the action which
the Borrower has taken or proposes to take with respect thereto.
SECTION 5.3. MAINTENANCE OF BOOKS AND RECORDS. The Borrower
will maintain books and records pertaining to the Collateral in such detail,
form, and scope as the Lender shall require in its commercially reasonable
judgment. The Borrower agrees that the Lender or its agents may enter upon the
Borrower's premises upon reasonable notice at any time and from time to time
during normal business hours, and at any time upon the occurrence and
continuance of an Event of Default, for the purpose of inspecting the Collateral
and any and all records pertaining thereto.
SECTION 5.4. INSURANCE. The Borrower will maintain insurance on
the Collateral under such policies of insurance, with such insurance companies,
in such amounts, and covering such risks as are at all times reasonably
satisfactory to the Lender. All such policies shall be made payable to the
Lender, in case of loss, under a standard non-contributory "lender" or "secured
party" clause and are to contain such other provisions as the Lender may
reasonably require to protect the Lender's interests in the Collateral and to
any payments to be made under such policies. Certificates of insurance policies
are to be delivered to the Lender, premium prepaid, with the loss payable
endorsement in the Lender's favor, and shall provide for not less than thirty
days' prior written notice to the Lender, of any alteration or cancellation of
coverage. If the Borrower fails to maintain such insurance,
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the Lender may arrange for (at the Borrower's expense and without any
responsibility on the Lender's part for) obtaining the insurance. In such case,
unless the Lender shall otherwise agree with the Borrower in writing, the Lender
shall have the sole right, in the name of the Lender or the Borrower, to file
claims under any insurance policies, to receive and give acquittance for any
payments that may be payable thereunder, and to execute any endorsements,
receipts, releases, assignments, reassignments, or other documents that may be
necessary to effect the collection, compromise, or settlement of any claims
under any such insurance policies.
SECTION 5.5. TAXES. The Borrower will pay, when due, all taxes,
assessments, and other similar charges ("Taxes") lawfully levied or assessed
against the Borrower or the Collateral other than taxes that are being
diligently contested in good faith by the Borrower by appropriate proceedings
promptly instituted and for which an adequate reserve is being maintained by the
Borrower in accordance with GAAP. If any Taxes remain unpaid after the date
fixed for the payment thereof and is not contested in good faith by appropriate
proceedings diligently pursued, or if any lien shall be claimed therefor, then,
without notice to the Borrower, but on the Borrower's behalf, the Lender may pay
such Taxes, and the amount thereof shall be included in the Obligations.
SECTION 5.6. BORROWER TO DEFEND COLLATERAL AGAINST CLAIMS; FEES
ON COLLATERAL. The Borrower will defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein.
The Borrower will not knowingly permit any notice creating or otherwise relating
to liens on the Collateral or any portion thereof to exist or be on file in any
public offer other than Permitted Liens. Except where failure to do so would not
have a Material Adverse Effect on the Borrower, the Borrower shall promptly pay,
when payable, all transportation, storage, and warehousing charges and license
fees, registration fees, assessments, charges, permit fees, and taxes
(municipal, state, and federal) which may now or hereafter be imposed upon the
ownership, leasing, renting, possession, sale, or use of the Collateral, other
than taxes on or measured by the Lender's income and fees, assessments, charges,
and taxes which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves are maintained
to the extent required by GAAP.
SECTION 5.7. NO CHANGE OF LOCATION, STRUCTURE, OR IDENTITY. The
Borrower will not (a) change the location of its chief executive office without
providing prompt notice of such change to Lender or (b) move or permit the
movement of any item of Collateral from the location specified in the applicable
Schedule, except that the Borrower may change its chief executive office and
keep Collateral at other locations within the United States provided that the
Borrower has delivered to the Lender (i) prior written notice thereof and (ii)
duly executed financing statements and other agreements and instruments (all in
form and substance satisfactory to the Lender) necessary or, in the reasonable
opinion of the Lender, desirable to perfect and maintain in favor of the Lender
a first priority security interest in the Collateral. Notwithstanding anything
to the contrary in the immediately preceding sentence, the Borrower may keep any
Collateral consisting of motor vehicles or rolling stock at any location in the
United States provided that the Lender's security interest in any such
Collateral is conspicuously marked on the certificate of title thereof and the
Borrower has complied with the provisions of Section 5.9.
SECTION 5.8. USE OF COLLATERAL; LICENSES; REPAIR. The
Collateral shall be tolerated by competent, qualified personnel in connection
with the Borrower's business purposes, for the purpose for which the Collateral
was designed and in accordance with applicable operating instructions, laws, and
government regulations in all material respects, and the Borrower shall use
every reasonable precaution to prevent loss or damage to the Collateral from
fire and other hazards. The Collateral shall not be used or operated for
personal, family, or household purposes. The Borrower shall procure and maintain
in effect all orders, licenses, certificates, permits, approvals, and consents
required by federal, state, or local laws or by any governmental body, agency,
or authority in connection with the delivery, installation, use, and operation
of the Collateral, except where failure to do so would not have a Material
Adverse Effect on the Borrower. The Borrower shall keep all of the Equipment in
a satisfactory state of repair and satisfactory operating condition in
accordance with industry standards, subject to normal wear and tear, and will
make all repairs and replacements when and where necessary and practical. The
Borrower will not waste or destroy the Equipment or any part thereof, and will
use reasonable care in the use thereof. The Equipment shall not be annexed or
affixed to or become part of any realty without the Lender's prior written
consent.
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SECTION 5.9. FURTHER ASSURANCES. The Borrower will, promptly
upon request by the Lender, execute and deliver or use good faith efforts to
obtain any document reasonably required by the Lender (including, without
limitation, warehouseman or processor disclaimers, mortgagee waivers, landlord
disclaimers, or subordination agreements with respect to the Obligations and the
Collateral), give any notices, execute and file any financing statements, or
other documents (all in form and substance satisfactory to the Lender), mark any
chattel paper, deliver any chattel paper or instruments to the Lender, and take
any other actions that are necessary or, in the opinion of the Lender, desirable
to perfect or continue the perfection and the first priority of the Lender's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of any Persons, or to effect the purposes of this
Agreement. A carbon, photographic, or other reproduction of this Agreement or
any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. To the extent
required under this Agreement, the Borrower will pay all reasonable costs
incurred in connection with any of the foregoing.
SECTION 5.10. NO DISPOSITION OF COLLATERAL. The Borrower will
not in any way hypothecate or create or permit to exist any lien, security
interest, charge, or encumbrance on or other interest in any of the Collateral,
except for the lien and security interest granted hereby and Permitted Liens,
and the Borrower will not sell, transfer, assign, pledge, collaterally assign,
exchange, or otherwise dispose of any of the Collateral. In the event the
Collateral, or any part thereof, is sold, transferred, assigned, exchanged, or
otherwise disposed of in violation of these provisions, the security interest of
the Lender shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, exchange, or other disposition, and the
Borrower will hold the proceeds thereof in a separate account for the benefit of
the Lender. Following such a sale, the Borrower will transfer such proceeds to
the Lender in kind.
SECTION 5.11. NO LIMITATION ON LENDER'S RIGHTS. The Borrower
will not enter into any contractual obligations which may restrict or inhibit
the Lender's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof.
SECTION 5.12. PROTECTION OF COLLATERAL. Upon notice to the
Borrower, the Lender shall have the right at any time to make any payments (if
an Event of Default has occurred and is continuing) and do any other acts the
Lender may deem necessary to protect its security interests in the Collateral,
including, without limitation, the rights to satisfy, contest, or compromise any
encumbrance, charge, or lien which, in the reasonable judgment of the Lender,
appears to be prior to or superior to the security interests granted hereunder,
and appear in, and defend any action or proceeding purporting to affect its
security interests in, or the value of, any of the Collateral. The Borrower
hereby agrees to reimburse the Lender for all payments made and reasonable out-
of-pocket expenses incurred under this Agreement including fees, expenses, and
disbursements of attorneys and paralegals (including the allocated costs of in-
house counsel) acting for the Lender, including any of the foregoing payments
under, or acts taken to protect its security interests in, any of the
Collateral, which amounts shall be secured under this 'Agreement, and agrees it
shall be bound by any payment made or act taken by the Lender hereunder absent
the Lender's gross negligence or willful misconduct. The Lender shall have no
obligation to make any of the foregoing payments or perform any of the foregoing
acts.
SECTION 5.13. DELIVERY OF ITEMS. The Borrower will (a) promptly
after its receipt thereof, deliver to the Lender any documents or certificates
of title issued with respect to any property included in the Collateral, and any
promissory notes, letters of credit or instruments related to or otherwise in
connection with any property included in the Collateral, which in any such case
come into the possession of the Borrower, or shall cause the issuer thereof to
deliver any of the same directly to the Lender, in each case with any necessary
endorsements in favor of the Lender and (b) deliver to the Lender as soon as
available copies of any and all press releases and other similar communications
issued by the Borrower to the public.
SECTION 5.14. NAMECHANGE. The Borrower shall give Lender prompt
notice of amendment or modification of its name, and in connection with such
change deliver executed Uniform Commercial Code financing statements (in form
and substance satisfactory to the Lender).
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SECTION 5.15. ADDITIONAL REQUIREMENTS. The Borrower shall take
all such further actions and execute all such further documents and instruments
as the Lender may reasonably request.
SECTION 5.16. CONFIDENTIALITY. Each of the Lender and the
Borrower shall at all times keep confidential and not disclose to third parties
any information identified as confidential and/or proprietary.
SECTION 5.17. QUIET ENJOYMENT. The Lender shall use commercially
reasonable efforts to take no action which could reasonably be expected to
interfere with Borrower's quiet enjoyment of the Equipment.
SECTION 6. FINANCIAL STATEMENTS. Until the payment and satisfaction
--------------------
in full of all Obligations, the Borrower shall deliver to the Lender the
following financial information:
SECTION 6.1. ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 120 days after the end of each fiscal year of the Borrower
and its consolidated subsidiaries, the consolidated balance sheet, income
statement, and statements of cash flows and shareholders equity for the Borrower
and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and
SECTION 6.2. QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 60 days after the end of each of the first three
fiscal quarters in any fiscal year of the Borrower and its consolidated
subsidiaries, the Financial Statements for such fiscal quarter, together with a
certification duly executed by a responsible officer of the Borrower that such
Financial Statements have been prepared in accordance with GAAP and are fairly
stated in all material respects (subject to normal year-end audit adjustments
and excluding notes thereto).
SECTION 7. EVENTS OF DEFAULT. The occurrence of any of the following
-----------------
events shall constitute an Event of Default hereunder:
(a) the Borrower shall fail to pay within five days after
receipt of written notice of such failure to pay when due any amounts required
to be paid by the Borrower under any Note and this Agreement;
(b) any representation or warranty made by the Borrower under
any Loan Document shall prove to have been false or incorrect in any manner when
made which has a Material Adverse Effect on the Lender's rights under any Note
or this Agreement;
(c) the Borrower shall fail to perform or observe any term,
covenant, or agreement contained in any Loan Document (other than the other
Events of Default specified in this Section 7) in any manner which has a
Material Adverse Effect on the Lender's rights under any Note or this Agreement
and such failure remains unremedied for the earlier of thirty days from (A) the
date on which the Lender has given the Borrower written notice of such failure
and (B) the date on which the Borrower had actual knowledge of such failure;
(d) dissolution, liquidation, winding up, or cessation of the
Borrower's business, failure of the Borrower generally to pay its debts as they
mature, admission in writing by the Borrower of its inability generally to pay
its debts as they mature, or calling of a meeting of the Borrower's creditors
for purposes of compromising any of the Borrower's debts;
(e) the commencement by or against the Borrower of any
bankruptcy, insolvency, arrangement, reorganization, receivership, or similar
proceedings under any federal or state law and, in the case of any such
involuntary proceeding, such proceeding remains undismissed or unstayed for
sixty days following the commencement thereof, or any action by the Borrower is
taken authorizing any such proceedings;
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(f) an assignment for the benefit of creditors is made by the
Borrower, whether voluntary or involuntary, the appointment of a trustee,
custodian, receiver, or similar official for the Borrower or for any substantial
property of the Borrower, or any action by the Borrower authorizing any such
proceeding;
(g) there shall be an event of default by the Borrower under
any indebtedness for borrowing in excess of $100,000 (other than the
Obligations) beyond the period of cure, if any, provided in the instrument or
agreement under which such indebtedness was created and the holder of such
indebtedness has taken action to cause such indebtedness to become due prior to
its stated maturity;
(h) any material tax lien, other than a Permitted Lien, is
filed of record against the Borrower and is not bonded or discharged within
fifteen Business Days;
(i) any judgment which has had or could reasonably be
expected to have a Material Adverse Effect on the Borrower and such judgment
shall not be satisfied, stayed, vacated, bonded, or discharged within sixty
days;
(j) the Borrower shall deny or disaffirm the Obligations
under any of the Loan Documents or any liens granted in connection therewith; or
any liens granted on any of the Collateral in favor of the Lender shall be
determined to be void, voidable, or invalid, or shall not be given the priority
contemplated by this Agreement (except if caused by a filing error by the
Lender) and is not repaired to the satisfaction of the Lender; or
(k) there is a change, other than a change which results from
a merger or from the sale of newly issued securities to investors, in more than
40% of the ownership of any equity interests of the Borrower on the date hereof
or more than 40% of such interests become subject to any contractual, judicial,
or statutory lien, charge, security interest, or encumbrance.
SECTION 8. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing:
(a) The Lender may, without prejudice to any of its other
rights under any Loan Document or Applicable Law, declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 7(e) hereof, in which case all Obligations shall automatically
become immediately due and payable without necessity of any declaration) without
presentment, representation, demand of payment, or protest, which are hereby
expressly waived.
(b) The Lender may take possession of the Collateral and, for
that purpose may enter, with the aid and assistance of any person or persons,
any premises where the Collateral or any part hereof is, or may be placed, and
remove the same.
(c) The obligation of the Lender, if any, to make additional
Loans or financial accommodations of any kind to the Borrower shall immediately
terminate.
(d) The Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein (or in any Loan
Document) or otherwise available to it, all the rights and remedies of a secured
party under the applicable Uniform Commercial Code (the "Code") whether or not
the Code applies to the affected Collateral and also may (i) require the
Borrower to, and the Borrower hereby agrees that it will at its expense and upon
request of the Lender forthwith, assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place to be
designated by the Lender that is reasonably convenient to both parties and
(ii)without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on credit, or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Lender shall
provide Borrower at least ten days' notice to the Borrower of the time and place
of any public sale or the time after which any private sale is to be made. The
Lender shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Lender may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
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which it was so adjourned.
(e) All cash proceeds received by the Lender in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the Lender as
collateral for (to the extent that such proceeds held as collateral do not
exceed the amount of the Obligations), or then or at any time thereafter applied
in whole or in part by the Lender against, all or any part of the Obligations in
such order as the Lender shall elect. Any surplus of such cash or cash proceeds
held by the Lender and remaining after the full and final payment of all the
Obligations shall be paid over to the Borrower or to such other Person to which
the Lender may be required under applicable law, or directed by a court of
competent jurisdiction, to make payment of such surplus.
SECTION 9. MISCELLANEOUS PROVISIONS.
------------------------
SECTION 9.1. NOTICES. Except as otherwise provided herein, all
notices, approvals, consents, correspondence, or other communications required
or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery, or certified or registered mall,
postage prepaid, if to the Lender, then to Transamerica Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department, and if to the Borrower, then to Pilot
Network Services, Inc., 1080 Marina Valley Parkway, Alameda, CA 94501,
Attention: Chief Financial Officer or such other address as shall be designated
by the Borrower or the Lender to the other party in accordance herewith. All
such notices and correspondence shall be effective when received.
SECTION 9.2. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.
SECTION 9.3. ASSIGNMENTS. The Borrower shall not have the right
to assign any Note or this Agreement or any interest therein unless the Lender
shall have given the Borrower prior written consent and the Borrower and its
assignee shall have delivered assignment documentation in form and substance
satisfactory to the Lender in its sole discretion. The foregoing sentence shall
apply even if such assignment occurs by operation of law, as in the case of a
merger of the Borrower with or into another entity. The Lender may assign its
rights and delegate its obligations under any Note or this Agreement; provided,
however, that such assignment will not relieve Lender of its obligations to
Borrower and will not change Borrower's obligations or rights under any Note or
this Agreement or increase the burdens or risks imposed on Borrower.
SECTION 9.4. AMENDMENTS, WAIVERS, AND CONSENTS. Any amendment
or waiver of any provision of this Agreement and any consent to any departure by
the Borrower or Lender from any provision of this Agreement shall be effective
only by a writing signed by the Lender and the Borrower and shall bind and
benefit the Borrower and the Lender and their respective successors and assigns,
subject to the first sentence of Section 9.3.
SECTION 9.5. INTERPRETATION OF AGREEMENT. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in a Note shall have the meaning set forth in the
applicable Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with any Note, or any term or
provision thereof, and is not dealt with herein with more specificity, this
Agreement shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Agreement shall not be relevant in determining the meaning of this
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
SECTION 9.6. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Collateral and shall (i)remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon the Borrower and its successors and assigns and (iii)
inure,
11
<PAGE>
together with the rights and remedies of the Lender hereunder, to the benefit of
the Lender and its successors, transferees, and assigns.
SECTION 9.7. REINSTATEMENT. To the extent permitted by law,
this Agreement and the rights and powers granted to the Lender hereunder and
under the Loan Documents shall continue to be effective or be reinstated if at
any time any amount received by the Lender in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, dissolution, liquidation, or reorganization of the
Borrower or upon the appointment of any receiver, intervenor, conservator,
trustee, or similar official for the Borrower or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
SECTION 9.8. SURVIVAL OF PROVISIONS. All representations,
warranties, and covenants of the Borrower contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Borrower of the Obligations secured
hereby.
SECTION 9.9. INDEMNIFICATION. The Borrower agrees to indemnify
and hold harmless the Lender and its directors, officers, agents, employees, and
counsel from and against any and all costs, expenses, claims, or liability
incurred by the Lender or such Person hereunder and under any other Loan
Document or in connection herewith or therewith, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of the Lender
or such Person.
SECTION 9.10. COUNTERPARTS; TELECOPIED SIGNATURES. This
Agreement may be executed in counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Agreement and each of the other Loan Documents and
any notices given in connection herewith or therewith may be executed and
delivered by telecopier or other facsimile transmission all with the same force
and effect as if the same was a fully executed and delivered original manual
counterpart.
SECTION 9.11. SEVERABILITY. In case any provision in or
obligation under this Agreement or any Note or any other Loan Document shall be
invalid, illegal, or unenforceable in any jurisdiction, the validity, legality,
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 9.12. DELAYS; PARTIAL EXERCISE OF REMEDIES. No delay or
omission of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by the Lender of any right or remedy shall
preclude any other or further exercise thereof, or preclude any other right or
remedy.
SECTION 9.13. ENTIRE AGREEMENT. The Borrower and the Lender
agree that this Agreement, the Schedule hereto, and the Commitment Letter are
the complete and exclusive statement and agreement between the parties with
respect to the subject matter hereof, superseding all proposals and prior
agreements, oral or written, and all other communications between the parties
with respect to the subject matter hereof. Should there exist any inconsistency
between the terms of the Commitment Letter and this Agreement, the terms of this
Agreement shall prevail.
SECTION 9.14. SETOFF. In addition to and not in limitation of
all rights of offset that the Lender may have under Applicable Law, and whether
or not the Lender has made any demand or the Obligations of the Borrower have
matured, the Lender shall have the right to appropriate and apply to the payment
of the Obligations of the Borrower-all deposits and other obligations then or
thereafter owing by the Lender to or for the credit or the account of the
Borrower.
SECTION 9.15. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
12
<PAGE>
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.16. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 9.17. VENUE; SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN COOK COUNTY, OR OF
THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING, (a)ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (b)THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM, OR CROSS-CLAIM. THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS
FOR IT SPECIFIED IN SECTION 9.1 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION, SUBJECT IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO
RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement
to be duly executed and delivered by its proper and duly authorized officer as
of the date first set forth above.
PILOT NETWORK SERVICES, INC.
By: /s/ M. Marketta Silvera
-----------------------------
Name: M. Marketta Silvera
Title: President & CEO
Federal Tax ID:94-3164036
Accepted as of the
____ day of ______, 1997
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:_____________________________________
Name:
Title:
13
<PAGE>
EXHIBIT 10.15
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
- --------------------------------------------------------------------------------
Warrant No. WF-1 Number of Shares: 150,000
Date of Issuance: March 31, 1997 (subject to adjustment)
PILOT NETWORK SERVICES, INC.
Series F Preferred Stock Purchase Warrant
-----------------------------------------
Pilot Network Services, Inc. (the "COMPANY"), for value received, hereby
certifies that the Trustees of The General Electric Pension Trust, or its
registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time after the date hereof
and on or before the earliest of (i) March ___, 2000, (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition of
the Company by another entity by means of merger or other transaction as a
result of which shareholders of the Company immediately prior to such
acquisition possess a minority of the voting power of the acquiring entity
immediately following such acquisition, or (iii) the closing of the initial
public offering of the Company's Common Stock pursuant to a registration
statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
up to 150,000 shares of Series F Preferred Stock of the Company ("PREFERRED
STOCK"), at a purchase price of $12.00 per share. The number of shares
purchasable upon exercise of this Warrant, and the purchase price per share
shall be adjusted from time to time pursuant to the provisions of this Warrant
and are hereinafter referred to as the "WARRANT STOCK" and the "PURCHASE PRICE,"
respectively.
1. EXERCISE.
--------
(a) MANNER OF EXERCISE. This Warrant may be exercised by the
------------------
Registered Holder, in full or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit A duly executed by such Registered
---------
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full by cash, check or wire transfer of the
Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise.
(b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall
--------------------------
be deemed to have been effected immediately prior to the close of business on
the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be
<PAGE>
issuable upon such exercise as provided in Section 1(c) below shall be deemed to
have become the holder or holders of record of the Warrant Stock represented by
such certificates.
(c) DELIVERY TO HOLDER. As soon as practicable after the exercise of
------------------
this Warrant in full or in part, and in any event within 10 days thereafter, the
Company at its expense will cause to be issued in the name of, and delivered to,
the Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(a) above.
2. ADJUSTMENTS.
-----------
(a) If outstanding shares of the Company's Preferred Stock shall be
subdivided into a greater number of shares or a dividend in Preferred Stock
shall be paid in respect of Preferred Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of Preferred Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the
exercise of this Warrant) or any similar corporate reorganization on or after
the date hereof, then and in each such case the holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraph (a); and in each such case, the terms of
this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
-2-
<PAGE>
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a) or (b) above.
(d) In order to avoid doubt, it is acknowledged that the holder of
this Warrant shall be entitled to the benefit of all adjustments in the number
of shares of Common Stock of the Company issuable upon conversion of the
Preferred Stock of the Company which occur prior to the exercise of this
Warrant, including without limitation, any increase in the number of shares of
Common Stock issuable upon conversion as a result of a dilutive issuance of
capital stock.
3. TRANSFERS.
---------
(a) Each holder of this Warrant acknowledges that this Warrant, the
Warrant Stock and the Common Stock of the Company have not been registered under
the Securities Act, and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its
exercise or any Common Stock issued upon conversion of the Warrant Stock in the
absence of (i) an effective registration statement under the Act as to this
Warrant, such Warrant Stock or such Common Stock and registration or
qualification of this Warrant, such Warrant Stock or such Common Stock under any
applicable Blue Sky or state securities law then in effect, or (ii) an opinion
of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
(b) Subject to the provisions of Section 3(a) hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of the Warrant with a properly executed assignment (in the form of Exhibit B
---------
hereto) at the principal office of the Company; provided, however, that this
-------- -------
Warrant may not be transferred without the prior written consent of the Company;
except that this Warrant may be transferred to a "qualified institutional buyer"
(as defined under Rule 144A under the Securities Act) without the prior written
consent of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
warrant is properly assigned in blank, the Company may (but shall not be
required to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change such Registered Holder's address as shown on the warrant register by
written notice to the Company requesting such change.
-3-
<PAGE>
4. NO IMPAIRMENT. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
5. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
---------------------
distribution on the Preferred Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles) except for a stock dividend payable in shares of
Preferred Stock ( a "LIQUIDATING DIVIDEND"), then the Company will pay or
distribute to the Registered Holder of this Warrant, upon the exercise hereof,
in addition to the Warrant Stock purchased upon such exercise, the Liquidating
Dividend which would have been paid to such Registered Holder if he had been the
owner of record of such shares of Warrant Stock immediately prior to the date on
which a record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Preferred Stock entitled to
such dividends or distribution were determined.
6. TERMINATION. This Warrant (and the right to purchase securities upon
-----------
exercise hereof) shall terminate upon the earliest of: (i) March ___, 2000, (ii)
the closing of the Company's sale of all or substantially all of its assets or
the acquisition of the Company by another entity by means of merger or other
transaction as a result of which shareholders of the Company immediately prior
to such acquisition possess a minority of the voting power of the acquiring
entity immediately following such acquisition, or (iii) the closing of the
initial public offering of the Company's Common Stock pursuant to a registration
statement under the Securities Act. The Company shall provide the Registered
Holder written notice of a transaction described in (ii) above at least thirty
(30) days prior to the closing of such transaction.
7. NOTICES OF CERTAIN TRANSACTIONS. In case:
-------------------------------
(a) the Company shall take a record of the holders of its Preferred
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company,
any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
entity), or any transfer of all or substantially all of the assets of the
Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
-4-
<PAGE>
(d) of any redemption of the Preferred Stock or mandatory conversion
of the Preferred Stock into Common Stock of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Preferred Stock (or such other
stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion). Such notice shall be mailed at least
thirty (30) days prior to the record date or effective date for the event
specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and keep
--------------------
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Preferred Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. MAILING OF NOTICES. Any notice required or permitted pursuant to this
------------------
Warrant shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed (a) if to the Registered Holder, to the address of the
Registered Holder most recently furnished in writing to the Company and (b) if
to the Company, to the address set forth below or subsequently modified by
written notice to the Registered Holder.
12. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
-5-
<PAGE>
13. NO FRACTIONAL SHARES. No fractional shares of Preferred Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Preferred Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
14. AMENDMENT. Any term of this Warrant may be amended only by an
---------
instrument in writing signed by the Company and the Registered Holder.
15. HEADINGS. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. GOVERNING LAW. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
17. TRUSTEES NOT LIABLE. Any obligation of The Trustees of General
-------------------
Electric Pension Trust shall be enforceable solely against the assets of such
Pension Trust and not against any Trustee (individually or in the aggregate), or
GE Investment Management Incorporated.
PILOT NETWORK SERVICES, INC.
By /s/ Marketta Silver
-----------------------------------
Title CEO
--------------------------------
Address: 1080 Marina Village Parkway
Alameda, California 94501
-6-
<PAGE>
EXHIBIT A
---------
PURCHASE FORM
-------------
To: Pilot Network Services, Inc. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby irrevocably elects to purchase __________ shares of the
Preferred Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the price
per share provided for in such Warrant.
The undersigned further makes the representations and warranties contained
in Section 3 of the Series F Stock and Warrant Purchase Agreement dated as March
___, 1997 (the "PURCHASE AGREEMENT") between the Company and the Purchaser named
therein. Defined terms contained in such representations and warranties shall
have the meanings assigned to them in the Purchase Agreement, provided that the
--------
term "PURCHASER" shall refer to the undersigned and the term "Securities" shall
refer to the Warrant Stock and the common stock of the Company issuable upon
conversion of the Warrant Stock.
Signature:_______________________
Address:_________________________
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to the number of shares of Series F Preferred Stock covered
thereby set forth below, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
Dated:_________________ Signature:_________________________
_________________________
Witness: _________________________
<PAGE>
EXHIBIT 10.16
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
- --------------------------------------------------------------------------------
Warrant No. WF-2 Number of Shares: 100,000
Date of Issuance: December 22, 1997 (subject to adjustment)
PILOT NETWORK SERVICES, INC.
SERIES F PREFERRED STOCK PURCHASE WARRANT
-----------------------------------------
Pilot Network Services, Inc. (the "COMPANY"), for value received, hereby
certifies that General Electric Capital Corporation, or its registered assigns
(the "REGISTERED HOLDER"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time after the date hereof and on or before
the earliest of (i) December 22, 2000, (ii) the closing of the Company's sale of
all or substantially all of its assets or the acquisition of the Company by
another entity by means of merger or other transaction as a result of which
shareholders of the Company immediately prior to such acquisition possess a
minority of the voting power of the acquiring entity immediately following such
acquisition, or (iii) the closing of the initial public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), up to 100,000 shares of Series F
Preferred Stock of the Company ("PREFERRED STOCK"), at a purchase price of
$12.00 per share. The number of shares purchasable upon exercise of this
Warrant, and the purchase price per share shall be adjusted from time to time
pursuant to the provisions of this Warrant and are hereinafter referred to as
the "WARRANT STOCK" and the "PURCHASE PRICE," respectively.
1. EXERCISE.
--------
(a) MANNER OF EXERCISE. This Warrant may be exercised by the
------------------
Registered Holder, in full or in part, by surrendering this Warrant, with the
purchase form appended hereto as Exhibit A duly executed by such Registered
---------
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full by cash, check or wire transfer of the
Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise.
(b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall
--------------------------
be deemed to have been effected immediately prior to the close of business on
the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be
SIGNATURE PAGE TO WARRANT
<PAGE>
issuable upon such exercise as provided in Section 1(c) below shall be deemed to
have become the holder or holders of record of the Warrant Stock represented by
such certificates.
(c) DELIVERY TO HOLDER. As soon as practicable after the exercise of
------------------
this Warrant in full or in part, and in any event within 10 days thereafter, the
Company at its expense will cause to be issued in the name of, and delivered to,
the Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(a) above.
2. ADJUSTMENTS.
-----------
(a) If outstanding shares of the Company's Preferred Stock shall be
subdivided into a greater number of shares or a dividend in Preferred Stock
shall be paid in respect of Preferred Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of Preferred Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the
exercise of this Warrant) or any similar corporate reorganization on or after
the date hereof, then and in each such case the holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraph (a); and in each such case, the terms of
this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
-2-
<PAGE>
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a) or (b) above.
(d) In order to avoid doubt, it is acknowledged that the holder of
this Warrant shall be entitled to the benefit of all adjustments in the number
of shares of Common Stock of the Company issuable upon conversion of the
Preferred Stock of the Company which occur prior to the exercise of this
Warrant, including without limitation, any increase in the number of shares of
Common Stock issuable upon conversion as a result of a dilutive issuance of
capital stock.
3. TRANSFERS.
---------
(a) Each holder of this Warrant acknowledges that this Warrant, the
Warrant Stock and the Common Stock of the Company have not been registered under
the Securities Act, and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its
exercise or any Common Stock issued upon conversion of the Warrant Stock in the
absence of (i) an effective registration statement under the Act as to this
Warrant, such Warrant Stock or such Common Stock and registration or
qualification of this Warrant, such Warrant Stock or such Common Stock under any
applicable Blue Sky or state securities law then in effect, or (ii) an opinion
of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
(b) Subject to the provisions of Section 3(a) hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
the Warrant with a properly executed assignment (in the form of Exhibit B
---------
hereto) at the principal office of the Company; provided, however, that this
-------- -------
Warrant may not be transferred without the prior written consent of the Company;
except that this Warrant may be transferred to a "qualified institutional buyer"
(as defined under Rule 144A under the Securities Act) without the prior written
consent of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
warrant is properly assigned in blank, the Company may (but shall not be
required to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change such Registered Holder's address as shown on the warrant register by
written notice to the Company requesting such change.
-3-
<PAGE>
4. NO IMPAIRMENT. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
5. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
---------------------
distribution on the Preferred Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles) except for a stock dividend payable in shares of
Preferred Stock (a "LIQUIDATING DIVIDEND"), then the Company will pay or
distribute to the Registered Holder of this Warrant, upon the exercise hereof,
in addition to the Warrant Stock purchased upon such exercise, the Liquidating
Dividend which would have been paid to such Registered Holder if he had been the
owner of record of such shares of Warrant Stock immediately prior to the date on
which a record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Preferred Stock entitled to
such dividends or distribution were determined.
6. TERMINATION. This Warrant (and the right to purchase securities upon
-----------
exercise hereof) shall terminate upon the earliest of: (i) December 22, 2000,
(ii) the closing of the Company's sale of all or substantially all of its assets
or the acquisition of the Company by another entity by means of merger or other
transaction as a result of which shareholders of the Company immediately prior
to such acquisition possess a minority of the voting power of the acquiring
entity immediately following such acquisition, or (iii) the closing of the
initial public offering of the Company's Common Stock pursuant to a registration
statement under the Securities Act. The Company shall provide the Registered
Holder written notice of a transaction described in (ii) above at least thirty
(30) days prior to the closing of such transaction.
7. NOTICES OF CERTAIN TRANSACTIONS. In case:
-------------------------------
(a) the Company shall take a record of the holders of its Preferred
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company,
any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
entity), or any transfer of all or substantially all of the assets of the
Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
-4-
<PAGE>
(d) of any redemption of the Preferred Stock or mandatory conversion
of the Preferred Stock into Common Stock of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Preferred Stock (or such other
stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion) are to be determined. Such notice shall
be mailed at least thirty (30) days prior to the record date or effective date
for the event specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and keep
--------------------
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Preferred Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. MAILING OF NOTICES. Any notice required or permitted pursuant to this
------------------
Warrant shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed (a) if to the Registered Holder, to the address of the
Registered Holder most recently furnished in writing to the Company and (b) if
to the Company, to the address set forth below or subsequently modified by
written notice to the Registered Holder.
-5-
<PAGE>
12. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
13. NO FRACTIONAL SHARES. No fractional shares of Preferred Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Preferred Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
14. AMENDMENT. Any term of this Warrant may be amended only by an
---------
instrument in writing signed by the Company and the Registered Holder.
15. HEADINGS. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. GOVERNING LAW. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
PILOT NETWORK SERVICES, INC.
By /s/ M. Marketta Silvera
------------------------------------
Title CEO
---------------------------------
Address: 1080 Marina Village Parkway
Alameda, California 94501
SIGNATURE PAGE TO WARRANT
<PAGE>
EXHIBIT A
---------
PURCHASE FORM
-------------
To: Pilot Network Services, Inc. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby irrevocably elects to purchase __________ shares of the
Preferred Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the price
per share provided for in such Warrant.
The undersigned further makes the representations and warranties contained
in Section 3 of the Series F Stock and Warrant Purchase Agreement dated as March
31, 1997 (the "PURCHASE AGREEMENT") between the Company and the Purchaser named
therein. Defined terms contained in such representations and warranties shall
have the meanings assigned to them in the Purchase Agreement, provided that the
--------
term "PURCHASER" shall refer to the undersigned and the term "Securities" shall
refer to the Warrant Stock and the common stock of the Company issuable upon
conversion of the Warrant Stock.
Signature:__________________________
Address:____________________________
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to the number of shares of Series F Preferred Stock covered
thereby set forth below, unto:
<TABLE>
<CAPTION>
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
<S> <C> <C>
</TABLE>
Dated:_________________ Signature:_________________________
_________________________
Witness: _________________________
<PAGE>
EXHIBIT 10.17
PILOT NETWORK SERVICES, INC.
MANAGEMENT BONUS PLAN
CONFIDENTIAL
- ------------
FY 1999 management bonus weighted on:
80% Revenue
20% Operating Income
<TABLE>
<CAPTION>
ACTUAL % OF TARGET RANGE: ACTUAL % OF TARGET % OF INCENTIVE
<S> <C> <C>
95% to 100% 95% - 100% 95% - 100%
(No decelerator)
90% to 94% 94% 93%
(2.5 x decelerator on decremental amount) 93% 90%
92% 88%
91% 85%
90% 83%
85% to 89% 89% 74%
(3.5 x decelerator on decremental amount) 88% 71%
87% 67%
86% 64%
85% 60%
</TABLE>
No Incentive below 85% performance (revenue and operating income).
If 85% level not met for revenue incentive, then no bonus will be given for
operating income.
________________________________________________________________________________
<TABLE>
<CAPTION>
ACTUAL % OF TARGET RANGE: ACTUAL % OF TARGET % OF INCENTIVE
<S> <C> <C>
101% to 105% 101% - 105% 101% - 105%
(No accelerator)
106% to 110% 106% 108%
(2.5 X accelerator on Incremental amount) 107% 110%
108% 113%
109% 115%
110% 118%
* *
* *
143% 200%
</TABLE>
Incentive will be capped at 200% for each category (revenue and operating
income).
Payments: quarterly based on year-to-date quarter-end actuals vs. targets,
weighted on respective quarterly revenue targets:
Quarter 1: up to 85% of total year-to-date incentive earned
Quarter 2: up to 90% of total year-to-date incentive earned
Quarter 3: up to 95% of total year-to-date incentive earned
Quarter 4: 100%
Q1 - Q3 bonuses payable within 2-4 weeks after quarter ending month end.
Q4 - annual balance payable after audit (partial payment at CEO/CFO discretion
within 2-4 weeks after year-end.)
<PAGE>
EXHIBIT 10.18
STOCK PURCHASE AND RESTRICTION AGREEMENT
This Stock Purchase and Restriction Agreement is made as of the 28th
day of January, 1994, by and among M. Marketta Silvera ("Silvera"), Pilot
Network Services, Inc., a California Company (the "Company") and the undersigned
holders of the Company's Preferred Stock (the "Investors"). Silvera is an
employee, officer and director of the Company.
In consideration of the mutual covenants set forth herein, intending
to be legally bound, the parties hereto agree as follows:
1. Certain Definitions.
-------------------
a. "Common Stock" shall mean the Company's Common Stock and shares
of Common Stock issued or issuable upon conversion of the Company's Preferred
Stock.
b. "Preferred Stock" shall mean the Company's outstanding Series A,
Series B and Series C Preferred Stock.
c. "Purchased Shares" shall mean the Common Stock purchased by
Silvera pursuant to Section 2 of this Agreement.
d. "Silvera Shares" shall mean shares of the Company's Common Stock
now owned or subsequently acquired by Silvera.
e. "Unvested Shares" shall mean the Common Stock owned by Silvera
subject to the Company's Repurchase Right as set forth in Section 3 of this
Agreement.
2. Purchase by Silvera.
-------------------
a. Purchase. Silvera hereby agrees to purchase from the Company, and
--------
the Company hereby agrees to sell to Silvera, 200,000 shares of Common Stock
(the "Purchased Shares") at a purchase price of $.001 per share for a total
purchase price of $200 (the "Purchase Price").
b. Payment. Concurrently with the execution of this Agreement,
-------
Silvera shall pay the Purchase Price to the Company either in cash or by check
or wire transfer. Silvera shall also deliver to the Secretary of the Company a
duly executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit A) and any additional
---------
<PAGE>
documents required by the Company as a condition for the purchase.
c. Delivery of Certificate. The certificate representing the
-----------------------
Purchased Shares shall be held in escrow by the Company as provided in Section 5
of this Agreement.
d. Exemption from Registration. The Purchased Shares have not been
---------------------------
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and are being issued to Silvera in reliance upon the exemption from such
registration.
e. Restricted Securities. Silvera hereby confirms that Silvera has
---------------------
been informed that the Purchased Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Purchased Shares
are first registered under the federal securities laws or unless an exemption
form such registration is available. Accordingly, Silvera hereby acknowledges
that Silvera is prepared to hold the Purchased Shares for an indefinite period
and that Silvera is aware that Rule 144 of the SEC issued under the Securities
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the Securities Act. Silvera is aware of the
adoption of Rule 144, which permits limited public resale of securities acquired
in a nonpublic offering, subject to the satisfaction of certain conditions.
Silvera understands that under Rule 144, the conditions include, among other
things: the availability of certain current public information about the issuer,
the resale occurring not fewer than two years after the party has purchased and
paid for the securities to be sold, the sale being through a broker in an
unsolicited "broker's transaction" and the amount of the securities being sold
during any three-month period not exceeding specified limitations. Prior to her
acquisition of the Purchased Shares, Silvera acquired sufficient knowledge of
the Company to reach an informed decision to acquire the Purchased Shares.
Silvera has such knowledge and experience in financial and business matters as
to make her capable of utilizing such information to evaluate the risks of the
prospective investments and to make an informed investment decision. Silvera is
able to bear the economic risk of her investment in the Purchased Shares.
Silvera agrees not to make, without the prior written consent of the Company,
any public offering or sale of the Purchased Shares although permitted to do so
under Rule 144(k), until the earlier of the effective date of the Company's
initial registered public offering pursuant to the Securities Act or the date
the Company becomes a registered company pursuant to Section 12(g) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act").
2
<PAGE>
f. Restrictive Legends. In order to reflect the restrictions on
-------------------
disposition of the Purchased Shares pursuant to this Section, the Company shall
endorse the stock certificate for the Purchased Shares with the appropriate
restrictive legends.
g. Shareholder Rights. Unless and until the Company actually
------------------
exercises its repurchase rights under Section 3 of this Agreement, Silvera (or
any permitted successor in interest) shall have all the rights of a shareholder
(including voting and dividend rights) with respect to the Purchased Shares,
subject to the transfer restrictions set forth below.
h. Section 83(b) Election. Silvera understands that under Section 83
----------------------
of the Internal Revenue Code of 1986, as amended (the "Code"), the difference
between the Purchase Price paid for the Purchased Shares and their fair market
value on the date any forfeiture restrictions applicable to such shares lapse
will be reportable as ordinary income at that time. For this purpose, the term
"forfeiture restrictions" includes the right of the Company to repurchase the
Purchased Shares pursuant to the Repurchase Right set forth in Section 3 below.
Silvera understands that she may elect to be taxed at the time the Purchased
Shares are acquired hereunder to the extent the fair market value of the
Purchased Shares differs from the Purchase Price rather than when and as such
Purchased Shares cease to be subject to such forfeiture restrictions, by filing
an election under Section 83(b) of the Code with the I.R.S. within thirty (30)
days after the date of purchase hereunder. If the fair market value of the
Purchased Shares at the date of purchase equals the Purchase Price paid (and
therefore no tax is payable), the election must be made to avoid adverse tax
consequences in the future. Silvera understands that failure to make this filing
within the thirty (30) day period will result in the recognition of ordinary
income by Silvera (in the event the fair market value of the Purchased Shares
increases after the date of purchase) as the forfeiture restrictions lapse.
SILVERA ACKNOWLEDGES THAT IT IS SILVERA'S SOLE RESPONSIBILITY, AND NOT THE
COMPANY'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF SILVERA
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HER BEHALF.
SILVERA IS RELYING SOLELY ON HER ADVISOR'S WITH RESPECT TO THE DECISION AS TO
WHETHER OR NOT TO FILE AN 83(b) ELECTION.
3
<PAGE>
i. Transfer Restrictions.
---------------------
(i) Silvera shall not transfer, assign, encumber, or otherwise
dispose of any of the Purchased Shares that are subject to the Company's
Repurchase Right set forth in Section 3 below, in contravention to any rights of
first refusal set forth in Section 4 below, or without first complying with the
co-sale provisions set forth in Section 6 below. Such restrictions on transfer,
however, shall not apply to a transfer to Silvera's spouse or issue or to a
trust for the exclusive benefit of Silvera or her spouse or issue.
(ii) Each person (other than the Company) to whom Purchased
Shares are transferred by one of the permitted means in Subsection i(i) above,
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to the Company's
Repurchase Right, the rights of first refusal and the co-sale rights contained
in this Agreement to the same extent such shares would be subject if retained by
Silvera.
j. Consent to Issuance. Each party to this Agreement hereby agrees
-------------------
and consents to the terms set forth in Section 2 of this Agreement, including,
without limitation, the issuance of the Purchased Shares to Silvera on the terms
and for the Purchase Price set forth herein.
3. Repurchase Right.
----------------
a. Grant. The Company is hereby granted the right (the "Repurchase
-----
Right"), exercisable at any time during the sixty (60) day period following the
date Silvera ceases for any reason to be an Employee (as defined below) to the
Company to repurchase, at $.001 per share (the "Repurchase Price"), up to
275,000 shares of Common Stock (consisting of the Purchased Shares and 75,000
additional shares of Common Stock owned by Silvera prior to the date hereof (the
"Other Shares") which Silvera agrees will be subject to the vesting provisions
of Subsection 3(c) (the Purchased Shares and the Other shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, Silvera shall be
deemed to be an "Employee" of the Company for so long as Silvera renders
services to the Company, whether as an officer or employee of the Company.
b. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable in regard to the Unvested Shares by written notice delivered to
Silvera prior to the expiration of the applicable sixty (60) day period
specified in Subsection 3(a). The notice shall indicate the number of Unvested
Shares to be repurchased and the date on which the repurchase is to be effected,
such date to be not
4
<PAGE>
more than thirty (30) days after the date of notice. To the extent one or more
certificates representing Unvested Shares are not in escrow, then Silvera shall,
prior to the close of business on the date specified for the repurchase, deliver
to the Company the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The Company
shall, concurrently with the receipt of such stock certificates (either from
escrow in accordance with Section 5 or from Silvera as herein provided), pay to
Silvera in cash or cash equivalents (including the cancellation of any purchase-
money indebtedness), an amount equal to the Repurchase Price for the Unvested
Shares that are to be repurchased.
c. Termination of the Repurchase Right.
------------------------------------
(i) The Repurchase Right shall terminate with respect to any
Unvested Shares for which it is not timely exercised under Subsection 3(b). In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to any and all Unvested Shares in which Silvera vests in accordance
with the schedule below. Accordingly, provided Silvera continues to be a
Employee to the Company, Silvera shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the Unvested Shares in accordance
with the following provisions:
(x) Silvera shall not acquire any vested interest in, nor
shall the Repurchase Right lapse with respect to, any Unvested Shares during the
initial twelve (12) month period measured from January 1, 1994 (the "Vesting
Measurement Date").
(y) Upon the expiration of the initial twelve (12) month
period measured from the Vesting Measurement Date, Silvera shall acquire a
vested interest in, and the Repurchase Right shall lapse with respect to, that
number of Unvested Shares equal to twenty-five percent (25%) of the Unvested
Shares.
(z) From and after the expiration of the initial twelve
(12) month period measured from the Vesting Measurement Date, Silvera shall
acquire a vested interest in, and the Repurchase Right shall lapse with respect
to, the remaining Unvested Shares in a series of successive monthly installments
each equal to two and eight one-hundreds percent (2.08%) of the Unvested Shares.
(ii) All Unvested Shares as to which the Repurchase Right lapses
shall, however, continue to be subject to (i) the rights of refusal of the
Company, its assignees and
5
<PAGE>
the Investors under Section 4 hereof and (ii) the co-sale provisions contained
in Section 5 hereof.
d. Fractional Shares. No fractional shares shall be repurchased by
----------------
the Company. Accordingly, should the Repurchase Right extend to a fractional
share (in accordance with the vesting computation provisions of Subsection 3(c))
at the time Silvera ceases to be a Employee, then such fractional share shall be
added to any fractional share in which Silvera is at such time vested in order
to make one whole vested share no longer subject to the Repurchase Right.
e. Additional Shares or Substituted Securities. In the event of any
-------------------------------------------
stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Unvested
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Unvested Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Unvested Shares hereunder and to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect of
any such transaction upon the Company's capital structure; provided, however,
that the aggregate Repurchase Price shall remain the same.
f. Legend. In addition to the legends which may be required by
------
Sections 2, 4 and 6 of this Agreement, all certificates representing Unvested
Shares subject to the Company's Right of Repurchase may be endorsed with the
following legend (or a similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF
THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES).
SUCH AGREEMENT GRANTS CERTAIN REPURCHASE RIGHTS TO THE
COMPANY UPON TERMINATION OF EMPLOYMENT WITH THE COMPANY. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A
COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
6
<PAGE>
4. Right of First Refusal.
-----------------------
a. Grant. The Company is hereby granted the right of first refusal
-----
(the "First Refusal Right"), exercisable in connection with any proposed sale or
other transfer of any of the Silvera Shares (as defined in Section 1) in which
Silvera has vested in accordance with the vesting provisions of Section 3, or to
which the provisions of Section 3 are inapplicable. For purposes of this Section
4, the term "transfer" shall include any encumbrance or other disposition for
value of the Silvera Shares intended to be made by Silvera, except transfers
permitted under Section 2(i) above.
b. Notice. In the event Silvera desires to accept a bona fide
------
third-party offer for any or all of the Silvera Shares (the shares subject to
such offer to be hereinafter called, solely for the purposes of this Section 4,
the "Target Shares"), Silvera shall promptly (i) deliver to the Company and each
of the Investors written notice (the "Disposition Notice") of the offer and the
basic terms and conditions thereof, including the proposed purchase price, and
(ii) provide satisfactory proof that the disposition of the Target Shares to the
third-party offerer would not be in contravention of the provisions set forth
elsewhere in this Agreement(including the provisions regarding compliance with
federal and state securities laws).
c. Exercise of First Refusal Right. The Company (or its assignees)
-------------------------------
shall, for a period of thirty (30) days following receipt of the Disposition
Notice, have the right to repurchase all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Silvera prior to expiration of the thirty (30) day
exercise period. If such right is exercised with respect to all of the Target
Shares specified in the Disposition Notice, then the Company (or its assignees)
shall effect the repurchase of such Target Shares, including payment of the
purchase price, not more than ten (10) days after delivery of the Exercise
Notice; and at such time Silvera shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. To the extent any of the Target Shares are at
the time held in escrow under Section 5, the certificates for such shares shall
automatically be released from escrow and surrendered to the Company for
cancellation. The Target Shares so purchased shall thereupon be canceled and
cease to be issued and outstanding shares of the Company's Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or
7
<PAGE>
evidence of indebtedness, the Company (or its assignees) shall have the right to
pay the purchase price in the form of cash equal in amount to the value of such
property. If Silvera and the Company (or its assignees) cannot agree on such
cash value within ten (10) days after the Company's receipt of the Disposition
Notice, the valuation shall be made by an appraiser of recognized standing
selected by Silvera and the Company (or its assignees), or, if they cannot agree
on an appraiser within twenty (20) days after the Company's receipt of the
Disposition Notice, each shall select an appraiser or recognized standing and
the two appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The cost of such appraisal
shall be shared equally by the Company and Silvera. The closing shall then be
held on the latter of (i) the fifth (5th) business day following delivery of the
Exercise Notice or (ii) the fifteenth (15th) day after such cash valuation shall
have been made.
d. Second Refusal Right. In the event the Company's Exercise Notice
--------------------
is not given to Silvera within thirty (30) days following the date of the
Company's receipt of the Disposition Notice, Silvera, or upon expiration of the
thirty (30) day period above, shall promptly deliver to each Investor notice of
the availability of the Target Shares for purchase (the "Second Disposition
Notice"). Each Investor shall, for a period of fifteen (15) days following
receipt of the Second Disposition Notice, have the right to purchase a pro rata
portion of the remaining Target Shares specified in the Second Disposition
Notice upon substantially the same terms and conditions specified therein. Such
right shall be exercisable by a notice (the "Second Exercise Notice") delivered
to Silvera prior to expiration of the fifteen (15) day exercise period. If such
right is exercised by any Investor with respect to its pro rata portion of the
Target Shares specified in the Second Disposition Notice, then each such
Investor shall effect the repurchase of such Target Shares, including payment of
its pro rata portion of the purchase price, not more than ten (10) days after
delivery of the Second Exercise Notice; and at such time Silvera shall deliver
to the Investors the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. To the
extent any of the Target Shares are at the time held in escrow under Section 5,
the certificates for such shares shall automatically be released from escrow and
surrendered to Silvera for transfer. If necessary, the Company agrees to
promptly assist Silvera in the exchange of Silvera's existing certificates for
new certificates representing different numbers of shares; provided that the
total number of shares represented by such surrendered certificates shall not
change.
8
<PAGE>
Should the purchase price specified in the Second Disposition Notice
be payable in property other than cash or evidence of indebtedness, the terms
set forth in the second paragraph of Subsection 4(c) above shall govern the
procedure to be followed by the Investors and Silvera.
e. Non-Exercise by Company and Investors. In the event the
-------------------------------------
Exercise Notice is not given to Silvera within thirty (30) days following the
date of the Company's receipt of the Disposition Notice, and the Second Exercise
Notice is not given within fifteen (15) days after receipt by the Investors of
the Second Disposition Notice, Silvera shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the remaining Target Shares
upon terms and conditions (including the purchase price) no more favorable to
the third-party purchaser than those specified in the Disposition Notices;
provided, however, that any such sale or disposition must not be effected in
contravention of any state or federal securities laws. To the extent any of the
Target Shares are at the time held in escrow under Section 5, the certificates
for such shares shall automatically be released from escrow and surrendered to
Silvera. The third-party purchaser shall acquire such Target Shares free and
clear of all the terms and provisions of this Agreement (including the Company's
Repurchase Right under Section 3, the co-sale provisions of Section 6, and the
Company's and Investors' refusal rights hereunder). In the event Silvera does
not sell or otherwise dispose of the Target Shares within the specified thirty
(30) day period, the refusal rights of the Company and the Investors hereunder
shall continue to be applicable to any subsequent disposition of the Target
Shares by Silvera until such rights terminate in accordance with Subsection
4(f).
f. Recapitalization. In the event of any stock dividend, stock
----------------
split, recapitalization or other transaction affecting the Company's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Silvera Shares shall be
immediately subject to the Company's and the Investors' refusal rights
hereunder, but only to the extent the Silvera Shares are at a time covered by
such rights.
g. Legend. All certificates representing Silvera Shares subject to
------
the refusal rights of this Section may be endorsed with the following legend (or
similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR
IN ANY MANNER DISPOSED OF, EXCEPT IN
9
<PAGE>
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF
THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE
SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY AND
OTHER INVESTORS CERTAIN RIGHTS OF FIRST REFUSAL
UPON AN ATTEMPTED TRANSFER OF THE SHARES. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
5. Escrow.
------
a. Deposit. The certificates for the Unvested Shares shall be
-------
deposited in escrow with the Company to be held in accordance with the
provisions of this Section 5. Each deposited certificate shall be accompanied by
a duly executed Assignment Separate from Certificate in the form of Exhibit A.
---------
The deposited certificates, together with any other assets or securities from
time to time deposited with the Company pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with Subsection 5(c). Upon delivery of the
certificates (or other assets and securities) to the Company, Silvera shall be
issued an instrument of deposit acknowledging the number of shares (or other
assets and securities) delivered in escrow to the Company.
b. Recapitalization. All regular cash dividends on Silvera's shares
----------------
held in escrow (or other securities at the time held in escrow) shall be paid
directly to Silvera and shall not be held in escrow. However, in the event of
any stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the escrow shares shall be immediately
delivered to the Company to be held in escrow under this Section 5, but only to
the extent such shares are at the time subject to the escrow requirements of
Subsection 5(a).
c. Release/Surrender. The escrowed shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Company for repurchase and cancellation:
10
<PAGE>
(i) Should the Company elect to exercise the Repurchase Right under
Section 3 with respect to any Unvested Shares, then the escrowed certificates
for such Unvested Shares (together with any other assets or securities issued
with respect thereto) shall be delivered to the Company for cancellation,
concurrently with the payment to Silvera, in cash or cash equivalent (including
the cancellation of any purchase-money indebtedness), of an amount equal to the
aggregate Repurchase Price for such Unvested Shares, and Silvera shall cease to
have any further rights or claims with respect to such Unvested Shares (or other
assets or securities).
(ii) Should the Company or the Investors elect to exercise their
refusal rights under Section 4 with respect to any Target Shares held at the
time in escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto)
shall, concurrently with the payment of the purchase price for such Target
Shares to Silvera, either (x) be surrendered to the Company for cancellation or
(y) surrendered to Silvera for delivery to the appropriate Investors, as the
case may be, and in either case Silvera shall cease to have any further rights
or claims with respect to such Target Shares (or other assets or securities).
(iii) Should the Company and the Investors elect not to exercise their
refusal rights under Section 4 with respect to any Target Shares held at the
time in escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto) shall
be surrendered to Silvera for disposition according to the provisions of Section
4.
(iv) As the interest of Silvera in the Unvested Shares (or any other
assets or securities issued with respect thereto) vests in accordance with the
provisions of Section 3, the certificates for such vested shares (as well as all
other vested assets and securities) shall be released from escrow and delivered
to Silvera in accordance with the following schedule:
(w) The initial release of vested shares (or other vested assets
and securities) from escrow shall be effected within thirty (30) days following
the expiration of the initial twelve (12) month period measured from the Vesting
Measurement Date.
(X) Subsequent releases of vested shares (or other vested assets
and securities) from escrow shall be effected at annual intervals thereafter,
with the first such
11
<PAGE>
annual release to occur twenty-four (24) months after the Vesting Measurement
Date.
(y) Upon Silvera's cessation of Employee status, any escrowed
Unvested Shares (or other assets or securities) in which Silvera is at the time
vested shall be promptly released from escrow.
(z) Upon any earlier termination of the Company's Repurchase
Right in accordance with the applicable provisions of Section 3, the Unvested
Shares (or other assets or securities) at the time held in escrow hereunder
shall promptly be released to Silvera as fully vested shares or other property.
(V) All Unvested Shares (or other assets or securities) released from
escrow in accordance with the provisions of Subsection 5(c) (iv) above shall
nevertheless remain subject to (x) the Company's and Investors' refusal rights
set forth in Section 4 above, and (y) the co-sale provisions set forth in
Section 6 below.
6. Co-Sale Agreement.
------------------
a. Notice. If Silvera proposes to sell or transfer any Silvera
------
Shares (as defined in Section 1) in one or more related transactions, then
Silvera shall promptly give written notice (the "Co-Sale Notice") to the Company
and to each of the Investors at least thirty (30) days prior to the closing of
such sale or transfer. The Co-Sale Notice shall describe in reasonable detail
the proposed sale or transfer including, without limitation, the number of
Silvera Shares to be sold or transferred, the nature of such sale or transfer,
the consideration to be paid, and the name and address of each prospective
purchaser or transferee. In the event that the sale or transfer is being made
pursuant to the provisions of Subsection 6(i), the Co-Sale Notice shall state
under which Subsection of this Agreement the sale or transfer is being made.
b. Participation. Each Investor shall have the right, exercisable
-------------
upon written notice to Silvera within fifteen (15) days after receipt of the Co-
Sale Notice, to participate in such sale on the same terms and conditions
specified in the Co-Sale Notice. To the extent one or more of the Investors
exercise such right of participation in accordance with the terms and conditions
set forth below, the number of Silvera Shares that Silvera may sell in the
transaction shall be correspondingly reduced.
c. Pro Rata Calculation. Each Investor may sell all or any part of
--------------------
that number of shares of Common Stock equal
12
<PAGE>
to the product obtained by multiplying the aggregate number of Silvera Shares
covered by the Co-Sale Notice by a fraction (i) the numerator of which is the
number of shares of Common Stock (on an as-converted basis for all Preferred
Stock) owned by the Investor at the time of the sale or transfer and (ii) the
denominator of which is the total number of shares of Common Stock owned by
Silvera and the Investors (on an as-converted basis for all Preferred Stock) at
the time of the sale or transfer.
d. Additional Participation. If any Investor fails to elect to fully
------------------------
participate in Silvera's sale pursuant to this Section 6, Silvera shall give
notice of such failure to the Investors who did so elect (the "Participants").
Such notice may be made by telephone if confirmed in writing within two (2)
days. The Participants shall have five (5) days from the date such notice was
given to agree to sell their pro rata share of the unsold portion. For purposes
of this Subsection, a Participant's pro rata share shall be equal to the product
obtained by multiplying the number of shares in the unsold portion by a fraction
(i) the numerator of which is the number of shares of Common Stock (on an as-
converted basis for all Preferred Stock) held by such Participant and (ii) the
denominator of which is the total number of shares of Common Stock held by the
Participants (on an as-converted basis for all Preferred Stock) and by Silvera.
e. Delivery. Each Participant shall effect its participation in the sale
--------
by promptly delivering to Silvera for transfer to the prospective purchaser one
or more certificates, properly endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Preferred Stock which is at such time
convertible into the number of shares of Common Stock which such Participant
elects to sell; provided, however, that if the prospective purchaser objects to
the delivery of Preferred Stock in lieu of Common Stock, such Participant shall
convert such Preferred Stock into Common Stock and deliver Common Stock as
provided in Subsection 6(e)(i) above. The Company agrees to make any such
conversion concurrent with the actual transfer of such shares to the purchaser.
f. Proceeds. The stock certificate or certificates that the Participant
--------
delivers to Silvera pursuant to Subsection 6(e) shall be transferred to the
prospective purchaser in consummation of the sale of the stock pursuant to the
terms and conditions specified in the Co-Sale Notice, and Silvera shall
concurrently therewith remit to such participant
13
<PAGE>
that portion of the sale proceeds to which such participant is entitled by
reason of its participation in such sale. To the extent that any prospective
purchaser or purchasers prohibits such assignment or otherwise refuses to
purchase shares or other securities from a Participant exercising its rights of
co-sale hereunder, Silvera shall not sell to such prospective purchaser or
purchasers any Silvera Shares unless and until, simultaneously with such sale,
Silvera shall purchase such shares or other securities from such Participant.
g. Non-Exclusive Rights. The exercise or non-exercise of the right of the
--------------------
Participants hereunder to participate in one or more sales of Silvera Shares
made by Silvera shall not adversely affect their rights to participate in
subsequent sales of Silvera Shares subject to Subsection 6(a).
h. Sales by Silvera. If none of the Investors elects to participate in
----------------
the sale of the Silvera Shares subject to the Co-Sale Notice, Silvera may, not
later than sixty (60) days following delivery to the Company and each of the
Investors of the Co-Sale Notice, enter into an agreement providing for the
closing of the transfer of the Silvera Shares covered by the Co-Sale Notice
within thirty (30) days of such agreement on terms and conditions not more
favorable to the transferor than those described in the Co-Sale Notice. Any
proposed transfer on terms and conditions more favorable than those described in
the Co-Sale Notice, as well as any subsequent proposed transfer of any of the
Silvera Shares by Silvera, shall again be subject to the co-sale rights of the
Investors and shall require compliance by Silvera with the procedures described
in this Section 6.
i. Exempt Transfers.
----------------
(i) The provisions of Subsections 6(b) through 6(h) shall not apply
to (x) any pledge of Silvera Shares made pursuant to a bona fide loan
transaction that creates a mere security interest; (y) any transfer to the
ancestors, descendants or spouse or to trusts for the benefit of such persons or
Silvera; or (z) any bona fide gift; provided that (A) Silvera shall inform the
Investors of such pledgee, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the Investors with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred Silvera Shares shall remain "Silvera Shares" hereunder, and such
pledgee, transferee or donee shall be treated as "Silvera" for purposes of this
Agreement.
(ii) The provisions of Subsections 6(b) to 6(h) shall not apply to
the sale of any Silvera Shares (x) to the
14
<PAGE>
public pursuant to a registration statement filed with, and declared effective
by, the SEC under the Securities Act of 1933, as amended, or (y) to the Company.
j. Prohibited Transfers.
--------------------
(i) In the event Silvera should sell any Silvera Shares in
contravention of the co-sale rights of the Investors under this Agreement (a
"Prohibited Transfer"), each Investor, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
below, and Silvera shall be bound by the applicable provisions of such option.
(ii) In the event of a Prohibited Transfer, each Investor shall have
the right to sell to Silvera the type and number of shares of Common Stock equal
to the number of shares each Investor would have been entitled to transfer to
the purchaser under Subsection 6(c) had the Prohibited Transfer hereof been
effected pursuant to and in compliance with the terms hereof. Such sale shall be
made on the following terms and conditions:
(w) The price per share at which the shares are to be sold to
Silvera shall be equal to the price per share paid by the purchaser to Silvera
in the Prohibited Transfer. Silvera shall also reimburse each Investor for any
and all fees and expenses, including legal fees and expenses, incurred pursuant
to the exercise or the attempted exercise of the Investor's rights under
Section 6.
(x) Within ninety (90) days after the later of the dates on
which the Investor (A) received notice of the Prohibited Transfer or (B)
otherwise became aware of the Prohibited Transfer, each Investor shall, if
exercising the option created hereby, deliver to Silvera the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(y) Silvera shall, upon receipt of the certificate or
certificates for the shares to be sold by an Investor, pursuant to this
Subsection 6(j)(ii), pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Subsection 6(j)(ii)(w), in
cash or by other means acceptable to the Investor.
(z) Notwithstanding the foregoing, any attempt by Silvera to
transfer Silvera Shares in violation of Section 6 hereof shall be void and the
Company agrees it will not effect such a transfer nor will it treat any alleged
15
<PAGE>
transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
k. Legend. Each certificate representing shares of Common Stock now
------
or hereafter owned by Silvera or issued to any person in connection with a
transfer pursuant to Section 6(i) hereof may be endorsed with the following
legend (or similar legend):
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN STOCK PURCHASE AND RESTRICTION AGREEMENT BY AND BETWEEN THE COMPANY AND
CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
Silvera agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in Subsection 6(k) above to enforce the provisions of
this Agreement. The legend shall be removed upon termination of this Agreement.
1. Termination. The co-sale rights under this Section 6 shall
-----------
terminate upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended.
7. Holdback. Silvera agrees that if the Company files a registration
--------
statement in connection with an underwritten public offering, she will not
effect any sale or distribution of any Silvera Shares (except pursuant to such
registration statement) of the capital stock of the Company during the period
requested by the underwriters commencing with the effective date of such
registration statement and ending on the close of business on a date not to
exceed one hundred and eighty (180) days thereafter or such time as the
registration statement is withdrawn, whichever is earlier.
16
<PAGE>
8. Miscellaneous.
-------------
a. Conditions to Exercise of Rights. Exercise of the Investors'
--------------------------------
rights under this Agreement shall be subject to and conditioned upon, and
Silvera and the Company shall use their best efforts to assist each Investor in,
compliance with all applicable laws.
b. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California.
c. Amendment. Any provision may be amended and the observance
---------
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Common Stock (on an as-converted
basis) held by the Investors and their assignees, and (iii) as to Silvera, only
by Silvera; provided that, each Investor may waive any of its rights hereunder
without obtaining the consent of any other Investor. Any amendment or waiver
effected in accordance with clauses (i), (ii) and (iii) of this Subsection 8(c)
shall be binding upon each Investor, its successors and assigns, the Company and
Silvera.
d. Assignment of Rights. This Agreement and the rights and
--------------------
obligations of the parties hereunder shall inure to benefit of, and be binding
upon, their respective permitted successors, assigns and legal representatives.
e. Ownership. Silvera represents and warrants that she is the sole
---------
legal and beneficial owner of the shares of Common Stock subject to this
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
f. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or three (3) days after deposit in the United States mail,
by registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto. Notwithstanding the foregoing, the telephone notice
permitted by Section 6(d) shall be effective at the time it is given.
g. Severability. In the event one or more of the provisions of this
------------
Agreement should, for any reason, be held
17
<PAGE>
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
h. Attorneys' Fees. In the event that any dispute among the parties
---------------
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover form the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys, which shall include, without limitation, all fees, costs
and expenses of appeals.
i. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
j. Entire Agreement. This Agreement, the Exhibits hereto, and the
----------------
other documents required to be delivered pursuant hereto constitute the entire
understanding and agreement between the parties with regard to the specific
subject matter hereof and no party shall be liable or bound by any
representation, warranty, covenant or agreement except as specifically set forth
herein. Any previous agreement (whether written, oral or implied) among the
parties relative to the specific subject matter hereof is superseded by this
Agreement.
The foregoing Agreement is hereby executed as of the date first above
written.
SILVERA:
/s/ M. Marketta Silvera
-------------------------
M. Marketta Silvera
Address: 99 Tappan Lane
Orinda, California 94563
18
<PAGE>
THE COMPANY:
PILOT NETWORK SERVICES, INC.,
a CaLifornia corporation
By: /s/ M. Marketta Silvera
--------------------------
M. Marketta Silvera
President
Address: 1000 Marina Village Parkway
Suite 100
Alameda, CA 94501
Attn: M. Marketta Silvera
THE INVESTORS:
EL DORADO VENTURES III, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: ________________________
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
EL DORADO TECHNOLOGY IV, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: ________________________
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
19
<PAGE>
THE COMPANY:
PILOT NETWORK SERVICES, INC.,
a California corporation
By: _________________________
M. Marketta Silvera
President
Address: 1000 Marina Village Parkway
Suite 100
Alameda, CA 94501
Attn: M. Marketta Silvera
THE INVESTORS:
EL DORADO VENTURES III, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
------------------------
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
EL DORADO TECHNOLOGY IV, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
------------------------
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
19
<PAGE>
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Shanda Bahles
--------------------------
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
_____________________________
William B. Elmore
Address: 6 Tevis Place
Palo Alto, California 94306
_____________________________
Jeffrey T. Webber
Address: R.B. Webber & Company
1717 Embarcadero Road
Suite 2000
Palo Alto, California 94303
Consent of Spouse:
- ------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Silvera's spouse]
20
<PAGE>
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: _________________________
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
/s/ William B. Elmore
-----------------------------
William B. Elmore
Address: 6 Tevis Place
Palo Alto, California 94306
_____________________________
Jeffrey T. Webber
Address: R.B. Webber & Company
1717 Embarcadero Road
Suite 2000
Palo Alto, California 94303
Consent of Spouse:
- ------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Silvera's spouse]
20
<PAGE>
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: _________________________
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
_____________________________
William B. Elmore
Address: 6 Tevis Place
Palo Alto, California 94306
/s/ Jeffrey T. Webber
-----------------------------
Jeffrey T. Webber
Address: R.B. Webber & Company
1717 Embarcadero Road
Suite 2000
Palo Alto, California 94303
Consent of Spouse:
- ------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Silvera's spouse]
20
<PAGE>
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: El Dorado Venture Partners III,
a California general partnership
By: _________________________
Shanda Bahles,
General Partner
Address: 20300 Stevens Creek Blvd.
Cupertino, California 95014
Attn: Shanda Bahles
_____________________________
William B. Elmore
Address: 6 Tevis Place
Palo Alto, California 94306
_____________________________
Jeffrey T. Webber
Address: R.B. Webber & Company
1717 Embarcadero Road
Suite 2000
Palo Alto, California 94303
Consent of Spouse:
- -----------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company,s and Investors, refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
/s/ L. Ronald Silvera
-----------------------------
[Silvera's spouse]
20
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto Pilot
Network Services, Inc., a California corporation (the "Company"), ______________
(______) shares of the Common Stock of the Company standing in my name on the
books of the Company represented by Certificate No. _________ herewith and do
hereby irrevocably constitute and appoint _________ to transfer such stock on
the books of the within named Company with full power of substitution in the
premises.
Dated:_______________________
Signature:______________________________
Signature:______________________________
21
<PAGE>
EXHIBIT B
REPURCHASE RIGHTS
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name: M Marketta Silvera
Address:
Taxpayer Ident. No.:
Taxable Year: Calendar Year 199_
(2) The property with respect to which the election is being made is
200,000 shares of the common stock of Pilot Network Services, Inc.
(3) The property was issued on January __, 1994.
(4) The property is subject to a repurchase right pursuant to which
the issuer has the right to acquire the property at the original purchase price
if for any reason shareholder's employment with the issuer is terminated. The
issuer's repurchase right lapses on ___________, 19__.
(5) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never
lapse) is $.001 per share.
(6) The amount paid for such property is $.001 per share.
(7) A copy of this statement was furnished to _________, for whom
Employee rendered the service underlying the transfer of property.
(8) This statement is executed as of January __, 1994.
__________________________________ ___________________________________
Spouse (if any) Employee
22
<PAGE>
EXHIBIT 10.19
PILOT NETWORK SERVICES, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is made as of March
14, 1995, by and between Pilot Network Services, Inc., a California corporation
(the "Company"), and M. Marketta Silvera ("Purchaser") pursuant to the Company's
1994 Restricted Stock Purchase Plan.
1. Sale of Stock. Subject to the terms and conditions of this
-------------
Agreement, on the Closing Date the Company will issue and sell to Purchaser, and
Purchaser agrees to purchase from the Company, 75,000 shares of the Company's
Common Stock (the "Shares") at a purchase price of $0.18 per Share for a total
purchase price of $13,500. The term "Shares" refers to the purchased Shares and
all securities received in replacement of Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Closing; Security Interest.
--------------------------
(a) The closing of the purchase and sale of the Shares under this
Agreement (the "Closing") shall be held at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as they agree (the "Closing Date").
(b) At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by him or her (which shall
be issued in Purchaser's name) against payment of the purchase price therefor.
The purchase price for the Shares shall be paid to the Company by a check
rendered to the Company in the amount of $13,500.
3. Limitations on Transfer.
-----------------------
In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any interest
in the Shares while the Shares are subject to the Company's repurchase option,
except as provided in Section 3(h) below. After any Shares have been released
from such repurchase option, Purchaser shall not assign, encumber or dispose of
any interest in such Shares except in compliance with Sections 3(b) and 3(c)
below and applicable securities laws:
(a) Repurchase Option. In the event Purchaser ceases to be
-----------------
"employed by the Company" (as defined herein) for any reason, with or without
cause (including death, disability or voluntary resignation), the Company shall,
upon the date of such termination, have an irrevocable, exclusive option for a
period of 90 days from such termination date to repurchase all or any portion of
the Shares held by Purchaser as of such date which have not yet been released
from the Company's repurchase option at the original purchase price per Share
specified in Section 1. For
<PAGE>
purposes of this Agreement, Purchaser will be considered to be "employed by the
Company" if the Board of Directors of the Company determines that Purchaser is
rendering substantial services as an officer, employee, consultant or
independent contractor to the Company. In case of any dispute as to whether
Purchaser is employed by the Company, the Board of Directors of the Company will
have discretion to determine whether Purchaser has ceased to be employed by the
Company and the effective date on which Purchaser's employment terminated. The
option shall be exercised by the Company by written notice to Purchaser or his
executor and, at the Company's option, (i) by delivery to the Purchaser or his
executor with such notice of a check in the amount of the purchase price for the
Shares being purchased, or (ii) in the event the Purchaser is indebted to the
Company, by cancellation by the Company of an amount of such indebtedness equal
to the purchase price for the Shares being repurchased, or (iii) by a
combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals such purchase price. Upon delivery of such notice and
payment of the purchase price in any of the ways described above, the Company
shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interest therein or related thereto, and the Company shall have
the right to transfer to its own name the number of Shares being repurchased by
the Company, without further action by Purchaser.
One hundred percent (100%) of the Shares purchased by Purchaser shall
initially be subject to the Company's repurchase option as set forth above.
Thereafter, the Shares held by Purchaser shall be released from the Company's
repurchase option under this Section 3(a) as follows (provided in each case that
Purchaser's employment has not been terminated prior to the date of any such
release): 1/4th of the total number of Shares shall be released from the
repurchase option on the first anniversary of the Vesting Commencement Date (as
set forth on the signature page of this Agreement), and 1/48th of the Shares
originally purchased shall be released from the repurchase option each month
thereafter on the Monthly Vesting Date (as set forth on the signature page of
this Agreement), until all Shares are released from the repurchase option.
Fractional shares shall be rounded to the nearest whole share.
(b) Right of First Refusal. In the event, at any time after the
----------------------
date of this Agreement, the Purchaser or his transferee desires to sell or
transfer in any manner the Shares as to which the option provided in Section
3(a) above is not applicable or has not been exercised, he shall first offer
such Shares for sale to the Company at the same price, and upon the same terms
(or terms as similar as reasonably possible) upon which he is proposing or is to
dispose of said Shares. Said right of first refusal shall be provided to the
Company for a period of thirty (30) days following receipt by the Company of
written notice by the Purchaser of the terms and conditions of said proposed
sale or transfer and the name, address and phone number of each proposed buyer
or transferee. If the Company desires to exercise such right of first refusal as
to all but not less than all of the Shares proposed to be transferred, it shall
notify Purchaser in writing within such thirty day period. In the event the
Shares are not disposed of on such terms within thirty (30) days following lapse
of the period of the right of first refusal provided to the Company, or if the
Purchaser proposes to change the price or other terms to make them more
favorable to the buyer, they shall once again be subject to the right of first
refusal herein provided.
(c) Involuntary Transfer. In the event, at any time after the date
--------------------
of this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or
-2-
<PAGE>
divorce) of all or a portion of the Shares by the record holder thereof, the
Company shall have an option to purchase all of the Shares transferred at the
greater of the purchase price paid by Purchaser pursuant to this Agreement or
the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(d) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(c), the price per Share shall be a price set
by the Board of Directors of the Company that will reflect the current value of
the stock in terms of present earnings and future prospects of the Company. The
Company shall notify Purchaser or his or her executor of the price so determined
within thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of Shares. The decision of the Board of Directors as to the
purchase price shall be final.
(e) Assignment. The right of the Company to purchase any part of
----------
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations.
(f) Restrictions Binding on Transferees. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase or other rights under Section 3. Any sale or
transfer of the Company's Shares shall be void unless the provisions of this
Agreement are met.
(g) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate at such time as a public market exists for the Company's capital stock
(or any other stock issued to purchasers in exchange for the Shares purchased
under this Agreement). For the purpose of this Agreement, a "Public Market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices are published
daily on business days in a recognized financial journal.
Upon termination of the right of first refusal imposed by this
Agreement and the expiration or exercise of the Company's repurchase option
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(b) herein and delivered to Purchaser.
(h) Exempt Transfers. The restrictions on transfer of this Section
----------------
3 shall not apply to a transfer to Purchaser's ancestors or descendants or
spouse or to a trustee for their benefit, provided that such transferee shall
agree in writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
-3-
<PAGE>
4. Escrow. For purposes of facilitating the enforcement of the provisions
------
of Section 3 above, Purchaser agrees, immediately upon receipt of the
certificate(s) for his Shares, to deliver such certificate(s), together with an
Assignment Separate from Certificate in the form attached to this Agreement as
Exhibit A executed by Purchaser and by Purchaser's spouse (if required for
- ---------
transfer), in blank, to the Secretary of the Company, or his designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms hereof. Purchaser hereby acknowledges that the
Secretary of the Company, or his or her designee, is so appointed as the escrow
holder with the foregoing authorities as a material inducement to make this
Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party) for any actions or omissions
unless such escrow holder is grossly negligent relative thereto. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time. Purchaser agrees
that if the Secretary of the Company, or his or her designee, resigns as escrow
holder for any or no reason, the Board of Directors of the Company shall have
the power to appoint a successor to serve as escrow holder pursuant to the terms
of this Agreement.
5. Investment Representations.
--------------------------
In connection with the purchase of the Shares, Purchaser represents to
the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of
the
-4-
<PAGE>
Securities Exchange Act of 1934, the securities exempt under Rule 701 may be
resold by the Purchaser ninety (90) days thereafter, subject to the satisfaction
of certain of the conditions specified by Rule 144, including, among other
things: (1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and (2) in the case of an
affiliate, the availability of certain public information about the Company, and
the amount of securities being sold during any three month period not exceeding
the limitations specified in Rule 144(e), if applicable.
If the Company does not qualify under Rule 701 at the time of
purchase, then the securities may be resold by the Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than two years after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and (3) in the case of an affiliate, or of a non-affiliate who has held
the securities less than three years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable. PURCHASER UNDERSTANDS
THAT PAYMENT BY NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS IT
IS SECURED BY ASSETS OTHER THAN THE SHARES.
(e) Purchaser further understands that at the time he or she wishes
to sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the securities
under Rule 144 or 701 even if the two-year minimum holding period had been
satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or 701 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
6. Legends.
-------
The certificate or certificates representing the Shares shall bear the
following legends (as well as any legends required by applicable state and
federal corporate and securities laws):
-5-
<PAGE>
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
Purchaser understands that transfer of the Shares may be restricted by
the blue sky laws of the State of California.
7. No Employment Rights.
--------------------
Nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment, for any reason, with or without cause.
8. Section 83(b) Election.
----------------------
Purchaser understands that Section 83(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the repurchase option set forth in Section 3(a) of this Agreement. Purchaser
understands that Purchaser may elect to be taxed at the time the Shares are
purchased, rather than when and as the repurchase option expires, by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within 30 days from the date of purchase. Even if the fair market value of the
Shares at the time of the execution of this Agreement equals the amount paid for
the Shares, the election must be made to avoid tax treatment under Section 83(a)
in the future. The form for making Purchaser's election is attached to this
Agreement. Purchaser understands that his or her failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls.
9. Stand-off Agreement. In connection with the initial public offering
-------------------
of the Company's securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, Purchaser agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180)
-6-
<PAGE>
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that Purchaser need
not so agree unless a majority of the Company's officers and directors and a
majority of the holders of at least 5% of the Company's outstanding securities
also agree to be similarly bound.
10. Miscellaneous.
-------------
(a) This Agreement may be amended by written agreement between the
Company and Purchaser.
(b) Any notice, demand or request required or permitted to be given
under this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telecopy or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to Purchaser, at Purchaser's address as shown on
the stock records of the Company.
(c) The rights and benefits of this Agreement shall inure to the
benefit of, and be enforceable by the Company's successors and assigns. The
rights and obligations of Purchaser under this Agreement may only be assigned
with the prior written consent of the Company.
(d) Both parties agree to execute any additional documents
necessary to carry out the purposes of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
PILOT NETWORK SERVICES, INC.
By: /s/ M. Marketta Silvera
----------------------------
Title: President and CEO
---------------------
PURCHASER:
M. Marketta Silvera
/s/ M. Marketta Silvera
-------------------------------
(Signature)
Address: 99 Tappan Lane
Orinda, CA 94563
Vesting Commencement
Date: February 28, 1995
Monthly Vesting
Date: March 31, 1996
CONSENT OF SPOUSE
I, L. RONALD SILVERA, spouse of M. Marketta Silvera, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
/s/ L. Ronald Silvera
----------------------------
(Signature)
-8-
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement between the undersigned ("Purchaser") and Pilot Network
Services, Inc., a California corporation, dated ____________, 19__ (the
"Agreement"), Purchaser hereby sells, assigns and transfers unto _____________
_____ (_______) shares of the Common Stock of Pilot Network Services, Inc.
standing in Purchaser's name on the books of said corporation represented by
Certificate No. ______ herewith and does hereby irrevocably constitute and
appoint ____________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: __________, 19__
Signature:
/s/ M. Marketta Silvera
------------------------
M. Marketta Silvera
/s/ L. Ronald Silvera
-------------------------
Purchaser's Spouse
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option and other rights set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code,
to include in his gross income for the current taxable year, the amount of any
compensation taxable to him in connection with his receipt of the property
described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME : TAXPAYER: M. Marketta Silvera SPOUSE: L. Ronald Silvera
ADDRESS : 99 Tappan Lane
Orinda, CA 94536
IDENTIFICATION NO.: TAXPAYER: ###-##-#### SPOUSE: ###-##-####
TAXABLE YEAR: 1995
2. The property with respect to which the election is made is described as
follows:
75,000 shares of the Common Stock (the "Shares"), no par value, of Pilot
Network Services, Inc., a California corporation.
3. The date on which the property was transferred is: _____________, 1995
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of Pilot Network Services, Inc. upon
termination of taxpayer's employment, consulting, officer or director
relationship prior to vesting.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $13,500
6. The amount (if any) paid for such property: $13,500
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- --------------------------------------------
_______________________________________
Dated: _________, 1995 Taxpayer (M. Marketta Silvera)
The undersigned spouse of taxpayer
joins in this election.
Dated: _________, 1995 _______________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.20
PILOT NETWORK SERVICES, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is made as of June
15, 1996, by and between Pilot Network Services, Inc., a California corporation
(the "Company"), and M. Marketta Silvera ("Purchaser") pursuant to the Company's
1994 Restricted Stock Purchase Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Closing Date the Company will issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, 30,000 shares of the Company's Common Stock
(the "Shares") at a purchase price of $0.40 per Share for a total purchase price
of $12,000. The term "Shares" refers to the purchased Shares and all securities
received in replacement of Shares or as stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Closing; Security Interest.
--------------------------
(a) The closing of the purchase and sale of the Shares under this
Agreement (the "Closing") shall be held at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as they agree (the "Closing Date").
(b) At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by him or her (which shall
be issued in Purchaser's name) against payment of the purchase price therefor.
The purchase price for the Shares shall be paid to the Company by delivery to
the Company of Purchaser's full recourse promissory note (the "Note") for the
balance of the purchase price, if any, in the form attached to this Agreement as
EXHIBIT A.
- ---------
(c) With respect to the Note, the parties agree to the following:
(1) The Note shall become payable in full upon the earlier of;
(i) four years from the date of purchase, or (ii) the voluntary or involuntary
termination or cessation of Purchaser's services rendered to Company or
subsequent employment of Purchaser with the Company, for any reason, with or
without cause (including death or disability).
(2) Purchaser shall deliver to the Secretary of the Company, or
his or her designee (hereinafter referred to as the "Pledge Holder"), all
certificates representing the Shares, together with (i) an Assignment Separate
from Certificate in the form attached to this Agreement as EXHIBIT B executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, for
use in transferring all or a portion of said Shares to the Company if, as and
<PAGE>
when required under this Section 2(c) or under any other provision of this
Agreement including, without limitation, Section 3. In addition, Purchaser's
spouse, if any, shall execute and deliver to the Company the Consent of Spouse
attached to this Agreement as EXHIBIT C.
---------
(3) As security for the payment of the Note and any renewal,
extension or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "Collateral").
In the event that Purchaser prepays all or a portion of the Note,
in accordance with the provisions thereof, Purchaser intends, unless written
notice to the contrary is delivered to the Pledge Holder, that the Shares
represented by the portion of the Note so repaid, including annual interest
thereon, shall continue to be so held by the Pledge Holder, to serve as
independent collateral for the outstanding portion of the Note for the purpose
of commencing the holding period set forth in Rule 144(d) promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(4) In the event of any foreclosure of the security interest,
the Company may sell the Shares at a private sale or may repurchase the Shares
itself. The parties agree that, prior to the establishment of a public market
for the Shares of the Company, the securities laws affecting sale of the Shares
make a public sale of the Shares commercially unreasonable. The parties further
agree that the repurchasing of such Shares by the Company, or by any person to
whom the Company may have assigned its rights under this Agreement is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(5) In the event of default in payment when due of any
indebtedness under Purchaser's Note, the Company may elect then, or at any time
thereafter, to exercise all rights available to a Secured Party under the
California Commercial Code including the right to sell the Collateral at a
private or public sale or repurchase the Shares as provided above. The proceeds
of any sale shall be applied in the following order:
(i) To the extent necessary, proceeds shall be used
to pay all reasonable expenses of the Company in
enforcing this Agreement, including, without
limitation, reasonable attorney's fees and legal
expenses incurred by the Company.
(ii) To the extent necessary, proceeds shall be used
to satisfy any remaining indebtedness under
Purchaser's Note.
(iii) Any remaining proceeds shall be delivered to
Purchaser.
-2-
<PAGE>
(6) Upon full payment by Purchaser of all amounts due on the
Note, Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
that Pledge Holder shall nevertheless retain said Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to
restrictions under Section 3 of this Agreement.
3. Limitations on Transfer.
-----------------------
In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any interest
in the Shares while the Shares are subject to the Company's repurchase option,
except as provided in Section 3(h) below. After any Shares have been released
from such repurchase option, Purchaser shall not assign, encumber or dispose of
any interest in such Shares except in compliance with Sections 3(b) and 3(c)
below and applicable securities laws:
(a) Repurchase Option. In the event Purchaser ceases to be "employed
-----------------
by the Company" (as defined herein) for any reason, with or without cause
(including death, disability or voluntary resignation), the Company shall, upon
the date of such termination, have an irrevocable, exclusive option for a period
of 90 days from such termination date to repurchase all or any portion of the
Shares held by Purchaser as of such date which have not yet been released from
the Company's repurchase option at the original purchase price per Share
specified in Section 1. For purposes of this Agreement, Purchaser will be
considered to be "employed by the Company" if the Board of Directors of the
Company determines that Purchaser is rendering substantial services as an
officer, employee, consultant or independent contractor to the Company. In case
of any dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company and the effective date on which Purchaser's
employment terminated. The option shall be exercised by the Company by written
notice to Purchaser or his executor and, at the Company's option, (i) by
delivery to the Purchaser or his executor with such notice of a check in the
amount of the purchase price for the Shares being purchased, or (ii) in the
event the Purchaser is indebted to the Company, by cancellation by the Company
of an amount of such indebtedness equal to the purchase price for the Shares
being repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
One hundred percent (100%) of the Shares purchased by Purchaser shall
initially be subject to the Company's repurchase option as set forth above.
Thereafter, the Shares held by Purchaser shall be released from the Company's
repurchase option under this Section 3(a) as follows (provided in each case that
Purchaser's employment has not been terminated prior to the date of any such
release): 1/4th of the total number of Shares shall be released from the
repurchase option on the first anniversary of the Vesting Commencement Date (as
set forth on the
-3-
<PAGE>
signature page of this Agreement), and 1/48th of the Shares originally purchased
shall be released from the repurchase option each month thereafter on the
Monthly Vesting Date (as set forth on the signature page of this Agreement),
until all Shares are released from the repurchase option. Fractional shares
shall be rounded to the nearest whole share.
(b) Right of First Refusal. In the event, at any time after the date
----------------------
of this Agreement, the Purchaser or his transferee desires to sell or transfer
in any manner the Shares as to which the option provided in Section 3(a) above
is not applicable or has not been exercised, he shall first offer such Shares
for sale to the Company at the same price, and upon the same terms (or terms as
similar as reasonably possible) upon which he is proposing or is to dispose of
said Shares. Said right of first refusal shall be provided to the Company for a
period of thirty (30) days following receipt by the Company of written notice by
the Purchaser of the terms and conditions of said proposed sale or transfer and
the name, address and phone number of each proposed buyer or transferee. If the
Company desires to exercise such right of first refusal as to all but not less
than all of the Shares proposed to be transferred, it shall notify Purchaser in
writing within such thirty day period. In the event the Shares are not disposed
of on such terms within thirty (30) days following lapse of the period of the
right of first refusal provided to the Company, or if the Purchaser proposes to
change the price or other terms to make them more favorable to the buyer, they
shall once again be subject to the right of first refusal herein provided.
(c) Involuntary Transfer. In the event, at any time after the date of
--------------------
this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or divorce) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the fair market value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by the person acquiring the
Shares.
(d) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(c), the price per Share shall be a price set
by the Board of Directors of the Company that will reflect the current value of
the stock in terms of present earnings and future prospects of the Company. The
Company shall notify Purchaser or his or her executor of the price so determined
within thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of Shares. The decision of the Board of Directors as to the
purchase price shall be final.
(e) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(f) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase or other rights
-4-
<PAGE>
under Section 3. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(g) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate at such time as a public market exists for the Company's capital stock
(or any other stock issued to purchasers in exchange for the Shares purchased
under this Agreement). For the purpose of this Agreement, a "Public Market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices are published
daily on business days in a recognized financial journal.
Upon termination of the right of first refusal imposed by this
Agreement and the expiration or exercise of the Company's repurchase option
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(b) herein and delivered to Purchaser.
(h) Exempt Transfers. The restrictions on transfer of this Section 3
----------------
shall not apply to a transfer to Purchaser's ancestors or descendants or spouse
or to a trustee for their benefit, provided that such transferee shall agree in
writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
4. Escrow. For purposes of facilitating the enforcement of the provisions
------
of Section 3 above, Purchaser agrees, immediately upon receipt of the
certificate(s) for his Shares, to deliver such certificate(s), together with an
Assignment Separate from Certificate in the form attached to this Agreement as
EXHIBIT B executed by Purchaser and by Purchaser's spouse (if required for
- ---------
transfer), in blank, to the Secretary of the Company, or his designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms hereof. Purchaser hereby acknowledges that the
Secretary of the Company, or his or her designee, is so appointed as the escrow
holder with the foregoing authorities as a material inducement to make this
Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party) for any actions or omissions
unless such escrow holder is grossly negligent relative thereto. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time. Purchaser agrees
that if the Secretary of the Company, or his or her designee, resigns as escrow
holder for any or no reason, the Board of Directors of the Company shall have
the power to appoint a successor to serve as escrow holder pursuant to the terms
of this Agreement.
5. Investment Representations.
--------------------------
In connection with the purchase of the Shares, Purchaser represents to
the Company the following:
-5-
<PAGE>
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for in vestment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the securities exempt under Rule 701 may be
resold by the Purchaser ninety (90) days thereafter, subject to the satisfaction
of certain of the conditions specified by Rule 144, including, among other
things: (1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and (2) in the case of an
affiliate, the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
If the Company does not qualify under Rule 701 at the time of
purchase, then the securities may be resold by the Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than two years after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and (3) in the case of an affiliate, or of a non-affiliate who has held
the securities less than three years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable. PURCHASER UNDERSTANDS
THAT PAYMENT BY NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS IT
IS SECURED BY ASSETS OTHER THAN THE SHARES.
-6-
<PAGE>
(e) Purchaser further understands that at the time he or she wishes
to sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the securities
under Rule 144 or 701 even if the two-year minimum holding period had been
satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or 701 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
6. Legends.
-------
The certificate or certificates representing the Shares shall bear the
following legends (as well as any legends required by applicable state and
federal corporate and securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
Purchaser understands that transfer of the Shares may be restricted by
the blue sky laws of the State of California.
7. No Employment Rights.
--------------------
Nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment, for any reason, with or without cause.
8. Section 83(b) Election.
----------------------
-7-
<PAGE>
Purchaser understands that Section 83(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the repurchase option set forth in Section 3(a) of this Agreement. Purchaser
understands that Purchaser may elect to be taxed at the time the Shares are
purchased, rather than when and as the repurchase option expires, by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within 30 days from the date of purchase. Even if the fair market value of the
Shares at the time of the execution of this Agreement equals the amount paid for
the Shares, the election must be made to avoid tax treatment under Section 83(a)
in the future. The form for making Purchaser's election is attached to this
Agreement. Purchaser understands that his or her failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls.
9. Stand-off Agreement. In connection with the initial public offering of
-------------------
the Company's securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, Purchaser agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
year) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that Purchaser need
not so agree unless a majority of the Company's officers and directors and a
majority of the holders of at least 5% of the Company's outstanding securities
also agree to be similarly bound.
10. Miscellaneous.
-------------
(a) This Agreement may be amended by written agreement between the
Company and Purchaser.
(b) Any notice, demand or request required or permitted to be given
under this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telecopy or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to Purchaser, at Purchaser's address as shown on
the stock records of the Company.
(c) The rights and benefits of this Agreement shall inure to the
benefit of, and be enforceable by the Company's successors and assigns. The
rights and obligations of Purchaser under this Agreement may only be assigned
with the prior written consent of the Company.
(d) Both parties agree to execute any additional documents necessary
to carry out the purposes of this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
PILOT NETWORK SERVICES, INC.
By: /s/ M.Marketta Silvera
--------------------------
Title: President & CEO
-----------------------
PURCHASER:
M. Marketta Silvera
/s/ M. Marketta Silvera
-------------------------------
(Signature)
Address: 99 Tappan Lane
-------------------------------
Orinda
-------------------------------
California 94563
-------------------------------
Vesting Commencement
Date: April 1, 1996
Monthly Vesting
Date: April 1, 1997
-9-
<PAGE>
EXHIBIT A
---------
FULL RECOURSE
PROMISSORY NOTE
$12,000.00 Alameda, California
June 15, 1996
For value received, the undersigned ("Borrower") promises to pay to Pilot
Network Services, Inc., a California corporation (the "Company"), or its order,
at its principal office, the principal sum of $12,000.00 with interest from the
date hereof at a rate of 5.88% per annum, compounded annually, on the unpaid
balance of such principal sum. Such unpaid principal and interest shall be due
and payable on June 15, 2000.
Principal and interest are payable in lawful money of the United States of
America. Borrower may prepay interest and principal at any time with out
penalty.
Upon termination of the employment between the undersigned and the Company,
this Note shall be immediately due and payable.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Restricted Stock
Purchase Agreement between the undersigned and the Company of even date
herewith. Should suit be commenced to collect this Note or any portion thereof,
such sum as the court or arbitrator may deem reasonable shall be added hereto as
attorneys' fees. The makers and endorsers have severally waived presentment for
payment, protest, notice of protest, and notice of non-payment of this Note.
This Note shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions of the State of
California or of any other state.
/s/ M. Marketta Silvera
-------------------------
M. Marketta Silvera
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement between the undersigned ("Purchaser") and Pilot Network
Services, Inc., a California corporation, dated _________, 19__ (the
"Agreement"), Purchaser hereby sells, assigns and transfers unto _______________
________ (_______) shares of the Common Stock of Pilot Network Services, Inc.
standing in Purchaser's name on the books of said corporation represented by
Certificate No. ________ herewith and does hereby irrevocably constitute and
appoint ____________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: _____________, 19__
Signature:
/s/ M. Marketta Silvera
-----------------------------
M. Marketta Silvera
/s/ L. Ronald Silvera
-----------------------------
Purchaser's Spouse
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option and other rights set forth in the Agreement without requiring
additional signatures on the part of Purchaser.
<PAGE>
EXHIBIT C
---------
CONSENT OF SPOUSE
I, L. Ronald Silvera, spouse of M. Marketta Silvera, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
/s/ L. Ronald Silvera
------------------------------
(Signature)
<PAGE>
EXHIBIT 10.21
STOCK OPTION AGREEMENT
BETWEEN
PILOT NETWORK SERVICES, INC.
AND
WILLIAM C. LEETHAM
* * * * * * * * * *
THERE IS NOT CURRENTLY, AND THERE MAY NEVER BE, A PUBLIC TRADING MARKET (SUCH AS
THE NEW YORK STOCK EXCHANGE OR THE OVER-THE-COUNTER MARKET) FOR THE SHARES OF
COMMON STOCK THAT MAY BE ACQUIRED BY EXERCISING THIS OPTION. ESTABLISHING A
PUBLIC MARKET FOR THE COMMON STOCK DEPENDS UPON A NUMBER OF FACTORS. PILOT
NETWORK SERVICES, INC. IS NOT MAKING ANY COMMITMENT THAT A PUBLIC MARKET WILL BE
ESTABLISHED IN EITHER THE NEAR OR LONG TERM. THEREFORE, YOUR ABILITY TO SELL
THE COMMON STOCK MAY EFFECTIVELY NOT EXIST OR MAY BE LIMITED TO PRIVATELY
NEGOTIATED SALES, WHICH MAY IN TURN SIGNIFICANTLY LIMIT THE TIMES AND PRICES AT
WHICH YOUR STOCK MAY BE SOLD. ACCORDINGLY, IT IS POSSIBLE THAT YOU MAY LOSE ALL
OR A PORTION OF YOUR INVESTMENT IN THESE SHARES.
THE OPTION GRANTED PURSUANT TO THIS STOCK OPTION AGREEMENT AND THE SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE OPTION OR THE SHARES UNDER THE
SECURITIES ACT, OR AN OPINION OF COUNSEL, WHICH IS SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS OPTION AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
* * * * * * * * * *
<PAGE>
You have been granted an option under the Pilot Network Services, Inc. (the
"Company") 1994 Stock Plan (the "Plan"). This Agreement describes your option.
Number of Shares Your option is for 75,000 shares (the "Shares") of
Common Stock of the Company.
Exercise Price You may purchase your Shares for $12.00 per share
(the "Exercise Price"), which was the fair market
value of the Company's Common Stock on May 20, 1998
(the "Grant Date"), as determined by the Company's
Board of Directors.
Type of Option You have an incentive stock option ("ISO") for
41,144 shares and a nonstatutory stock option for
33,856 shares, based upon current tax law.
Note: ISO's receive preferential treatment under
U.S. tax laws.
Vesting Commencement Date The Vesting Commencement Date of your option is May
20, 1998.
Exercise of Option Vesting Schedule. Your right to exercise this
----------------
option vests over a four-year period as follows:
(i) 8,500 Shares shall be immediately exercisable
(subject to the condition set forth below) and
shall vest on the first anniversary of the Vesting
Commencement Date (the "Early Exercise Shares");
(ii) 10,250 Shares shall become exercisable and
vest on the first anniversary of the Vesting
Commencement Date and (iii) 1/48th of the total
Shares subject to the option shall become
exercisable and vest each month thereafter until
all Shares are fully vested, subject to certain
exceptions set forth under "Termination of Vesting"
below. Fractional shares shall be rounded to the
nearest whole share. To the extent the Early
Exercise Shares are exercised prior to the first
anniversary of the Vesting Commencement Date and as
a condition to such exercise, you must exercise the
Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A.
---------
-2-
<PAGE>
Termination of Vesting. No additional Shares become
----------------------
exercisable after your employment with the Company
or any of its Subsidiaries (as defined under the
Plan) has terminated for any reason; provided,
however, that, notwithstanding the foregoing and
the Vesting Schedule set forth above, if you are a
full time employee of the Company or any of its
Subsidiaries, and if the Company consummates an
Acquisition (as defined below), and after the
Acquisition your employment is terminated without
Cause (as defined below) within twelve (12) months
of the Acquisition; then fifty percent (50%) of the
unvested portion of this option shall immediately
become fully vested and exerciseable.
As used herein, "Acquisition" shall mean any
consolidation or merger of the Company with or into
any other corporation or other entity or person, or
any other corporate reorganization in which the
shareholders of the Company prior to such
consolidation, merger or reorganization shall own
less than fifty percent (50%) of the voting stock
of the continuing or surviving entity of such
consolidation, merger or reorganization.
As used herein, "Cause" shall mean misconduct,
including: (i) conviction of any felony or any
crime involving moral turpitude or dishonesty; (ii)
participation in a fraud or act of dishonesty
against the Company; (iii) willful and material
breach of the Company's policies; (iv) intentional
and material damage to the Company's property; (v)
material breach of your Proprietary Information and
Inventions Agreement; or (vi) death, severe
physical or mental disability.
Leave of Absence. During a leave of absence from
----------------
the Company, no Shares shall become exercisable.
Restrictions. The exercise of your rights to
------------
purchase any Shares is conditioned upon compliance
with the Securities Act of 1933, as amended (the
"Securities Act"), all applicable state securities
laws and all applicable requirements of any stock
exchange or over the counter market on which the
Company's Common Stock may be listed or traded at
the time of exercise.
Term Your option will expire on May 20, 2008 or earlier
if your employment with the Company, or any of its
Subsidiaries, is terminated as explained below.
-3-
<PAGE>
Termination of Employment Regular. If your employment with the Company or any
-------
of its Subsidiaries ends for any reason (other than
death or permanent disability), your option will
expire on the 30th day after your termination date.
Death. If you die while an employee of the Company
-----
or any of its Subsidiaries, then your option will
expire twelve (12) months after the date of death.
Subject to the Company's Right of First Refusal (as
defined below), during that twelve (12) month
period, your estate, designated beneficiary (or
beneficiaries) or heirs may exercise the
unexercised vested portion of your option.
Disability. If your employment with the Company or
----------
any of its Subsidiaries ends because of your
permanent disability, then your option will expire
six (6) months after your termination date.
Leaves of Absence. For purposes of this option,
-----------------
your employment does not end if you go on a leave
of absence approved by the Company's Chief
Executive Officer in advance.
Restrictions on Resale Compliance with Securities Laws. The Shares have
-------------------------------
not been registered under the Securities Act and
therefore cannot be resold and must be held
indefinitely unless they are registered under the
Securities Act or unless an exemption from such
registration is available. The certificate(s)
representing the Shares may bear a legend to that
effect. The Company is under no obligation to
register the Shares and an exemption may not be
available or may not permit you to transfer Shares
in the amounts or at the times proposed by you. In
the event the Shares are not registered under the
Securities Act but an exemption is available which
requires an investment representation or other
representation, you agree that at the time of
exercise the Shares being acquired upon exercising
this option are being acquired for investment, and
not with a view to the sale or distribution
thereof, and you agree to make such other
representations as are deemed necessary or
appropriate by the Company and its counsel.
Rule 144 promulgated under the Securities Act
permits certain resales of unregistered securities,
however, it is not presently available with respect
to the Shares and, in any event requires that the
Shares be paid for and then held for the holding
period required under Rule 144.
-4-
<PAGE>
In addition, the Shares cannot be resold unless the
transfer is in compliance with all applicable state
securities laws and all applicable requirements of
any stock exchange or over the counter market on
which the Company's Common Stock may be listed or
traded at the time of transfer.
Market Standoff Agreement. In connection with the
-------------------------
initial public offering of the Company's securities
and upon request of the Company or the underwriters
managing any underwritten offering of the Company's
securities, you agree not to sell, make any short
sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Shares (other than
those included in the registration) without the
prior written consent of the Company or such
underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective
date of such registration as may be requested by
the Company or such managing underwriters.
Company Restrictions. Regardless of whether the
--------------------
offering and sale of shares under the Plan have
been registered under the Securities Act or have
been registered or qualified under the securities
laws of any state, the Company may impose
restrictions upon the sale, pledge or other
transfer of such shares (including the placement of
appropriate legends on stock certificates) if, in
the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to
achieve compliance with the Securities Act, the
securities laws of any state or other law or with
restrictions imposed by the Company's underwriters.
Company's Right of First Before any Shares held by you or any transferee
Refusal (referred to herein as the "Holder") may be sold or
otherwise transferred (including transfer by gift
or operation of law), the Company or its
assignee(s) shall have a right of first refusal to
purchase the shares on the terms and conditions set
forth herein (the "Right of First Refusal").
-5-
<PAGE>
Notice of Proposed Transfer. The Holder of the
---------------------------
Shares will deliver to the Company a written notice
(the "Notice") stating: (i) the Holder's bona fide
intention to sell or otherwise transfer such
Shares; (ii) the name of each proposed purchaser or
other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or
other consideration for which the Holder proposes
to transfer the Shares (the "Offered Price"). The
Holder will offer the Shares at the Offered Price
to the Company or its assignee(s).
Exercise of Right of First Refusal. At any time
----------------------------------
within thirty (30) days after receipt of the
Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to
purchase all or a portion of the Shares proposed to
be transferred to any of the Proposed Transferees.
The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s)
pursuant to the Right of First Refusal shall be the
Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent
value of the non-cash consideration shall be
determined by the Board of Directors of the Company
in good faith. Payment of the Purchase Price will
be made, at the option of the Company or its
assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of
the Holder to the Company (or to the assignee, if
applicable), or by any combination thereof within
thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the
Notice.
Holder's Right to Transfer. If the Shares proposed
--------------------------
in the Notice to be transferred are not purchased
by the Company and/or its assignee(s), then the
Holder may sell or otherwise transfer such Shares
to the Proposed Transferee(s) at the Offered Price
or at a higher price, provided that such sale or
other transfer is consummated within ninety (90)
days after the date of the Notice and provided
further that the Proposed Transferee agrees in
writing that the provisions of this Agreement shall
continue to apply to the Shares in the hands of
such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed
Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First
Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
-6-
<PAGE>
Termination of Right of First Refusal. The Right of
-------------------------------------
First Refusal shall terminate as to any Shares
after the first sale of Common Stock of the Company
to the general public pursuant to a registration
statement filed with and declared effective by the
Securities and Exchange Commission under the
Securities Act.
Legends All certificates evidencing Shares acquired under
this Agreement in an unregistered transaction shall
bear the following restrictive legend (and such
other restrictive legends as are required or deemed
advisable under the provisions of any applicable
law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES."
If, in the opinion of the Company and its counsel,
any legend placed on a stock certificate
representing Shares sold under this Agreement is no
longer required, you shall be entitled to exchange
such certificate for a certificate representing the
same number of shares but lacking such legend. Any
determination by the Company and its counsel with
respect to legends shall be conclusive and binding
on you.
-7-
<PAGE>
Exercise of Option Notice of Exercise. When you wish to exercise this
------------------
option, you must notify the Company by completing
the Exercise Notice attached hereto as Exhibit B
---------
and mailing the completed notice to the Company at
the following address:
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, California 94501
Attn: Chief Executive Officer
Your notice must specify how many shares you wish
to purchase. The notice will be effective when it
is received by the Company's Chief Executive
Officer.
Form of Payment. When you submit your notice of
---------------
exercise, you must include payment of the Exercise
Price for the Shares you are purchasing. Payment
may be made in one (or a combination) of the
following forms:
- Your personal check, a cashier's check, or a
money order;
- Irrevocable directions to a securities
broker approved by the Company to sell your
Shares and to deliver all or a portion of
the sale proceeds to the Company in payment
of the option price. (The balance of the
sales proceeds, if any, will be delivered to
you.) This form of payment will be
acceptable only when shares of the Company's
Common Stock are registered for sale on an
established stock exchange or a national
market system, including the National Market
System of the National Association of
Securities Dealers, Inc. Automated Quotation
("NASDAQ") System. The directions must be
given by signing a form provided by the
Company.
- Any other form of payment approved by the
Company's Board of Directors.
-8-
<PAGE>
Tax Consequences Set forth below is a brief summary as of the date
of this option of some of the federal and
California tax consequences of exercise of this
option and disposition of the Shares. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
Exercise of ISO. If this option is an ISO, there
---------------
will be no regular federal income tax liability or
California income tax liability upon the exercise
of the option, although the excess, if any, of the
fair market value of the Shares on the date of
exercise over the Exercise Price will be treated as
an adjustment to alternative minimum taxable income
and therefore may subject you to the alternative
minimum tax in the year of exercise.
Exercise of NSO. If this option is not an ISO, you
---------------
will have regular federal and California income tax
liability upon the exercise of the option. You will
be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise
Price. If you are an employee, the Company will be
required to withhold from your compensation or
collect from you and pay to the applicable taxing
authorities an amount equal to a percentage of this
compensation income at the time of exercise.
-9-
<PAGE>
Disposition of Shares. In the case of an NSO, if
---------------------
Shares are held for at least one year after the
exercise date, gain or loss realized on disposition
of the Shares will be treated as long-term capital
gain or loss for federal and California income tax
purposes. In the case of an ISO, if Shares
transferred pursuant to the option are held for at
least one year after exercise and are disposed of
at least two years after the Grant Date, any gain
realized on disposition of the Shares will also be
treated as long-term capital gain for federal and
California income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year
period or within two years after the Grant Date,
any gain realized on such disposition will be
treated as compensation income (taxable at ordinary
income rates) to the extent of the difference
between the Exercise Price and the lesser of (1)
the fair market value of the Shares on the date of
exercise, or (2) the sale price of the Shares. The
remaining gain, if any, will be capital gain, and
will be long-term capital gain if the Shares are
disposed of more than one year after the exercise
date.
Notice of Disqualifying Disposition of ISO Shares.
-------------------------------------------------
If the option granted to you herein is an ISO, and
if you sell or otherwise dispose of any of the
Shares acquired pursuant to the ISO on or before
the later of (1) the date two years after the Grant
Date, or (2) the date one year after the date of
exercise, you shall immediately notify the Company
in writing of such disposition. You may be subject
to income tax withholding by the Company on the
compensation income recognized by you from the
early disposition by payment in cash or out of the
current earnings paid to you.
Transfer of Option Prior to your death, only you may exercise this
option, and you cannot transfer or assign this
option. However, you may dispose of this option in
your will or by specifically designating a
beneficiary (or beneficiaries) on the form provided
by the Company.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your former spouse, nor is
the Company obligated to recognize your former
spouse's interest in your option in any other way.
-10-
<PAGE>
Employee Rights Your option or this Agreement does not give you the
right to be retained as an employee by the Company
or its Subsidiaries. The Company and its
Subsidiaries reserve the right to terminate your
employment at any time, with or without cause.
Stockholder Rights You, or your estate or heirs, have no rights as a
stockholder of the Company until a certificate for
your Shares has been issued. Except as described in
the Plan, no adjustments are made for dividends or
other rights if the applicable record date occurs
before your stock certificate is issued.
Cancellation and Regrant The Company may at any time cancel this option
without your consent, if at the same time the
Company grants you a new option with a lower option
price for the number of shares remaining under this
option.
Miscellaneous Other Agreements. The text of the Plan is
----------------
incorporated in this Agreement by reference. This
Agreement and the Plan constitute the entire
understanding between you and the Company regarding
this option. Any prior agreements, commitments or
negotiations concerning this option are superseded.
Successors and Assigns. The Company may assign any
----------------------
of its rights under this Agreement to single or
multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer
herein set forth, this Agreement shall be binding
upon you and your heirs, executors, administrators,
successors and assigns.
Notices. Any notice required or permitted hereunder
-------
shall be given in writing and shall be deemed
effectively given upon personal delivery or upon
deposit in the United States mail by certified
mail, with postage and fees prepaid, addressed to
the other party at its address as shown below
beneath its signature, or to such other address as
such party may designate in writing from time to
time to the other party.
Applicable Law. This Agreement will be interpreted
--------------
and enforced under the laws of the State of
California.
-11-
<PAGE>
You acknowledge receipt of a copy of the Plan and represent that you are
familiar with the terms and provisions thereof, and hereby accepts this option
subject to all of the terms and provisions thereof. You have reviewed the Plan
and this option in their entirety, have had an opportunity to obtain the advice
of counsel prior to executing this option and fully understands all provisions
of the option. You hereby agree to accept as binding, conclusive and final all
decisions or interpretations of the Company upon any questions arising under the
Plan or this option.
PILOT NETWORK SERVICES, INC.
By: /s/ M. Marketta Silvera
-----------------------------------------
Its: CEO
-----------------------------------------
Address: 1080 Marina Village Parkway
Alameda, California 94501
OPTIONEE
By: /s/ William C. Leetham
-----------------------------------------
William C. Leetham
Address:
------------------------------------
--------------------------------------------
--------------------------------------------
-12-
<PAGE>
EXHIBIT A
---------
PILOT NETWORK SERVICES, INC.
1994 STOCK PLAN
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ________________, by and between
---------
Pilot Network Services, Inc., a California corporation (the "Company"), and
-------
William C. Leetham ("Purchaser"). To the extent any capitalized terms used in
---------
this Agreement are not defined, they shall have the meaning ascribed to them in
the 1994 Stock Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1994 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
May 20, 1998 (the "Option Agreement"). Of these Shares Purchaser has elected to
----------------
purchase, _____________ Shares have become vested as of the date hereof under
the Vesting Schedule set forth in the Option Agreement and _____________ Shares
have not yet vested under such Vesting Schedule (the "Unvested Shares"). The
---------------
purchase price for the Shares shall be $12.00 per Share for a total purchase
price of $_______________. The term "Shares" refers to the purchased Shares and
------
all securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the terms
of the Option Agreement. On such date, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser's name) against payment of the purchase price therefor by
Purchaser by such method(s) permissable under the Option Agreement.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination
<PAGE>
(the "Termination Date") have an irrevocable, exclusive option (the
----------------
"Repurchase Option") for a period of 60 days from such date to repurchase all
-----------------
or any portion of the Unvested Shares held by Purchaser as of the Termination
Date which have not yet been released from the Company's Repurchase Option at
the original purchase price per Share specified in Section 1 (adjusted for any
stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option on the first anniversary of the Vesting
Commencement Date set forth in the Option Agreement.
(b) RIGHT OF FIRST REFUSAL. The Shares shall remain subject to the
----------------------
terms of the Company's Right of First Refusal set forth in the Option Agreement
(the "Right of First Refusal").
----------------------
(c) MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed
------------
by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to
the Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all
-2-
<PAGE>
such transfers and/or releases as are in accordance with the terms of this
Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or
the Secretary's designee, is so appointed as the escrow holder with the
foregoing authorities as a material inducement to make this Agreement and that
said appointment is coupled with an interest and is accordingly irrevocable.
Purchaser agrees that said escrow holder shall not be liable to any party
hereof (or to any other party). The escrow holder may rely upon any letter,
notice or other document executed by any signature purported to be genuine and
may resign at any time. Purchaser agrees that if the Secretary of the Company,
or the Secretary's designee, resigns as escrow holder for any or no reason,
the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
-3-
<PAGE>
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a)(ii): (i) the termination of the Right of
First Refusal; (ii) the expiration or termination of the market standoff
provisions of Section 3(g) (and of any agreement entered pursuant to Section
3(g)); and (iii) the expiration or exercise in full of the Repurchase Option.
After such time, and upon Purchaser's request, a new certificate or certificates
representing the Shares not repurchased shall be issued without the legend
referred to in Section 6(a)(ii), and delivered to Purchaser.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a Nonstatutory
-4-
<PAGE>
Stock Option and as alternative minimum taxable income for an Incentive Stock
Option the difference between the amount paid for the Shares and the
Fair Market Value of the Shares as of the date any restrictions on the Shares
lapse. In this context, "restriction" means the right of the Company to buy
-----------
back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of
this Agreement. Purchaser understands that Purchaser may elect to be taxed at
the time the Shares are purchased, rather than when and as the Repurchase
Option expires, by filing an election under Section 83(b) (an "83(b)
-----
Election") of the Code with the Internal Revenue Service within 30 days from
- --------
the date of purchase. Even if the Fair Market Value of the Shares at the time
of the execution of this Agreement equals the amount paid for the Shares, the
election must be made to avoid income and alternative minimum tax treatment
under Section 83(a) in the future. Purchaser understands that failure to file
such an election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for
the calendar year in which the date of this Agreement falls. Purchaser
acknowledges that the foregoing is only a summary of the effect of United
States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding
the applicable provisions of the Code, the income tax laws of any
municipality, state or foreign country in which Purchaser may reside, and the
tax consequences of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto
--------------
as Attachment B. Purchaser further agrees that he or she will execute and
------------
submit with the Acknowledgment a copy of the 83(b) Election attached hereto as
Attachment C (for income tax purposes in connection with the early exercise of a
- ------------
Nonstatutory Stock Option) or Attachment D (for alternative minimum tax purposes
------------
in connection with the early exercise of an incentive stock option) if Purchaser
has indicated in the Acknowledgment his or her decision to make such an
election.
9. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
-5-
<PAGE>
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
PILOT NETWORK SERVICES, INC.
By:
__________________________________________
Name:
______________________________________
(print)
Title:
______________________________________
Address: 1080 Marina Village Parkway
Alameda, California 94501
PURCHASER:
WILLIAM C. LEETHAM
_______________________________________
(Signature)
_______________________________________
(Print Name)
Address: _____________________________
_______________________________________
_______________________________________
I, ______________________, spouse of William C. Leetham, have read and hereby
approve the foregoing agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be bound irrevocably by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall
hereby be similarly bound by the Agreement. I hereby appoint my spouse as my
attorney-in-fact with respect to any amendment or exercise of any rights under
the Agreement.
--------------------------------------------
Spouse of William C. Leetham
-7-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and Pilot Network Services, Inc. (the "Company") dated May 20, 1998 (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
--------------------------------------------
William C. Leetham
--------------------------------------------
Spouse of William C. Leetham (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of Pilot Network Services, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1994 Stock Plan (the "Plan"), hereby states as
----
follows:
1. The undersigned acknowledges receipt of a copy of the Plan
relating to the offering of such shares. The undersigned has carefully reviewed
the Plan and the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, _____________________________________, whose
business address is ______________________________, regarding
the federal, state and local tax consequences of purchasing
shares under the Plan, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
----
pursuant to the corresponding provisions, if any, of applicable
state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided
[check as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and
is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Restricted Stock Purchase
Agreement, an executed form entitled "Election Under Section
83(b) of the Internal Revenue Code of 1986;"
(b) ____ to make an election pursuant to Section 83(b) of the Code, and
is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Restricted Stock Purchase
Agreement, an executed form entitled "Election Under Section
83(b) of the Internal Revenue Code of 1986 for purposes of the
Alternative Minimum Tax"; or
(c) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the Company
has made any warranty or representation to the undersigned with respect to the
tax consequences of the undersigned's purchase of shares under the Plan or of
the making or failure to make an election pursuant to Section 83(b) of the Code
or the corresponding provisions, if any, of applicable state law.
Date:_______________________ -------------------------------
William C. Leetham
Date:_______________________ -------------------------------
Spouse of William C. Leetham
-2-
<PAGE>
ATTACHMENT C
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: William C. Leetham
NAME OF SPOUSE: ________________
ADDRESS: _______________________________________
_______________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock, no par value per share, of Pilot
Network Services, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________ -------------------------------------
William C. Leetham
Dated: ____________ -------------------------------------
Spouse of William C. Leetham
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
FOR PURPOSES OF THE ALTERNATIVE MINIMUM TAX
-------------------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Internal Revenue Code Section, to include in his or her alternative minimum
taxable income for the current taxable year, as compensation for services, the
excess, if any, of the Fair Market Value of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: William C. Leetham
NAME OF SPOUSE: ________________
ADDRESS: __________________________________________
__________________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
________________ shares of the Common Stock, no par value per share, of
Pilot Network Services, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_______________.
6. The amount (if any) paid for such property: $_______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________ ---------------------------------------
William C. Leetham
Dated: ____________ ---------------------------------------
Spouse of William C. Leetham
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for ________ shares of Common Stock of Pilot Network Services, Inc.
(the "Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Early Exercise
Notice and Restricted Stock Purchase Agreement Purchaser has previously entered
into with the Company. As escrow holder, the Secretary of the Company, or his
or her designee, holds the original of the aforementioned certificate issued in
the undersigned's name.
Dated: _______________
----------------------------------
William C. Leetham
<PAGE>
EXHIBIT B
----------
1994 STOCK PLAN
EXERCISE NOTICE
Pilot Network Services, Inc.
1080 Marina Village Parkway
Alameda, CA 94501
Attention: Chief Executive Officer
1. Exercise of Option. Effective as of ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to
----------
purchase _________ shares of the Common Stock (the "Shares") of Pilot Network
------
Services, Inc., a California corporation (the "Company") pursuant to the
-------
Company's 1994 Stock Plan, as amended (the "Plan") and the Stock Option
----
Agreement dated _________________ (the "Option Agreement"). The purchase price
----------------
for the Shares shall be $__________ per Share for a total purchase price of
$__________. Optionee has received, read and understood the Plan and the
Option Agreement and understands that Optionee is bound by their terms and
conditions, including without limitation, the Company's Right of First Refusal
and Market Standoff Agreement set forth in the Option Agreement.
2. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Optionee is
purchasing these Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). Optionee understands that the Shares have not been registered under the
Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Optionee's investment
intent as expressed herein.
(b) Optionee further acknowledges and understands that the Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Optionee
further acknowledges and understands that the Company is under no obligation to
register the Shares. Optionee understands that the certificate(s) evidencing
the Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(c) Optionee is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
securities,
<PAGE>
such issuance will be exempt from registration under the Securities Act. In
the event the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the securities exempt
under Rule 701 may be resold by the Optionee ninety (90) days thereafter,
subject to the satisfaction of certain of the conditions specified by Rule
144, including, among other things: (1) the sale being made through a broker
in an unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, and the amount of securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), if applicable. Notwithstanding this paragraph (c), Optionee
acknowledges and agrees to the restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the time of
purchase, then the Shares may be resold by the Optionee in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than the required holding period under Rule
144, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three month period not exceeding the specified limitations
stated therein, if applicable.
(d) Optionee further understands that at the time he or she wishes to
sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Optionee would be precluded from selling the Shares under
Rule 144 or 701 even if the minimum holding period had been satisfied.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
(f) Optionee understands that Optionee may suffer adverse tax
consequences as a result of Optionee's purchase or disposition of the Shares.
Optionee represents that Optionee has consulted any tax consultants Optionee
deems advisable in connection with the purchase or disposition of the Shares and
that Optionee is not relying on the Company for any tax advice.
3. Rights as Shareholder. Until the stock certificate evidencing such Shares
---------------------
is issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Plan.
<PAGE>
4. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below in the Option Agreement or legends
substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be
required by state or federal securities laws, including, without limitation,
any legend required by the Commissioner of Corporations of the State of
California.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records. The Company shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any Optionee or other transferee to whom such Shares shall have
been so transferred.
5. Successors and Assigns. The Company may assign any of its rights under
----------------------
the Option Agreement or the Plan, and such rights benefit of the successors and
assigns of the Company. All transferees of Shares or any interest therein will
receive and hold such Shares or interest subject to the provisions of this
Notice, the Option Agreement and the Plan. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Notice, the Option
Agreement and the Plan are satisfied.
6. Entire Agreement. The Plan and the Option Agreement are incorporated
----------------
herein by reference. This Exercise Notice, the Plan and the Option Agreement
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and shall be governed by and continued in
accordance with California law except for that body of law pertaining to
conflict of laws.
7. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
-----------------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
<PAGE>
The Optionee has executed this Notice as of the date first set forth above.
OPTIONEE
----------------------------------------
Signature
----------------------------------------
Printed Name
I, ________________, spouse of Optionee, have read and hereby approve this
Notice, and the Option Agreement. In consideration of Company's granting my
spouse the right to purchase the Shares as set forth in the Option Agreement, I
hereby agree to be irrevocably bound by the Notice, the Option Agreement and the
Plan and further agree that any community property or other such interest shall
hereby be similarly bound. I hereby appoint my spouse as my attorney-in-fact
with respect to any amendment or exercise of any rights under such agreements.
----------------------------------------
Spouse of Optionee
<PAGE>
EXHIBIT 23.1
When the reincorporation of the Company in Delaware and stock split described
in Note 6 of the Notes to Financial Statements has been consummated, we will
be in position to render the following consent:
KPMG Peat Marwick, LLP
June 22, 1998
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pilot Network Services, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Oakland, California
June 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 3,081 1,447
<SECURITIES> 0 0
<RECEIVABLES> 726 1,067
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 154 414
<PP&E> 5,245 10,026
<DEPRECIATION> 1,767 4,032
<TOTAL-ASSETS> 7,439 8,922
<CURRENT-LIABILITIES> 3,291 5,749
<BONDS> 1,946 3,444
8,084 12,143
1 1
<COMMON> 2 2
<OTHER-SE> (5,885) (12,417)
<TOTAL-LIABILITY-AND-EQUITY> 7,439 8,922
<SALES> 6,300 11,317
<TOTAL-REVENUES> 6,300 11,317
<CGS> 4,181 9,825
<TOTAL-COSTS> 4,181 9,825
<OTHER-EXPENSES> 4,448 6,656
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (323) (471)
<INCOME-PRETAX> (2,652) (5,635)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,652) (5,635)
<EPS-PRIMARY> (1.58) (3.31)
<EPS-DILUTED> (1.58) (3.31)
</TABLE>
